2001(04)LCX0046

IN THE CEGAT, SOUTH ZONAL BENCH, BANGALORE

S/Shri G.A. Brahma Deva, Member (J) and S.S. Sekhon, Member (T)

COCHIN REFINERIES LTD.

Versus

COMMISSIONER OF CENTRAL EXCISE, COCHIN

Final Order No. 822/2001, dated 25-4-2001 in Appeal No. E/R-1722/96

Advocated By :   Shri A.K.J. Nambiar, Advocate, for the Appellant.

Smt. Radha Arun, SDR, for the Respondent.

[Order per : S.S. Sekhon, Member (T)]. - This is a classification dispute pertaining to the correct classification to be accorded to ‘Liquefied Petroleum Gas’ (hereinafter referred to LPG) supplied by the appellant company M/s. Kochi Refineries Ltd., (hereinafter referred to as KRL) to M/s. Cochin Refineries Balmer Lawrie (hereinafter referred to as CRBL) for extraction from the gas supplied by the latter, of Isobutylene. CRBL uses the Isobutylene so extracted by it, for the manufacture of Polyisobutylene and clears the same. The stripped gas stream is sent back to KRL.

2. In the Classification list No. 1/93-94, dated 26-10-1993, the appellants, had classified the LPG gas supplied by them to CRBL as falling under Heading 2711.19 of the CETA. The appellant classified the LPG gas, as submitted by them, because the LPG gas supplied, conformed, at all times, to the specification prescribed by the IS Standards for “Commercial Butane type of LPG”. The Department, however, sought to classify the product cleared by the appellant, as Isobutylene falling under Heading 2901.90 and issued a show cause notice dated 13-5-1994 on those lines. The Assistant Commissioner of Central Excise, rejected the contentions of the appellant and classified the product supplied as Isobutylene falling under Heading 2901.90 on the grounds :-

(a)     KRL have installed a feed preparation unit to enrich the Isobutylene content of LPG. The price fixed for the product is Rs. 20,500/- per KL whereas the price of LPG to industrial consumers is fixed at Rs. 12,000/- per KL. The difference in price indicates that the product is different. Normal LPG, though not defined as such, will have only traces of Isobutylene. Classification is to be based on the constituent which provides the material supplied its essential character and use. Here it is Isobutylene because CRBL has no use of the gas, if there is not sufficient Isobutylene in it.

(b)     The product, supplied to CRBL is not normal LPG but is Isobutylene enriched. The onward stream of the product supplied, contains 23-24% Isobutylene but the return stream contains only about 4% Isobutylene. KRL pays duty only on the net quantity supplied by them as per Notification No. 116/94, dated 24-6-1994, which represents Isobutylene extracted by CRBL. Hence the classification of the product cleared should be as Isobutylene.

(c)      Isobutylene is therefore being supplied on a carrier stream, he compared the carrier stream to be like supply of fish in ice, even though ice is more than the fish, the material would be called as fish; or supply of cellulose Nitrate which is highly explosive, is supplied under cover of water which may be 65% by weight, or sodium metal supplied submerged in kerosene would be classified as Sodium Metal.

(d)     Isobutylene is the only constituent consumed by the buyer and consumed by it.

3. The Commissioner (Appeals), vide Order-in-Appeal No. 71/95, dated 31-3-1995 confirmed the Order of the Assistant Commissioner and rejected the appeal preferred by the appellant as devoid of merits. In his Order the Commissioner (Appeals) finds as follows :-

(i)      what is consumed by CRBL is only Isobutylene.

(ii)     The Scheme of paying duty is on nett quantity consumed by CRBL; the nett quantity consumed is calculated by subtracting the return quantity from the supplied quantity; the difference in quantity relates to the amount of Isobutylene consumed; the classification of the product supplied must, therefore, be as Isobutylene under Heading 2901.90;

(iii)    The price paid for the gas is 100% more than that of Industrial LPG;

(iv)    LPG here is only a carrier stream for carriage of Isobutylene;

(v)     The plea that as per ISI specification of LPG even if there is a single constituent, it would be LPG was not acceptable ; ISI specification is concerned, it is pertinent to point out that the matter under dispute is classification under CET where classification is determined according to the Rule governing said Tariff and under the said Tariff Acyclic Hydrocarbons would fall under Heading 29.01. The product isobutylene being a Acyclic Hydrocarbon and being a separate chemically defined organic compound would fall under Heading No. 29.01, sub-heading 2901.90.

4. We have taken up this appeal for final decision after clearance from the Committee of Secretaries has been produced. We have heard learned Advocate Shri A.K. Nambiar and Smt. Radha Arun, DR and considered the material, and find :-

(a)     The ISI specifications for liquefied petroleum gases prescribed three types of such ‘LPG gases’ based on their principal constituent viz. Commercial Butane, Commercial Butane Propane mixture and Commercial Propane. The ‘Commercial Butane type of LPG’ is a hydrocarbon product, arising as a gas in a Petroleum Refinery constituting pre-dominantly of butanes, butylenes or their mixtures. From the composition of the LPG obtained at KRL, it is found that the Isobutylene content is only in the region of 6% to 13% and it is submitted by the appellant that to make the product commercially viable for the market available at CRBL, the stream supplied to them, should contain atleast 24% of Isobutylene. This is achieved at the Light Ends feed Preparation Unit (Known as LEFPU) installed within KRL premises. In the LEFPU, some of the lower hydrocarbons in the incoming stream such as propane. Butane and Propylene are stripped off, resulting in reduction of the quantity of the emerging stream and ‘consequent increase in percentage content of Isobutylene. It has predominance of butanes and butylenes and hence constitutes to be ‘Commercial Butane type of LPG’. The emerging stream from LEFPU having the percentage of Isobutylene from 24% to 26%. This process of striping in the LEFPU reduces the quantity of the inputs sent to LEFPU to about 1/3. This stream emerging from LEFPU is thereafter sent to CRBL, wherein a polymerization plant has been set up by CRBL to strip out the Isobutylene contained in the stream supplied by KRL. The stripped stream from CRBL is returned and stored in the tanks mixed with other LPG in the KRL premises. From this process undertaken, it would be apparent that LPG obtained pursuant to fractional distillation of the crude oil and the LPG that comes out of LEFPU and LPG is returned from CRBL are all mixtures which would be covered by the term “Commercial Butane Type LPG” as defined in ISI.

(b)     There is no evidence available, to indicate that enriched at LEFPU or gas being removed from the premises of KRL is Isobutylene as separately defined as organic compound and the other compounds, contained in the stream presented for assessment are only impurities, or that the ‘Isobutylene’ is dissolved, in a solvent i.e. it is solution or that the removals under taken constitute, a normal and necessary method of putting up these products solely for the reasons of safety or for transport. There is no evidence produced by Revenue that such a solvent (of Isobutylene is carrier medium) has not rendered the product mainly suitable for specific, use rather than for general use. For classification under Chapter 29 as an organic molecule. Chapter Note 1(a), (e) & (f) thereof would be relevant and applicable. The lower authorities have considered the entire process of 24% stream butane going to CRBL and returning after striping at the CRBL premises of being the Isobutylene content. However there is no finding arrived at as to whether the ‘Isobutylene’ removed is in the pure form i.e. 90% and above, being manufactured and stored at KRL. There is no evidence that at the LEFPU plant Isobutylene is more than 90% pure which comes into existence either separately or in stream which is considered to be only transport carrier of CRBL. The condition 90% purity is prescribed by HSN Notes to classify Isobutylene under Chapter 29 and would be of persuasive value. Chapter No. 1(a), (e) & (f) relevant for classification of the entity under Chapter 29 of CETA, 1985 have all to be found to be applicable. We find no evidence available to apply these notes. The mere fact of use by buyer or Notification charging duty only on Isobutylene content cannot determine the classification as is arrived at by the lower authorities. The classification under Chapter 29 therefore cannot be applied.

(c)      Heading 27.11 covers petroleum gases and other gaseous hydrocarbons divided into 2 parts, liquefied and in gaseous state. In the present case the classification has been claimed under 2711.19 i.e. petroleum gases and other gases in liquid form other than Ethylene, Propylene, Butylene and Butadene. The product which is presented for classification has the following composition : -

And is known as commercially as LPG; as per ISI referred to as Butane type of LPG as termed and as LPG by the assessee i.e. KRL and the buyer i.e. CRBL. Therefore, the classification would be appropriately by under CETA, 1985 Heading 2711.19.

(d)     We find that KRL is a refinery, under Rule 140 (2) and thus a warehouse under Rule 140(1) therefore, even if Isobutylene is emerging in pure form and comes into existence, at any stage, no duty/payment liability would arise so long as it remains in the refinery. Duty would be liable to be recovered only on the entity removed from the Refinery and in the form in which it is being removed. In the form of the mixture as in Para (c) above. It is a mixture of compounds, that is required to be classified, and not the compound which would be stripped off by the buyer from such a mixture. The classification of the mixture of the gases applying the cannons of Classification would not be under Chapter Heading 29, since there evidence of it being or is not 90% more pure as provided in the HSN and, does not satisfy in Chapter Notes 1(a), (e) & (f) and Chapter 29 of CETA, 1985. Therefore classification should be more appropriate under 2711.19 based on the same being a Petroleum Refining Gas, known as such by people dealing with it.

5. We therefore find no reason to classify the product under dispute as observed by the lower authorities. The same is required to be classified under 2711.19. In view of our findings the order of lower authority set aside and appeal allowed.

Equivalent 2001 (132) ELT 0619 (Tri. - Bang.)

Equivalent 2001 (045) RLT 0664