2000(03)LCX0328

IN THE CEGAT, COURT NO. III, NEW DELHI

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

COLLECTOR OF C. EX., BOMBAY

Versus

OSWAL PETROCHEMICALS LTD.

Final Order No. 191/2000-C, dated 28-3-2000 in Appeal No. E/3262/93-C

Collector v. Atul Products Ltd. — 1985(01)LCX0021 Eq 1985 (020) ELT 0147 (Tribunal) — Distinguished.... [Para 3.4]

Collector v. Kamal Traders — 1986(01)LCX0047 Eq 1986 (024) ELT 0702 (Tribunal) — Distinguished........... [Para 3.4]

Collector v. NOCIL Petro-chemical Corporation Ltd. — 1990(05)LCX0019 Eq 1990 (049) ELT 0314 (Tribunal)
— Distinguished...................................................................................................... [Para 3.4]

Collector v. Woodcraft Products Ltd. — 1995(03)LCX0070 Eq 1995 (077) ELT 0023 (S.C.) — Referred................ [Para 3.1]

India Petro-chemical Corporation Ltd. v. Collector — 1990(07)LCX0097 Eq 1993 (065) ELT 0545 (Tribunal)
— Distinguished...................................................................................................... [Para 3.4]

DEPARTMENTAL CLARIFICATIONS CITED

C. B. E. & C. letter F. No. 83/20/86-CX.3, dated 22-9-1986............................................. [Para 3.1]

Trade Notice No. 76/86 issued by Bombay Collectorate................................................... [Para 3.1]

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

S/Shri M. Chandrasekharan, Sr. Advocate and A.S. Sunder Rajan, Advocate, for the Respondents.

[Order per : Jyoti Balasundaram, Member (J)]. - The respondents herein who are manufacturers of excisable goods falling under Chapters 27, 28, 29, 30, 38 and 39 of the Schedule to the CETA 1985, filed classification list No. 1/89-90 effective from 3-11-1989 for various goods falling under Chapters 27, 28 and 29, which list was approved by the jurisdictional Assistant Collector. In the said classification list, they had described the product “Dripolene C” as “other residues of petroleum oils or of oils obtained from bituminous minerals including heavy petroleum stock, low sulphur heavy stock and other residual fuel oils” and classified it under CET Sub-heading 2713.30. The rate of duty leviable thereon was mentioned as Rs.155/- PMT plus 5% of BED as Special Excise duty. They also claimed exemption in terms of Notification 75/84 dated 1-3-1984 which prescribed nil rate of duty if it was used as fuel within the refinery for the production or manufacture of other finished petroleum products. They also described the products Benzene and Toluene as “cyclic hydro-carbons” and classified the same under CET sub-heading 2902.00 and the rate of duty leviable thereon was 15% BED plus 5% of BED as Special Excise duty. The Department was of the view that (a) Benzene and Toluene fell for classification under CET sub-headings 2707.10 which covers Benzole and 2707.20 which covers Toluole respectively thereby attracting BED @ Rs. 2750/- per kilo litre plus 5% BED as SED during the period of clearance. This view was based upon the fact that both these products were of 91% purity which is below the purity of 96% prescribed in the HSN for Benzene and Toluene under Chapter 29; (b) that Dripolene C was classifiable under CET sub-heading 2707.90 since, as per the respondents' own quality control laboratory reports, the weight of aromatic constituents exceeded that of non-aromatic constituents.

2. Investigations also revealed that Benzene and Toluene had been cleared in the guise of Dripolene C resulting in a total short payment of duty to the tune of Rs. 75,39,160.63. A show cause notice dated 17-9-1990 was issued to them, proposing recovery of duty of the amount above mentioned, and proposing imposition of penalty. The adjudicating authority held that purity was not a criterion for classification of a petrochemical product under Chapter 29 so long as the product answered to the description of separately defined organic compound and accepted the assessees' claim for classification of these two products (Benzene & Toluene) under Heading 29.02, and he also agreed with the assessees’ claim for classification of Dripolene C under CET sub-heading 2713.30 as a residue obtained from cracking of raw naphtha and petroleum oil. The Collector also dropped the charge of clearance of Benzene & Toluene in the guise of Dripolene C and dropped the proceedings initiated under the show cause notice. Hence this appeal by the Revenue.

3. We have carefully considered the rival submissions and perused the records. Our findings on the various issues are recorded herein below :

3.1 Classification of Benzene and Toluene

The distinguishing criterion for classification of Benzene and Toluene is the purity of the product, as seen from the HSN Explanatory Notes to Chapter 27 and Chapter 29. Under the HSN Explanatory Notes, which are required to be followed when Tariff Entry is patterned thereon, as held by the Apex Court in the case of Collector of Central Excise, Shilloing v. Woodcraft Products Ltd. reported in 1995(03)LCX0070 Eq 1995 (077) ELT 0023 (S.C.), a separate chemically defined compound is defined as “a single chemical compound of known structure which does not contain other substances deliberately added during or after its manufacture (including purification)”. The Notes further state with specific reference to hydro-carbons, and in particular to Benzene and Toluene that, in order to fall under Chapter Heading 29.02, Benzene should distil 1% to 96% by volume within a 2^O C range which includes 80.1^O C and that Benzene of lower purity is excluded (Heading 27.27), and that Toluene must distil 1% to 96% by volume within a 2^O C range which includes 110.6^O C and that Toluene of lower purity is excluded (Heading 27.07). The CBEC vide its letter F. No. 83/20/86-CX. 3, dated 22-9-1986 had clarified that the distinguishing criteria for classification of Benzene and Toluene and Xylene, whether under Chapter 27 or under Chapter 29, would be the test laid down in HSN Explanatory Notes and that the HSN test could be adopted for determining the classification of these products, for the purpose of levy of Central Excise duty. The Bombay-I Collectorate had also issued Trade Notice No. 76/86 on the basis of this letter. In view of the above, we hold that the adjudicating authority has erred in accepting the assessee's contention that purity was not a criterion for the purpose of determining classification of a petro-chemical product under Chapter 29.

3.2 The respondents were testing samples of their products, Benzene and Toluene in their Quality Control Laboratory. The said reports indicated that the percentage of Benzene and Toluene by weight separately was less than 96% e.g. in respect of clearance on 16-5-1990, the weight of Toluene was 87.15%, in respect of clearance on 12-6-1990, the weight of Toluene was 84.30%, in respect of clearance on 11-6-1990, weight of Benzene was 75.38% and in respect of clearance on 7-7-1990, weight of Benzene was 86.88%. The Quality Control Laboratory reports mentioned in the charts enclosed as annexures A and B to the show cause notice clearly indicated that Benzene or Toluene contents were less than 96%. Further, the Product Bulletin (Annexure Y3 to the show cause notice) of Benzene and Toluene indicates purity more than 96% which is in conformity with ISI specifications. Since the test reports showed purity less than 96%, Benzene and Toluene were different varieties from Benzene and Toluene of higher purity, and, therefore. Benzene and Toluene manufactured by the assessees is classifiable under CET sub-headings 2707.10 and 2707.20 respectively, as contended by the Revenue and not under Chapter Heading 29.02 as claimed by the respondents.

3.3 Benzene, as manufactured by the assessees, as per their own chemical test report dated 10-5-1990 (annexure to the show cause notice) had the following constituents :

From this report, it is obvious that Benzene manufactured by the assessees was a mixture of various separate chemically defined organic compound and, therefore, it could not be considered as a single separate chemically defined organic compound of known structure, which was classifiable under Chapter 29. The weight of the aromatic constituents (especially Benzene) exceeds that of non-aromatic constituents and, therefore, this is an additional factor for classification of Benzene as manufactured by the assessees as Benzole under CET sub-heading 2707.10 as per Note 3 to Chapter 27. Similar is the case with Toluene - both are covered by the description in the first part of 27.07 viz. “oils and other products of the distillation of high temperature coal-tar” since they are obtained by distillation of high temperature coal-tar in more or less broad fractions, which produces mixture consisting pre-dominantly aromatic hydro-carbons and other aromatic compounds, as seen from the HSN Explanatory Notes to Heading 27.07 at page 216 wherein Benzole and Toluole are mentioned as examples of products covered by the first clause of Heading 27.07.

3.4 The second ground for the conclusion of the adjudicating authority that Benzene and Toluene fall for classification under Chapter 29 is that under Notification Nos. 253/76, 75/84 and 218/84, these two products had been classified under Chapter 29. This finding is not tenable since classification of goods cannot be arrived at on the basis of exemption Notification and further for the reason that Benzene and Toluene of higher purity do fall under Chapter 29. The Collector has also relied upon the gate passes issued by M/s. Reliance Industries Ltd., M/s. NOCIL and M/s. Bharat Petroleum Corporation Ltd. showing classification of Benzene and Toluene under Chapter 29 without relying upon any material to show that the purity of Benzene and Toluene manufactured and cleared by the above three companies was the same as that of the assessee and for this reason, his finding is faulty. The Collector has further relied upon judgments of the Tribunal on classification of Benzene and Toluene, without indicating which specific decision he was following. We find that the assessees had cited Tribunal's order in the cases of (i) Collector of Central Excise v. Atul Products Ltd. reported in 1985(01)LCX0021 Eq 1985 (020) ELT 0147 (ii) Collector of Central Excise v. Kamal Traders, Bombay reported in 1986 (24) E.LT. 702 (iii) Collector of Central Excise v. NOCIL reported in 1990(05)LCX0019 Eq 1990 (049) ELT 0314 (T) = 1990 (028) ECC 372 & (iv) M/s. India Petro-chemical Corporation Ltd. v. Collector of Central Excise reported in 1990(07)LCX0097 Eq 1993 (065) ELT 0545 (T) = 1990 (030) ECC 327.

3.5 We have carefully perused the case law cited and find that they are distinguishable, and not applicable to the facts of the present case, as the Tribunal has nowhere held in any of those decisions that purity of the product cannot be a criterion for classifying the same under Chapter Heading 27.07 or 29.02.

3.6 In the light of the above discussion, we hold that Benzene and Toluene manufactured by the assessees herein fall for classification under CET sub-headings 2707.10 and 2707.20 respectively and set aside the classification arrived at by the Collector under Chapter 29.

4.1 Classification of Dripolene C

The Collector has held that this product is classifiable under CET sub-heading 2713.30 as other residue of petroleum oil or of oils obtained from Bituminous including heavy petroleum stock, low sulphur heavy stock and other residual oils. Dripolene C is an intermediate product obtained from cracking of raw naphtha. All the officials of the respondents company who were connected with the production of chemicals had admitted in their statements and affidavits filed during cross-examination that Dripolene C was not residue but of product of distillation which was used as raw material for manufacture of Benzene and Toluene. Since the weight of aromatic constituents of Dripolene C was found on test to exceed that of non-aromatic constituents and since it is a product of distillation of coal-tar or other mineral tar, it is covered by the latter clause of Heading 27.07 viz. “similar products in which the weight of the aromatic constituents exceeds that of non-aromatic constituents”, and is not a residual oil under Chapter Heading 27.13, as held by the Collector.

5.1 Clearance of Benzene and Toluene in the guise of Dripolene C

The Collector has held that Benzene and Toluene which did not conform to the standards prescribed in the product literature was removed from the factory premises of the respondents as Dripolene C. However, this finding is contrary to the record. The test reports of the goods cleared under certain gate passes clearly shows that the product was Benzene, but the goods have been described in the gate passes as Dripolene C. It has also been admitted by Shri Shankar Lal Gopalji Bhanushali, Director of M/s. Sharp Trading and Financial Co. Ltd. who was a producer of different chemicals, including Dripolene C, that he had only received Benzene and Toluene as Dripolene C. Sh. Rajesh Ghatalia, Manager of Aarey Enterprises has also admitted that he purchased Benzene and Toluene from the assessees, and had not purchased Dripolene C and that all consignments received from the respondents were either Benzene or Toluene. Shri Paramjit Singh, Commercial Manager of the respondents during the relevant period, has admitted that Benzene and Toluene were cleared in the guise of Dripolene C. Shri K. Kumar, Director of Khanna Chemical Industries Ltd. has also accepted that he received Benzene and Toluene from the respondents although orders were placed for Dripolene C.

Sh. Rajesh Galhotra, a partner of M/s. Sudarshan Trading Corporation has also stated that he had received Toluene in the guise of Dripolene C. The above oral evidence has not been rebutted by the respondents, either with reference to any test reports to show that what was cleared was in fact Dripolene C, or in any other manner. Therefore, we have no hesitation in upholding the charge that the assessees cleared Benzene and Toluene in the guise of Dripolene C and set aside the Collector's finding on this issue.

6. In the result, we confirm the duty demand of Rs. 75,39,160.63 and also impose a penalty of Rs. 15 lakhs. We do not, however, pass any order for confiscation of land, building, plant, machinery, etc.

7. The impugned order is thus set aside and the appeal of the Revenue allowed.

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Equivalent 2000 (126) ELT 1232 (Tribunal)

Equivalent 2000 (038) RLT 0857