2011(07)LCX0143

IN THE CESTAT, WEST ZONAL BENCH, AHMEDABAD [COURT NO. II]

Ms. Archana Wadhwa, Member (J) and Dr. P. Babu, Member (T)

Commissioner of Customs, Kandla

Versus

Indian Petrochem. Corpn. Ltd.

Final Order No. A/1280/2011-WZB/AHD, dated 15-7-2011 in Appeal No. C/588/2004

Cases Quoted -

Cellulose Products of India Ltd. v. Collector -1995(12)LCX0022 Eq 1996 (082) ELT 0147 (Tribunal) - Referred [Para 5]

Collector v. Wood Craft Products Ltd. - 1995(03)LCX0070 Eq 1995 (077) ELT 0023 (S.C.) - Referred [Para 7]

Unimers India Ltd. v. Commissioner - 2009(06)LCX0307 Eq 2010 (250) ELT 0225 (Tribunal) - Relied on [Paras 9,10,15]

Departmental Clarification Quoted-

C.B.E. & C. Instruction F. No. 528/157/93-TU, dated 15-9-1994 [Para 5]

D.G.F.T. Circular dated 14-7-2004 [Paras 9,10,15]

Advocated By -

Shri Rajendra Nagar, SDR, for the Appellant.
Shri J.C. Patel, Advocate, for the Respondent.

[Order per : Archana Wadhwa, Member (J)]. -

Being aggrieved with the order passed by Commissioner (Appeals), Revenue has filed the present appeal. We have heard Shri Rajendra Nagar, learned SDR appearing for the Revenue and Shri J.C. Patel, learned advocate appearing for the respondents.


2. As per facts on record, the respondents imported several consignments of N-Hexane (Exxsol Hexane) and claimed clearance of the same under Customs Tariff Heading 2901.10 and under Central Excise Tariff Heading 2901.90 and accordingly filed bills of entry. The assessment was made provisional pending the chemical test reports of the samples.


3. Subsequently the test reports of the samples indicated as follows :-

"The sample is a mixture of saturated Hydro carbons in the form of clear colorless liquid flashing below 25 degree centigrade and having boiling range 66 Centigrade to 69 Centigrade".


4. On the above basis, Revenue entertained a view that since the flash point of the imported goods was below 25 degree centigrade and the distillation range was between 60 to 70 degree centigrade, the imported material was not a pure compound but an admixture of various hydrocarbons classifiable under Chapter 27. Accordingly, proceedings were initiated against them by way of issuance of show cause notice dated 21-3-2001, proposing classification of the goods under Customs Tariff Heading No. 2710.00 and Central Excise Tariff Heading No. 2710.12. Accordingly, the notice proposed confirmation of demands, in terms of Section 28 of the Customs Act, 1962.


5. During adjudication proceedings the respondents strongly contested that the N-Hexane is correctly classifiable under Customs Tariff Heading 2901.10 and Central Excise Tariff Heading 2910.90, inasmuch as the same is separately defined chemical compound of a known structure with a chemical formula CH3 (ch2)4 CH3. The same is derived by the fractional distillation from petroleum and is a colorless volatile solvent, generally used as a solvent for vegetable oils, low temperature thermometer, calibrations, polymerization, reaction medium, paint diluents, alcohol D naturant etc. They also referred to HSN explanatory notes where hexane is specifically mentioned under Chapter Heading 29.01. They also submitted that Heading 27.10 proposed by the Revenue, covers petroleum oils obtained by bituminous mineral other than crude and preparations, not elsewhere specified or included. They also submitted the composition dispute of the product and pleaded that, inasmuch as the same is separately defined chemical compound with a specific chemical formula, the same cannot be classified under Chapter 27, which covers the product obtained from minerals, mineral oil and/or from their distillation. They also relied upon the Tribunal judgment in the case of Cellulose Products India Limited v. C.C.E. -1996 (012) RLT 0421 (CEGAT) = 1995(12)LCX0022 Eq 1996 (082) ELT 0147 (Tribunal), holding that in view of the specific wordings of the Central Excise Tariff about suitability for use as fuel for spark ignition engines, it is necessary for the department to prove that this criteria is also satisfied and it is not sufficient to merely rely upon the criteria of flash point and boiling point. They also referred to the Board's Circular F. No. 528/157/93-TU, dated 15-9-1994 clarifying that Heptene cannot be classified as motor spirit or raw naphtha, since the criteria of suitability for use as spark ignition engine, as prescribed in the tariff is not satisfied. It was also their contention that even if the two rival Headings 2901, 2710 have to be considered, the Heading 2901 would get preference in view of the terms of Rule 3(a) of the General Rules for Interpretation of the Customs Tariff Schedule, which provide that the most specific description shall be preferred to the heading providing a more general description.


6. The adjudicating authority did not accept the above contentions of the appellants and by merely relying upon the flash point and boiling point, held that the goods are correctly classified under Customs Tariff sub-heading No. 2710.00 and Central Excise Tariff sub-heading No. 2710.12. He accordingly ordered all the provisional assessments to be finalized.


7. Being aggrieved with the above order of Assistant Commissioner, re-spondents filed appeal before Commissioner (Appeals). The appellate authority observed that Assistant Commissioner has taken into consideration only the flash point and boiling range of the goods in question and has held that the same is not a pure compound but an admixture of various hydrocarbons, classifiable under Heading 2710.10. He accordingly observed that Customs Tariff is based on HSN Notes and in case of dispute, the said notes act as valuable guides, as held by the Hon'ble Supreme Court in the case of C.C.E. v. M/s. Wood Craft -1995(03)LCX0070 Eq 1995 (077) ELT 0023 (S.C.). Accordingly, he referred to the HSN Chapter notes and held in favour of the assessee. For better appreciation, relevant part from the impugned order is reproduced below :-

"7. Under HSN Chapter heading 29.01 deals with acrylic hydrocarbons and there are found to be of two categories, saturated and unsaturated. HSN Notes further explains that saturated acrylic hydro carbons of this heading include Hexanes with six atoms of carbon. Thus, there is a specific mention of Hexane in HSN under heading 2901.10. The product N-Hexane imported is having specific chemical formula CH3 (ch2)4 CH3. The appellants have also relied upon the original analytical report dated 10-5-2000 issued SGS Redwood Services. The product was having total C6 Hydro-carbons matching with the description given in HSN. On examination Customs & Central Excise Tariff under Chapter 29.01, there is identical entry of acrylic hydro carbons and therefore, Hexane should be classified under the Customs Tariff Heading 2901.10 and under Central Excise Tariff Heading 2901.10.

The said order of Commissioner (Appeals) is impugned before us.


8. Though we find that the grounds of appeal raised in memo of appeal filed by the Revenue are very limited but during the course of hearing detailed arguments were advanced by both the sides. After conclusion of the hearing, detailed written submissions were also filed by the Revenue as also by the respondents. The grounds raised in the appeal are as under :-

(a) The Commissioner (Appeals) in the impugned order did not take into account the chemical test report which reads as follow :

"The sample is a mixture of saturated Hydro carbons in the form of clear colorless liquid flashing below 25 degree centigrade."

(b) It is right that the Customs Tariff is based on HSN Notes. But the sub-ject cargo having flash point less then 25 degree centigrade indicates that it is not other than motor spirit and therefore can be classifiable under Central Excise Tariff Heading 2710.90.

(c) The Commissioner (Appeal) has not taken in view the Chapter Note to Chapter 29 of the Customs Tariff which reads as under :-

(1) Except where the context otherwise requires, the headings of this Chapter apply only to

(b) Mixture of two or more isomers of the same organics compound (whether or not containing impurities), except mixtures of acylic hydrocarbon isomers (other than stereoisomers), whether or not saturated (Chapter 27)

Though, we find that the above grounds are not detailed and do not in any way rebut the findings of Commissioner (Appeals), both sides have filed detailed written submissions, which we have gone through. It stands strongly contended by the Revenue that the goods imported is a mixture of isomers of Hexane, as confirmed by chemical test report as well as analytic report dated 10-5-2005 issued by SGS Redwood Services, relied upon by the respondents. As per the Chapter Note 1(b) to Chapter 29 of Customs Tariff, a mixture of acrylic hydrocarbon isomer, whether or not saturated, are excluded from Chapter 29 and are classifiable under Chapter 27. As such, learned DR has assailed the findings of the Commissioner (Appeals) that the goods in question are saturated acrylic hydrocarbon whereas the same are not. He also draws our attention to explanatory note 'A' to Chapter sub-section 29.01, which mentions that - "to fall in this heading these saturated acrylic hydrocarbons must be in the form of separately chemically defined compound". He submits that Chapter Heading 2710.12 of Central Excise Tariff covers the goods with special boiling point spirits, with normal boiling point range 63 to 70 degree Celsius. Inasmuch as the product in question covers the above requisite criteria, they have to be held as falling under Heading 27.10. As regards suitability for use as fuel in spark ignition engine, he submits that hexane is derived from petroleum oil, mainly gasoline by fractional distillation and is used as fuel, as is evident from the write up in Kirk-Othmer Encyclopaedia of chemical technology. The leading manufacturer of hexane in India i.e. M/s. I.O.C.L is also classifying the goods under Heading 2710.12 of the Central Excise Tariff. Inasmuch as the goods were having the same properties, the respondent's claim cannot be upheld.


8. As against the above, the respondents have referred to SGS report dated 10-5-2000, which was relied upon by the Revenue in the show cause notice as also to Kirk-Othmer Encyclopaedia of chemical technology, relied upon by the departmental representatives and have contended that, as can be seen from the composition of the product imported by the respondents that the same is that of commercial hexane-A as stated in Kirk-Othmer Encyclopaedia. Admittedly, N-Hexane is separately defined chemically organic compound as is clear from the literature and encyclopaedia and the commercially pure hexane is obtained by the fractional distillation of crude petroleum oil. It is stated in the encyclopaedia that in the said process of fractional distillation, it may not be possible to eliminate certain impurities such as benzene, olefin, compound of sulphur, oxygen and chlorine and consequently a commercially pure hexane would have such impurities. The encyclopaedia supports their case inasmuch as commercially pure hexane mentioned in the said encyclopaedia as Hexane-A is N-hexane of purity of 63.93%. The specifications given in the said table relating to Hexane-A match with the test result of SGS, which would clearly establish that N-Hexane imported by the respondents is a commercially pure hexane. They have also relied upon the HSN explanatory notes which specifically list hexane as falling under Heading 29.01. Further, explanatory note under Chapter 27 further stipulates that crude petroleum oil and their distillation products falls under Chapter 27, but if such distilled product is a separated chemically defined organic compound, which is in the pure or commercially pure state, it would go out of Chapter 27 and fall under Chapter 29. It further stands contended that as per the scheme of Customs Tariff as also HSN explanatory notes, Chapter 27 covers the crude oil and its fraction which are obtained by refining such crude. These fractions are normally called as refinery products. The said Chapter does not cover downstream products obtained by further treatment of the fraction obtained from refining of crude, if, as a result of such treatment, a pure or commercially pure product emerges. The very fact that HSN specifically mentions Hexane under the Heading 29.01 establishes that Hexane is separately chemically defined organic defined compound. They have also contended that the burden of classification is on the Revenue, who has failed to establish the same. Reference has also been made to DGFT clarification for classification of Hexane under the ITC policy. Circular dated 14-7-2004 issued by DGFT clarifies that Hexane is classifiable under Chapter 29 of the ITC (HS Policy). The same has persuasive value for determining the classification under Customs and Central Excise Tariffs, as held by the Tribunal in the case of Unimers India Limited v. C.C.E. - 2009(06)LCX0307 Eq 2010 (250) ELT 0225 (Tri. - Bang.).


9. After considering the submissions made by both the sides we find that the issue required to be decided in the present appeal is as to whether the product imported and declared by the appellant N-Hexane is required to be classified under Customs Tariff Heading 2901.10 and Central Excise Tariff Heading 2901.90 for the purposes of countervailing duty, as held by Commissioner (Appeal) or the same would fall under Chapter 27, as contended by the revenue. It is seen that the matter was being listed repeatedly before us and was being adjourned to await the outcome of an identical dispute involved in an appeal before the Bangalore Bench of the Tribunal, which was heard and orders were reserved. The said appeal now stands decided in the case of Unimers India Limited v. Commissioner of Customs, Mangalore - 2009(06)LCX0307 Eq 2010 (250) ELT 0225 (Tri. - Bang.). It is seen that the Revenue in that case also relying upon the test reports, came to the conclusion that the Hexane, described by the importers in that case as Exxsol Hexane RD was not a separate chemically defined organic compound but was a mixture of nine separately chemically defined compounds and as such, was classifiable under 2710 11 12 of the Customs Tariff Act, 1975, as against the importer's claim of classification under Chapter 29. The Tribunal, by taking note of the circular issued by DGFT which clarified that the product is falling under Chapter 29 ac-cepted the importers stands of classification under Chapter 29 of the Customs Tariff Act and not under Chapter 27 of Customs Tariff Act.


11. Apart from the above, we note that the SGS report dated 10-5-2000 revealed the product's analysis as under :-

Table 10 as appearing in Kirk-Othmer Encyclopaedia chemical technology gives the composition and properties of three chemically identified as Hexane 'A', Hexane "B" and Hexane 'C. The composition of Hexane "A" is given in the said encyclopaedias is detailed as below :-

11. The comparison of composition given in the above encyclopaedia more or less matches with the composition of the product imported by the respondent. It is also seen from the said encyclopaedia that commercially pure Hexane is obtained by the fractional distillation of crude petroleum oil. It is further stated in the said encyclopaedia that in the process of fractional distillation, it may not be possible to eliminate certain impurities such as Benzene, polythene compounds of sulfur, oxygen and chlorine. The commercially pure Hexane would have such impurities. The presence of such impurities is reflected in table 10 of the said encyclopedia. Hexane A appearing in the said table reflects the N Hexane of purity as 63.91%. The normal Hexane shown in the SGS report of the imported consignment stands reflected as 63.93%. As such, we find that the percentage of purity of N Hexane as given in the SGS report and Kirk-Othmer Encyclopaedia matches. The extent of other ingredient which according to the encyclopaedia are impurities as given in the SGS report also matches with those given in the said table in the encyclopaedia.


13. We, at this stage may also refer to HSN explanatory notes which specifically list Hexane as falling under Heading 2901. On the other hand the explanatory notes under Chapter 27 is to the following effects :-

"The Chapter covers, in general, coal and other natural mineral fuels, petroleum oils and oils obtained from bituminous minerals, their distillation products and products of a similar kind obtained by any other process. It also covers mineral waxes and natural bituminous substances. 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. For certain of these compounds (e.g. ethane, benzene, phenol, pyridine) these are specific purity criteria indicated in Explanatory Notes 29.01, 29.07 and 29.33. Methane and propane are classified in heading 27.11, even when pure."

(emphasis supplied)

The above position is made more explicit by the scope of Heading 27.10, as under :

"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 redistillation), provided this treatment does not produce separate chemically defined compounds in a pure or commercially pure state (Chapter 29)"

(emphasis supplied)

Joint reading of the above shows that Chapter Heading 27 covers the crude oil and its fractions. The separate chemically defined organic compounds in its pure or commercially pure state are taken out of the said Chapter and are placed under Chapter 29. We have already held that the goods imported by the appellants are in commercially pure form and presence of certain impurities therein is an admissible factor, which does not turn the product into anything else but a separately chemically defined organic compound. The same cannot be held to be a mixture of the main compound (which is to the extent of 63.91) with the other impurities present in the product. As is seen from the encyclopaedia referred supra, product in question meets the standard and requirement of commercially pure Hexane and matches with that of Hexane 'A' given in said encyclopaedia. As such, in view of the Chapter notes also it has to be held that the goods are properly classifiable under Chapter 29.


14. On the other hand, in terms of Chapter Note 1(a) of Chapter 29 of the Customs Tariff Act, the separate chemically defined organic compound whether or not containing impurities are required to be classifiable under Chapter 29. The said Chapter refers to the impurities which appear exclusively as a result of manufacturing process. The same are not regarded as impurities. The said note states the term impurities applies exclusively to substances whose presence in the single chemical compound result solely and directly from the manufacturing process and such substances may result from any of the factor involved in the process. After specifying the said process, the note further states that such substances would not be regarded as impurities if they are deliberately left with a view rendering the product particularly suitable for specific use rather than for general use. The Kirk-Othmer Encyclopaedia specifically states the Hex-ane obtained by 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 Hexanes, 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 an 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. As such, the harmonious reading of explanatory notes of Chapter 29 and Chapter 27 leads us to hold that the product is properly classifiable under Chapter 29 and not under Chapter 27. The product cannot be a mixture of acrylic hydrocarbon isomers so as to exclude the same from Chapter 29.


15. Apart from the above we also find that the DGFT clarification issued under ITC (HS Policy) vide its circular dated 14-7-2004, which stands relied upon by the Tribunal in the case of Unimers India Limited referred supra, also supports the respondent's case.


16. We also note that for classifying the product under Chapter 27, the criteria of not only the flash point is required to be matched but the fact that the product is suitable for use as for spark ignition engine is also to be established. The Revenue has nowhere advanced any argument or evidence to show that the product is suitable for use as fuel either by itself or in admixture. The respondents have strongly contented that the goods imported by them are used as solvents and there is no material evidence placed to allege that the same are used as spark ignition engine. In the absence of the same, the Revenue's contention that the product is falling under Chapter 27, cannot be upheld. In view of our foregoing discussions, we find no merits in the Revenue's appeal and we reject the same.

(Pronounced in the Court on 15-7-2011)

Equivalent 2011 (274) ELT 0299 (Tri. - Ahmd.)