1998(08)LCX0055

IN THE CEGAT, COURT NO. III, NEW DELHI

Ms. Jyoti Balasundaram, Member (J) and Shri V.K. Agrawal, Member (T)

COLLECTOR OF CENTRAL EXCISE, BOMBAY

Versus

METASULF (I) LTD.

Final Order No. 648/98-C, dated 11-8-1998 in Appeal No. E/2125/93-C

CASE CITED

J.K. Spg. & Wvg. Mills v. Union of India — 1987(10)LCX0009 Eq 1987 (032) ELT 0234 (S.C.) — Referred                                 [Para 3]

Advocated By : Shri H.K. Jain, SDR, for the Appellant.

Shri H.C. Joshi, Advocate, for the Respondent.

[Order per : V.K. Agrawal, Member (T)].- The issue involved in the appeal filed by the Revenue is whether the EXO Gas is classifiable under sub-heading 2804.90 of the Schedule to the Central Excise Tariff Act as claimed by the Respondents and approved by the Additional Collector in the impugned order or under S.H. 3823.00 as prayed by the Revenue in appeal petition.

2. We heard Shri H.K. Jain, ld. S.D.R. and Shri H.C. Joshi, ld. Counsel for M/s. Metasulf India Ltd., Respondents.

3. The Respondents manufacture insoluble sulphur of various grades. According to the Respondents, for manufacturing insoluble sulphur they need inert gas; they had set up a plant which consists of a combustion chamber where the atmospheric air is fed into a coil flame and the resultant gas is cooled and put into holding tank from where it is distributed to the plant through pipelines. The gas is entirely consumed captively. The EXO gas comprises of Nitrogen (79.70%), Carbondioxide (4.40%) and other gases (15.90%). The Additional Collector treated the Exo gas as Nitrogen gas applying Rule 2(b) and 3 of the Rules for the Interpretation of the Schedule to the Central Excise Tariff Act. After referring to Explanatory Note of H.S.N., he also observed that Heading 38.23 is a residuary heading and the kind of miscellaneous by products of chemical or allied industries mentioned in HSN below Heading 38.23 do not come anywhere near Nitrogen Gas which finds place in Heading in 28.04 of HSN. The Additional Collector also extended the benefit of Notification No. 40/85 to the impugned product.

3. Shri H.K. Jain, Ld. SDR, submitted that according to note 1 to Chapter 28, the headings of the Chapter apply only to separate chemical elements and separate chemically defined compounds and as EXO Gas comprises of various gases it will not be classifiable under Heading 28.04; that the impugned product is a residual product rightly classifiable under Heading 38.23; that the criterion of marketability is not applicable in the case of goods captively consumed as held in the case of J.K. Spg. & Wvg. Mills - 1987(10)LCX0009 Eq 1987 (032) ELT 0234 (S.C.); that the extended period under Section 11A(1) of Central Excise Act was available for issuing the show cause notice as there was a deliberate suppression by the Respondents of the fact of manufacture inasmuch they had not filed any classification list, price list during the relevant period; that the first classification list was filed only on 18-12-1987 whereas the period involved in the appeal is from 1-3-1986 to 17-12-1987; i.e. prior to filing of the classification list. Shri H.C. Joshi, ld. Advocate submitted that the process of manufacturing EXO Gas is by burning the atmospheric air with the help of flame; that by this process the Oxygen is burnt out and what is left is Nitrogen gas with impurities; that gas so obtained cannot be considered as a mixed chemical as other gases present there are in the form of impurities. He also submitted that Notification No. 40/85 exempts Nitrogen Gas used captively; that show cause notice is time barred and extended period for issuing show cause notice is not applicable as department was aware of the manufacturing process and they were under the bona fide belief that the impugned product is not excisable being captively consumed.

5. We have considered the submissions of both the sides. The issue involved in the present appeal centres round the question whether the EXO gas manufactured by the Respondents is a Nitrogen Gas or not. The original adjudicating authority has treated the impugned product as Nitrogen taking into consideration use of the gas as according to him the role of blanketing agent is essentially that of Nitrogen gas and he has classified the product under sub-heading 2804.90 as the EXO Gas comprised of Nitrogen gas to the extent of 79.70% and which gives the product its essential character. The Respondents have claimed EXO Gas to be Nitrogen Gas with some impurities. On the other hand, the Department wants the impugned product to be classified under S.H. 3823.00 relying upon the Note 1 to Chapter 28. According to Kirk-othmer Concise Encyclopedia of Chemical Technology, Nitrogen is a non-metallic element; it is produced commercially by separating it from air via three important methods. Cryogenic distillation; combustion of natural gas or propane and air; and pressure - swing absorption; the choice of method depends primarily on the desired production capacity and nitrogen purity requirements; cryogenic distillation is the most extensively used method as the economic choice for large scale production and high purity; Nitrogen is used extensively in the metallurgical, chemical, and food industries as a blanket or purge gas to preclude oxidation during processing, storage and packing. We observe from the impugned order that the impugned product is manufactured in a combustion chamber where the atmospheric air is fed into a coil flame and the gas so obtained is used for providing inert cover on the various equipment used by the Respondents for manufacturing their final product insoluble sulphur. The ld. Advocate has also claimed the impugned product to be nitrogen gas with impurities. In fact the Respondents from the stage of adjudication are claiming that EXO Gas is a commercial term and what is manufactured by them is nothing but Nitrogen. Taking into consideration the process of obtaining the gas, its use and the technical literature and also the fact that the Revenue has not adduced any technical evidence by referring to any technical book that the gas produced by the Respondents is not a Nitrogen Gas, the classification of the impugned product as approved by Commissioner (Appeals) under sub-heading 2804.90 is correct. The onus of proof is on the department that a particular product is classifiable under a specific heading which has not been discharged in the present case. In view of these facts and circumstances we do not find any reason to interfere with the impugned order and the appeal filed by the Revenue is rejected.

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Equivalent 1998 (104) ELT 518 (Tribunal)