Custom, Excise & Service Tax Tribunal
Oil And Natural Gas Corporation Limited vs Vadodara-Ii on 26 November, 2018
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
West Zonal Bench, Ahmedabad
Appeal No. E/602,1430/2008, E/1094,1847/2009, E/849/2010-DB
Date of
Case No Impugned Order Detail's Impugned Passed By Appellant Respondent
Order Commissioner of Oil And Central Excise, E/602/2008- OIO-16/COMMR/VDR- Natural Gas C.C.E. & S.T.-
19/02/2008 Customs and DB II/MP/2007-08 Corporation Vadodara-ii Service Tax-
Limited
VADODARA-II
Commissioner of
Oil And
OIO-03/VDR- Central Excise,
E/1430/2008- Natural Gas C.C.E. & S.T.-
II/ONGC/BRH/COMMR/08- 08/08/2008 Customs and
DB Corporation Vadodara-ii
09 Service Tax-
Limited
VADODARA-II
Commissioner of
Oil & Natural
OIO-51/VDR- Central Excise,
E/1094/2009- Gas C.C.E. & S.T.-
II/ONGC/BRH/COMMR/08- 18/03/2009 Customs and
DB Corporation Vadodara-ii
09 Service Tax-
Ltd
VADODARA-II
Commissioner of
Oil & Natural
Central Excise,
E/1847/2009- OIO-12/VDR- Gas C.C.E. & S.T.-
18/09/2009 Customs and
DB II/ONGC/BRH/COMMR/2009 Corporation Vadodara-ii
Service Tax-
Ltd
VADODARA-II
Commissioner of
Oil & Natural
Central Excise,
E / 849 / OIO-26/VDR- Gas C.C.E. & S.T.-
18/02/2010 Customs and
2010-DB II/ONGC/BRH/COMMR/2009 Corporation Vadodara-ii
Service Tax-
Ltd
VADODARA-II
Represented by:
For the appellant : Shri V. Shridharan (Sr. Adv) Anand Nainawati, Adv.
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: 26.10.2018 Date of Decision: 26.11.2018 ORDER NO. A/12626-12630/2018 Per: Raju These appeals have been filed by M/s Oil and Natural Gas Corporation (ONGC) against confirmation of demand of Central Excise duty and imposition of penalty. The appellants are engaged in manufacture of various petroleum products. During manufacture of LPG, certain bottom end products are produced which the appellants have sought to classify as 2 E/602,1430/2008, E/1094,1847/2009, E/849/2010-DB „Naptha‟ under Chapter sub heading head 2710.14 (prior to 01.03.2005) and under sub heading no. 2710 11.19 (after 01.03.2005). Revenue has sought to classify Naptha as "Other Special Boiling Point Spirits" under Chapter sub heading 2710.13 (prior to 01.03.2005) and under heading 2710 11 13 (after 01.03.2005). Consequently, Revenue has sought to demand special Excise Duty leviable under second schedule to the Central Excise Tariff Act. In appeal no. E/1094/2009, the order has been passed in denovo proceedings after the matter was remanded to Tribunal for fresh adjudication vide order no. A/1661/ WZB/D/08 dated 06/08/2008. The said order of Tribunal directed the Commissioner to consider the submission of the appellant on the decision of Tribunal in the case of Oil India Ltd. 2002 (148) ELT 802 (T) and with respect to eligibility of Notification no. 23/06 dated 01/03/2006 which granted exemption to Naptha from levy of special excise duty.
2. Ld. Counsel for the appellant pointed out when crude oil is subject to fractional distillation, it results in generation of a number of streams which are then refined into different products and captured at different temperatures and pressures in the column.
2.1 Ld. Counsel pointed out that natural gas which is mined at different places is transported through the Central processing facilities to different customers. The central processing facility is onshore installation, to process and handle the crude oil and natural gas produced in the oil field. Gas received from different oil fields is subjected to 3 stage separation followed by compression in 3 stages. The different fractions are taken out at different temperatures in the fractionation column. The bottom product left after said fractional distillation is being sought to be classified as Naphtha. It consists of mixture of hydrocarbons such as pentane, hexane, heptanes etc. with some other lighter hydrocarbons like propane and butane.
3 E/602,1430/2008, E/1094,1847/2009, E/849/2010-DB 2.2 Ld. Counsel pointed out that the product in question is bought and sold as Naphtha. He pointed out that Naptha is specifically covered under sub heading 2710.14/ 2710 11 19 and since specific nature exist for the product, it cannot be classified for the product. He argued that they have been charged that the product in question is a motor spirit. Ld. Counsel argued Motor spirit has been defined in Central Excise Tariff Act as under:
"Any hydrocarbon oil (excluding crude) which has its flash point below 25oC and which by itself or in admixture with any other substance is suitable for use as fuel in spark ignition engine."
He pointed out that two conditions need to be satisfied for a product to be classified as motor spirit as held in the case of Indian Oil Company 1990 (45) ELT 134(T). In the said decision, following has been observed:
"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 fulfillment of the flash point criterion. But, in a stoutly disputed case such as the present one, it was 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."
2.3 He argued that Ld. Commissioner in the impugned order has held that under 8 digit tariff there is no requirement to satisfy the definition of motor spirit for a product to fall under 2710 11 13 since, as per General Explanatory Notes product falling "--" or "--" is a sub set of goods falling under heading "-". Ld. Commissioner has thus held that since product in question, fall under the definition of "Light Oil Preparations" as per Chapter Note, burden is not on the department to prove that product should also satisfy the definition of "motor spirit".
4 E/602,1430/2008, E/1094,1847/2009, E/849/2010-DB 2.4 He argued that the Tribunal in the case of CCE Vs. BPCL has held that even under 8 digit tariff the department has to prove that product falling under 271011 13 satisfy the test of definition of „motor spirit‟. Therefore, to that extent findings in the impugned order are liable to be set aside.
2.5 He argued that under new 8 digit tariff also the above products stands grouped under „motor spirit‟ and only those products which satisfy the definition of „motor spirit‟ as per Supplementary Notes to Chapter 27, will be covered under the headings of 2710 11 11, 2710 11 12, 2710 11 13 and 2710 11 19.
2.6 Ld. Counsel pointed that the Commissioner has relied on the chemical examiner‟s report dated 06/04/2006 and according to which the sample of the product in question in admixture with motor spirit was also tested for octane number (RON). The RON was found to be 90.4 which indicated that the sample was suitable to use as fuel in spark ignition engine and therefore, satisfy the requirement of definition of "motor spirit"
as given in supplementary note (A) of chapter 27. Ld. Counsel argued that the question as to whether the term "any other substance" as mentioned n the definition of motor spirit would refer to the substances other than the goods falling under Heading 2710 was considered by the Tribunal in the case of Oil India Ltd. Vs. CCE, 2002 (148) ELT 802, and it was held by the Tribunal that the reference to „any other substance‟ is to be taken as substance other than mineral oil. The relevant portion of this decision of the CEGAT in para 8 of the decision is as under:-
"8. ... 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 5 E/602,1430/2008, E/1094,1847/2009, E/849/2010-DB 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."
Therefore, by testing the product in question in admixture with „motor spirit‟, it cannot be said that the product in question in admixture with any other substance is suitable for use as fuel in spark ignition engine. From the test report dated 06.04.2006 of chemical examiner it is clear that the product in question was tested in admixture mixed with „motor spirit‟. When the substance mixed with the product in question itself is „motor spirit‟, the admixture would certainly be „motor spirit‟. In order to classify the product under Heading 2710 as motor spirit, it should be hydrocarbon oil which has flash point below 25oC and which either itself or any admixture with any substance other than Hydrocarbon oil or mineral oil, should be suitable for use as fuel in spark ignition engine. The department has not led in any evidence to show that the product in question satisfied the aforesaid criteria laid down in the Heading 2710 as it stood prior to 1.03.2005 or supplementary note (a) to Chapter 27 as it stood after 1.3.2005. Hence, the contention in the show cause notice and the finding of the Commissioner of Central Excise in the impugned order that the product in question is suitable for use as fuel in spark ignition engine is wholly incorrect.
2.8 Ld. Counsel also relied on the following decisions:
1. Jagdamba Petroleum P. Ltd. Vs. CCE-2004 (163) ELT 88 (T) affirmed in 2007 (212) ELT A112 (SC)
2. Silverchem Industries Pvt. Ltd. Vs. CCE-2003 (155) ELT 204 (T)
3. Shriram Petroleum Industries Vs. CCE- 2010 (255) ELT 317 (T) 6 E/602,1430/2008, E/1094,1847/2009, E/849/2010-DB Ld. Counsel analysed the tariff as it existed prior to 01.03.2005 and after 01.03.2005. He argued that in both the tariffs to qualify as „motor spirit‟, the product has to have a flash point below 25oC and should be capable of use as fuel in the spark ignition engine either by itself of by admixture with any other substance.
3. Ld. AR relies on the impugned order. He argued that the appellants have themselves described the product as „Naptha‟ which prior to 01.03.2005 was specifically covered under 2710.14. He argued that the impugned order clearly points out that the product is tested and answers to the test prescribed for „Special Boiling Points Spirits‟ under heading 2710 11 13 in so much as the temperature for 5% recovery per volume is 37.1oC and temperature for 90% recovery is 91.6o C . Since the difference between the two temperatures is only 54oC, it answers to the description of „Other Special Boiling Point Spirits‟ under heading 2710 11 13. 3.1 Ld. AR tried to distinguish the decision of Tribunal in the case of Oil India Ltd. (supra) while stating that the same pertain to a period prior to 1985 when a different system for classification was adopted. At that time harmonized system for nomenclature was not adopted for the classification. He argued that the facts in the said case were different.
4. We have gone through rival submissions. We find that practically identical case has been decided by Tribunal in the case of Bharat Petroleum Corporation Ltd 2018 (4) TMI 829. In the said decision also the issue in dispute was whether Naphtha can be classified as a „motor spirit‟. The evidence was a test reports undertaken that the temperature for 5% recovery by volume and the temperature be 90% recovery fell in the range prescribed for SBPS. However, in the said case, no test was done for the 7 E/602,1430/2008, E/1094,1847/2009, E/849/2010-DB suitability of the use of the product either by itself or with any other substance as fuel in spark ignition engine. In this case, the said test has been conducted. In the case of Bharat Petroleum Corp. Ltd. (supra), following has been observed:
"3. We have gone through rival contentions. We find that the issue that if the product which the appellants claimed to be Naphtha classifiable under Heading 2710.14 is actually classifiable as "Other Special Boiling Point Spirit" or is it classifiable as „Naptha‟ under heading 2710.19 prior to 1.3.2005 and as „Naptha‟ under 2710 11 19 after 1.3.2005. Thus the issues which need determination are as follows:
i) Is the product 'Naptha' or Special Boiling Point Spirit' ii) Having themselves classified their product 2710.14 under the following single dash entry of the tariff 'Motor Spirit', That is to say, any hydrocarbon oil ( Excluding crude mineral oil) which has its flash point below 25oC, and which either by itself of in mixture with any other substance, is suitable for use as fuel in spark ignition engines.' Can the respondents now claim that the product manufactured by them does not answer to this description?
3.1 Chapter heading 27.10 defines Motor spirits as follows:
"Motor spirit that is to say, any hydrocarbon oil (excluding crude mineral oil) which has its flash point below 25oC, and which either by itself or in admixture with any other substance, is suitable for use as fuel in spark ignition engines."
Supplementary Note (a) to Chapter 27 defines "Special Boiling point spirit" as follows:
" Special Boiling Point Spirits (Tariff items 2710 11 11, 2710 11 12, 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 69oC between the temperatures at with5% and 90% by volume (including losses) distill;"
Sub-heading note 4 to Chapter 27 defines „light oils and preparations" as follows:
"4. For the purposes of sub-heading 2710.11, "light oils and preparations are those of which 90% of more by volume (including losses) distil at 210oC (ASTM D 86 method)."
So far as the first issue is concerned the revenue had relied on the following test reports of the four streams which go into the LAN pool as well as sample of LAN 8 E/602,1430/2008, E/1094,1847/2009, E/849/2010-DB Analysis of Samples (LAN TK SP1 TOP, SP 2, TOP, SP 3 BOTTOM, STAB, NAP) LAN SP I Top SP 2 SP 3 Stab.
from (RFU) Top Bottom Nap.
Tank (NSU) (NSU) (HCP)
TK 521
Date 30.05.05 31.05.05 31.05.05 31.05.05 31.05.05
Time 1430 Hrs 1300 hrs 1335 hrs 1345 his 1230 hrs
Distillation .
by ASTM
D:86
IBP °C, 41 31 35 85 43
5%v 56 34 41 88 59
recovered
@oC
10%v 59 35 42 89 61
recovered@
o
C
20%v 63 36 42 91 66
recovered
@oC
30%v 68 37 43 93 70
recovered@
o
C,
40%v 72 38 45 95 76
recovered@
o
C
50%v 77 39 46 97 82
recovered@
o
C,
60%v 82 40 48 100 88
recovered
@oC
70%v 87 42 50 103 95
recovered
@oC,
80%v 94 45 54 107 103
recovered
a@°C,
90%v 105 51 60 114 112
recovered
@oC
95%v 114 57 64 120 119
recovered
@oC
FBP°C, . 128 61 66 129 127
Recovery + 98 98 98 98 98
&v
Residue + 2 2 2 2 2
Loss, & v
%v 87% - - -- -- --
recovered
@
IBP+60oC
Flash Point <0 <0 <0 <0 <0
oC
9 E/602,1430/2008, E/1094,1847/2009,
E/849/2010-DB
As per the definition of the „Special Boiling Point Spirits have to be light oils, that is to say 90% or more by volume (including losses) distil at 210°C. It is seen from the data above that 90% or more distils at 51 to 114 "C. Thus each of the stream independently qualifies the definition of „light oil‟ which is one of the requirements to qualify as „Special Boiling Point Spirits‟. The second requirement is that it should not contain any „anti knock compound‟. Ld AR has argued that this has not been disputed by the respondents. The third criteria to qualify as „Special Boiling Point Spirits‟ is that the difference between temperature at which 5% and 90% by volume it distils, shall not be more than 60 degree Celsius. The following of test result shows that the test result of each stream qualifies on this criterion.
LAN from SP I Top SP 2 Top SP 3 Bottom Stab.Nap.
Tank TK (RFU) (NSU) (NSU) (HCP) 521 5%v recovered 56 34 41 88 59 @oC 90%v 105 51 60 114 112 recovered@°C, Difference 49 24 19 26 53
However to fall under the heading 2710.13 (prior to 1.3.2005) the product also needs to answer to the following description as well '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 use as fuel in spark ignition engines:' Similarly to fall under the heading 2710 1112 to 2710 1119 (after 1.3.2005) the product also needs to answer to the definition of „motor spirit‟. Chapter heading 27.10 defines Motor Spirit as follows:
"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 use as fuel in spark ignition engines".
From the above analysis it is apparent that the test results prove that the products answers to the definition of Special Boiling Point Spirits" in all respects except the description that appears in the single dash entry in the heading.. However, for classification under 2710.13 (prior to 1.3.2005) or to fall under the heading 2710 1112 to 2710 11 19 (after 1.3.2005) the product also needs to answer to the definition of motor spirit‟ or to the description appearing in the single dash entry. Revenue has not undertaken any tests in this regard on the pretext that the original classification claimed by the respondents, i.e. 2710.14, was under the same single dash entry, a description which qualified the definition of „motor spirit‟. Thus there was no need to prove the same as it was an admitted position of the appellants. We find that it is not correct position in law. The onus is on revenue to establish that the goods answer to the description given in single dash entry (up to 1.3.05) and to the definition of motor spirit after (1.3.05). Since revenue has not even attempted to test the goods for this purpose it has failed to establish its claim to 10 E/602,1430/2008, E/1094,1847/2009, E/849/2010-DB classification under that entry. In view of above we do not find any merit in the revenue appeal.
The same is dismissed."
Thus, even though the products answered to the definition of „Special Boiling Points‟, it was not classified under heading 2710.13 (prior to 01.03.2005) and under heading 2710 11 12 to 2710 11 19 (after 01.03.2005) because it did not fall under the definition of „Motor Spirit.‟
5. It is seen that in the case of Indian Oil Corporation Ltd. 1990 (45) ELT 134 has held 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 fulfillment of the flash point criterion. But, in a stoutly disputed case such as the present one, it was 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.
Thus, to qualify as Motor spirit two very specific tests have to be followed. In respect of the testing for the possibilities of use in admixture with other substances „Motor Spirit‟ is concerned. The tribunal in the case of Oil India Corporation Ltd. 2002 (148) ELT 802 deals with both tariffs that is, prior to introduction of HSN based tariff and also the period after that. It is seen that the in Tribunal in the said case observed as follows:
"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 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 11 E/602,1430/2008, E/1094,1847/2009, E/849/2010-DB 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."
From the above decision it is apparent that for a product to fall under the heading 2710.14, (prior to 1.2.2005) and under heading 2710 11 13 (01.03.2005) the product needs to answer to the definition of motor spirit. Motor spirit has been defined as follows:
"Any hydrocarbon oil (excluding crude) which has its flash point below 25oC and which by itself or in admixture with any other substance is suitable for use as fuel in spark ignition engine."
6. In this regard the impugned order seeks to differentiate the said decision in the case of IOCL (supra) & Oil India (supra) on the ground that the Tariff on the material time was different. It is seen that the definition of motor spirit at the material time was identical to the present definition of motor spirit which reads follows:
"Relevant portion of Item Nos. 6 and 68 of the old Tariff read as follows:
"Item Tariff Description
No.
6. Motor Spirit -
'Motor Spirit, that is to say,-
(i) any mineral oil (excluding crude mineral oil) which has its flash point below twenty-five degrees of Centigrade thermometer, and, which either by itself or in admixture with any other substance, is suitable for use as fuel for internal combustion engines.
68. All other goods, not elsewhere specified but excluding-"
It is apparent from the dispute before the Tribunal at the material time related to identical description. It is also seen that Tribunal in the said decision examined the entries under chapter 2709 and 2710 of chapter 27 of the Central Excise Act also others. Thus, It would not be correct to say 12 E/602,1430/2008, E/1094,1847/2009, E/849/2010-DB that the decision of the case of Oil India Ltd. (supra) was not with reference with the new tariff.
7. In the instant case testing in admixture with any other substance other than mineral oil, has not been carried out, therefore, there is no evidence to hold that the product answers to description „Motor Spirits‟ amd therefore, would be classifiable under heading 2710.14 (prior to 01.03.05) and heading 2710 11 13 (after 01.03.2005). In view of above, the Revenue has failed to establish that the product in question is classifiable as „Motor Spirit‟ under the description of single dash heading of motor spirits(prior to 01.03.2005) and triple dash (after 01.03.2005).
8. In view of above the Appeals are allowed.
(pronounced in the open Court on 26.11.2018.) (Raju) (Ramesh Nair) Member (Technical) Member (Judicial) DS