HINDUSTAN PETROLEUM CORPORATION LTD vs COMMISSIONER OF CENTRAL EXCISE -MUMBAI-II

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
MUMBAI

REGIONAL BENCH - COURT NO. 1

Excise Miscellaneous No. 85429 of 2024

in
Excise Appeal No. 86912 of 2016

[Arising out of Order-in-Appeal No. CD/448/M-II/2016 dated 07.04.2016 passed by the
Commissioner of Central Excise (Appeals), Mumbai Zone-II, Mumbai.]


Hindustan Petroleum Corporation Limited …. Appellants
Refinery Division,
B.D. Patil Road, Mahul,
Mumbai – 400 074.

Versus

Commissioner of CGST & Central Excise .… Respondent
Navi Mumbai Commissionerate
16th Floor, Satra Plaza, Sector-19D
Palm Beach Road, Vashi,
Navi Mumbai,
Maharashtra – 400 705.

Appearance:
Ms. Manasi Patil, Advocate for the Appellants

Shri Xavier Mascarenhas, Authorized Representative for the Respondent


CORAM:

HON’BLE MR. AJAY SHARMA, MEMBER (JUDICIAL)

HON’BLE MR. M.M. PARTHIBAN, MEMBER (TECHNICAL)



FINAL ORDER NO. A/86075/2026

Date of Hearing: 04.08.2026
Date of Decision: 02.09.2026

Per: BENCH


This appeal has been filed by M/s. Hindustan Petroleum Corporation
Ltd., Mahul, Mumbai (herein after, referred to as “the appellants”, for short)
assailing the Order-in-Appeal No. CD/448/M-II/2016 dated 07.04.2016
(herein after, referred to as “the impugned order”) passed by the
Commissioner of Central Excise (Appeals), Mumbai Zone-II, Mumbai.

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2. Central Board of Indirect Taxes & Customs (CBIC), Ministry of Finance
have issued Notification No. 02/2017-Central Tax dated 19.06.2017, as
amended, for prescribing territorial jurisdiction of Principal Commissioners/
Commissioners of Central Goods and Service Tax & Central Excise for
various Commissionerates across the country in exercise of the powers
vested on them read with it under Sections 3 and 5 of the Central Goods
and Services Tax Act, 2017 read with Section 139 ibid . As per the said
notification dated 19.06.2017, each of the Commissionerate is provided
with specific jurisdiction, which inter alia contain particular Postal Index
(PIN) code numbers for the areas covered and tax payers falling under such
area, who are covered under the existing laws of Central Excise Act, 1944;
Finance Act, 1994. Therefore, considering the aforesaid legal provision and
that the appellant is presently functioning under the jurisdiction of the
Central Goods and Service Tax authorities, the revised name and address
of the respondent department has been suitably incorporated. The Registry
is also directed to incorporate the following changed name and address of
the respondent/appellant department in the appeal records for the purpose
of disposal of the appeal, as “Commissioner of Central Goods and Services
Tax & Central Excise, Navi Mumbai Commissionerate, 16th Floor, Satra
Plaza, Sector-19D, Palm Beach Road, Vashi, Navi Mumbai – 400 075.”.

3.1 Brief facts of the case, leading to this appeal, are summarized herein
below:

3.2 The appellants herein are engaged inter alia , in the manufacturer of
petroleum products by refining of crude petroleum and marketing of
various finished products viz., High-Speed Diesel (HSD), Motor Sprit (MS),
Superior Kerosene Oil (SKO), Aviation Turbine Fuel (ATF), Lube Oil etc. by
classifying the aforesaid products under Chapter 25, 27 of the First
Schedule to the Central Excise Tariff Act, 1985. The appellants are
registered taxpayers holding Central Excise Registration No.
AAACH1118BXM010 for manufacture of aforesaid excisable goods on
payment appropriate Central Excise duty and for compliance with Central
Excise statue.

3.3 The excisable goods viz., HSD, MS and SKO manufactured at Mahul
refinery are transported to their different depots situated at Vashi, Pakni,
Lone and Hazarwadi, where sales to retailers takes place. This is also
referred to as Pipeline Transfer (PLTs). The pipeline transfers of aforesaid
goods on payment of applicable duty and dispatch of such goods are made

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by the appellants in the form batch of shipments, following a sequential
product-to-product pumping method, whereby at any one point of time
only one product in the pipeline is pushed through. However, upon
completion of pumping of one product, say HSD or MS, the other product
i.e., SKO is introduced in the pipeline which pushes the other product
without any positive segregation. Therefore, the line connected of each
consignment of the products may comprise of a mixture of two products,
during the time of shifting from one product to another, which is known as
“interface” or “transmix” at the inter-junction of each batch of product.
Such interface/transmix/intermix products are taken into specific tanks at
the destination as per laid down safety norms and operational procedures
as prescribed under Industry Quality Control Manual (ICQM).

3.4 As a conventional practice, the appellants were using SKO as an
interface between MS and HSD, since intermixing MS and HSD or HSD and
MS will contaminate the entire product. The Department had interpreted
that the offsetting of gain observed in one product say MS/HSD against the
loss observed in another product say SKO, though the duty payable on the
industrial SKO is higher than the duty payable on SKO meant for Public
Distillation System (PDS), the duty payable on gain/surge shall be the duty
payable on MS/HSD. Accordingly, show cause proceedings were initiated
for recovery of differential Central Excise duty for the mixed part of SKO
and MS/HSD, as the case may be, quantified at higher values, and duty
was demanded for an amount of Rs.48,36,419/- (being the differential duty
between duty payable on SKO interfaced/intermingled with MS & HSD at
Rs.2,64,36,514/- and duty paid on SKO at Rs. 2,16,00,095/-) for the period
February, 2014 to March, 2014 along with interest under Section
11A(4)/11A(1) of the Central Excise Act, 1944 by invoking the extended
period of time and for imposition of consequent penalty under section 11AC
ibid read with Rule 25 of the Central Excise Rules, 2002 vide Show Cause
Notice (SCN) dated 03.03.2015.

3.5 In adjudication of the said SCN dated 03.03.2015, learned Additional
Commissioner of Central Excise, upon examination of the various issues
had confirmed the duty demands raised in the SCN, besides imposing
penalty for equal amount of duty demanded under Section 11AC ibid read
with Rule 25 ibid vide order dated 20.10.2015 on the grounds of
suppression of facts and contravention of Central Excise Rules, 2002. Being
aggrieved with the said order of original authority, the appellants have filed

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an appeal before the Commissioner (Appeals), who vide impugned order
dated 07.04.2016 has upheld the order of original authority and rejected
their appeals. Feeling aggrieved with the impugned order, the appellants
had preferred this appeal before the Tribunal.

4.1 Learned Advocate appearing for the appellants had submitted that the
activity of mixing of SKO with MS or HSD is happening because of technical
necessity, and such activity does not amount to manufacture in terms of
Section 2(f) of the Central Excise Act, 1944 and hence the demand of duty
is not sustainable. Further, the appellants though cleared the SKO for the
purpose of PDS availing the duty exemption benefit, for the quantum of
inter mixed product SKO, they have been discharging the appropriate duty
at the rate applicable for clearance of industrial SKO. Therefore, she
submitted that demand of duty on such inter mixed SKO, as though such
products are MS/HSD is not legally sustainable in view of the judgements
of the Hon’ble Supreme Court in the case of Indian Oil Corporation Ltd. Vs.
Commissioner of Central Excise & Service Tax, Guwahati 2019-TION-3843-
CESTAT-Kol., which was upheld by the Hon’ble Supreme Court in
judgement dated 14.09.2023 in Civil Appeal No.4743-4745 of 2022.

4.2 Further she stated that in the case of the appellants themselves, for
the earlier periods viz., (i) August, 2009-January, 2014; (ii) July, 2014 to
March, 2015; (iii) October, 2014 to March, 2015; (iv) April, 2015 to
September, 2015 on the very same identical issue, the SCNs issued on
similar grounds have been examined by the Co-ordinate Bench of the
Tribunal and the issue has been decided in their favour vide Final Orders
(i) No. A/86017/2025 dated 17.07.2025; (ii) No. A/86700/2025 dated
23.10.2025; (iii) No. A/86733/2025 dated 30.10.2025 and (iv) No. A/
86734/2025 dated 30.10.2025, respectively. Hence, she pleaded that the
impugned order is not legally sustainable and consequently no penalty is
imposable on the appellants.

5. Learned Special Counsel appearing for the Department, on the other
hand, reiterated the findings made in the impugned order and submitted
that the demands are sustainable in view of the CBEC Circular dated
22.04.2022. Therefore, he claimed that the impugned order is sustainable
and appeal filed by the appellants cannot be entertained.

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6. Heard both sides and perused the records of the case. We have also
examined the submissions advanced by learned Advocate appearing for the
appellant and the learned Authorized Representative of the Department.

7. The issue involved in this appeal is to examine whether the appellants
are liable to pay Central Excise duty on intermingled SKO with HSD/MS, at
the higher of the two duties i.e., duty payable on a SKO, not used for
intended purpose of PDS and duty payable on surge/gain in HSD/MS,
during the disputed of February, 2014 to March, 2014; and whether the
adjudged demands confirmed in the impugned order is legally sustainable.

8.1 Both sides agree that the issue arising out of the present dispute for
the earlier periods have already been decided favourably in the case of the
appellants vide Final Orders No. A/ 86017/2025 dated 17.07.2025; No.
A/86700/2025 dated 23.10.2025; No. A/86733/2025 dated 30.10.2025
and No. A/86734/2025 dated 30.10.2025. We note that in these orders,
the issue have been discussed thread bare including classification of the
intermix SKO and the differential duty liability as demanded by the
department and it has been held that the differential excise duty liability is
not legally sustainable.

8.2 We further find that the Co-ordinate Bench of the Tribunal in Kolkata
in the case of Indian Oil Corporation have also examined similar issue and
have concluded that the central excise duty demand on intermix products
of SKO is not sustainable. The relevant paragraph of the said Final order
No. A/76445-76447/2019 dated 08.08.2019 is extracted below:

“8. On careful reading of the above circular, we find that the Circular
suggests that even on clearance of SKO, the price of HSD/MS should be
applied. However, this proposal of the Board Circular does not flow from
any statutory provision. As discussed above, the appellant have correctly
applied the price of respective goods cleared from the factory at the time
of removal. Therefore, we do not find any support of any statutory
provisions in the Board Circular. The Hon’ble Supreme Court has time
and again, held that the Board Circular cannot vitiate the law or the
Board Circular cannot be issued contrary to the statutory provisions. We
refer some of the judgements on this issue :

a) 2008 (229) ELT 641 (SC) – Sindur Micro Circuits Limited Vs. CCE, Belgaum.

b) 2009 (235) ELT 385 (SC) – Atul Commodities Pvt. Ltd. Vs. CCE, Cochin.

c) 2003 (156) ELT 819 (Bom) – NarndraUdeshi Vs. UOI

d) 2015 (326) ELT 26 (SC) – DGFT Vs. Kanak Exports.

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9. In view of the above judgements, it is clear that the Board can only
clarify the existing law but cannot create law by itself. Therefore, the
above Board Circular dated 22.04.2002 having without having support
of any Act or Rule, is not binding on the assessee. 10. As regards the
issue that after removal of goods, intermixing of SKO with MS/HSD
amounts to manufacture, we find that there is no charge in the Show
Cause Notice that the activity of supplying HSD/MS with interface SKO
amounts to manufacture. Therefore, on this point, the adjudication order
travelled beyond the scope of show cause notice which is not permissible
in the law. The Adjudicating authority has relied upon clause (iii) of
Section 2(f) for holding that activity amounts to manufacture, which
reads as under : -

“2(f) manufacture” includes any process:-

(i) Incidental or ancillary to the completion of a manufactured product;

(ii) Which is specified in relation to any goods in the Section or chapter
notes of the First Schedule to the Central Excise Tariff Act, 1985 (5of 1986)
as amounting to manufacture; or

(iii) Which, in relation to the goods specified in Third Schedule involves
packing or re-packing of such goods in a unit container or labeling or
relabeling of containers including the declaration or alteration of retail sale
price on it or adoption of any other treatment on the goods to render the
product marketable to the consumer

From the reading of the above clause, it is clear that the activity specified
in the said clause (iii) will amount to manufacture only in respect of the
goods specified under Third schedule. It is undisputed that the products
of the appellant are not specified under third schedule, therefore,
whatever activity mentioned in clause (iii) shall not apply to the goods
which are not specified in Third schedule. For this reason, intermixing of
SKO with HSD/MS does not amount to manufacture.

11. As per our above discussion, the differential duty demand raised on
interface quantity of SKO is clearly not sustainable. Hence, the impugned
orders are set aside and the appeals filed by the appellant are allowed
with consequential benefits, if any.”


8.3 Being aggrieved with aforesaid order of the Tribunal, the department
had filed Civil Appeal No. 4743-4745 of 2022 before the Hon’ble Supreme
Court. In disposing of the said Civil Appeal filed by the department against
the aforesaid order of the Tribunal, the Hon’ble Supreme Court has upheld
the order of the Tribunal and held vide its judgement dated 14.09.2023
that the same requires no interference. The extract of the said judgement
is given below:

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9. In view of the settled legal position as aforesaid in the case of Indian
Oil Corporation (supra), we find that the issue arising out of the present
dispute is no more res integra. Accordingly, we do not find any merits in
the impugned order passed by the learned Commissioner of Central Excise
(Appeals), in confirming the adjudged demands on the appellants.

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10. In the result, the impugned order 07.04.2016 passed by the learned
Commissioner of Central Excise (Appeals) is set aside and the appeal filed
by the appellants is allowed in their favour.


(Order pronounced in open court on 02.09.2026)


(AJAY SHARMA)
MEMBER (JUDICIAL)



(M.M. PARTHIBAN)
MEMBER (TECHNICAL)

Sinha