The Hindu Business Line : A solid case of fluid laws governing unstable gases

EXCISE Tribunal members in New Delhi had to contend with much gas when the Gas Authority of India Ltd (GAIL) case was before them. The question was whether natural gas liquid (NGL) produced by the company was marketable. And if so, as what.

The company's advocate, Mr V. Lakshmikumaran, explained that GAIL manufactured liquefied petroleum gas (LPG) from natural gas, which is a mixture of various hydrocarbons and broadly consists of C1, C2, C3 and C4. They may look like cell addresses in your worksheet, but this is about propane, butane and such. "In the process of extraction of LPG, a mixture of C5 and C6 called NGL emerges inevitably," he said. "NGL is highly unstable," perhaps like some governments. In such a state it is not marketable, said the company. "The moment NGL in liquid state enters lean gas header, it mixes with the lean gas in the lean gas pipeline, gets vaporised and becomes part of the lean gas in the gaseous state and what ultimately leaves the factory premises is lean gas."

One of the elementary principles of Excise law is that the product is marketable, and NGL didn't satisfy that condition, argued GAIL. The Department cited the example of ONGC which was regularly selling NGL. To this, GAIL responded that its product was not comparable with ONGC's because the starting material was `vastly different'.

If you were to check the company's Web site, you would learn that the extraction of LPG from natural gas is carried out by cryogenic turbo-expander process.

"In this process propane and butane are extracted from natural gas by cooling it to -55 to -68 degrees C. As natural gas contains heavier components (pentane, hexane, heptane, etc.) than propane and butane also, whenever natural gas is cooled for the extraction of LPG, these heavier components also get liquefied along with propane and butane.

"LPG is separated from this total liquid by distillation and the balance liquid is called natural gasoline liquid. This NGL is then further processed to manufacture pentane and special boiling point solvent."

There was no `removal', contended GAIL. "Spiking back of NGL into pipeline is not removal," submitted the company. Nor was it internal consumption by the company. The decision has discussion on what fuel is `suitable for use', on why engines will knock if you ran the vehicle with NGL, and so forth. However, the Tribunal had the Oil India case to draw upon, and that in turn had cited a 1981 Tariff Advice classifying ONGC's condensate as crude mineral oil.

The ruling also talks of a submission by GAIL's counsel that the Department can invoke confiscation of plant and machinery only when the assessee is a habitual offender, which the company was not.

When one sees some of the very important industries such as petroleum being subjected to laws lacking foresight, it won't be crude to say that much of the talk about encouraging infrastructural development is only gas.

Costly mistakes that add to taxpayers' bill

GAS and oil go together, so here's a case of Indian Oil Corporation Ltd that came up recently before the Kolkata Customs, Excise and Service Tax Appellate Tribunal (CESTAT).

It was about what was cleared in 1999-2000. IOC's advocate, Dr Devi Pal, submitted that a mistake had happened when the company was a new tap-off-the-point station and "as such not conversant with the Central Excise formalities."

Thus, "the person responsible for maintaining the accounts at the station was not aware of the fact that the indigenous material was also being sent through the pipeline along with the duty-paid imported material." However, "as soon as the appellants realised their mistake they deposited the entire amount of duty."

The Department argued: "IOC is an old assessee and merely because the station was new, it cannot be said that there was lack of awareness on the part of IOC so as to clear the goods without payment of duty."

Ms Archana Wadhwa of the Tribunal observed: "Taking into consideration the appellants' status as a public sector undertaking and the fact that the entire duty amount of Rs 1.41 crore was deposited by them before issuance of the show-cause notice, we reduce the quantum of penalty to Rs 15 lakh."

While any special treatment to public sector enterprises revolts against the level-playing mantra, this case illustrates just one of the many instances of adding up to the cost that the taxpaying public ultimately bear.

No academic questions, please

THE Authority for Advance Rulings (AAR), New Delhi, recently took up the application of Acer Computer International Ltd, represented by Mr V. U. Eradi. It talks of a carried forward loss of Rs 54 lakh in Acer India Ltd and the query reads:

"Whether Acer India Ltd can have the benefit of carrying forward and set off the loss even after the change in nominal ownership, considering the fact that there would be no change in beneficial ownership of the shares."

However, in April 2004, the Department wrote to the AAR stating that Acer had filed its return for the assessment year 2003-04, setting off the entire brought forward business losses have been set off against the current year income and there is no further loss to be carried forward."

The AAR Chairman, Mr Syed Shah Mohammed Quadri, ruled that giving a ruling on the question would be academic. "The Authority will not pronounce a ruling on a question, which is of academic interest."

A ruling that is more than of academic interest.

Tailpiece

"Do your duty... "

"But don't drool over fruits?"

"Right. And they did their duty but cutting duties... "

"But we shouldn't expect any price cut?"

Detaxification@TheHindu.co.in

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