2012(01)LCX0142

IN THE CESTAT, EASTERN BENCH, KOLKATA [COURT NO. II]

S/Shri B.S.V. Murthy, Member (T) and Ashok Jindal, Member (J)

Haldia Petrochemicals Ltd.

Versus

Commissioner of Custom (Prev.), Kolkata

Final Order No. A-9/KOL/2012, dated 11-1-2012 in Appeal No. C/197/2010

Cases Quoted -

Avani Petrochem Ltd. v. Commissioner - 2009(08)LCX0153 Eq 2010 (249) ELT 0117 (Tribunal) - Referred [Paras 7,10]

Commissioner v. Indian Petrochemicals Ltd. - 2011 (274) ELT 0299 (Tribunal) - Referred [Paras 5.2,6, 25]

Indu Nissan Oxo Chemical Industries Ltd. v. Commissioner - 1998(03)LCX0137 Eq 1998 (101) ELT 0201 (Tribunal) - Referred [Paras 7,10]

Ram Remedies Pvt. Ltd. v. Commissioner - 2010(01)LCX0173 Eq 2010 (254) ELT 0170 (Tribunal) - Inapplicable [Paras 7,10]

Shriram Petroleum Industries v. Commissioner - 2010(03)LCX0193 Eq 2010 (255) ELT 0317 (Tribunal) - Referred [Paras 7,10]

Unimers India Ltd. v. Commissioner - 2009(06)LCX0307 Eq 2010 (250) ELT 0225 (Tribunal) - Referred [Para 5.2]

DEPARTMENTAL CLARIFICATION CITED

C.B.E. & C. Circular No. 574/11/2001-CX, dated 22-2-2001 [Paras 7,20]

Advocated By -

Shri Vipin K. Jain, Advocate, for the Appellant.
Shri A.K. Raha, Special Counsel, for the Respondent.

[Order per : B.S.V. Murthy, Member (T)]. -

The primary issue involved in the above appeal relates to the classification of two products, "Exxsol Hexane RD" and "Hydrosol n-hexane" imported and cleared by the appellant against 58 Bills of Entry filed during the period 28-2-2001 to 26-2-2005. 'Exxsol Hexane RD' and 'Hydrosol n-hexane' are two famous brands of Hexane manufactured and supplied respectively by 'Exxson Mobil' and Total'. In the various Bills of Entry filed by the appellant, the said two products were claimed to be classifiable as "separate chemically defined organic compounds" under Heading 2901 of the Customs Tariff and the ITC-HS. In respect of 28 (out of the 58) Bills of Entry, clearance was sought against Advance Licences permitting duty-free import of the two brands mentioned above. The Commissioner, in the impugned order, has held that the said products are correctly classifiable as "special boiling point spirits" of Chapter Heading 27.10 of the Customs Tariff. Besides demanding dif-ferential duty of Customs by invoking the proviso to Section 28(1) of the Customs Act, 1962, the impugned order also holds that the import of the said goods was unauthorized as import of products falling under Chapter Heading 27.10 was canalized and, therefore, could not have been imported directly by the appellant. Redemption fine and penalties have been imposed under different provisions of the Customs Act, 1962 for wrong classification of the goods as well as for their unauthorized import.


1. Heard both the sides in great detail and both wanted to make written submissions. Accordingly appellants were directed to make written submissions by 5th of October and serve a copy to the respondents. However, the appellants could not make the written submissions by 5th October and without waiting for the same, the special counsel for the respondent made written submissions which were received on 11-11-2011. However, before the order could be dictated, the written submissions from the appellant were also received. Before the dictated order could be corrected and considered by the Bench and pronounced, rejoinder from the appellant was received. Both the written submissions and rejoinder have been taken into account while finalizing the order. Both the sides have stated that basically the written submissions are the reiteration of arguments advanced during the hearing. Therefore instead of summarizing the written submissions, the same are reproduced below (Omitting referencing details not relevant to the order) :

The submissions made on behalf of the appellant were the following:

"(a) that the Revenue has failed to discharge its burden of proving that the classification declared by us was wrong. It is well settled that the bur-den of disproving the correctness of the classification claimed by an assessee is that of the Revenue, which is obliged to discharge by bringing on record cogent and reliable evidence (see Union Bank of India v. Garware Nylons, 1996(09)LCX0005 Eq 1996 (087) ELT 0012 (S.C.); Navya Imports & Exports Enterprises v. Commissioner of Customs, Chennai, 2006(04)LCX0002 Eq 2006 (197) ELT 0154 (S.C.);

(b) that the issue of classification of n-hexane stands concluded in favour of the appellant by two decisions of the Tribunal in the cases of CC, Kandla v. Indian Petrochemicals Ltd. (Order No. A/1280/WZB/AHD/2011, dated 25-3-2011 passed by CESTAT, Ahmedabad) and Unimers India Ltd. v CC, Mangalore - 2009(06)LCX0307 Eq 2010 (250) ELT 0225 (Tri.-Bang.);

(c) that as between Chapter 29 and Chapter 27 of the Customs Tariff Act, Heading 29.01 is more specific, as it specifically covers "Hexanes" without any limitation as to the purity of the product and must therefore be preferred over Chapter 27 in view of the settled legal position laid down by the Supreme Court in the case of Dunlop India Ltd. v. Union of India, 1975(10)LCX0016 Eq 1983 (013) ELT 1566 (S.C.);

(d) even otherwise, if the products are covered under both the headings, viz. Heading 29.01 and Heading 27.10 of the Customs Tariff, the same would merit classification under Chapter 29.01 by virtue of Note 1(b) to Chapter 27 which specially excludes 'separate chemically defined organic compound from the said Chapter 27; Separate chemically defined com-pounds has been defined in the Explanatory Notes to the HSN (Chapter 29) as - "A separate chemically defined compound is a substance which consists of one molecular species (e.g. covalent or ionic) whose composition is defined by a constant ratio of elements and can be represented by a definitive structural diagram. In a crystal lattice, the molecular species corresponds to the repeating unit cell." As n-hexane has a defined molecular structure C6H14 and a definite molecular weight, n-hexane is a separate chemically defined compound. This fact is admitted in Para 13(c) of the Show Cause Notice itself;

(e) the Explanatory Notes to the HSN under Chapter 27 (at pages 21 to 31 of the compilation) specifically state that the said Chapter 27 'does not cover separate chemically pure state' as such Products are classifiable under Chapter 29. Relevant extracts from the HSN Explanatory Notes are set out herein below for ease of reference :

(a) Explanatory Notes to chapter 27 in 'General' (page 21 of the compilation):

"Goods of this Chapter may be crude or refined; however, with the exception of methane and propane, when they are separate chemically defined organic compounds in the pure or commercially pure state, they are to be classified in Chapter 29."

(i) The Explanatory Notes to Heading 27.10 in particular (at page 31 of the compilation) reads thus:

"The heading covers fractions as described above, even if they have been further treated to eliminate impurities (e.g. treatment with acids or alkalis, with selective solvents, with zinc chloride with absorbent earths, etc., or by re-distillation), provided this treatment does not produce separate chemically defined compounds in a pure or commercially pure state (Chapter 29)."

(f) the Explanatory Notes to Chapter 29 clearly cover 'Hexanes' under Heading 2901. The use of the terms 'Hexanes' |in plural clearly shows that the heading covers not only n-hexane, which is chemically pure, but also covers commercial grades of Hexane;

(g) the following extracts taken from "Kirk Othmer Encyclopedia of Chemical Technology are relevant for understanding the meaning of the expression 'commercial Hexane';

"Commercial hexane is a narrow-boiling mixture of these compounds with methyl cyclopentane, cyclohexane, and benzene; minor amounts of C5 and C7 hydrocarbons also may be present."

The Hon'ble Tribunal in the case of IPCL has relied upon the above referred extracts from "Kirk-Othmer Encyclopedia and held as under :

"The Kirk-Othmer Encyclopedia specifically states the Hexane obtained fractional distillation of crude petroleum oil contains many impurities as it may not be possible to eliminate all the impurities. As such, it states that if the Hexane present is to the extent of 63.91%, the same will be treated as commercially pure product. The said impurities are not allowed to be remained in the Hexane with intent to use the same for specific purpose rather than general use. They are not deliberately left in the product, neither is the Revenue's case to that effect."

(emphasis supplied) (h) the above finding of the Hon'ble Tribunal have to be read in the context of the composition of the disputed product as extracted in Para 11 of the said order, wherein Methyl cyclopentane, 3-Methylpentane and 2-Methylpentane were shown as constituents of the product having 19.43%, 9.38% and 3.48% by volume respectively. These three components of the product were regarded by the Hon'ble Tribunal as 'permissible impurities' and the products 'Exxsol Hexane RD' was held to be is a 'commercially pure Hexane' despite the N-hexane content being 63.93% in that product;

(h) it was submitted that the two products in question are 'commercially Pure' Hexanes. This position has been confirmed not only by the supplier, Exxson Mobil in its letter dated 5-9-2009 but also by a technical expert, Dr. Tilak Guha, in his opinion dated 20-11-2009. The opinion of Dr. Guha remains uncontroverted dispute as despite our offer to produce him for cross-examination vide our submission dated 2-12-2006, the department neither cross-examined him not controverted his opinion by dealing with it in the Order or by producing a contra opinion from some other expert. Even otherwise, neither the Show Cause Notice nor the impugned order discloses any evidence or basis to dispute the position that the two products are "Commercially pure Hexanes". This position therefore, remains uncontroverted by evidence.


2. The counsel for the Revenue sought to distinguish the above referred decision in IPCL's case on the ground that the percentage of n-hexane in the product imported by appellant was much less than 63.93% that existed in the case of IPCL. The counsel however, did not dispute the fact that the brand name as well as the manufacturer of the product involved was the same. In reply, it was pointed out by the appellant's counsel.

(a) that the n-hexane content in the product varied as it depended upon the feedstock that is used to produce a particular batch. This position has been confirmed by the supplier, Exxon Mobil Chemical, in its letter dated August 05, 2009 as well as in the opinion by Dr. Tilak Guha. Following extracts from the letter of Exxon Mobil Chemicals are relevant:

"(vi) n-hexane content in Exxsol Hexane Fluid which has been supplied to Haldia Petrochemicals Limited was in the range of 36-58%.

(vii) Presently n-hexane content of Exxsol Hexane manufactured by Exxon Mobil is in the range of 44-55%.

(b) that reliance had been placed on the order of the Tribunal for the ratio laid down therein. If the principle decided in IPCL's case, particularly on the issue as to the 'permissible impurities' was applied to the facts of the present case, the conclusion would be that the products in question are classifiable under Heading 2901 of the Tariff.

(c) the Explanatory Notes to the HSN under Chapter 29 specifies the purity criterion for several compounds falling under Chapter 29 such as ethane 95%, ethylene 95%, Propylene 90%, phenol 90% etc. In respect of Hexane, however, no specific purity criteria has been prescribed. This position has been noted and explained in Note under Chapter 27 wherein it is stated that:

"For certain of these compounds (e.g., ethane, benzene, phenol, pyridine), there are specific purity criteria indicated in Explanatory Notes 29.01, 29.07 and 29.33."

The above extract makes it manifestly clear that for the products other than those specifically cited; no specific purity criteria have been prescribed.


5. The counsel for the Revenue also produced before the Hon'ble Bench an extract from a compendium of opinion, wherein 95% purity criterion was applied in relation to some unspecified product containing n-hexane. In reply, it was submitted by the appellant's counsel that this opinion does not reflect the view of the Custom's Cooperation Council, and in any case, cannot be relied upon in the absence of background facts in the context of which such an opinion was given. It was further pointed out that the extracts produced by the learned counsel for the Revenue have been furnished to appellant for the first time and had not been relied upon in the Show Cause Notice. It was further submitted that what was binding upon the courts and authorities are the Explanatory Notes (which do not prescribe any specific purity criterion for hexanes, unlike for many other chemicals as pointed out in Para 4(c) above and not individual opinion which do not represent the views of the Council. The classification opinions do not have any general application and they are regarded as individual opinions only with reference to the facts of a particular case. Subsequently, if those opinions are found to be valid for general application, they are incorporated in the Explanatory Notes to the Harmonized System. In CCE v. Woodcraft Products Ltd. - 1995 (077) ELT 23 and O.K. Play (India) v. CCE -2005 (180) ELT 300, the Hon'ble Supreme Court has held that HSN along with Explanatory Notes provide a safe guide for interpretation of entry. The .Hon'ble Supreme Court has not expressed a similar opinion with regard to the classification opinions and do not have the same value as the Explanatory Notes to the Harmonized system.


6. The Commissioner has relied upon the test report of SGS and also the report of Customs House Laboratory is not relevant because it simply states that the sample shows the characteristics of a special boiling Point spirits under Chapter sub-heading 2710 11 11 and 2710 11 12 on the basis of boiling point criteria. The Customs House Laboratory did not consider whether goods fall in Chapter 29 or 27 and whether the goods are chemically or commercially defined compounds. It assumed that the goods fall in Chapter 27 and, therefore, he gave the classification in the sub-headings. It is submitted that the classification in sub-heading is relevant only after classification in a particular heading is settled. Therefore, nothing turns on the report of the Customs House Laboratory. Moreover, the Customs House Laboratory is not an expert in classification and to that extent their opinion indicating some classification is of no value. As regards the report of the SGS, the chemicals mentioned in the composition given by Kirk-Othmer for commercial Hexane are the same as that of the products imported, albeit in varying percentages, which is due to the feedstock being of natural origin having varying percentages of different compounds. Thus, the report given by SGS confirms that the product is a commercial Hexane.
7. With reference to the composition of the imported product, it was pointed out that the typical composition of the product Exxsol Hexane RD is as under :

8. Referring to the above composition, the contention of the counsel for the Revenue was two-fold (a) that the product is predominantly a 'pentane' and not Hexane as the sum total of percentages for '2-Methyl Pentane' and '3 - Methyl Pentane' is more than 46% as compared to 38.60% of n-hexane and (b) that, in any case, the product is a mixture of several acyclic Hydrocarbon Isomers of n-hexane and are, therefore, excluded from Chapter 29 by virtue of Chapter Note 1 (b), which reads thus :

"(b) admixtures of two or more isomers of the same organic compound (whether or not containing impurities), except mixtures of acyclic hydrocarbon isomers (other than stereoisomers), whether or not saturated (Chapter 27);"


9. In reply, it was pointed out by the appellant's counsel that 2-Methyl Pentane and 3 Methyl Pentane are not Pentanes but are Hexanes only as the chemical formula for these two is G>Hi4. Pentanes, on the other hand, have five carbon atoms and their formula is C5H12. Therefore, the contention of the counsel for the Revenue that the products in question were Pentane, is incorrect. In fact, no such case was ever made either in the Show Cause Notice, or in the impugned order. In fact Para 13(e) of the notice describes these two chemicals as isomers of Hexane and not pentanes as contended by the revenue's counsel.


7. Insofar as the second contention is concerned, it was submitted that;

(a) Note 1(b) is irrelevant for the reason that the products are specifically covered under Chapter 29 by virtue of Note 1(a) itself;

(b) Note 1(b) is otherwise inapplicable as it applies to 'mixtures' and not to 'separate chemically defined compounds' containing 'impurities'. A commercially pure product, containing other chemicals can be regarded as a 'mixture' only if such other Chemicals have been deliberately added or left in the product so as to render the same suitable for a specific use. It is not the Revenue's case that any of the eleven other components (i.e. other than n-hexane) of the two products in question were deliberately added or left in the end-products. The said products are therefore not 'mixtures' so as to be covered by Note 1(b). As explained above, the products in question are commercially pure n-hexane, containing 'impurities' which are permissible as per Explanatory Note to HSN. Such products are not 'mixtures' at all, as already held by the Hon'ble Tribunal in IPCL's case cited above.

(c) the exclusion provided in Note 1(b) has no application in the present case as the constituent components of the products are not only 'acyclic hydrocarbon isomers'. As it is evident from the composition itself, the products contain both 'acyclic' hydrocarbons as well as 'cyclic' hydrocarbon. At least 3 out of the 12 components are cyclic. These are 'Methyl Cyclopentane', 'Cyclopentane', and 'Cyclohexane'. The product in question, if at all, is to be considered as a 'mixture' cannot be regarded as a mixture exclusively of acyclic hydrocarbon isomers, which alone are hit by the exclusion clause in Note 1(b) under Chapter 29. Chapter Note 1(b), therefore, does not apply.


11. As regards the presence of 2, 2 Dimethyl Butane, 2, 3 Dimethyl Butane, 2, Methyl Pentane and 3 Methyl Pentane along with n-hexane, it was submitted that all five of them are "Hexanes". The notice, in Para 13(a) to 13(g) pages 123 to 126 of the appeals also regards these five chemicals as 'Hex-ane', which is why it alleges that the sum total of all Hexanes was less than 95%. The first four chemicals mentioned above are isomers of n-hexane which are known as commercial Hexanes and have the same formula, chemical property and boiling point range as n-hexane. These different isomers of n-hexane occur naturally in the feedstock i.e. Light Virgin Naphtha (LVN) wherefrom the disputed products have been manufactured by the suppliers. In this regard reliance was placed on the meaning of the expression 'impurities' as set out in the Explanatory Notes to the HSN which reads thus :

"The term "impurities" applies exclusively to substances whose presence in the single chemical compound results solely and directly from the manufacturing Process (including purification). These substances may result from any of the factors involved in the process and are principally the following :

(a) Unconverted starting materials.
(b) impurities present in the starting materials.
(c) Reagents used in the manufacturing process (including purification).
(d) By-products.

The Hon'ble Tribunal enquired whether the chemicals other than hexanes which are present in the product fall in the definition of impurities as given above they were unconverted starting material or impurities present in the starting material."

The suppliers have now confirmed vide their letter dated 14th October, 2011 (copy enclosed as Exhibit 'A') that these elements were naturally present in the feedstock and could not be removed in the process of fractionation due to their having boiling points which were very close to that of n-hexane. These four substances are therefore "permissible impurities" whose presence in the final product is due to the fact these were naturally present in the feedstock, i.e. Light Virgin Naphtha (LVN) from where the disputed products were obtained by the suppliers. These have neither been added deliberately nor left in the final product with a view to render the product suitable for a particular end-use.


12 It is submitted that there are'three clarifications now available on record from Exxon Mobil Chemicals. The first one is dated 15-4-2004, the second one is dated August 05, 2009 and the third one is dated 14th October, 2011 obtained after the conclusion of the hearing before this Hon'ble Tribunal. Relevant to the question of impurities, the following extracts from the letter of August 05, 2009 are significant:

"(iv) the purpose of fractionation is to separate a particular boiling range from the mixture. In the case of Hexane, the target boiling range of 64-70°C, n-hexane itself has a boiling point of 68.80°C. Within the feed there are some other isomers of n-hexane that have boiling points within the 64- 70°C range that are also collected along with n-hexane.

(i) All the molecules present in Exxsol Hexane were either present in the feed or were generated during the manufacturing process of Exxsol Hexane."

Further, the clarification which has now been obtained from Exxon Mobil Chemical is extracted below for ease of reference :

"CLARIFICATION OF PRESENCE OF 2-METHYL PENTANE
AND
3-METHYL PENTANE IN EXXSOL™ HEXANE FLUID.

(a) We understand that the Indian Customs have queried the presence of 2-methyl pentane and 3-methylpentane in our Exxsol™ Hexane Fluid. As mentioned in our Indian Affiliate's earlier letter dated 5 August 2009, Exxsol™ Hexane fluid is manufactured by the further processing of Light Virgin Naphtha (LVN). Within the LVN feed, there are other substances besides n-hexane. The two substances, namely 2-methylpentane and 3-methylpentane, are naturally present in the LVN and hydrogenated LVN.

(b) In the process of fractionation of hydrogenated LVN to separate the target boiling range of 64% - 70°C for Exxsol™ Hexane Fluid, 2- methylpentane and 3- Methyl Pentane having boiling points close to the target range of 64 -70°C also separate along with n-hexane. These two substances therefore remain in the final product i.e. Exxsol™ Flexane Fluid. We hope that the above clarification will address the Indian Customs queries."


13. Since it is not the case of the Revenue that the presence of any of the 4 isomers of n-hexane or the other seven components mentioned in the list above was through deliberate addition of such components into this product or a deliberate intention to live them behind so as to render the endproduct suitable for a specific use, the products cannot be regarded as a 'mixture' particularly in the light of the clarification given by the suppliers, which are duly corroborated by the Kirk-Othmer Encyclopedia which describes the said products as commercially pure n-hexane. These clarifications as well as composition in Kirk-Othmer Encyclopedia clearly, shows that the various isomers of Hexane as well as other seven ingredients of the end product are permissible impurities whose presence in the final product is a direct result in the manufacturing process. These elements were present in the starting feedstock (LVN) and continue to remain in the final products due to having their close boiling point range, with the result they are difficult to remove and separate from n-hexane. The typical composition of Naphtha (LVN) as set out in the book "Manufacturing Ethylene" by L.P. Hallee S.B. Zdonik E.J. Green (copy enclosed as Exhibit-B) shows that all the components of the products imported by appellant are usually present in the feedstock from which the said products have been obtained by the suppliers. The book gives specifications and composition of typical Naphtha from two different origins, i.e. Middle-East and Russia. The component analysis of this Naphtha is set out below for ease of reference :

14. Since all the components of the products in dispute are usually present in the feedstock (Naphtha) and there is nothing to show that they have been deliberately added or left in the course of the processing of Naphtha, all these ingredients are to be regarded as 'impurities', whose presence is permitted by virtue of their being 'unconverted raw materials' or 'impurities' present in the starting materials.


15. Before the respondent, we had also relied upon a Board Circular No. 574/11/2001-CX., dated 22-2-2001, wherein the Board had clarified that even if a product is a 'mixture' of chemicals, the same can be classified under Chapter 29 by virtue of General Note 1 (a) read with Rule 3(b) of the Interpretation Rules which provides that 'mixtures' and 'composite goods' are to be classified as if they consisted of the material or component which gives the end-product its essential character. The Board Circular in Para 4 states that as per the HSN Notes, Chapter 29 specifically include 'separate chemically defined compounds' dissolved in water and non-aqueous solutions and also compounds (or their solutions) with added stabilizers, anti-dusting agents or colouring substances, thus indicating that 'separate chemically defined compounds' of Chapter 29 do not necessarily exclude 'mixtures' of separate chemically defined compounds'. The Commissioner, in the order, has not dealt with this Board Circular even though the same was binding upon the Revenue authorities.


16. Apart from the submissions made hereinabove, which establish that n-hexane is classifiable under Chapter 29 of the Customs and Central Excise Tariffs and not under Chapter 27, there is a further and additional reason as to why in any event the same cannot be classified under Heading 2710.12 of the Central Excise Tariff. Heading 2710.12 of the Central Excise Tariff appears under the following description :

- Motor spirit, that is to say, any hydrocarbon oil (excluding crude mineral oil) which has its flash point below 25°C and which either by itself or in admixture with any other substance is suitable for us as fuel in spark ignition engines.

Thus, before the department can classify the imported goods under Head-ing 2710.12 of the Central Excise Tariff for the purpose of additional duty of customs, the department must establish by evidence that the following two requirements are satisfied:

(a) that the imported goods have flash point below 25°C; and

(b) that the imported goods are suitable for use as fuel in spark ignition engines either by themselves or in admixture with any other substance.

In the present case, the evidence relied upon in the Show Cause Notice merely shows that the imported goods have flash point below 25°C. There is no evidence in the Notice about the second requirement that the goods must be suitable for use as fuel either by themselves or in admixture with any other substance.


17. It was submitted that the scope of the heading has to be determined with reference to the text of those headings and cannot be determined with reference to the sub-headings covered by a particular heading. Therefore, whether the goods are light oils or are goods with a specific boiling point or fall in one of sub headings of heading 27.10 is wholly irrelevant. The correct method is that first the question of classification in a heading should be determined and there after only the scope of sub-heading in that particular heading should be examined. Here, the show cause notice as well as the findings of the Commissioner proceed on the reverse basis and, therefore, the finding to that extent is vitiated.


18. As regards the requirement of suitability of use as fuel either by itself or in admixture with any other substance, the following judgments lay down that it must be shown that the goods are actually, practically and commercially fit for such use and that such use is substantial and mere possibility of such use is not enough :

(a) Indo Nissan Oxo Chemical Industries Ltd. v. CCE - 1998 (101) ELT 201;

(b) Adani Petrochem Ltd. v. CCE - 2010 (249) ELT 117;

(c) Ram Remedies Put. Ltd. v. CCE - 2010 (254) ELT 170;

(d) Shriram Petroleum Industries v. CC - 2010 (255) ELT 317.

In the present case, the goods imported by the Respondent are used as a solvent. There is no material or evidence disclosed in the Show Cause Notice about any substantial and actual, Practice and commercial use of the imported goods as fuel for spark ignition engine. The learned counsel for the Revenue cited literature of some studies suggesting the possibility of use of n-hexane as fuel for spark ignition engines. However, as laid down in the aforesaid decisions, the studies as relied upon cannot be evidence of such use. There must be evidence of substantial actual and commercial use.


19. Moreover, the use as fuel spark ignition engines must be either by it-self or in admixture with any other substance. There is absolutely no evi-dence that n-hexane by itself is used as fuel for spark ignition engines. As regards use in admixture with any other substance. The Tribunal has in Oil India Ltd. v. CCE - 2002 (148) ELT 802 in Para 8 held that any other substance must be "substance other than mineral oil". There is absolutely no evidence led by the department to show that n-hexane in admixture with a substance other than mineral oil is used as fuel in spark ignition engines.


20. Without prejudice to the above submissions, it was pointed out that most of the imports covered by the impugned order were made against Advance Licences, which specifically cover the products with reference to their specific brands. Since the Advance Licences do not mention any particular classification, the products are entitled for duty-free clearances regardless of their classification and are also entitled to be imported without restriction as a specific licence exists in the form of Advance Licences for these imports. This contention of the appellant has not been considered by the Commissioner and therefore the order is rendered untenable.


21. Appellant also submitted that the demand is also time barred as there is no suppression or misstatement which can be attributed to the appellant in case of this kind where it had acted bona fide by declaring the true de-scription of the product and claiming a particular classification which it believes to be true. Significantly, the goods were tested by the Customs on many occasions and the goods were released after such tests. Considering the disclosures made in the Bills of Entry, as also the fact that the goods had been tested and keeping in mind the bona fide nature of the dispute, there is no justification for the Revenue in the present case to invoke the extended period. It is particularly so when appellant has placed on record voluminous evidence to the effect that identical imports have been cleared all over India by accepting the classification claimed by appellant.


22. The order of confiscation of the goods is wholly unsustainable also in view of the DGFT's own clarification, which has been relied upon by the Tribunal in the case of Unimers India supra.


23. The order of the Commissioner is unsustainable also for the reason that it traversed beyond the Show Cause Notice in referring to a compen-dium of a classification opinion, which had not been relied upon either in the Show Cause Notice or furnished to the appellant in the course of the hearing.


24. It was further submitted that the Commissioner's order suffers from judicial impropriety as it has refused to follow the law laid down by the Hon'ble Tribunal in Unimers India merely on the ground that an appeal had been filed by the Revenue against the same before the Hon'ble Supreme Court.


25. The impugned order is not sustainable as the Commissioner was bi-ased and has gone as per the dictates of the DRI officials as is evident from the language used in paras 27.8 and 27.10 of the impugned order.


26. For the aforesaid reasons, it was prayed that the impugned order of the Commissioner be set aside on all counts and the appeal be allowed not only on merits but also on the ground of limitation."

The submissions made on behalf of the respondents were the following:

"(1) How the judgment of Hon'ble Bangalore Bench of CESTAT, vide 2010 (250) ELT 225 in the matter of Unimers India Ltd., relied upon by the appellant, is distinguishable from the subject case?

The impugned product in the above-mentioned case was Exxsol Hexane RD, which is the same product as in the subject case. However, the Hon'ble Bangalore Bench decided the matter on grounds of legality, viz. that DGFT clarification regarding classification was binding on the customs authority, without going into the question whether the impugned goods should, on merits, be classified under chapter 29 or otherwise. Therefore, the question of classification on merits remains open. While there is no doubt that DGFT clarification in the matter of Import Policy shall be binding on the Customs authority, same cannot be said about classification cf a product under Customs Tariff. Besides, it is pertinent to mention that the impugned order of Hon'ble Bangalore Bench of CESTAT has been appealed against by the Revenue and the issue is sub-judice in the apex court. It may also be pointed out in this regard that DGFT clarification dated 14-7-2004 referred to in para 8 of the order of Hon'ble Bangalore Bench, refers only to a policy decision to cover import of Hexnne in chapter 29 of ITC (HS) classifications of Export and Import items, 2002-2007. The above policy decision going by the very nature of it was of a general nature, and did not aeal with a particular classification case where the composition and che nical properties of the product were of relevance in the light of the rele" ant chapter notes of the Customs Tariff and Explanaton' Notes in HSN. Moreover, the term 'Hex-ane' referred to in the clarification was a generic 'erm without any reference to its isomers or chemical compounds, and its ratio of elements or structural diagram which were germane to its classification under Customs Tariff. In view of the above the ratio of above judgment of Hon'ble Bangalore Bench would not apply to the present case as it did not take into consideration various chapter notes and explanatory notes of Customs Tariff and HSN.

(2) How the judgment of Hon'ble Ahmedabad bench of CESTAT in the matter of Commissioner of Customs, Kandla v. Indian Petrochemical Corporation Ltd. dated 18-7-2011, relied upon by the appellant, is distinguishable from the subject case?

1. The impugned product in the Ahmedabad case had the following chemical composition :

2. The impugned product in the subject case has the following chemical composition :

3. The impugned product in the Ahmedabad case contained normal Hex-ane (n-Hexane) at 66.93%, whereas in the subject case, n-Hexane, is only 38.63% of the total volume of the product. Therefore, whereas the bulk of the impugned product in the Ahmedabad case was made of n-Hexane, in the subject case, it does not constitute even half of the impugned product. As such, the raison d'etre of treating Exxsol Hexane as n-Hexane in Ahmedabad case, going by the test of predominance, is clearly non est in the subject case.


4. The Hon'ble Ahmedabad Bench took the view that mixtures of acyclic isomers of n-Hexane should be considered as 'separate chemically defined organic compounds', based on some entries in the Kirk-Othmer Encyclopedia of Chemical Technologies which state that such mixtures are regarded in industry as 'commercially pure hexane', and proceeded to decide the case based on that premise. The contention of the respondent, on the other hand' is that it is by now well established by several judicial pronouncement that definition of a product given in Customs Tariff or HSN for that matter shall prevail upon its scientific/industrial definition or common parlance for the purpose of its classification, as doing so would go against leg-islative intent, and would make Note 1(b) of Chapter 29, as well as significant portions of the Explanatory Notes to Note I of the said chapter, redundant.

(1) How the relevant terms relating to classification of the impugned product have been defined in the Tariff chapter notes and explanatory notes?

Let us now see how the relevant terms have been defined in the Customs Tariff and the HSN Chapter Note 1 of Chapter 29 reads as follows :

'1.- Except where the context otherwise requires, the headings of this Chapter apply only to :

(a) Separate chemically defined organic compounds, whether or not containing impurities;

(b) Mixtures of two or more isomers of the same organic compound (whether or not containing impurities), except mixtures of acyclic hydrocarbon isomers (other than stereo isomers), whether or not saturated (chapter 27);'

In the explanatory notes of Chapter 29 in HSN (2007), the term "chemically defined compound" has been defined as follows :

"a separate chemically defined compound is a substance which consists of one molecular species (e.g. covalent or ionic) whose composition is defined by a constant ratio of elements and can be represented by a definitive structural diagram"'

The term "impurities" has been defined in the said chapter of HSN as follows :

"The term, impurities, applies exclusively to substances whose presence in the single chemical compound results solely and directly from the manufacturing process (including purification). These substances may result from any of the factors involved in the process, and are principally the following :

(a) Unconverted starting materials,

(b) Impurities present in the starting materials,

(c) Reagents used in the manufacturing process (including purification),

(d) By-products.

It should be noted, however, that such substances are not in all cases regarded as 'impurities' permitted under Note 1(a). When such substances are deliberately left in the product with a view to rendering it particularly suitable for specific use rather than for general use, they are not regarded as permissible impurities. For example, a product consisting of methyl acetate with methanol deliberately left in with a view to improving its suitability as a solvent is excluded (heading 38.14). For certain compounds (e.g. ethane, benzene, phenol, pyridine), there are specific purity criteria, indicated in Explanatory notes to headings 29.01,29.02, 29.07 and 29.33.

The said Explanatory notes in HSN under Chapter 29 further states as follows :

"Mixtures of acyclic hydrocarbon isomers (other than stereo isomers) whether or not saturated, are, however, excluded (Chapter 27)."

On a close and careful reading of the above definition given in HSN, it is patently clear that a separate chemically defined compound ought to have the following two criteria : 1) a constant ratio of elements, as also, 2) a definitive structural diagram, for the purpose of its classification under Chapter 29. In the subject case, the impugned product, viz. Exxsol Hexane RD, is a mixture of acyclic isomers as also other hydrocarbons, having varied ratio of elements, such as C&Hi.!, C5H12, C5H10, etc. (refer table under Issue No. 5). It does not also have a definitive structural diagram, as the relative position of the elements is at variance in the diagrams. As for example, in n-Hexane all six Carbons are in a straight line, whereas in other isomers and compounds, the positioning of all the carbons is not uniformly in straight line, and is, therefore, structurally different (Refer table under Issue No. 6). The impugned product cannot also be construed as n-Hexane, as the percentage of n-Hexane in the product falls well below 50%. Going by the clear stipulation in HSN such mixtures of acyclic hydrocarbon isomers are excluded from chapter 29, and will fall under chapter 27. The definition of "chemically defined compounds", as provided in HSN is a safe guide to resolve disputes on tariff classification, as has been held by the Apex Court in the matter of LM.L. Ltd. v. Commissioner of Customs, vide 2010 (258) ELT 321.

(2) What is the difference between n-Hexane and Hexane? Can n-Hexane also be called an isomer, or is it separate from the isomers?

1. Hexane (often used in plural, as 'Hexanes') is a generic term covering all the hydrocarbons, which contain 6 carbon atoms and 14 Hydrogen atoms in each molecule of the substance. All substances having the formula Ct,I hi are thus considered to be a type of hexane.

2. N-Hexane is one of the hydrocarbons that are covered under the generic term hexane; N-Hexane is a pure form compound, i.e. a separate chemically defined compound, whereas Hexane is not.

3. The substances, which have the formula C>Hi4, of which n-Hexane is an example, are called 'isomers' of hexane. Including n-Hexane, there are five such substances. Each of these isomers is a separate chemically defined compound. Therefore, although each of these isomers may be denoted by the generic term 'Hexane', they are not called 'n-Hexane', which is a separate chemically defined compound; distinctive from other separate chemically defined isomers.


(5) Whether the component hydrocarbons in the subject case are structurally distinctive, and therefore not 'separate chemically defined organic compounds' zvithin the meaning of Note 1(a) read with Note Kb) of Chapter 29?
1. For any substance to be classified in Chapter 29 by virtue of Note 1(a) of the Chapter Notes to the said chapter, it has to be a separate chemically defined compound".

2. For a substance to be a 'separate chemically defined compound' for the purposes of Chapter 29, it needs to be one, which consists of one molecular species.

3. The meaning of 'one molecular species' is defined in the Explanatory Notes to Chapter 29 as being a class of molecules :

(a) whose 'composition is defined by a constant ratio of elements', and

(b) which 'can be represented by a definitive structural diagram'

Both conditions need to be satisfied for a substance to be of 'one mo-lecular species".

4. The product in question-Exxsol Hexane RD - is made up of various different component hydrocarbons, as the table above shows. The component hydrocarbons can be broadly divided into two groups :

(a) those with formula C6H14, and

(b) those with formulae other than C6H14.

Group (i)

These hydrocarbons have formulae different from C6H14, which is the formula of hexane (the product in question belongs to this group by the rule of predominance), as the composition of these hydrocarbons is not defined by the same constant ratio of elements as that of hexane, and they are clearly not of the same molecular species as hexane.

Group (ii)

The hydrocarbons in Group (ii) are defined by the same constant ratio of elements as hexane, namely C&Hi4. Therefore, whether they are of,'%.' same molecular species as hexane or not depends on the whether they satisfy the second requirement : - whether they 'can be represented by a definitive structural diagram'.

1. What is meant by a definitive structural diagram'?

The properties of a compound depend not only on the component elements constituting the compound and the ratio in which they are to be found, but also on the particular manner in which these constituents combine. The manner in which the constituents combine is known as the structure of the compound, and can be depicted using a 'structural diagram'.

The meaning of the word 'definitive', as per the Merriam Webster Dictionary, is :

1 : serving to provide a final solution or to end a situation
2 : authoritative and apparently exhaustive 3a : serving to define or specify precisely b : serving as a perfect 

4 : fully differentiated or developed 4

5 : of a postage stamp: issued as a regular stamp for the country or territory in which it is to be used.

From the above dictionary meanings, it is clear that 'definitive structural diagram' refers to a structural diagram which defines or specifies precisely a compound, or one xvhich differentiates fidly one compound from another.

As two compounds may be constituted of the same elements in the same constant ratio, and yet have different properties, the chemical formula does not 'precisely define', nor does it 'fully differentiate' one compound from another. Therefore, a chemical formula is not definitive.

A structural diagram, on the other hand, precisely defines a compound and fully differentiates one compound from another. Each compound has a unique structural diagram. Therefore, in the context of Chapter 29, a 'definitive structural diagram' means a 'unique structural diagram', or 'the same structural diagram'.

7. The five component hydrocarbons in Exxsol Hexane RD that have the same constant ratio of elements, namely C&Hi4, have the following structural diagrams :

As can clearly be seen, each component hydrocarbon above has a distinc-tive structural formula.

Although all the hydrocarbons share the same constant ratio of elements (C6H14), they are not all defined by a unique, or the same, structural for-mula. Thus, they are not of the same molecular species.

Indeed, the five hydrocarbons shown above are acyclic isomers of n-Hexane, and isomers are defined as substances which have the same chemical formula (i.e. the same constituent elements, in the same ratio) as each other, but which have different structures. By their very definition, therefore, mixtures of isomers automatically fall outside the ambit of Note 1(a), and can only be considered under Note 1(b) of Chapter 29.

(8) As the component hydrocarbons of the impugned product, viz. Exxsol Hexane RD, are not of the same molecular species, either because their composition is defined by a varying ratio of elements, or because they cannot be represented by a definitive structural diagram' the Exxsol Hexane RD in the subject case does not qualify as a separate chemically defined compound for the purpose of its classification under chapter 29.

(1) Can isomers be considered impurities?

1. The technical definition of an impurity is: "a substance inside a confined amount of liquid, gas, or solid, which differs from the chemical composition of the material or compound."

2. As isomers do not differ from one another in their chemical composition, but differ from each other only in structure, they cannot technically be considered as impurities.

3. Isomers whose presence in a substance results directly from the production process of that substance may occasionally be considered to be an impurity in general industrial parlance, but not as per Customs Tariff. Besides, the impugned product being, imported there is no way to ascertain or verify the production process at the country of or production.

4. For the purposes of Chapter 29, however, isomers cannot be considered as impurities. This is because Note 1 (b) separately and specifically refers to mixtures of isomers of the same organic compound, whether or not containing impurities. If isomers could be regarded as impurities, then substances comprising a mixture of isomers would fall under Note 1(a), and Note 1(b) would become redundant. The legislative intent was clearly to distinguish between isomeric components and non-isomeric components of a substance, and exclude the former from the scope of the ambit of impurity for purposes of classification in this chapter.

5. Furthermore, even if it is assumed that isomers are impurities, the combined volume of the components making up the impurity in the substance must be restricted to a reasonably small percentage of the total volume. If isomers are accepted as impurities in this case, then the total percentage by volume of impurities is 61.37%, and the actual product (n-Hexane) constitutes only 38.63%. This also goes against Classification Opinion of World Customs Organization (WCO) vide Compendium of Classification Opinions (February, 1998), Harmonized Commodity Description and Coding system, according to which Heading 2901.10 covers :

"separate isomers and mixtures of isomer of saturated acrylic hydrocarbons :

(b) Separate isomers not less than 95% pure.

(ii) Mixtures of isomers containing not less than 95% of a single isomer."

The above classification opinion of WCO in regard to classification of a product under HSN has no doubt persuasive value, even though not binding effect. The respondent in this regard relies upon the judgment of the apex court in L.M.L. Ltd. v. Commissioner of Customs, vide 2010(09)LCX0004 Eq 2010 (258) ELT 0321 (S.C). In Para 12 of the said judgment Hon'ble court held as follows :

"..for resolving any dispute relating to tariff classification, a safe guide is the internationally accepted nomenclature emerging from the Harmonious System of Nomenclature."

It is pertinent to mention in this regard that Hon'ble Ahmedabad Bench in para 12 of their order mentioned the impurities as 'Benzene, Polythene compounds of Sulphur, oxygen and Chlorine', and not any of the isomers which were found to be present in the consignment of Exxsol Hexane. It is, therefore, clear that isomers were not treated as impurities by the said Hon'ble Bench.

(2) Are these mixtures of acyclic hydrocarbon isomers?

1. Exxsol Hexane RD is a mixture of various hydrocarbons' consisting of :

(a) normal Hexane (38.63%)

(c) n-Hexane

(b) acyclic hydrocarbon isomers of n-Hexane (50.04%):

(a) 2,2 Dimethyl Butane (ii) 2,3 Dimethyl Butane (iii) 2 Methyl Pentane (iv) 3 Methyl Pentane

(c) cyclic hydrocarbon isomers of Hexane (10.52%):

(b) Methyl Cyclopentane (ii) Cyclohexane

(d) other hydrocarbons (non-isomers of Hexane):

(i) n-Pentane (ii) iso-Pentane.

(ii) cyck>pentane

(iii) 2,4 Dimethyl Pentane

(iv) 2,2,3 Trimethyl Butane.

2. Although n-Hexane and the four acyclic hydrocarbon isomers have been grouped separately above for the sake of clarity, all five substances are isomers of one another. They can therefore, be grouped together as 'acyclic hydrocarbon isomers of Hexane'.

3. The product in question is, therefore, a mixture of acyclic hydrocarbon isomers (88.67%), which contains impurities (11.33%).

(3) If excluded from Chapter 29, which sub-head under Chapter 27 would apply to the goods in question, and why?

1. The hexane isomers are mineral oils obtained by refining petroleum, and are 'therefore' covered under chapter 27: 'Mineral fuels, mineral oils and products of their distillation".

2. If a mineral oil is obtained by refining crude petroleum oils then it is classified under 2709 00 00. If it is obtained by refining petroleum not in its crude form then it is classified under 2710.

3. The product in question has been obtained, as admitted by the as-sessees [p. 102 Para 25.3.e of Paper Book] not by fractionally distilling crude oil, but by the refining of naphtha, which is itself manufactured by refining crude oil. Therefore, the impugned goods are petroleum oils obtained by the processing of non-crude mineral oils, and fall under heading 2710.

4. This classification is further reinforced the fact that:

(a) Heading 2710 explicitly includes preparations not elsewhere specified or included, but which contain by weight 70% or more of petroleum oils, where these oils are the basic constituents of the Preparations.

Since the impugned goods contain by weight more than 70% petroleum oils, and the Product is not covered elsewhere, they are undoubtedly classifiable under 2710 by virtue of this inclusive fallback provision.

(b) Chapter Note 2 to Chapter 27 extends heading 27 to "similar oils" Assuming, but not admitting that the impugned goods are not strictly covered by heading 2710, they are so included under the said heading by virtue of this explanatory note.

5. Under heading 2710, the subject goods fall under sub-heading 2710 11 12, as they are types of 'special boiling point spirits' with nominal boiling point range of 63- 70°C. This has been confirmed by all the test reports obtained upon the chemical examination of the impugned products, including those submitted by M/s. SGS Ltd., IIP Dehradun, Custom House Laboratory, as well as the clarification submitted by the suppliers.

3. According to the appellants what they have imported is Hexane and it is classifiable under Heading 2901 10 00 under the category of saturated Hydrocarbon. The contention of the Revenue is that the product is not a separate chemically defined compound and therefore it is correctly classifiable as special boiling point spirit classifiable under 2710 11 12 of the Schedule to the Customs Tariff Act, 1975. Before proceeding further it would be appropriate to reproduce the relevant competing tariff headings.

1. - HYDROCARBONS AND THEIR HALOGENATED, SULPHONATED, NITRATED OR NITROSATED DERIVATIVES

2710 Petroleum oils and oils obtained from bitumi-

nous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations; waste oils

Petroleum oils and oils obtained from bituminous minerals (other than crude) and preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations, other than zvaste oils

271011 - Light oils and preparations :

- Motor Spirit:

27101111 - Special boiling point spirits (other than ben- kg. 20% zene, toluol) with nominal boiling point range 55-115°C

2710 1112 - Special boiling point spirits (other than ben- kg. 20% zene, benzol, toluene and toluol) with nominal boiling point range 63-70°C

2. In support of the claim for classification of the product imported by the appellant under Chapter 27, the adjudicating authority and the learned special counsel have relied upon the following points.

4.1 If the individual percentage content of n-Hexane or any of its isomers is less than 95% of aluminium, the products fall under the category of "light oils and preparations" which falls under CETH 2710 11 00.

4.2 Reliance was placed on the report of the Customs House Laboratory, Kolkata.

4.3 Reliance was also placed on compendia of classification opinion published by World Customs Organisation wherein against sub-heading 2901.10 the following was specifically mentioned.

? "Separate isomers and mixtures of isomers ol saturated Acyclic Hy-drocarbons.

? Separate isomers not less than 95% pure

? Mixtures of isomers containing not less than 95% of a single isomer."

The explanatory note, Section 6, Chapter 29 defines 'Acyclic Hydroarbons' as compounds containing only carbon and hydrogen which have no rings in their structure. The imported product contains Cyclic Hydrocarbons like Cyclopentane, Isopentane, etc., are cyclic in their structure and therefore are not acyclic. Since the product contains Cyclic Hydrocarbons also, it cannot be classified under Acyclic saturated Hydrocarbons.

4.5 The product fulfills the distillation criterion for, "light oil and preparations as outlined in sub-heading note 4 to Chapter 27. According to the Customs House Laboratory report, the flash point of the product is below 25°C. According to the opinion given by Indian Institute of Petroleum, Dehradun in their letter dated 4-8-2005, the product can be used as a fuel in admixture with appropriate substance.

4.6 The composition and information as provided by the supplier also clearly identified the imported product as a petroleum derived complex substance with aliphatic and cyclo Pharphanic hydrocarbons and not as a separate chemically defined compound. Admittedly the product is a mixture of isomers of Hexane less than 95% and non-isomers. Various samples tested revealed that n-Hexane percentage varies from 40% to 50%.

3. Appellant's submissions to contend that the product cannot be classified under CETH 27 are as follows :

5.1 Revenue did not discharge the burden of proving that the classifica-tion declared by the appellants was wrong by bringing on record cogent and reliable evidence.

5.2 Issue of classification of Hexane stands concluded by the decisions of the Tribunal in the case of Indian Petrochemicals Ltd. vide Order No. A/1280/WZB/AHD/ll dated 25-3-2011 [2011 (274) ELT 0299 (Tri.-Ahmd.) and Unimers India v. CC, Mangalore Ltd. reported in 2009(06)LCX0307 Eq 2010 (250) ELT 0225 (Tri.-Bang.).

5.3 The product imported by the appellant is specifically covered by the chapter Heading 29.01 which specifically excludes separate chemically defined compound. N-Hexane has a defined molecular structure C&Hi4 and a defined molecular weight, it is a separate chemically defined compound.

5.4 Explanatory notes to the HSN under Chapter 27 specifically states that Chapter 27 does not cover separate chemically defined organic compounds 'in the pure' or 'commercially pure state'. The product imported by the appellant is in commercially pure state.

5.5 The explanatory notes to Chapter 29 covers Hexanes under Heading 29.01. Use of the term Hexane clearly shows that heading covers nominal n-Hexane which is chemically pure but also covers commercial grades of Hexane.

5.6 Kirk-Othmer Encyclopedia of chemical technology gives the meaning of the expression commercial Hexane as narrow boiling mixtures of Acyclic compounds that Methyl Cyclopentane, Cyclohexane, and Benzene. It also says that minor amounts of C5 and C7 Hydrocarbons also may be present. The supplier has confirmed that the products in question are commercially pure Hexanes.

5.7 Further a technical expert Dr. Tilak Guha in his opinion dated 20-11-2009 also supports this view. The opinion of the technical expert has not been countered by producing contra evidence or technical opinion opining otherwise.

4. The special counsel had contended that the percentage of n-Hexane in this case was only between 40% - 50% whereas in IPCL case it was more than 63%. The n-Hexane content in the product depends upon the feedstock used to produce a particular batch which has been confirmed by the supplier as well as by the technical expert.

6.1 Explanatory notes to the HSN under Chapter 29 specifies the purity criterion for several compounds falling under Chapter 29 Methane 95%, Ethylene 95%, Propylene 90%, Phenol 90%, etc. From the very fact that no specific purity criterion has been prescribed for Hexane supports the case of the appellant. Reliance was placed by the special counsel on Note 1(b) of Chapter 29 which provides that mixtures of Acyclic Hydrocarbons, isomers are excluded from Chapter 29. It was contended that Note 1(b) is irrelevant since the product is covered by Note 1(a) itself. Further Note 1(b) is not applicable since it applies to mixtures containing impurities and only when a mixture contains acrylic compounds only, it gets excluded. The product contains Cyclic Hydrocarbons also and therefore it cannot be considered as a mixture exclusively as a Acyclic Hydrocarbons isomers.

6.2 Further, other elements such as Cyclic Hydrocarbons and Acyclic Hydrocarbons were naturally present in the feedstock namely light virgin naphtha and are therefore permissible impurities.

6.3 Since the process of fractionation of hydrogenated LVN in this case is to separate the product in the boiling point range of 64°C to 70°C, all the Hydrocarbons which have the boiling points within its range which exist in the feedstock continue to exist in the ultimate product also. Therefore these are permissible impurities.

5. Reliance was also placed on the Board's Circular No. 574/11/2011-CX., dated 22-2-2001 where Board had clarified that even if a product is a mixture of chemicals the same can be classified under Chapter 29 by virtue of general Note 1(a) read with Rule 3(b) of Interpretation Rules. In addition, it was also submitted that for a product to be classified as a special boiling spirit, besides showing the flash point below 25°C, it is also necessary to show that the product is suitable for use as fuel either by itself or in admixture with any other substance. Reliance was placed on the following decisions :

(a) Indu Nissan Oxo Chemical Industries Ltd. -1998(03)LCX0137 Eq 1998 (101) ELT 0201 (Tri.)

(b) Avani Petrochem Ltd. v. CCE - 2010 (249) ELT 117

(c) Ram Remedies Pvt. Ltd. v. CCE - 2010 (254) ELT 170

(d) Shriram Petroleum Industries v. CCE - 2010 (255) ELT 317.

6. We have already reproduced the Tariff Heading 2710 11 12 under which the product is proposed to be classified by the Revenue. According to the notes to Chapter 27, references in Heading 2710 to petroleum oils and oils obtained from bituminous minerals includes not only petroleum oils and oils obtained from bituminous minerals but also similar oils as well as thus consisting manual of mixed unsaturated Hydrocarbons. Further, the sub-heading notes also provide that light oils and preparations are those of which 90% or more by volume distillate at 200°C. The supplementary note defines motor spirit and special boiling spirits also. While the definition of motor spirit requires the flash point to be below 25°C, it also requires that the Hydrocarbon oil either by itself or in admixture with any other substance is suitable for use as fuel in spark ignition engine. The definition of special boiling spirit does not require suitability for use in spark ignition engines. There is no dispute that the product under consideration has the boiling point range 63°C to 70°C and fulfills the requirements of special boiling spirits classifiable under 2710 11 12. Therefore primarily when we look at the heading and the explanatory notes relevant for classification, the product in question appears to be correctly classifiable under 2710 11 12. However, the ap-pellant's claim is on the ground that separate chemically defined compounds other than pure methane and propane are not covered by the chapter at all. Therefore it becomes necessary for us to consider whether the product is a separate chemically defined compound as claimed by the appellants or not.


7. Before proceeding to consider the rival claim for classification under competing heading under CETH 29, it is necessary to consider the submissions made by the appellants as to why the Revenue's claim for classification under Chapter 27 cannot be accepted.


10. The first submission made was that the Revenue has not put forth any cogent and reliable evidence for classification. Admittedly, the tests conducted by SGS as well as Customs House Laboratory have shown that the product fulfills the requirement of the range of boiling points and flash point for classification under Heading 2710 11 12. Further, Revenue has also not dealt with the claim that the product should be suitable for use in admixture with any other product for classification under motor spirit under Heading 2710 11 12 is applicable only to motor spirit and not to special boiling spirits as mentioned above. We have considered the four decisions cited by the learned counsel in support of his submission that the department is required to prove that the product is suitable for use in spark ignition engine in admixture with other products for classification under special boiling spirits. In Indu Nissan Oxo Chemical Industries, the product under consideration was Insan LE of by-product arising in the course of manufacture of Oxo alcohol. The Tribunal held that the product cannot be classified as motor spirit. Therefore the issue there was whether the product Insan LE can be classified as motor spirit. In the case of Avani Petrochem Ltd. Revenue had relied upon the view of Chief Technical Service Manager of IOCL, Vadodara who had clarified that the solvents in question can be blended with other petroleum streams to meet specifications for motor spirit. It was also observed by the Tribunal that the learned counsel had relied upon several decisions to support his submission that unless the product is tested to examine its suitability for use in spark ignition engine as required in the definition of motor spirit in the tariff product could not have been classified. This shows that in that case also the question was whether a product can be classified as a motor spirit when its suitability for use in spark ignition engine has not been tested. In the case of Ram Remedies Pvt. Ltd. also the products were classified under Heading CETH 2710 90 as others. In that case the Tribunal had observed that the tariff Heading under 2710 itself prescribed suitability for use as fuel in spark ignition engine as one of the requirements unlike this case where motor spirit and special boiling spirits have separate definitions. Therefore the decision in the case of Ram Remedies Pvt. Ltd. has no application. In the case of Shriram Petroleum Industries, it was observed that CETH 2710.13 which covered other special boiling point spirits is one of the special sub-divisions of the main heading which reads motor spirit, that is to say, any Hydrocarbon oil. Therefore, the heading was as motor spirit which required suitability for use in spark ignition engine to be established for classification unlike this case where the products special boiling spirits are not sub-heading of motor spirit. This is further confirmed by the general rules for interpretation of the import tariff under Customs Tariff Act, 1975. According to general explanatory notes in the rules for interpretation of the schedule, when the description of an article or group of articles is preceded by " " or " ", the said article are group of articles shall be taken to be a sub-classification of the immediately preceding description of the article or group of articles which has "-"or "-". In this case in Chapter 27, the heading motor spirit is preceded by " " the special boiling sprits under three sub-heading are preceded by " ". This would clearly show that the special boiling spirits cannot be considered as part of the main heading motor spirit but they have to be grouped under light oils and preparations which is preceded by "-". Since special boiling spirits are not subheadings of the heading motor spirit in the present tariff, the claim of the appellant is that Revenue has to establish that the product is suitable for use in spark ignition engine in admixture with other products cannot be sustained and the decisions cited by the learned counsel also are of no help to the appellants.


11. However, we cannot straightway classify the product as a special boiling spirit without rejecting or considering the competing heading under Chapter 29. Therefore, we proceed to examine whether the product can be classified under CETH 29 at all.


12. Before proceeding further, it would be appropriate to consider the composition of imported product. The composition of imported product as submitted by the appellants in para 7 of their written submission, contains 38.63% of n-Hexane, about 50% of isomers of Hexane and balance consists of Cyclic Hydrocarbons and Acyclic Pentanes.


13. According to Chapter Note 1 of Chapter 29, the headings apply only to :

(a) Separate chemically defined organic compounds, whether or not containing impurities.

(b) Mixtures of two or more isomers of the same organic compound mixtures of Acyclic Hydrocarbons whether or not saturated.

14. Before going to Note 1(b), it is necessary to consider whether Note 1(a) covers the product of the appellant or not. There is no doubt that even if the product contains some impurities, it would still be classifiable under Chapter 29 as a separate chemically defined organic compound. Chemically defined compound has been defined in the explanatory notes as a substance which consists of one molecule of species whose composition is defined by a constant ratio of elements and can be represented by a definitive structural diagram.


15. According to Revenue, on going through the definition it is quite clear that a separate chemically defined organic compound ought to fulfill the two criterions namely a constant ratio of elements and a definitive structural diagram. It has been submitted that the product in question is a mixtures of Hydrocarbons having valid ratio of elements namely C6HH, CsHn, C5H10 etc. It also does not have a definitive structural diagram. In n-Hexane all these carbons are in a straight line whereas in other isomers and compounds they are not in line and therefore structurally different. It was also submitted that impugned product cannot be considered as n-Hexane since the percentage of n-Hexane in the product is below 50% and further mixtures of Acyclic Hydrocarbons isomers are excluded.


16. Admittedly if the product contains impurities, it does not go out of separate chemically defined organic compounds. The term impurities has been defined in the HSN itself. According to HSN the term impurities applies exclusively to substances whose presence in the single chemical compound results solely and directly from the manufacturing process and principally the same can be unconverted starting materials, impurities present in the starting material, reagents used in the manufacture process and by-products.


17. The appellants have relied upon the supplier's letter explaining the manufacturing process and also the statement that the feedstock used by them is LVN and all the Hydrocarbons found in the product existed in the feedstock LVN and what they have done is only fractionation and therefore they are nothing but unconverted starting materials or impurities which existed in the starting material. Other than the report of the Customs House Laboratory and the report of SGS, Revenue has no evidence to show that this claim is wrong. Both these reports do not go into this aspect at all. Further, the opinion given by the technical expert Dr. Tilak Guha, has also not been challenged by the Revenue nor con-troverted by producing contrary evidence. This also supports the case of the appellants. Dr. Tilak Guha, the technical expert whose opinion has been relied upon by the appellants has stated clearly that in terms of purity represented by n-Hexane content, the product can be of two categories namely commercially pure grade containing n-Hexane in the range of 40% to 64% by volume and technically pure grade containing n-Hexane from 65% to 90% or more. He has also stated that the cost of production of hexane by fractionation distillation technology increases exponentially with increasing level of purity due to the increasing capital cost and energy cost. He has also explained that the benefit/cost ratio in the performance of hexane diminishes beyond a certain level of hexane purity which is about 60% and it becomes commercially unviable. He says that technically it is feasible to produce hexane of purity of 90% or more but because of the need for bringing down the boiling range to less than 1°C, the cost increases beyond commercial feasibility and further he has also stated that Hexane containing n-Hexane above 80% by volume poses severe health hazard, risk of Neurotoxicity and handling needs special precautions and procedures further increasing the cost. The supplier also has stated that output of n-Hexane depends upon the quality of feedstock and this is supported by technical literature submitted by the appellants also. The conclusion that emerges from the supplier's report, evidences available on record and technical literature is that, the product in question is the result of fractional distillation of LVN. No evidence has been produced by the Revenue to show that commercially the product is known as anything other than Hexane or n-Hexane. The explanatory notes in the HSN also clearly provide that unconverted starting materials and impurities present in the starting materials are to be treated as impurities. In fractional distillation, what is done is taking out the products in a specific boiling point range and no chemical reaction is in-volved. That being the position, what is obtained as a result of distillation is what was originally present in the starting material. It is nobody's case that any of the components found in the chemical report is other than what was contained in the starting material and no evidence has been put forth to prove this. Once this is accepted, the next question to be considered is whether a product containing only 40% of n-Hexane can be called as Hexane at all, in view of the fact that the purity is only about 40% since it has already been seen that the impurities and other products components found in the product by us are covered by the term impurities defined in the HSN itself.


17. One of the grounds taken by the Revenue in the show cause notice was that the percentage of n-Hexane is less than 95% and therefore the product cannot be classified as n-Hexane. For this purpose, reliance was placed on classification opinion of World Customs Organisation vide compendium of classification opinions (February 1998, harmonized commodity description and coding system). According to this Heading 2909 10 covers "separate isomers and mixtures of isomers of saturated Acyclic Hydrocarbons :

(i) separate isomers not less than 95% pure

(ii) mixtures of isomers containing less than 95% of a single isomer."

According to the learned special counsel and the Revenue, the above opinion of WCO with regard to classification has persuasive value though not binding effect. First of all the opinion is 13 years old and as submitted by the learned counsel for the appellants, such opinions are discussed and when accepted, are incorporated in the tariff. Even after 13 years, this opinion has not been incorporated in any of the notes or in the tariff. Even now in some cases like Phenol 90%, Ethylene 95%, purity has been specifically prescribed for classification under Chapter 29. The very fact that no purity has been prescribed for n-Hexane or Hexane and the definition of impurities given in the HSN and the fact that there can be two terms namely pure and commercially pure would, in our opinion, support the appellants' case. The technical expert has also stated that improving the purity by decreasing the range of boiling points would involve abnormal conversion cost and render the product commercially unviable. This has not been challenged or proved otherwise. Therefore the submission of the appellants on the basis of supplier's letters and technical expert opinion and the terminology used for pure and commercially pure to say that the product imported by them even if it contains only 40% or more of Hexane would still be classifiable as Hexane since the impurities or other products found in the product are covered by the definition of impurities, would come under Chapter 29 appear sustainable.


19. The claim of the appellants is further supported by the fact that the chapter note itself recognizes that chemically defined compound can have impurities and wherever a specific purity criterion is required the same has been prescribed and in the case of Hexane it has not been prescribed would also help the appellants' case. Since the other products/components of the product before us are covered by the definition of impurities as given in the HSN, the product continues to remain covered by chapter Note 1(a) which defines separate chemically defined organic compounds. No doubt the Note 1(a) would support the view that even mixtures would come under chemically defined compound if the product satisfies the requirements of purity and commercial parlance. In view of the fact that the pure and commercially pure products are covered by the heading and there is no specific definition provided for pure or commercially pure in the case of Hexane, the obvious conclusion would be to go for trade parlance. No evidence has been put forth by Revenue to show that in trade parlance the product is something other than n-Hexane.


20. As already stated, the mixtures are not ruled out from Note 1(a). Even the Central Board of Excise and Customs as submitted by the appellants had clarified that while classifying a product under Chapter 29, Rule 3(b) of Interpretation Rules has to be applied. The Board in the Circular No. 574/11/2001-CX., dated 22-2-2001 took note of the fact that Chapter Note 1(a) to Chapter 29 indicates that "separate chemically defined organic compounds" does not necessarily exclude mixtures of "separate chemically defined compounds". After taking note of this aspect, the Board considered the provisions of Rule 3(b) of Interpretative Rules. Rule 3(b) of Interpretative Rules specifically provides that mix-tures/composite goods consisting of different materials or made up of different components shall be classified as if they consisted of the material or components which give them their essential character. In this case among all the components, the percentage of n-Hexane content is the maximum. The product is called Hex-ane. Further 88.7% of the total content consists of n-Hexane and its isomers. There is no evidence to show that the product is not a mixture of different components. In this case from the evidences on records and reports available and the opinion of technical expert and literature, it emerges that the essential character of the product is derived from Hexane.


21. In the explanatory notes to Chapter 29.01 of HSN, at (A) it is specifi-cally stated that saturated acyclic hydrocarbons of the heading include Hexanes, with six atoms of carbon. The use of word 'Hexanes' and not Hexane supports the case of appellants and if we take the heading as hexanes, hexanes percentage in the product is more than 88%. This would satisfy the predominance test also.


22. In terms of Rule 3(c) of Interpretative Rules also, the appellants have a case since even if is held that Revenue has been able to make out a case for classification under Chapter 27 and appellants have made out a case for classification under Chapter 29 and both have equal merits, the heading which across numerically last has to be taken into consideration and in that case also, the product becomes classifiable under Chapter 29 only.


23. We are not considering whether the product goes out of Chapter 29 when the Explanatory Note 1(b) is considered since in our opinion Note 1(a) itself is sufficient to classify the product under Chapter 29.


24. In view of the above discussion, the claim of the appellants has to be sustained on merits. Since we have upheld the classification claim made by the appellants, it would not have been necessary for us to go into other issues. Nevertheless, we consider it appropriate to deal with some other points also.


25. As regards limitation and liability to mandatory penalty, in view of the complexities involved in classification and in view of the fact that commercially the product is known as Hexane and also in view of the fact that the issue of classification of the very same product had come before the Tribunal and a view had been taken that even mixtures of Acyclic Hydrocarbons can be classified under Chapter 29 (in the case of IPCL), it would not be appropriate to sustain imposition of penalty since the issue is one of interpretation of different tariff headings, the application of Interpretative Rules, technical literature, etc., and two views are possible. In such a situation, imposition of penalty on the appellants is not correct. Therefore even if we were to hold that product is classifiable under CETH 27, the penalty would not have been applicable and demand for extended period also could not have been sustained. Therefore, irrespective of the decision as regards merit, penalties are set aside. In the result, appeal is allowed with consequential relief to the appellants.

(Pronounced in Court on 11-1-2012)

Equivalent 2012 (285) ELT 0049 (Tri. - Kolkata)