Central Excise Circular No. 636 dated 22^nd April 2002

The problem of accountal of petroleum products resulting from intermingling of different products pumped through pipelines has been engaging the attention of the Board for quite some time. In a recent case, one of the oil companies has represented against the differential duty demanded by the Department on account of shortage of Superior Kerosene Oil (SKO) imported under concessional rate of duty. It has been contented that the movement of petroleum products through pipelines is carried out by product to product method of pumping and in such an event, co-mingling of one product with another is inevitable. The case of the oil company is that shortage of SKO imported under concessional rate of duty is accounted for in terms of the interface quantity i.e. the gain in Motor Sprit (MS)/ High Speed Diesel (HSD) and the duty paid by them on this interface quantity is more than the duty foregone on SKO on account of concessional rate of duty. Therefore, as per the assessee, the question of additional duty liability does not arise.

2.     The Board has examined the issue from the twin objectives of safeguarding revenue as well as avoiding unnecessary litigation. The existing instructions vide Board�s letter F. No. 21/13/66-CX. III dated 20.3.67 and F. No. 11A/9/70-Cx. 9 dated 27.3.1973 accept the offsetting of gain observed in one product against loss observed in another product. Through in the scheme of accountal of one product for the other, the duty payable on the interface SKO (co-mingled products) taken as MS or HSD is presently more than the duty liability on the shortage of imported SKO, however, the situation can be reverse also. Furthermore, it is a fact that the SKO imported under concessional duty is not fully utilised for the intended purpose and in such case, the concessional duty cannot be extended. The Board is therefore, of the view that in the event of inter mixing of the products, the higher of the two duties i.e. duty payable on SKO not used for intended purpose and duty payable on surge/ gain in MS or HSD shall be payable for the inter mixed/ interface quantity. In other words, the duty of inter mixed part of SKO and MS/ HSD as the case may be, may be quantified and higher of the two values may be accepted. The existing instructions on the subject stand modified to the above extent.

3.     Trade and field formation may please be informed suitably.

4.     Receipt of the same may please be acknowledged.

5.     Hindi version will follow.