Custom, Excise & Service Tax Tribunal
Gail (India) Limited vs Vadodara-Ii on 27 February, 2019
In The Customs, Excise & Service Tax Appellate Tribunal
West Zonal Bench At Ahmedabad
Appeal No. E/2228/2005 & E/116/2006-DB
[Arising out of OIO-52/VDR-II/MP/2004-Dated 29.03.2005 passed by Commissioner of Central Excise-
Vadodara-II]
Appeal No. E/777-778/2010-DB
[Arising out of OIO-27-28/VDR-II/GAIL/BRH/COMMR/2009-Dated 19.02.2010 passed by Commissioner of
Central Excise-Vadodara-II]
Appeal No. E/768/2011-DB
[Arising out of OIO-38-VDR-II-GAIL-MP-ADJ-COMMR-2010-11-Dated 29.03.2011 passed by Commissioner
of Central Excise-Vadodara-II]
M/s Gail (India) Ltd. Appellant
C.C.E. & S.T. - Vadodara-ii
Vs.
C.C.E. & S.T. - Vadodara-ii Respondent
M/s Gas Authority of India Ltd.
Represented by:
For Appellant: Mr. A. Nainawati (Advocate) For Respondent: Mr. A. Mishra (AR) CORAM:
HON'BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) HON'BLE MR. RAJU, MEMBER (TECHNICAL) Date of Hearing: 28.01.2019 Date of Decision: 27.02.2019 Final Order No. A / 10379-10383 /2019 Per: Raju These appeals have been filed by M/s Gail (india) Ltd. against challenge to the classification made by Revenue and demand of Central Excise duty, interest and imposition of penalty. Revenue has also filed appeal against dropping of proceedings on account of limitation in order in original dated 29.03.2005.
2. Ld. Counsel for Gail (india) Ltd. pointed out that they are engaged in manufacture of mixture of pentane, hexane and small quantities of heavier hydrocarbons like pentane, hexane, heptane, etc. during the processing of natural gas. The said mixture is subject to
2|Page E/2228/2205,E/116/2006-DB E/777-778/2010,E/768/2011-DB fractional distillation and one of product of such distillation is pentane. Revenue is seeking to classify the pentane recovered during this process under sub heading 2710 11 13 as against the classification 2711 19 00 claimed by the Gail (India) Ltd. Ld. Counsel pointed out that the heading 2710 11 13 relates to special boiling point spirit (SBPS). He argued that identical matter in case of ONGC was decided by Tribunal vide Final Order No. A/12626-12630/2018 dated 26.11.2018. He argued that for a product to qualify as SBPS falling under heading 2710 11 11, 2710 11 12, 2710 11 13, the product must also conform to the definition of 'Motor Spirit' appearing in the Central Excise Tariff. Ld. Counsel also relied on the decision of the Tribunal in their own case reported as 2019 (1) TMI 174 (CES-AMD) dated 02.01.2019. In the said case the Tribunal observed as follows:
"5. We have gone through rival submissions. We find that Revenue is seeking to classify the product as motor spirit under heading 2710.99 (prior to 31.03.2005) and under tariff Heading 2710 19 90 (after 31.03.2005). Prior to 01.03.2005 heading 2710 read as follow:
3|Page E/2228/2205,E/116/2006-DB E/777-778/2010,E/768/2011-DB After 01.03.2005 the heading 2710 read as follows:
4|Page E/2228/2205,E/116/2006-DB E/777-778/2010,E/768/2011-DB Supplementary note (a) to Chapter 27 defined 'Motor Spirit' as follows:
"Motor Spirit" means any hydrocarbon oil (including crude mineral oil) which as its flash point below 25 Celcius and which either by itself or in admixture with any other substance, is suitable for use as fuel in spark ignition engines. " Special boiling point spirits (tariff items 2710 11 11, 2710 11 12 and 2710 11 13)" means light oils as defined in sub- heading note 4, not containing any anti-knock preparations, and with a difference of not more than 60 Celcius between the temperatures at which 5% and 90% volume (including losses) distil;"
From the above it is seen that the definition of motor spirit essentially remains the same prior to and after 01.03.2005. Earlier the specific requirements of 'motor spirit' were part of the heading 2710 but after 1.3.05 the same were incorporated in supplementary note (a) to Chapter 27.Tribunal in the case of India Oil Corporation 1990 (45) ELT 134 has observed as follows:
"6. Yet another feature to be noted is that, as submitted by I.P.C.L., the department had tested the sample only for flash point. The tariff provides two criteria: one is the flash point; the other is that the mineral oil should, either by itself or in admixture with any other substance, be suitable for use as fuel for internal combustion engine. Satisfaction with both criteria is required. The departmental sample no doubt showed fulfilment of the flash point criterion. But, in a stoutly disputed case such as the present one, it was
5|Page E/2228/2205,E/116/2006-DB E/777-778/2010,E/768/2011-DB imperative on the part of the department to test the mineral oil also to determine whether it fulfilled the criterion of suitability for use as fuel in internal combustion engines. This, the department failed to do even though it was seeking to tax the oil as motor spirit."
(emphasis supplied) Thus to qualify as 'motor spirit' the product has to answer to the two test prescribed in the aforesaid decision. In case of Oil India Limited 2002 (148) ELT 802 in para 8 following has been observed:
"8. In view of the Board's clarification dated 17- 11-81 the Revenue cannot take up a contention that condensate will not come under Item 68 of the old Tariff. The above clarification further makes it clear that condensate is a petroleum in natural state and is crude oil. It is to be classified as crude mineral oil. If that be so, it would directly come under sub-heading 2709.00 which takes in petroleum oils and oils obtained from bituminous materials and crude. When we examine the Heading 2710 we find that the main heading makes a specific exclusion of crude. If that be so, there is no merit in the contention that because of an exclusion clause provided under Motor Spirit, condensate has to undergo a test of flash point and use as a fuel in spark ignition engine for being excluded from the Heading 2710. Since the main heading itself excludes crude, it cannot be taken that a subsequent exclusion will bring it back under Heading 2710. There is also merit in the contention of the appellant that reference to admixture with any other substance is to be taken as substance other than mineral oil. The description under the heading 'Motor Spirit' tallies with the description under Item 6 in the old Tariff."
(emphasis supplied) Thus, to qualify for the phrase 'suitable of use as motor spirit' the product needs to be tested in admixture with anything other than 'mineral oil'. In the instant case, letter of the Superintendent (prev.) dated 20.04.2006 suggests that the product has been tested in admixture with motor gasoline in the ratio of 10% V/V. The said letter of the Superintendent is in respect to subsequent query of the appellant seeking this information. In this background, it is seen that the product has not been tested for its suitability for use in admixture with any substance other than mineral oil as required in terms of the decision of Tribunal in case of Oil India Ltd., upheld by Hon'ble Apex Court (supra). Thus Revenue has not produced the necessary evidence to classify the product as motor spirit falling under heading 2710.99 (prior to 31.03.2005) and under tariff Heading 2710 19 90 (after 31.03.2005). In these circumstances demand of duty and change of classification sought by Revenue remains unsubstantiated. Consequently, the demand is set aside and appeal of M/s Gail India Ltd. are allowed. The appeal of Revenue is dismissed as the demand of duty itself has been set aside."
6|Page E/2228/2205,E/116/2006-DB E/777-778/2010,E/768/2011-DB
3. Ld. AR relied on the impugned order. He specially argued that to qualify as SBPS falling under sub heading 2710 11 11, 2710 11 12 or 2710 11 13, it is not necessary that product should answer to the description of 'Motor Spirit'. For this purpose, he relied on the General Explanatory Note to the Central Excise Tariff which reads as follows:
He argued that in terms of the above General Explanatory note the headings preceded by four dashes "- - - -" shall be taken as sub classification of immediately preceding "-" and "- -" entry, and not sub classification of immediately preceding '- - -' entry. He argued that the term 'motor spirit' appears as a "- - -" entry and the terms SBPS appears as "- - - -" entry. He argued that in view of above "- - - -"
entry, SBPS cannot be treated as sub classification of "- - -" entry, i.e. 'Motor Spirit'.
4. We have gone through rival submissions. we find that all arguments raised by Revenue other than argument related to General Explanatory Note has been examined by Tribunal in the appellant's own case in their favor in the case reported in 2019 (10 TMI 174 (AMD).
4.1 The issue regarding necessity of special boiling point spirit to answer to the description of 'Motor Spirit' has also been examined in various decisions as follows:
GAIL (India) Ltd. 2019 (1) TMI 174 - CESTAT
7|Page E/2228/2205,E/116/2006-DB E/777-778/2010,E/768/2011-DB CCE vs M/s Bharat Petroleum Corp. Ltd. 2018 (4) TMI 829 (Ces-
MUM) 4.2 However, the argument regarding general explanatory notes raised by Revenue is not specifically dealt with in aforesaid decisions.
Revenue has argued that in terms of the General Explanatory Note to the Central Excise Tariff, the '- - - -' entries in the tariff are not sub classifications of '- - -' entry immediately preceding it. The General Explanatory Note to the Central Excise Tariff reads as follows:
Revenue has argued that the headings preceded by four dashes "- - - -
" shall be taken as sub classification of immediately preceding "-" and "- -" entry and not the '- - -' entry preceding it. The issue needs to be examined for two different periods in this regard as the tariff heading had changed in the year 2005.
4.2.1 It is seen that for the period prior to 01.03.2005 heading 2710 read as follows:
8|Page E/2228/2205,E/116/2006-DB E/777-778/2010,E/768/2011-DB It is seen that the sub heading relating to SBPS were "- -" entry preceded by "-" entry of 'Motor Spirit'. In these circumstances even in terms of General Explanatory Note 1 to the first Schedule of Central Excise Tariff, the special boiling point spirits have to answer to the description of 'Motor Spirit'. Thus the argument of revenue is not applicable for the period prior to 1.3.2005. 4.3 In so far as period after 01.03.2005 is concerned, the heading 2710 read as follows:
9|Page E/2228/2205,E/116/2006-DB E/777-778/2010,E/768/2011-DB It is seen that 'Motor Spirit' is "- - -" entry with no tariff item number. The argument of the Revenue is that sub heading 2710 11 11, 2710 11 12, 2710 11 13 and 2710 11 19, which are '- - - -' entries, are not 10 | P a g e E/2228/2205,E/116/2006-DB E/777-778/2010,E/768/2011-DB sub classifications of 'Motor Spirit', which is a "- - -" entry immediately preceding those '- - - -' entries.
4.3.1 A perusal of the heading 2710, post 1.3.2005, shows that the said heading 2710 has been first divided into two unnumbered "-"
entries, one relating to '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 oils obtained from bituminous minerals, these oils being the basic constituents of the preparations, other than waste oils' And the other '-' entry relating to 'Waste oils'.
4.3.2 Thereafter the first '-' entry is further divided into two "- -"
entries, one numbered as 2710 11, namely "Light Diesel Oils and Preparations" and the other numbered as 2710 19, namely "Others". The "- -" entry 2710 11 "Light Oils and Preparations" is sub divided into three "- - -" entry, namely 'Motor Spirit' (without any sub heading), 'National Gas and Liquid' (NGL) heading 2710 11 20 and 'others' heading 2710 11 90. The "- - -" entry 'Motor Spirit' is followed by "- - - -" entries namely, 2710 11 11, 2710 11 12, 2710 11 13 and related to SBPS and heading 2710 11 19 relating to 'Others'.
4.3.3 Similarly the '- -' entry relating to sub heading 2710 19 is further divided into nine sub headings numbered as 2710 19 10 (SKO), 2710 19 20 (ATF), 2710 19 30 (HSD), 2710 19 40 (LDO) and so on.
11 | P a g e E/2228/2205,E/116/2006-DB E/777-778/2010,E/768/2011-DB 4.4 From the above description it is apparent that if the General Explanatory Note is interpreted in the manner in which Revenue seeks to interpret, "- - -" entry 'Motor Spirit' would become otiose. Similarly the definition of 'Motor Spirit' appearing in clause (a) of supplementary Note to Chapter 27 would also become otiose. Moreover, it is seen that prior to 01.03.2005 the 'Special Boiling Point Spirits' were a "- -"
entry immediately preceded by a "-" entry related to 'Motor Spirit'. So prior to 1.3.2005 the SBPS were a sub classification of 'motor spirits' even by revenue's interpretation.
4.5 Thus the interpretation of revenue would result in no item falling under under the category of 'motor' spirit' and the definition of the term 'motor spirit', and the '- - -' entry relating to it, would become otiose for the period after 1.3.2005. Any interpretation that makes the specific entry, 'motor spirit' and its definition appearing in supplementary notes, otiose, cannot be the correct interpretation. In above circumstances, it is apparent that even after 01.03.2005, the Special Boiling Point would have to answer to the description of 'Motor Spirit' just the way it was prior to 1.3.2005.
5 Consequently, the appeals of M/s Gail (india) Ltd. are allowed.
Since the Revenue's appeal is solely on the issue of limitation, the same is dismissed.
(Pronounced in the open court on 27.02.2019) (Raju) (Ramesh Nair) Member (Technical) Member (Judicial) Neha