Hindustan Petroleum Corporation Ltd. vs Union of India

Pendse, J.—Hindustan Petroleum Corporation Limited is a Government Company carrying on business of manufacturing diverse petroleum products at their Refineries situated at Trombay in Greater Bombay. In year, 1974, the Company had developed a petroleum product described as Axle oil of medium and heavy grades to specifically meet the demands of Indian Railways. The Company claims that the Axle oil manufactured had a flame height of less than 10 mms., contained more than 0.25 per cent of a bituminous substance and possessed a viscosity of more than 1000 seconds of Redwood-I Viscometer at 100 Degree F. The manufacture of Axle oil was liable to payment of excise duty in accordance with provisions of Central Excises and Salt Act, 1944. The Company claimed that the relevant Tariff Item for payment of duty was Tariff Item 10 which reads as under :-

The Explanation to Tariff Item 10 provides that the expressions ''mineral oil'' and ''flame height'' have the meaning respectively assigned to them in Explanation I to Item No. 6 and in Explanation II to Item No. 7. The Department, on the other hand, was claiming that the manufacture of Axle oil falls under Tariff Item No. 11A(4). Tariff Item 11A reads as follows :-

The Company entered into correspondence with Assistant Collector of Central Excise, Bombay in respect of approval of classification list in regard to manufacture of axle oil. The Assistant Collector, Central Excise, Bombay by letter dated October 10, 1974 informed the Company that since the product axle oil would be used by the Railways for lubricating purpose, the product is required to be classified under Tariff Item No. 11A(4) of the First Schedule to the Central Excises and Salt Act. The Company carried appeal against the decision of the Assistant Collector but the appeal ended in dismissal by order dated August 21, 1975 passed by the Appellate Collector of Central Excise.

The Assistant Collector passed order on January 16, 1975 assessing axle oil under Tariff Items 11A. The Assistant Collector on June 16, 1975 passed order denying the benefit of Notification No. 197 of 1973 to the Company on the ground that axle oil does not fall under Tariff Item No. 10. The Company had preferred appeal against order dated January 16, 1975 as well as order dated June 16, 1975. The appeal against order dated June 16, 1975 was dismissed, while the appeal against order dated June 16, 1975 was remanded. All these orders were examined in Revision Petition filed by the Company before Government of India, Ministry of Finance, Department of Revenue.

The revisional authority by a speaking order dated February 25, 1981 held that the claim of the Company that axle oil is liable to payment of duty under Tariff Item No. 10 cannot be accepted and the assertion of the Department that the duty is payable under Tariff Item No. 11A is correct. The revisional authority held that the axle oil produced by the Company was supplied to Indian Railways for use as lubricant. In trade parlance, furnace oil is synonymous with fuel oil and since axle oil was not to be used as fuel oil, it is futile to suggest that axle oil should fall under Tariff Item No. 10. The revisional authority further held that the claim of the Company that Tariff Item No. 11A was a residuary entry is not accurate because the item specifically refers to lubricating oil. The revisional authority further held that as there is specific entry of lubricating oil, it is not open for the Company to suggest that duty on axle oil should be levied as prescribed under Tariff item No. 11A. The order of revisional authority is under challenge in this petition filed under Article 226 of the Constitution of India.

Shri Korde, learned counsel appearing on behalf of the Company, submitted that both the reasons furnished by the revisional authority are incorrect and axle oil is liable to payment of excise duty only in accordance with Tariff Item No. 10. The learned counsel urged that furnace oil is one of the species of mineral oil and once the mineral oil complies with three requirements or conditions set out under Tariff Item 10, then it is wholly irrelevant whether the product is furnace oil or not. Shri Korde further submitted that it is not permissible to refer to residuary Tariff Item 11A when the product manufactured falls within the ambit of tariff Item 10. Shri Desai, learned counsel appearing on behalf of Department, on the other hand, submitted that the reasons furnished by the revisional authority are extremely sound and are not required to be disturbed in exercise of writ jurisdiction. Shri Desai further submitted that even assuming that the construction suggested by Shri Korde is plausible, still it is not open for the Writ Court to disturb the order passed by the revisional authority, when the view taken by the revisional authority is also plausible one. In our judgment, the claim of the Company that the manufacture of axle oil attracts duty under Tariff Item 10 cannot be accepted.

Tariff Item 6 deals with Motor Spirit. Tariff Item 7 deals with kerosene. Tariff Item 8 deals with refined diesel oils and vaporising oil. Tariff Item 9 deals with diesel oil, not otherwise specified. Tariff Item 10 deals with furnace oil and Tariff Item 11 deals with asphalt, bitumen and tar. The residuary Tariff Item 11A deals with petroleum products not otherwise specified. As mentioned hereinabove, the heading of Tariff Item 10 is ''Furnace Oil'' and sets out that furnace oil, that is to say, any mineral oil which satisfy three conditions set out in Tariff Item 10. The expression, ''mineral oil'' defined under Explanation I to Tariff Item 6 reads as under :-

"Mineral Oil" means an oil consisting of a single liquid hydrocarbon or a liquid mixture of hydrocarbons (except for associated impurities) derived from petroleum, coal, shale, peat or any other bituminous substance and includes any similar oil produced by synthesis or otherwise."

The plain reading of the definition makes it clear that the expression ''mineral oil'' takes in its sweep several kinds of oils like motor spirit, kerosene, diesel oil, furnace oil, etc. The legislature in its wisdom referred to several categories of mineral oil under different Tariff Items and provided for different rates of duty. The contention of Shri Korde that to attract Tariff Item 10, it is suffice for the Company to establish that the product manufactured is mineral oil and satisfies three conditions set out in Tariff Item 10 is not correct. Every mineral oil which satisfies three conditions will not attract Tariff Item 10. To attract Tariff Item 10, the first and foremost condition is that the product manufactured is furnace oil. Even in respect of manufacture of furnace oil, Tariff Item 10 has no application because the furnace oil must further satisfy three conditions set out in Tariff Item 10. It is, therefore, obvious that before the Company can claim that duty is leviable under Tariff Item 10, it must be established that the product manufactured was furnace oil. The perusal of the order passed by the revisional authority makes it clear that the Company never claimed that axle oil was furnace oil. The Company could not so claim because the expression ''furnace oil'' is synonymous with fuel oil. The claim of Shri Korde that irrespective of fact whether the product manufactured is furnace oil or not, the duty is leviable under Tariff Item 10 in respect of every mineral oil which satisfies three conditions under Tariff Item 10 is not correct and the submission is like putting a cart before horse. Unless and until, the product manufactured is ''furnace oil'', the question of applicability of Tariff Item 10 does not arise. Shri Korde could not dispute that the product manufactured was not to be used as fuel oil but merely as lubricant and was also sold by the Company to Indian Railways as lubricant. In these circumstances, in our judgment, the claim of the Company that manufacture of axle oil is liable to payment of duty under Tariff Item 10 cannot be accepted.

The second reason furnished by the revisional authority that Tariff Item 11A specifically refers to lubricating oil and, therefore, cannot be treated as residuary entry is also accurate. The axle oil was sold by the Company as lubricating oil for use of Indian Railways and once it is found that the product was to be used as lubricating oil and not as furnace oil, then the Company cannot sustain the contention that duty is payable under Tariff Item 10 and not under Tariff Item 11A. Shri Korde submitted that mere user is not relevant to determine applicability of tariff item and the submission is correct but the submission overlooks that the product manufactured is not furnace oil. The revisional authority referred to the purpose for which the product was sold only to indicate the applicability of Tariff Item 11A. In our judgment, both the reasons furnished by the revisional authority are absolutely correct and do not suffer from any infirmity and the decision of the revisional authority is not required to be disturbed in exercise of writ jurisdiction. It is also necessary to point out that the issue does not survive for consideration after March 1, 1978 when the product axle oil is specifically brought under Tariff Item 11A.

Shri Korde submitted that in paragraph 25(i) of the Petition, the Company had also raised alternative contention that even if the product was classifiable under Tariff Item 11A, post manufacturing elements such as marketing margin and the subsidy paid under the Product Price Adjustment is required to be excluded from assessable value. We are not inclined to examine this question in the present proceedings which are only for the purpose of classification of product axle oil. It is open for the Company to raise all available contentions at the time of computation of assessable value.

Before parting with judgment, it is necessary to briefly refer to the contention of Shri Korde that both the petitioners and respondents being Government Departments, it was necessary to approach the High Power Secretarial Committee as suggested by order of the Supreme Court for settlement of disputes. The learned counsel invited our attention to the directions issued on January 7, 1994 and complained that although the reference was made by the petitioners to such High Power Secretarial Committee more than a year back in accordance with earlier order of Supreme Court, still the Committee has not responded one way or the other. On the last occasion, we enquired from Shri Korde as to when the decision is likely to come and Shri Korde very frankly stated that he cannot make any statement as it is not possible to ascertain when the High Power Committee will decide the matter. In these circumstances, we decline the application for withholding the hearing of the petition which was filed more than 13 years back. We heard the counsel on merits and have delivered the judgment.

Accordingly, petition fails and rule is discharged. There will be no order as to costs.