2006(06)LCX0251

In the Customs, Excise & Service Tax Appellate Tribunal, Bangalore

Dr. S.L. Peeran, Member (Judicial) and Shri T.K. Jayaraman, Member (Technical)

Commissioner of Customs, Mangalore

Versus

Elf Gas India Ltd.

Final Order No. 1130/2006 dt. 30.6.2006 in Appeal No. C/165/2005

Cases Quoted -

Tata Oil Mills Co. Ltd. Vs. CCE -1989(08)LCX0023 Eq 1989 (043) ELT 0183 (SC) - Referred [Par&5]

Oblum Electrical Industries Pvt. Ltd. Vs. CC, Bombay 1997 (063) RLT 0233 (SC) - Referred [Para 5]

CC, Kolkata Vs. Rupa & Co. Ltd. 2004 (063) RLT 0467 (SC) - Referred [Para 5]

Indian Aluminum Cables Ltd. Vs. CCE 1988(01)LCX0067 Eq 1989 (041) ELT 0688 (Tri.) - Referred [Para 6]

Asian Paints Ltd. Vs. CCE, Meerut 1998 (026) RLT 0123 (CEGAT) - Referred [Para 6]

Anchor Porcelain Works Vs. CCE, Rajcot 1995(08)LCX0031 Eq 1996 (083) ELT 0152 (Tri.) - Referred [Para 6]

Advocated By -

Shri K. Sambi Reddy, JDR for Appellant
S/Shri G. Shiva Dass Adv. and G. Venkatesh, Consultant for Respondent

Per T.K. Jayaraman:

This appeal has been filed against the OIA No. 29/2005-Cus. (B) dated 23.03.2005 passed by the Commissioner of Customs (Appeals), Bangalore.


2. The brief facts are as follows: -

The Respondent filed Bills of Entry on 12.11.2004 and 22.11.2004 for clearance of Commercial LPG. They claimed the benefit of Notification No. 82/2004, at concessional rate of Customs duty @ 5%, after classifying the goods under Chapter 271119.00. But, the department classified them under Chapter 271113.00 and charged duty @ 10% + 8% + 2% + 2% [BCD + CVD + Education Cess on CVD + Customs Education Cess] and denied the benefit of the said Notification. Since the respondents contested the department's view, the assessment was done on a provisional basis. Duty was paid under protest. The respondents contested the assessment and appealed to the Commissioner (Appeals). After examining the issue thoroughly, the Commissioner (Appeals) held that the imported goods would be classifiable under Chapter 271119.00 and the respondents are entitled for the benefit of Notification No. 82/2004. The respondents' appeal was thus allowed.


3. Revenue is strongly aggrieved over the impugned OIA on the following grounds: -

(i) There is a specific heading in respect of each variety of LPG depending upon its constituents. As per BIS Standards, (IS 4576:1999), there are three types of LPG based on the their principal constituent.

(a.) Commercial butane: - A hydrocarbon product composed
predominantly of butanes, butylenes or their mixtures.

(b.) Commercial butane-propane mixture: A hydrocarbon product composed predominantly of a mixture of butanes and/ or butylenes with propane and/or propylene.

(c.) Commercial propane: A hydrocarbon product composed
predominantly of propane, propylene or their mixture.

(ii) As per chapter Note 1 (a) to Chapter 27 of CTA, except for 'Methane' and 'Propane', all other subheadings of the Heading 2711 of CTA refer to impure or mixtures of Petroleum Gases. Therefore, the Commissioner (Appeals) has erred in holding the classification of the goods imported to be chapter sub-heading 27111900 of CTA, the same being a mixture of Butane and Propane. While holding the classification of goods under chapter subheading 27111900 of CTA, the learned Commissioner (Appeals) has not ruled out the classification of goods under chapter subheading 27111300 of CTA, which appears before sub-heading 27111900 of CTA. Further the goods under import predominantly consists of 'Butanes'. The Commissioner (Appeals), before classifying the goods under chapter sub-heading 27111900 of CTA, should have satisfied himself that the goods under import cannot be classified under chapter sub-heading 271113.00 of CTA. The learned Commissioner (Appeals) has thus erred in not justifying his decision of not classifying the product under CSH 271113.00.

(iii) As per HSN explanatory notes at page No. 229/230, Chapter Heading 2711 covers "butane containing less than 95% of n-butane and less than 95% of isobutene. (Butane containing not less than 95% of n-butane or isobutene falls in Heading 29.01)." Therefore, the chapter sub-heading 27111900 of CTA covers Butanes having purity less than 95% only. Further no lower limit has been prescribed for butane content to be classified under Chapter subheading 27111300. As per BIS Standard for commercial butane also, no lower limit of butane has been specified. As per Rule 1 of Interpretative Rules to the Customs Tariff Act, 1975, classification shall be determined according to the terms of the heading and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise requires, according to the provisions of Rule 2 (a) to Rule 6. It can be seen from the test reports that the LPG imported by M/s. Elf Gas India Ltd. has butanes (n-butane and isobutane) to the extent of 62%. Also, as per the copy of the purchase order/sales contract produced by M/s. Elf Gas India Ltd., the cargo consists predominantly of butane (i.e. about 60 to 70%). Therefore, the 'butanes' predominate the imported goods.

(iv) There is a specific Chapter sub-heading i.e. 27111300 for butane (liquefied petroleum gas) in the Customs Tariff Act, 1975 and therefore, the cargo imported by M/s. Elf Gas India Ltd. is rightly classifiable under Chapter sub-heading 27111300 of Customs Tariff Act, 1975 as the butane content is more than 60%. Chapter subheading 27111900 with the description 'others' is meant for liquefied petroleum gases which do not fall under Chapter Headings 27111100 to 27111400. The Notification No. 21/2002-Cus. dated 01.03.2002, as amended by Notification No. 82/2004-Cus. dated 18.08.2004 specifically covers the "LPG" falling under Chapter sub-heading 27111900 of CTA. Therefore, the LPG falling under Chapter sub-headings 27111100 to 27111400 of CTA are not eligible for concessional rate of duty. Only intermixtures of gases in liquefied form, which has no single major constituent, can be classified under 'others' of Chapter sub-heading 27111900 by application of Interpretative Rules.

(v) In view of the above, it appears that the Commissioner (Appeals) erred in deciding that the LPG imported by the importers merits classification under chapter sub-heading 27111900 of the CTA, and the importers are entitled to the benefit of concessional rate of duty under Notification No. 82/2004-Cus. dated 18.08.2004.

(vi) Further, all the bills of entry pertaining to import of LPG by M/s. Elf Gas (I) Ltd. had been assessed provisionally and the Assistant Commissioner of Customs (Appg.), New Customs House, Panambur, Mangalore, had already issued Show Cause Notice No. S-01/29/2004 Imp. dated 21.12.2004 and 07.01.2005 directing M/s. Elf Gas (I) Ltd. to show cause as to why the LPG imported by them should not be classified under CTH 27111300 and the differential duty amount of Rs. 52,58,712/- and Rs. 2,11,01,396/- respectively should not be demanded and recovered from them under Section 18 (2) of Customs Act, 1962. The importer has apparently suppressed these facts and preferred an appeal before the Commissioner of Customs (Appeals), Bangalore against the provisional assessment of Bills of Entry. The final decision on the show cause notices issued, and finalisation of assessment of impugned bills of entry was delayed due to the request of the importer, vide their letters dated 27.01.2005 and 24.02.2005. Under these circumstances, the impugned order of the Commissioner (Appeals) is neither legal nor proper and is liable to be set aside.


4. Shri K. Sambi Reddy, the learned JDR represented the Revenue and Shri G. Shiva Dass, the learned Advocate and Shri G. Venkatesh, the learned Consultant, represented the respondents.


5. The learned Advocate urged the following: -

(i) LPG is being imported by the respondent for the last 5 years. It is usually classified under 27111900. There was an increase in the international price of LPG in April, 2004. Since this had an adverse impact on the landed cost of LPG in India, the Government issued Notification No. 82/2004-Cus. dated 18.08.2004 reducing the Basic Customs Duty on LPG classifiable under CSH 2711.19 of the Tariff from 10% ad valorem to 5% ad valorem.

(ii) In the month of November, the respondent imported LPG and claimed the benefit of the Notification. The department held the view that LPG imported by the respondent would be classifiable under 27111300 and denied the benefit. Due to urgent requirements, duty was paid under protest and the goods were cleared. However, the respondents were successful before the Commissioner (Appeals), who classified the item under Chapter 27111900 of CTA.

(iii) The impugned goods were tested. The test results are as follows: -
Bill of Entry No. 209557/2004 dated 12.11.2004.

Bill of Entry No. 209636/2004 dated 22.11.2004

From the above test results, it is seen that the LPG imported by the respondents is a mixture of Butane and Propane along with small quantities of Ethane, iso-pentane, etc.

(iv) The learned Advocate drew our attention to the following extract from the 'Handbook of Butane-Propane Gases.' - Fourth Edition published by Chilton Company, which states as follows: -
"Chapter 4 - Since in actual practice pure hydrocarbons are almost never used, the chief value of the properties of the pure hydrocarbons is for their use in calculating the properties of their mixtures.

Most mixtures known as LP-Gas are largely composed of propane, isobutane and normal butane together with small amount of ethane, pentanes and heavier hydrocarbons. The percentages of each depend on the gas from which they are obtained, the equipment used for their recovery, and the purposes for which the gas is to be used."

(v) Further, the various types of LPG as mentioned in Encyclopedia of Chemical Technology of Kirk-Othmer, are as follows: -

The test results reveal that the impugned goods are nothing but a Butane-Propane mixture.

(vi) The Assistant Commissioner classified the item under 2711 13 00 as "Butane", since Butane predominates in the mixture. According to HSN Notes, Butane with 95% or more of n-butane or iso butane would fall under Chapter Heading 29.01 while Butane with less than 95% of n-butane or iso-butane would fall under Chapter 27. The entry Butane under CSH 2711.13 seeks to cover Butane having presence of n-butane or iso-butane as high as 90 to 95%. If the presence of butane is 58% or 60%, it cannot be called butane. If this is so, then the last entry "intermixture of propane and butane" would be redundant. Therefore, in a case where Butane is around 60% or 70% and Propane is around 30%, it would be appropriately called as an 'intermixture of butane and propane', falling under Others' of CH 2711.19 of the Customs Tariff Act. In the instant case, the test results indicate that the presence of Butane in the mixture is around 70% and the presence of Propane is around 25 to 30 %. Consequently, the impugned goods are correctly classifiable under CH 2711.19 of the Customs Tariff Act. Hence, the respondents are entitled for the benefit of Notification No. 82/2004-Cus. dated 18.08.2004.

(vii) The learned Advocate pointed out that the Department, by changing the classification to 271113, seeks to deny the benefit of the Notification. This action of the Department has defeated the intention of the Government in protecting the consumers from the rise in international price. The authorities should interpret the Statutes and Notifications so as to give effect to the object, purpose and intention of the Legislature. The following case laws were relied on: -

(a.) Tata Oil Mills Co. Ltd. Vs. CCE -1989 (43) ELT183 (Supreme Court)

(b.) Oblum Electrical Industries Pvt. Ltd. Vs. CC, Bombay -1997 (063) RLT 0233 (SC)=1997(09)LCX0087 Eq 1997 (094) ELT 0449 (SC)

(c) CC, Kolkata Vs. Rupa & Co. Ltd. - 2004 (063) RLT 0467 (SC)=2004(07)LCX0134 Eq 2004 (170) ELT 0129 (SC)


6. The learned JDR took a preliminary objection on 12.05.2005 that the respondents could not have filed an appeal before the Commissioner (Appeals), as the Bills of Entry were provisionally assessed. The learned Advocate effectively countered the department's objection by bringing to our notice that in the present case, there was no order under Section 18 for provisional assessment. Assuming that the assessment is provisional, he urged that appeals can be filed against provisional assessment orders in view of the following decisions: -

(i) Indian Aluminium Cables Ltd. Vs. CCE - 1989(03)LCX0046 Eq 1989 (041) ELT 688A (Tribunal)
(ii) Asian Paints Ltd. Vs. CCE, Meerut - 1998 (026) RLT 0123 (CEGAT)=1998(03)LCX0152 Eq 1998 (102) ELT 0240 (Tribunal)
(iii) Anchor Porcelain Works Vs. CCE, Rajkot - 1995(08)LCX0031 Eq 1996 (083) ELT 0152 (Tribunal)

7. The learned JDR reiterated the Grounds of appeal. He urged that the correct classification of the impugned item, based on the test results as well as the HSN Explanatory Notes, is only 2711.13 and not 2711.19, which covers mixtures of gases where a particular hydrocarbon is not predominant. In the present case, the test results reveal that Butane is predominant. Its percentage is above 60%. Hence, the impugned item should be considered as 'Butane' classifiable under CH 2711.13. If the classification is under CH 2711.13, the benefit of the Notification 82/2004 cannot be given, as LPG coming under 2711 19 only is entitled for the benefit of the said Notification.


8. We have gone through the records of the case carefully. On the preliminary objection of the departmental representative that the Commissioner (Appeals) could not have heard an appeal against provisional assessment, we do not agree in view of the decided case laws. When a provisional assessment order affects the rights of a party, and when the party is aggrieved over the order, he can very well employ the appellate channel for seeking remedies. There is no legal provision barring appeal against a provisional assessment.

8.1 It is on record that the respondent has been importing LPG for the last 5 years. During this period, the impugned item has been classified under CSH 2711 19 00 only. This fact is not under dispute. Then what is the provocation for changing the classification? The learned Advocate has brought to our notice that the international price of crude increased enormously during the relevant period, thereby leading to an increase in the price of LPG and other products. In order to check the spurt in prices, the Government reduced the duty on LPG from 10% to 5%. It is well known that LPG is used by millions of consumers in the country. In these circumstances, Notification No. 82/2004-Cus. dated 18.08.2004 was issued. The relevant entry which is of interest to us in this appeal is as follows: -
75D 2711 19 00 Liquefied Petroleum Gases (LPG) 5%

Needless to emphasise that the above Notification has been issued under Section 25 (1) of the Customs Act by the Government in public interest. A product, which was all along being classified under CSH 2711 19 00, has, all on a sudden, been classified under CSH 2711 13 00 consequent to the issue of the Notification. The respondents had been denied the benefit and compelled to shell out more duty. Thus, Revenue has effectively denied the benefit on the specious ground that the LPG imported by the respondents is not the LPG mentioned in the Notification. The Revenue came to such a conclusion on the ground that Butane is predominant in the impugned product and there is a specific classification for Butane under CH 2711 13. When the test reports of the impugned product are seen, we find that the proportion of Butane is slightly more than 60%. The other major constituent is Propane. There are other hydrocarbons also in small percentage. In such a case, common sense dictates that the product is a mixture of Butane and Propane. It has already been submitted that as per IS-4576, LPG is classified into three types: -
(i) Commercial Butane
(ii) Commercial Butane-Propane mixture
(iii) Commercial Propane

One thing is clear that the impugned product is commercial Butane-Propane mixture going by the test reports. We do not find any logic in classifying the same as 'Butane', as Propane is also having considerable proportions in the mixture. Apart from Propane and Butane, the impugned product contains other hydrocarbons. Moreover, while issuing the Notification, the Government itself has classified LPG under CSH 271119 00. When LPG is capable of different sub-classifications, it would have been better had the Government clarified the issue as to which category of LPG, the exemption would be applicable. In any case, after classifying a product for 5 years under CSH 2711 19 00 and to change the classification consequent to the issue of a beneficial notification without sound reasoning, does not appear to be correct. We have also gone through the HSN Notes. The HSN Explanatory Notes, under Heading 27.11 is as follows: -

This heading covers crude gaseous hydrocarbons obtained as natural gases or from petroleum or produced chemically. Methane and propane are, however, included even when pure.

These hydrocarbons are gaseous at a temperature of 15 C and under a pressure of 1,013 millibars (101.3 kPa). They may be presented under pressure as liquids in metal containers and are often treated, as a safety measure, by the addition of small quantities of highly odoriferous substances to indicate leaks.

They include, in particular, the following gases, whether or not liquefied:
I. Methane and propane, whether or not pure.
II. Ethane and ethylene less than 95% pure (Ethane and ethylene not less than 95% pure fall in Heading 29.01)
III. Propane (propylene) less than 90% pure (Propane not less than 90% pure falls in Heading 29.01)
IV. Butane containing less than 95% of n-butane and less than 95% of isobutane. (Butane containing not less than 95% of n-butane or isobutane falls in Heading 29.01)
V. Butane (butylenes) and butadienes less than 90% pure. (Butanes and butadienes not less than 90% pure fall in Heading 29.01).
Vi. Intermixtures of propane and butane.

8.2 On going through the above notes, it does not follow that the impugned product would fall under 2711.13. In cases where a particular hydrocarbon is less than 90% we are not inclined to classify it as a pure hydrocarbon. In other words, when the percentage of Butane is more than 60% and less than 90%, we cannot classify it as Butane. Since the impugned product is a mixture of different hydrocarbons, it would be more appropriate to classify the same under CH 2711.19 as Other. We do not find any infirmity in the impugned OIA. The appeal of the Revenue has no merits as the impugned product is rightly classifiable under CSH 2711 19 00. The benefit of the said Notification cannot be denied. In fine, the Revenue's appeal fails and the impugned order is upheld.

Pronounced in open Court on 30.6.2006.

Equivalent 2006 (077) RLT 0388 (CESTAT-Ban.)

Equivalent 2006 (206) ELT 1059 (Tri.- Bang.)