Custom, Excise & Service Tax Tribunal
Golden Enterprises vs C.C.E. & S.T., Ludhiana on 12 July, 2016
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL SCO 147-148, SECTOR 17-C, CHANDIGARH 160 017 COURT NO. I APPEAL NO. C/241/2016 [DB] [Arising out of Order-in-Original No. 03/YDB/COMMR/LDH /CUSTM/2016 dated 23.02.2016 passed by the Commissioner of Central Excise (Appeals), Ludhiana] Date of hearing/decision: 12.07.2016 For approval and signature: Honble Mr. Ashok Jindal, Member (Judicial) Honble Mr. V. Padmanabhan, Member (Technical) 1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? No 2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? Yes 3. Whether their Lordships wish to see the fair copy of the order? Seen 4. Whether order is to be circulated to the Department Authorities? Yes Golden Enterprises : Appellant VS C.C.E. & S.T., Ludhiana : Respondent
Appearance Shri Naveen Bindal, Advocate for the Appellant Shri R.K. Sharma, D.R. for the Respondent -revenue CORAM:
Honble Mr. Ashok Jindal, Member (Judicial) Honble Mr. V. Padmanabhan, Member (Technical) FINAL ORDER NO. 60955/2016 Per : V. Padmanabhan The present appeal is directed against the Order dated 23.02.2016 passed by the Commissioner of Central Excise (Appeals), Ludhiana. In the impugned order, the Adjudicating Authority held that the imported goods which were declared as Pressed Distillate Oil (PDO) were infact Base Oil. Considering this as mis-declaration, he proceeded to enhance the transaction value of imported goods from Rs. 57.38 Lakhs to Rs. 2.11 Crores on the basis of contemporaneous imported price of base oil. He finally demanded the differential Custom Duty and imposed penalty on the importer and other persons, who were involved in the import.
2. The appellant has challenged this order mainly on the following grounds:
(i) The imported goods have been declared as Pressed Distillate Oil (PDO). The Revenue has not proved beyond doubt that the imported goods were not PDO. The chemical examiner has only indicated that the material has the characteristic of base oil. On this basis, the imported goods cannot be said to be mis-declared, since the PDO, which arises prior to base oil, would have some characteristics of base oil.
(ii) The Commissioner has not permitted Cross Examination of the chemical examiner. In the absence of cross examination, the report of chemical examiner is not admissible.
(iii) The CRCL, where the sample was tested, in earlier cases, have given positive test report for PDO. However, in the present case, they have not given a categorical report. The benefit of doubt should be given to the appellant and the import declaration accepted as PDO.
(iii) Consequent to above, there is no justification to load the value on the basis of base oil imported price.
3. Heard Shri Naveen Bindal, Ld. Counsel for the Appellant and Shri R.K. Sharma, Ld. D.R. for the Revenue.
4. The appellant has imported two consignments of PDO through ICD, Ludhiana vide B.o.E. No. 9072511 and 9072508, both dated 19-01-2013 declaring the goods as PDO. Suspecting mis-declaration, the Directorate of Revenue Intelligence forwarded samples of the goods from both the consignments to CRCL Laboratory for testing with a request to confirm whether the goods were PDO. The CRCL in their report dated 19-01-2013 forwarded the following reports:
Report : The sample is in the form of pale yellow viscose oily liquid. It is composed of mineral hydro carbon oil content (% by mass) more than 70% having following constants:
Bill of Entry No. 9072511 Bill of Entry No. 9072508 Ash content (% by mass) Nil Nil Sediment (% by mass) Nil Nil Nil Water content (% by mass) Nil Nil Flash Point (COC) Above 240:C 250:C Density (gm/ml) at 15:C 0.8948 0.9012 Kinematic Viscosity @ 40:C 118.7 CST 95.526 CST Kinematic Viscosity @ 100:C 12.3 CST 10.59 CST Viscosity index 93 92.58 Total Acid Numbers (TAN) mgKOH/gm) 0.02 Nil Total base numbers (TBN) mgKOH/gm Nil Nil It has the characteristics of base oil.
Note:- As per technical literature available in this laboratory no product in this name of pressed distillate was found.
5. The Commissioner in the impugned order relied on the chemical examiner reports which stated that the samples have the characteristics of base oil. He further referred to the Technical Literature from the American Petroleum Institute (API), which apparently has developed a base oil classification system. The API classified base oil into five major groups. This is shown below:
API Group Base Oil Characteristics Manufacturing Method Sulphur Wt.,% Saturates Wt. % Viscosity Index VI I >0.03 <90 80-119 Solvent Refined II >0.03 <90 80-119 Hydro processed III <0.03 <90 120+ Severely Hydro processed IV Poly-alpha Olefins (PAOs) Oligomerization V All other Base Oils not included in Groups I, II, III or IV Various
6. In para 4.3.1 of the impugned order, Commissioner has recorded finding that the viscosity index of the samples of the imported goods match with the specifications for base oil as per the API above. Consequently, he concluded that the imported goods were not PDO, but was Base Oil. Considering this as mis-declaration on the part of the importer, the Commissioner proceeded to disregard the declared value of the imported goods in both the B.o.E. @ US$ 250 /MT of PDO. The value of the imported goods in both b.o.e.s was steeply enhanced to US$ 940/MT, on the basis of the price at which base oil was imported vide B.o.E. No. 9156907 dated 29-01-2013 filed at ICD, Tughlakabad by M/s.Mangali Enterprises Ltd., and the appellant was charged with demand of differential duty. Penalties were also imposed on the importer as well as other persons involved in the import.
7. On careful consideration of all the materials before us, we find that the chemical examiners test reports are crucial in this case. In the reports (para 4 supra), we find that the chemical examiner has indicated that the samples have the characteristic of base oil. From the note appended at the bottom of the reports, it appears to us that the chemical examiner were not in possession of any technical literature about the product PDO. The memo sent by the DRI to the chemical examiner requested him to confirm whether the goods were PDO or not. From a perusal of the test reports we get impression that the chemical examiner has not categorically given his finding or answer to the memo. He has only indicated that the goods have the characteristics of base oil without giving his opinion whether the goods were in fact base oil or were PDO. Cross Examination of the chemical examiner by the appellant before the Adjudicating Authority would have enabled them to seek categorical answers. Inasmuch as this opportunity was denied to the appellant, we are of the view that serious mis-carriage of the principles of natural justice has happened.
8. The appellant has produced Technical Literature before the Adjudicating Authority which indicates that the PDO is a product known in the petroleum refinery industry PDO is said to be an intermediate product arising in the manufacture of base oil which is subject to further process for making lubricating base oil. To this effect, the appellant has produced relevant pages of the book of Petroleum Refinery Engineering by W. L. Nelson. They have also enclosed technical opinion of (i) Shri S. K. Chhibber, Consultant, (Scientist F. Retired), Indian Institute of Petroleum, Dehradun and (ii) Shri F. R. Khan, Principal Govt. Polytechnic, Ghaziabad. The above technical literature is useful to us only to the limited extent to understand that PDO is a product known in the lubricating oil industry and that it is an intermediate product arising in the manufacture of base oil.
9. Now we turn to technical literature advanced by the Revenue in the form of American Petroleum Institute classification for base oil (para 5- supra). The API classification for base oil divides it into five groups based on three parameters.
(i) Sulpher %
(ii) Saturates %
(iii) Viscosity Index
10. From the examiners test reports, we find that the viscosity index of the two samples (93 and 92.58) fall within the characteristic of base oil, as per API classification system. However, the chemical examiner has not indicated the first two characteristics, viz, sulphur % and saturates in his report. The imported goods have been held to be base oil in the impugned order on the basis of the API classification. However, reference has been made only to one of the three parameters mentioned in API. We are of the view that this limited approach to decide the mis-declaration is flawed. At the most, the viscosity index may raise doubt in our minds that the imported goods may be base oil. However, to conclude that the imported goods were not PDO but base oil and allege mis-declaration on the part of the importer only on the basis of the chemical examiners report on one out of three characteristics will not be correct. In the absence of conclusive evidence of mis-declarations, the Customs Authorities should have gone with the declaration and finalized the assessments.
11. Next we turn to the valuation of the imported goods. The Commissioner in the impugned order has rejected the declared value under Rule 12(1) of Customs Valuation Rules, 2007, read with Section 14(1) of Customs Act. This has been done considering that the goods have been mis-declared to be PDO. Consequently, the Adjudicating Authority has proceeded to re-determine the value on the basis of the price of base oil imported contemporaneously. We have concluded that the mis-declaration in the imported goods have not been established. Consequently, we find that there is no basis to disregard the declared value.
12. In view of the fact that we find no valid reason to reject the classification or valuation of imported goods, we have no reason to uphold the penal proceedings against the importer as well as other persons involved in the import. Since the consignments are live, the goods be released immediately.
13. In line with the above discussions, the impugned order is set aside and the appeal is allowed.
(Operative part of the order pronounced in open Court) Ashok Jindal Member (Jindal) V. Padmanabhan Member (Technical) RAS 8 1