Custom, Excise & Service Tax Tribunal
Venus Petrochemicals(Bombay) Pvt Ltd vs Kandla on 2 January, 2019
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
West Zonal Bench, Ahmedabad
Application No. C/ORS/10792/2018
Appeal No. C/12518/2018-DB
(Arising out of OIO No. KDL- COMMR-SKA-05/2018-19 dated 04/09/2018
passed by Commissioner of Customs, Kandla)
Venus Petrochemicals (Bombay) Pvt Ltd. - Appellant
Vs.
C.C. Kandla - Respondent
Represented by:
For the appellant : Shri B.R. Tripathi, Advocate For the respondent : Ms. Nitina Nagori, Dy. Commr. (AR) CORAM:
Hon'ble Mr. Ramesh Nair, Member (Judicial) Hon'ble Mr. Raju, Member (Technical) Date of Hearing: 02.11.2018 Date of Decision: 02.01.2019 ORDER NO. A/10003 / 2019 Per: Raju This appeal and stay application has been filed by Venus Petrochemicals (Bombay) Pvt. Ltd. in respect of goods imported by them which were confiscated by Revenue by changing the classification of the goods.
2. Ld. Counsel for the appellant pointed out that they imported "Low Aromatic White Spirit (ANYSOL-5) in bulk (LAWS)" by classifying the said goods in heading "2710 19 90". Out of total imports of 942.229 metric tonne, vide into bond bill of entry dated 09/03/2018, the appellant cleared 442.224 metric tonne vide ex-bond bill of entry dated 04/04/2018, 18/05/2018 and 06/06/2018. The balance quantity of 500.005 metric tonne lying in the bonded warehouses was confiscated by the impugned order and offered to the appellant against the redemption fine of Rs. 43,41,821/- . In respect of goods held cleared by the appellant redemption fine of Rs.
2 C/12518/2018-DB 38,40,076/- was imposed under section 125 of the Customs Act. A penalty of Rs. 35 lakhs was also imposed on the appellant under section 112(a) of the Customs Act. Demand of differential duty of Rs. 75,78,301/- was however dropped.
2.1. Ld. Counsel pointed out that heading 2710 19 90 and heading 2710 12 90 read as follows:
Tariff Item Description of goods Unit Rate of duty Standard Preferential Areas 2710 PETROLEUM OILS AND OILS OBTAINED FROM BITUMINOUS 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 ííí
- 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 those containing biodiesel and other than waste oils:
2710 12 -- Light oils and preparations :
--- Motor spirit:
2710 12 11 ---- Special boiling point spirits (other than benzene, kg 10% -
toluol) with nominal boiling point range 55 - 115oC 2710 12 12 ---- Special boiling point spirits (other than kg. 10% -
benzene benzol, toluene and toluol ) with nominal boiling point range 63-70oC 2710 12 13 ---- Other Special boiling point spirits (other kg. 10% -
than benzene, benzol toluene and toluol) 2710 12 19 ---- Other kg. 10% -
2710 12 20 --- Natural gasoline liquid (NGL) kg. 10% -
2710 12 90 --- Other kg. 10% -
2710 19 --- Other kg. 10% -
2710 19 10 --- Superior kerosine oil (SKO) kg. 10% -
2710 19 20 --- Aviation turbine fuel (ATF) kg. 10% -
2710 19 30 --- High speed diesel (HSD) kg. 10% -
2710 19 40 --- Light diesel oil (LDO) kg. 10% -
2710 19 50 --- Fuel oil kg. 10% -
2710 19 60 --- Base oil kg. 10% -
2710 19 70 --- Jute batching oil and textile oil kg. 10% -
2710 19 80 --- Lubricating oil kg. 10% -
2710 19 90 --- Other kg. 10% -
2710 20 00 - Petroleum oils and oils obtained from kg. 10% -
bituminous kg. 10% - minerals (other
than crude) and preparations not
elsewhere specified or included,
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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, containing biodiesel, other than waste oils
- Waste oil :
2710 20 00 -- Containing polychlorinated biphenyls kg. 10% -
(PCBs), polychlorinated terphenyls (PCTs) or polybrominated biphenyls (PBBs) 2710 99 00 - Other kg. 10% -
Ld. Counsel argued that supplier‟s report dated 26.03.2018 and 17.07.2018 and confirmation letter dated 17.07.2018 clarified that the goods are classifiable under heading 2710 19 90. Ld. Counsel also relied on IS specifications of solvents to assert that the product is in the nature of solvent and, therefore, the product should be classified along with the classification of „other solvents‟ i.e. 2710 19 90. Ld. Counsel also relied on the data sheet of Shell Chemicals dated 19.10.2007 which describes the specifications of this product namely „White Spirits‟. The said report describe the white spirits is a wide boiling range, medium evaporating solvent widely used in the paint, ink and dry-cleaning industries. Ld. Counsel also relied on the data sheet of Shell Chemicals issued in November, 2001 relating to Low Aromatic White Spirit. The said data sheet describe Low Aromatic White Spirit as a hydrodesulphurised straight-run hydrocarbon solvent with an aromatics content, depending on the crude oil from which it is refined, of approximately 18%. Ld. Counsel argued that the heading 2710 12 90 related to fuels whereas the heading 2710 19 90 related to solvents. Ld. Counsel argued that the product imported by them is used as solvent in the market. He pointed out that even as per the data sheet, it is clear that the product is a solvent and thus, it is rightly classifiable under 2710 19 90.
2.2 Ld. Counsel pointed out that product imported by them is actually a middle distillate. For this assertion, Ld. Counsel relies on the IS standards 4 C/12518/2018-DB of Petroleum Industries and terminology. The said publication describes „middle distillate‟ and „White spirits‟ as follows:
"1.20.040 middle distillate Kerosene and gas oils boiling between approximately 150oC and 400oC as normal atmospheric pressure and having a closed-cup flash point above 38oC.
1.20.170 white spirit Solvent of mineral origin, usually distilling between 130oC and 220oC.
2.3 Ld. Counsel also relied on the opinion of professor M.C Dwiwedi (ex-
Dept. of Chemical Engineering, I.I.T. Bombay) dated 27.07.2018. Ld. Counsel pointed out that impugned order holds that the importer could not produce any technical literature to show that LAWS can never be light oil as defined in sub heading note 4 of Chapter 27. He argued that such a negative evidence can never be established.
2.4 Ld. Counsel further pointed out that there is no case for imposition of penalty and for redemption fine as the Revenue itself was not sure of the classification claimed as it had to seek clarification from chemical examiner on various issues. In these circumstances, imposition of redemption fine and penalty is not justified.
3. Ld. AR relies on the impugned order. She pointed out that the product imported by the appellant clearly confirms to the definition of „Light Oils and Preparations" and thus, the actual use, the product is put into, solvent or fuel, is irrelevant. She argued that the Customs Tariff has chosen to classify all products, answering to the specifications prescribed under sub-heading note 4 of chapter 27, under sub-heading 2710.12. In these circumstances, the actual use the goods are put into is to no relevance at all.
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4. We have gone through rival submissions. We find that there is no demand of duty in the instant case. The entire issue relates to ITC restrictions. The goods falling under Chapter Heading 2710 12 90 are restricted as per Import Policy and allowed to be imported through State Trading Enterprises (STE) only, as per policy condition-5 of the Chapter 27 of ITC (HS) Schedule-1. The policy condition of the Chapter 27 is reproduced below:-
"Import allowed through IOC subject to para 2.20 of Foreign trade policy except for the companies who have been granted rights for marketing of transportation fuels in terms of Ministry of P&NG‟s Resolution No. P=23015/1/2001-MKT dated 08.03.2002 including HPCL, BPCL & IBP who have been marketing transportation fuels before this date."
Thus, if the imports are in violation of aforesaid condition, then the same would be liable to action under the Customs Act.
4.1 The said restriction is specifically applicable to CTH 2710 12 90, claimed by Revenue and not to 2710 19 90, claimed by the appellant.
Consequently, depending on the correct classification of the product, the ITC restriction would apply to the imports.
4.2 The heading 2710 of the Customs Tariff Act reads as follows:
"Petroleum oils and oils obtained from bituminous 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 ííí- -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 those containing biodiesel and other than waste oils:"
Sub heading note 4 to the Chapter 27 reads as follows:
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4. For the purposes of sub-heading 2710 12, "light oils and preparations" are those of which 90 % or more by volume (including losses) distil at 210 °C according to the ISO 3405 method (equivalent to the ASTM D 86 method).
The history of reports produced from CRCL has been reproduced in para 23.1.1-23.1.6 and reads as follows of the impugned order:
23.1.1 The CRCL, Kandla vide Test Report No. 4294 reported on 15.03.2018, had reported that the sample is light oil/SBPS. The test result furnished by the CRCL, Kandla is reproduced below :-
"The sample is in the form of clear colourless liquid. It is composed of mixture of mineral hydrocarbons having following constants Initial boiling point = 152 degree Celsius Final boiling point -- 186 degree Celsius Density at 15 degrees Celsius = 0.7834 gm/ml Difference of temperature between 5 ml and 90 ml distillation = 15 degree Celsius.
It is light oil/SBPS.
Sealed remnant returned herewith".
23.1.2 The importer vide their letter dated.16.03.2018 requested for retesting of the sample by contending that some parameters were not taken into consideration by the Lab Authorities while testing the sample viz. Flash Point, %age of aromatic contents. Considering the request of the importer the import group requested the CRCL, Kandla to specifically inform the following details/characteristics of the imported goods vide letter dated 20.03.2018 :-
(i) % of aromatic constituents;
(ii) Flash Point;
(iii) Conclusion criterion for describing product as light oil/SBPS;
(iv) Whether the product satisfies the criteria of low aromatic white spirit/MTO.
23.1.3 In response to the query, the CRCL, Kandla vide their letter dated 22.03.2018 had reported that:
"In this context on going through the analytical findings of chemist the desired parameters are as under :-
Aromatic Content = 10% Flash Point -43 degree Celsius Regarding other query, CRCL, Kandla has invited attention to sub heading note 4 and supplementary note (a) of chapter 27 of customs tariff".
23.1.4 I find that the importers vide their letter dated 26.03.2018 reiterated that their product is Low Aromatic White Spirit (LAWS for short) I Mineral Turpentine Oil as it follows the Indian Standards 1745-1978 (reaffirmed 2011. I find that vide letter dated 09.04.20 18 the import group sought further clarification from the CRCL, Kandla. The CRCL, Kandla vide their letter dated 13.04.2018, reported that
(a) As per the literature available here it is stated that based on molecular compositional data on petroleum there has been five sets of fractions of petroleum. These fractions are defined by boiling points.
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1. Gases (C1.-C4)
2. Naphtha (initial boiling point -210° 0)
3. Mid distillate (210° C to 345° C)
4. Vacuum gasoil(345°C-564°C)
5. Residuum The product u/r comes under the second fraction as per the reference "Kirk-Othmer Encyclopedia of Chemical Techno Zogyourth edition Volume -- 4"
(b) Petroleum Product Handbook, (in the appendix Standard Industrial Naptha and related materials) also describes the characteristics of Petroleum Spirits (Mineral Spirit).
1. Colour -- Water white
2. Distillation-- 50% distillation upto 1 77° C and final boiling point at 210° C
3. Flash Point - 38° C With reference to above it may be conduded that product u/r is part of above described mineral spirit and comes under the class of light oil as also described in Customs Tariff‟.
23.1.5 I further find that a subsequent sample was drawn and the same was forwarded to the CRCL, New Delhi vide letter dated 25.05.20 18, for retesting the sample with request to clarify :-
(i) Whether the sample confirms the parameters of Light Oil or Low Aromatic White Spirit
(ii) Parameters along with result obtained, if found Light Oil
(iii) Parameters along with result obtained, if found Low Aromatic White Spirit
(iv) Parameters along with result obtained and description, if found other than Light Oil or Low Aromatic White Spirit.
(v) Parameters to djfferentiate between Light Oil and Low Aromatic White Spirit."
23.1.6 I find that the CRCL, New Delhi, has sent their report vide letter F. No. 27-CTJS/C-03/2018-19 dated 18.06.2018, the same is reproduced below :-
"Report The sample is in the form of colourless liquid. it is mainly composed of mineral hydrocarbon oil. Mineral hydrocarbon oil content is more than 70% by wt., having following constituents:
1. Density at 15° C, g/ml - 0.7810
2. Flash Point (Abel) - 45° C
3. Distillation range Initial Boiling Point (IBP) - 148° C 5% by volume - 160° C 90% by volume - 1800 C Final Boiling Point (FBP) - 184° C Difference between temperature of 5% and 90% distillation is less than 60° C actual being 200 C) The Sample is Light Oil and Special Boiling Point Spirit as per the Sub-heading Note 4 and supplementary Note (a) respectively of Chapter 27 of CTA.
The point wise reply of the queries are as under:
1. Whether the sample confirms-t he parameters of Light Oil or Low Aromatic White Spirit The sample u/r satisfies the condition of Light Oil as defined in Sub-
heading Note 4 under Chapter 27 of CTH as 90% distills below 210 Degree Celsius.
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2. Parameters along with result obtained, if found Light Oil As per sub-heading note 4 under Chapter 27 of CTH "light oils and preparations" are those of which 90% or more by volume (including losses) distil at 210°C and the sample under reference distills at 90% at 180°C and therefore it meets the requirement of Light Oil.
3. Parameters along with result obtained, if found Low Aromatic White Spirit As Such there is no standard for LAWS, however, the sample meets the requirement of one of the grades as per IS:1 745-1978 (reaffirmed 2011) -- Specification for petroleum Hydrocarbon Solvents Parameter Standard parameters obtained in of solvent 145/205 laboratory low aromatic as per 1S1745:1978 i.density at 15 C,g/ml 0.7810 To be reported iiFlashpoint(Abel) 45 Degree C 35 Degree C(min) iii.distillation range initial boiling point (IBP) 148 Degree C 145 Degree. C 50% by volume recovered 170 Degree C To be reported at 184 Degree C To be reported 95% by volume recovered 184 Degree C 205 Degree C(max) at 10% by volume 40% by volume(max) Final Boiling Point (FBP) Iv Aromatic content
4. Parameters along with result obtained and description, ffound other than Light Oil or Low Aromatic White Spirit. NO
5. Parameters to differentiate between Light Oil and Low Aromatic White Spirit." Any Solvent based on mineral hydrocarbon covered by any standard including IS: 1745-1978 (reaffirmed 2011) -- Specification for petroleum Hydrocarbon Solvents, may also meet the requirement of Light Oil as per Subheading Note 4 under Chapter 27 of CTA.
Therefore the question to differentiate between Light Oil and any other solvent does not arise.
Sealed remnant of redrawn sample alongwith remnant in as received condition are being returned in a box separately"
From the above it is apparent that the product imported by the appellant answers to specifications prescribed under sub heading note 4 and therefore, would fall under the description „light oils and preparations‟ of sub heading 2710.12.
4.3 Ld. Counsel has placed reliance on the reports of the supplier, IS specifications, etc. to assert that the said imported goods comes under the nature of solvent and therefore they are not classifiable under heading 2710 12 90 but are rightly classifiable under head 2710 19 90. We are 9 C/12518/2018-DB unable to find any such distinction in the Customs Tariff on the basis of use of the goods. The Customs Tariff classifies the goods solely on the physical specifications mentioned under the Customs Tariff. In respect of „Light Oil and preparations‟ sub heading note 4 clearly prescribes the specifications.
The product imported by the appellant answers to those specifications and thus there is no reason not to classify the said goods in the sub heading 2710 12 90. Ld. Counsel has relied on the opinion of the expert namely, Prof. M.C. Dwivedi (ex. Dept. of Chemical Engineering I.I.T. Bombay). In para 3 of the report, Shri Dwivedi as observed:
(c) WTO - HSN NOMENCLATURE I For the purpose of international trade and movement the World Customs Organization (WTO) has classified goods under the Harmonized System Nomenclature (HSN). Each material is assigned a unique eight digit code number1 reflecting some basic characteristics. For instance number „27‟ refers to „Chapter‟, „10‟ to „Petroleum Oils‟. The next two digits „12‟ refers to hazardous nature.
Flash point lower than ambient temperature API Class A‟ material. 19 refers to fire safe API Class „B‟ & „C‟ materials. The next two refer to specific products like „ 10‟ for „ kerosene‟ and „20‟ for „ATF‟ 90‟ for minor products. HSN Code for the Low Aromatic White Solvent(LAWS) is 27101990. This depends on Flash Point. If the Flash Point is less than 24°C (Ambient temperature), it is considered unsafe and inflammable. Solvents with flash point less than 24°C are classified as 271012 and those with higher flash point as LAWS (ANYSOL -5) are classified as HSN Code - 271019.
These have been regularly imported from various countries under the HS Code 271090. Typical import data sheet during the period 22 Nov. to 26 Nov. 2016 is given in Appendix -12.
HSN codes for some petroleum products are given in Table -5 and relevant extracts from DGFT --ITC (HS) 2710 are given in (Appendix-13).
Copies of the two invoice issued by BPCL No. 6000007724 dated 29- 04-2017 (Appendix 14) and from HPCL invoice No. 11585 G. 117008209 dated 06-03-2018 (Appendix -15) are attached to show that MTO is being given HSN Code as 2710 1990.
The above discussion concludes that high flash solvents, both low aromatic and high aromatic come under HSN classification 2710 1990, technically as well as in industry practice.
We do not find any merit in the said opinion of Shri Dwivedi. His observations are totally at odds with the scheme of Customs Tariff and HSN, and, therefore, rejected.
10 C/12518/2018-DB 4.5 The redemption fine has been imposed on the appellant. In the appeal memorandum, the appellant has argued that the confiscation under section 111(d) of Customs is untellable in law. It has been argued that even for the classification claim by the appellant is incorrect, it cannot result in confiscation of goods. Reliance has been placed on the decision of Tribunal in the case of Komal Trading Co. 2014 (301) ELT 506. In the said case the issue did not relate to ITC restriction. In the said case, the allegation was mis-declaration and consequent demand of duty. In that case, the intention of the appellant was relevant. In the instant case, sub section 111(d) of the Customs Act has been invoked. The said section 111
(d) reads as follows:
(d) any goods which are imported or attempted to be imported or are brought within the Indian customs waters for the purpose of being imported, contrary to any prohibition imposed by or under this Act or any other law for the time being in force;
It is apparent that confiscation in such cases is not based on any intention of the appellant or any malafied acts of the appellant. The section is triggered when the prohibited or restricted goods are imported without due authorization. The bonafide or malafide intention of the importer is of no relevance so far as confiscation under section 111(d) of the Customs Act is concerned. The appellant has also relied on the decision of the Hon‟ble Apex Court in the case of Northern Plastics 1990 (101) ELT (549). In the said case facts were significantly different. In the said case, section 111(m) was invoked. Section 111 (m) relates to the description made by the importer at the time of import and, therefore, the bonafide or malafide of importer is of relevance. In case Section 111(d), the belief of importer is not relevant.
4.6 Ld. Counsel also argued that no penalty can be imposed as this is merely a dispute relating to classification. Section 112 (a) reads as follows:
"Section 112- Penalty for improper importation of goods, etc. - Any person, -
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(a)who, in relation to any goods, does or omits to do any act (a) which act or omission would render such goods liable to confiscation under section 111, or abets the doing or omission of such an act"
It is apparent that if the goods are held as liable to confiscation for whatever reason penalty under section 112 (a) can be imposed.
Malafide/bonafide or the belief of the importer in all is of no relevance.
4.7 Now we come to the quantum of penalty and redemption fine, we find that there is no element of differential duty involved in this case.
Keeping in view that the only element of violation involved was with reference to policy and that there was no element of duty involved the quantum of penalty and redemption fines are excessive. Consequently, the penalty and redemption fines are reduced to Rs. 20 lakhs each.
5. Appeal is partly allowed in above terms.
(Pronounced in the open Court on 02/01/2019) (Raju) (Ramesh Nair) Member (Technical) Member (Judicial) DS