Customs, Excise and Gold Tribunal - Delhi
Cellulose Products Of India Ltd. vs Collector Of C. Ex. on 15 December, 1995
Equivalent citations: 1996(82)ELT147(TRI-DEL)
ORDER K. Sankararaman, Member (T)
1. These are a group of appeals filed by different appellants challenging different orders passed by the concerned Collectors of Central Excise. They are being disposed of by this common order as the issue involved i's the same and broadly common arguments were advanced on behalf of the appellants and the respondent Collectors by their respective counsels.
2. The appellants were aggrieved with the impugned decisions whereby Central Excise duty has been demanded from them on certain grades of ethyl alcohol e.g. Rectified spirit, Feint Spirit etc. manufactured by them and cleared without payment of duty. The demand of duty was consequent to classification of such goods under Tariff Item 6(ii) of the Central Excise Tariff as it stood till 28-2-1986 and thereafter under Heading 22.04 of the new Tariff. These Tariff descriptions read as follows :-
"6. Motor Spirit that is to say, any mineral oil...
(i) is suitable for use as fuel for internal combustion engines.
(ii) Power alcohol, that is to say, ethyl alcohol of any grade (including such alcohol when denatured or otherwise treated) which, either by itself or inad-mixture with any other substance, is suitable for being used as aforesaid.
2204.00-Ethyl Alcohol, of any grade (including such alcohol when denatured or otherwise treated) which either by itself or in admixture with any other substance is suitable for being used as fuel for spark ignition engines."
It was held in the various orders impugned in these appeals that the Rectified spirits, feint [spirit] etc. manufactured by the respective manufacturers were suitable for use as fuel in admixture with petrol.
3. The appeal filed by M/s. Cellullose Products of India Ltd. was first taken up. The impugned order has been passed by Collector of Central Excise, Baroda. Shri Ashok Desai, learned Senior Advocate along with S/Shri K.B. Trivedi and Jitendra Singh, learned Advocates appeared for them. Shri Desai submitted that their product industrial alcohol has a strength of only 94-95% of alcohol which is being cleared by them to holders of licences issued by State Governments. Their product was not for use as fuel for internal combustion engines or spark-ignition engines. He contended that a product like theirs having only 94-95% alcohol was not suitable for use as fuel for internal combustion engines. They had produced experts' opinion and technical literature bearing out their contention but the Collector had wrongly rejected them as not valid. Shri Desai contended that the expression "suitable for use" refers to such suitability in the normal course. He referred to the definition of the term from Standard legal Dictionaries, extracts of which had been submitted by them. Power Alcohol which is capable of such use should contain not less than 99.5% Ethyl Alcohol. He referred to the relevant IS specification IS 322-1952 which has laid down that the ethanol content of the material (power alcohol) shall be wholly of ethyl alcohol and added denaturant. He also referred to the Power Alcohol Rules. Their product which contains only 95% Alcohol is under the strict control of the State authorities. Their product is used for pesticides and chemicals. He referred to the advice of the Ministry of Law, Government of India as to whether rectified spirit is classifiable under Heading 2204.00 of the Central Excise Tariff. It has been noted in the said advice that all the Collec-torates except Baroda were treating rectified spirit as a non-excisable item. A reference was then made by the learned Senior Advocate to the letter dated 18-9-1989 issued by the Government of India regarding the question whether industrial alcohol or rectified spirit which are not of I.C. engine grade were covered by Item 6(ii) of the old Tariff and Heading 22.04 of the new Tariff. It was stated in this letter that the issue was still being debated. The Collectors were directed not to adjudicate the show cause notices issued in this regard till the Writ Petitions filed in the Supreme Court challenging the control exercised by the State Governments were decided. The Tariff Entry had been changed after 1-3-1989. The product Power Alcohol has been defined in (the Indian) Power Alcohol Act, 1945 as meaning ethyl Alcohol containing not less than 99.5% per cent by volume of ethanol (ethyl Alcohol) measured at sixty degrees Fahrenheit corresponding to 74.4% over proof strength. Their product is not thus Power Alcohol which is the one grade of alcohol suitable for use in IC engines in admixture with petrol and additives.
4. Shri Desai, learned Senior Advocate then referred to the Technical opinion given by various experts regarding rectified spirit being not power alcohol attracting Central Excise duty as demanded by the department. Some of the opinions referred to by him were from the following persons :-
(1) Dr. H.C. Srivastava, Emeritus Scientist, Council of Scientific and Industrial Research, Ahmedabad.
(2) Dr. H.B. Mathur, Professor Mechanical Engineering Department, Indian Institute of Technology, New Delhi.
(3) J.R. Nanda, Chief Research Manager, Indian Oil Corporation Limited, Faridabad.
(4) G.R. Menon, Manager (Tech. Services), Indian Oil Corporation Limited, Ahmedabad.
It was contended by Shri Desai that the Collector had wrongly held in paragraphs 40.4 and 41.1 that the opinions of Dr. Mathur and of Shri J.R. Nanda in no way help them. Actually the former had stated that upto 25% anhydrous ethanol blend with gasoline can be profitably employed in the present day automobiles without major modifications. The Collector had wrongly observed that Dr. Mathur was mentioning about better fuels and not of the suitability of the grade of ethyl alcohol manufactured by the appellants for use as fuel in IC engines or spark ignition engines. This is not correct, contended Shri Desai because Dr. Mathur had referred to anhydrous ethanol and not rectified spirit of 94-95% ethanol content with water constituting the rest. This is quite material. Likewise Shri Nanda of IOC had mentioned that 100% Ethanol alone can be used as fuel in spark ignition engines with major modifications in the present passenger car engines. This categoric opinion has been cursorily disposed of as in no way helping them. On the contrary, it fully supports their case, he contended. The Collector had relied upon the opinion of Shri M.C. Fernandes, Senior Quality Control Manager, Indian Oil Corporation Limited who had issued a letter dated 4-5-1987. He had admitted during cross examination before the Collector by the appellants that miscibility (of rectified spirit and petrol) is not the only criterion. This and other replies given by him during such cross examination actually support the case of the appellants, contended Shri Desai.
5. Without prejudice to the submission made so far by him, Shri Desai raised two alternative points. The first one was that, in any event, the Collector had wrongly denied them the benefit of exemption Notification Nos. 75/84, dated 1-3-1984 and 106/86, dated 27-2-1986 which were in force during the period in question. If these exemption Notifications are applied to them, the duty demand would be reduced drastically. The Collector had denied the said benefit on the ground that the procedure prescribed under the said Notifications had not been complied with by them. This was wrong as they could not have complied with the procedure at the material time since the product was not treated to be excisable at that time. That apart, Shri Desai strongly pleaded that the longer period was not available to the department. There was no suppression of facts. There was a genuine belief by the appellants that the goods did not attract duty as power alcohol. The department itself was under that impression in many Collectorates and Government had also issued the circular dated 18-9-1989. The show cause notice had not disclosed what suppression and wilful misstatement of facts had been committed by them. He pleaded in conclusion that the appeal be allowed.
6. Shri V. Lakshmi Kumaran then took up the appeals of M/s. Maharashtra Distilleries. The demand of duty amounting to Rs. 52,55,328.58 had been confirmed by the Collector of Central Excise, Aurangabad who had also imposed a penalty of Rs. 1 lakh. Feint-Spirit which is a by-product obtained in the course of manufacture of their main product, IMFL (Indian Made Foreign Liquor) had been cleared by them to manufacturers of Chemicals. It could not be and was also not actually used as power alcohol. The order does also not mention anything about its suitability as fuel for being used in spark ignition engines. The Collector has only cited the Supreme Court judgment in Synthetics & Chemicals Limited. Shri Lakshmi Kumaran referred to the Budgetary Instructions of 1989 wherein it was stated that as there was no substantial use of Ethyl Alcohol as fuel in spark ignition engines in the country the entry (22.04) was being deleted. The Collectors were, however, directed to bring the matter to the notice of the Board as and when the usage of alcohol for this purpose increased and a potential for revenue collection developed. This will clearly bring out the position that it was not the intention to levy duty as power alcohol on goods like their product. Shri Lakshmi Kumaran then adopted the arguments advanced by Shri Ashok Desai in the appeals relating to Cellulose Products of India Limited. He also raised the alternative pleas regarding admissibility of exemption under Notification 106/86 as also the time barred nature of the show cause notice. If the exemption is applied the duty demand would get reduced to Rs. 80,000/- only. The exemption cannot be denied on the ground that the prescribed procedure was not followed. This point also will be relevant only if the notice is held to have been issued within time which is, however, contested by them. There is no justification for invoking the extended period as there was no suppression or wilful misstatement of facts. The appeal may be allowed, concluded Shri Lakshmi Kumaran.
7. Shri V.C. Patil, learned counsel for the appellants M/s. Ashoka Organic Industries adopted the reasoning employed by the two counsels who had preceded him. He also submitted that the notice was barred by limitation as there was no suppression involved. There was no proposal to impose penalty. He relied upon the decision reported in 1989 (44) E.L.T. 340 - Punjab Electricity Board v. Collector of Central Excise. Oh merits also they should succeed, submitted the learned counsel. He cited the decision of Allahabad High Court in Central Distillery & Chemical Works, Meerut v. Collector of Central Excise, Meentt reported in 1978 (2) E.L.T. J194. It was clearly held therein that all kinds of ethyl alcohol will not be power alcohol. That apart, the impugned order refers to variovis papers discussed in a seminar which had not been disclosed in the show cause notice.
8. Shri Mihir H. Joshi, learned advocate took up the appeals numbering 8 filed by M/s. Chaltan Vibhag Khand Udyog Mandali. The Ethyl alcohol content of their product as per Test Report was between 90.2% to 91.5% and the water content was 5.8%. As had been argued by Shri Ashok Desai, learned Senior Advocate the product with such percentage of water was unsuitable for use as fuel for I.C. engines. Shri Joshi pleaded that the appeals be allowed, raising the alternative plea of limitation also.
9. Shri Subhash Parikh, learned counsel for Amit Alcohol and Carbon Dioxide adopted the reasoning followed by Shri Ashok Desai. Their product had composition of only 94-96% of ethyl alcohol. Their product found use in pharmaceutical industry and not for use as fuel for I.C. engines. It was not power alcohol.
10. Appearing on behalf of M/s. Alembic Chemical Works, Shri R.C. Saxena, advanced the same pleas regarding the product in question not being suitable for use as fuel for I.C. engines and the notice being barred by limitation were raised. There was no suppression involved, he asserted. They had applied for regular licence and permission from the Central Excise authorities. The learned counsel adopted the arguments advanced by Shri Ashok Desai and pleaded that the appeal be allowed.
11. Shri M.K. Jain, learned Senior Departmental Representative gave his reply on behalf of the concerned Collectors to the arguments advanced by the various counsels for the respective appellants. He supported the impugned orders. He referred to the detained discussion in the order passed by Collector of Central Excise in the case of Cellulose Products of India and in particular the scope of the terms "suitable for use" and "Ethyl Alcohol, of any grade". Here the term grade means strength or purity. They had been manufacturing Ethyl Alcohol of around 95% purity and they had been clearing the same without bringing that fact to the knowledge of Central Excise authorities. They had not taken Central Excise licence. This constituted suppression. The judgment of the Honourable Supreme Court in the Synthetics and Chemicals case clearly laid down that such alcohols came within the purview of Central Excise and not of the State Excise. Their (Cellulose Products of India Limited) own employee Shri Padmakar Joshi, Works Manager had stated that they were not paying any duty to the State Government also. The Collector has elaborately discussed the evidence produced by the appellants as well as the evidence relied upon by him before deciding that the product in question was suitable for use as fuel for I.C. engines. The Collector has rightly held that potential for use and not actual use in the criterion for classification in view of the expression employed in the Tariff item/Heading namely "...ethyl Alcohol of any grade...suitable for being used..." (as fuel for internal combustion engines) (for Tariff Item 6(ii) when that was in force) and "Ethyl Alcohol, of any grade...suitable for being used as fuel for spark ingition engines" as expressed in Tariff sub-heading 2204.00 subsequently. Fie referred to the decision of the Honourable Supreme Court reported in 1995 (1) CXLT SC C289. He then referred to the letter dated 10-4-1987 received from I.I.P. (Indian Institute of Petroleum), Dehradun. This has been extracted in para 51.4 of the Collector's order. The Collector has then discussed in detail the cross-examination of Shri Fernandes of Indian Oil Corporation and then referred to the opinion of the Ministry of Law which had been relied upon by the appellants. It has been pointed out by him that they had only mentioned one portion of the Law Ministry's opinion that all the Collectorates except Baroda Collectorate were treating rectified spirit as non-excisable and only Baroda Collectorate had proposed classification under Heading 22.04. Actually the opinion proceeded to observe that if the strict legal interpretation of the heading is to be accepted, rectified spirit will have to be classified under Heading 22.04. by all the Collectorates in the country and no exemption can be made in the case of Baroda Collectorate.
12. Shri Jain, learned SDR then submitted that the alternative plea of exemption is not admissible as the appellants had not followed Chapter X procedure. He relied upon the Supreme Court decision in Eskayef v. Collector of Central Excise reported in 1990 (49) E.L.T. 649 (SC)
13. Shri Jain then took up his reply with reference to the appeal of M/s. Maharashtra Distilleries. He submitted that in the Tariff, the Heading 22.04 was deleted in 1989 but it was restored in 1990. For the period covered by the show cause notice, the entry was there. He referred to his earlier argument about the scope of the expression "suitable for use as fuel..." and requested that the same may be considered for this appeal also. The benefit of exemption is not applicable as Chapter X procedure was not followed by them.
14. He adopted similar arguments for the appeals relating to the appellants M/s. Ashoka Organics, M/s. Chaltan Vibhag Khand Udyog Sahakari Mandals Limited and M/s. Alembic Chemicals. He added that the factory of Alembic was following SRP (Self Removal Procedure) and the department, therefore, could not know about all their activities.
15. Taking up all the appeals, Shri Jain stated that on the question of exemption he would refer to the decision of the Supreme Court in 1988 (36) E.L.T. 369 (Mysore Metal Industries) and in Indian Aluminium Cables Ltd. v. Union of India [1985 (21) E.L.T. 3]. As per the former decision the burden was on the persons claiming benefit of exemption to prove the facts that entitled them to the exemption. As per the second decision, the Indian Standards Specifications are not relevant for classification of the goods as they are meant for quality control. He then cited the Tribunal decision in Guest Keen Williams v. Collector of Customs, Calcutta reported in 1987 (29) E.L.T. 68 wherein the Tribunal had observed that an expert's opinion has to be given due respect but it cannot be the deciding or binding factor. Another Supreme Court decision in Aditya Mills Limited v. Union of India reported in 1988 (37) E.L.T. 471 (SC) was cited wherein, for interpretation of the Tariff Entry for classification, it had been observed that reference to a dictionary is apt to be a somewhat delusive guide as it gives all the different shades of meaning and that the trade meaning is always to be given preference. He also referred to the Tribunal decision in Singareni Collieries Co. Limited v. Collector of Central Excise. For the application of extended time limit, Shri Jain cited the Tribunal decision in Collector of Central Excise v. Wipro Information Technology Limited. He then referred to the Delhi High Court judgment in Indru Ramchand Bharivani reported in 1988 (38) E.L.T. 459 in support of the stand taken that cross-examination was not necessary in the circustances of this case. He pleaded at the end that the impugned orders be sustained and the appeal dismissed.
16. Shri Ashok Desai gave a brief rejoinder. He stated that the Collector's order has been supported by the learned Senior Departmental Representative relying upon the opinion of Mr. Fernandes of Indian Oil Corporation. Actually the replies the latter had given during his Cross-examination help their case. Phase separation is an important factor but that is not the only problem. The Collector had observed that the problem of phase separation is not insuperable. Even if it is not insuperable it will require suitable modification of engines to overcome the same. Such modification has not been carried out by the manufacturers of motor vehicles in the country. In this connection, the admission in the Collector's order that power alcohol (with petrol) is not used in India for fuel purposes in I.C. engines is very significant. He also referred to the decision of the Supreme Court in India Cable Co. Limited v. Collector of Central Excise, Calcutta [reported in 1994 (74) E.L.T. 22 (SC)] wherein it had been held that marketability of goods is essential for their dutiability. Their product is not marketable and is not marketed as power alcohol for use as fuel for I.C. engines. He reiterated his plea for the appeals to be allowed.
17. We have considered submissions. We have perused the record and the judgments cited before us. Arguments were advanced by both the sides in respect of the appeal filed by M/s. Cellulose products of India Limited and as the order impugned therein is quite an elaborate one, scanning 66 pages, we are dealing with that appeal in detail. In fact the learned counsels who argued the other appeals adopted the arguments advanced by Shri Ashok Desai in that case and briefly supplemented the specific points relating to the individual appeals.
18. In the order passed by Collector of Central Excise, Baroda in the Cellulose Products of India case, the wording of the relevant Tariff entries were considered. These Tariff entries have been extracted earlier in this order. Tariff Item 6(ii) which was in force till 27-2-1986 covered power alcohol, that is to say, ethyl alcohol of any grade (including denatured or otherwise treated) which either by itself or in admixture with any other substance is suitable for being vised as fuel for internal combustion engine. In the subsequent Tariff effective from 28-2-1986, the relevant tariff entry referred to Ethyl Alcohol of any grade (including such alcohol when denatured or otherwise treated) which either by itself or in admixture with any other substance is suitable for being used as fuel for spark-ignition engines. Elaborate discussion is contained in the impugned order on the scope of these Tariff entries with particular reference to the expressions, "ethyl alcohol of any grade" and "suitable for use as fuel". The conclusions in this regard were also strongly assailed during the hearing by the learned counsel, Shri Ashok Desai. In fact these arguments on behalf of the appellants had been canvassed at the stage of adjudication in the replies as well as during the personal hearing before the Collector. These had been discussed by him leading to the impugned order. The present arguments are mainly reiteration of the same arguments advanced with the thrust that the Collector had wrongly rejected such contentions and drawn erroneous conclusions. Thus, in his order, the Collector had taken note of the plea that power alcohol had been defined in Section 3(c) of the Indian Power Alcohol Act, 1948 to mean Ethyl Alcohol containing not less than 99.5% by volume of Ethanol. IS 223-1959 was relied upon by them and it was contended that only Absolute Alcohol and Power Alcohol with maximum of 0.5% of water are suitable for use in spark ignition engines. Their product having more percentage of water is not covered by even the three grades of Absolute alcohol specified in IS : 321-1964. Only Absolute alcohol could be used for making Power alcohol. Their product on admixture with petrol cannot remain homogeneous. In the report of the Alcohol Committee published in 1956 it had been specified that ethyl Alcohol should have a strength more than 99.5% with less than 0.5% water if its mixture with petrol is to remain homogeneous during its transport and use. They had referred to the reply given by Shri M.C. Fernandes during cross-examination by them before him (Collector) that miscibility is not the only criterion for determining use of mixture as fuel. They had relied upon the opinion of Mr. J.R. Nanda that rectified spirit with 5% water cannot be used for blending with petrol due to phase separation, corrosional and allied problems. They had contested the opinion contained in the letter dated 17-4-1987 addressed by Shri G.S. Bhargava of Indian Institute of Petroleum, Dehradun as no sample of theirs had been tested by them and since neither Shri Bhargava nor any other official of that Institute was made available for cross-examination. They had contended that capability and suitability are two different things, the latter being more than the former. They had also referred to the various Technical Reference Books including Encyclopaedia of Chemical Technology by Kirk Othmer in support of their contentions.
19. The Collector had held at the end of paragraph 34 of his order that as the two Tariff entries had referred to Ethyl alcohol of any grade without specifying any grade on purity of the product, their product having purity of 94 to 95% was very well covered within the said Tariff entries. We do not agree with the finding as it amounts to reading the description in both the Tariff entries out of context. The expression "Ethyl Alcohol of any grade" cannot be read out of context. The entry has to be read as a whole. As already recorded, the entry in question covers Ethyl Alcohol of any grade suitable for use as fuel for internal combustion engines for Tariff Item 6(ii) and for spark ignition engines, for Tariff Heading 22.04. Such criterion has to be applied and satisfied before the classification of the product in question under these Tariff entries is confirmed. The Collector has then rejected the reliance placed by the appellants on the definition of Power Alcohol given in the Indian Power Alcohol Act as the same have been described in IS 6749-1952 as defunct. The said specification, he has pointed out, does not define power alcohol as claimed by them. Instead, he has observed, ethyl Alcohol has been defined as meaning pure ethyl alcohol including all the dilutions and mixtures of this substance. This definition of ethyl alcohol does not advance the case of the department as what is relevant is not what ethyl alcohol is but what ethyl alcohol of any grade suitable for use as fuel for internal combustion or spark ignition engines is.
20. The Collector has then taken the stand in the impugned order that notwithstanding the actual practice of no sale or use of rectified spirit for admixture with petrol for use as fuel, the point for consideration would be whether the impugned product either by itself or in admixture with any other substance would be potentially useable as fuel in the spark ignition engines or I.C. engines. He has then cited references in certain Books. "The Principles of Motor Fuel Preparation and its Application" by Nash and Howe and remarked that the working results of the experiments/testing had shown successful engine operation within certain limits. This does not establish that the product in question is suitable as such or when mixed with other product for use as fuel for internal combustion or spark ignition engines. What had been referred to are some results of experiments. The successful engine operations have been reported to be within certain limits. In this connection, we find that the Collector has rejected the evidence produced by the appellants in the shape of the Handbook published by Vehicle Manufacturers in India to claim that none of them indicate that rectified spirit can be used either by itself or in admixture with any substance as a fuel. He has held that this argument is totally unsustainable because when the use of rectified spirit either by itself or in admixture with any other substance for fuel in spark ignition engine is not permitted by the Government for the time being, the literature of the automobile manufacturers cannot deal with any question regarding suitability for such use. We find that the Collector has admitted in so many words that the Government has not permitted use of rectified spirit as fuel either by itself or in admixture with any other substance. The finding that the Government not permitting use of rectified spirit for fuel purposes does not detract from its suitability for such use cannot be supported, particularly as such suitability itself has been called into question. The submissions and the findings in that regard have to be examined now.
21. The meaning of the expressions "suitable" and "suitable for use" as interpreted by the courts in judicial pronouncements and as defined in Black's Law Dictionary and Legal Thesasus by William C. Burton and Butterworth's "Words and Phrases Legally defined" have been furnished by the appellants. Out of these, we find that in the last mentioned publication it has been mentioned that the term suitable has been judicially determined to mean actually, practically and commercially fit for the use described. The reference is shown as Mattoon & Co. v. U.S. Cust. Ct 297 F. Supp. 1404,1406. In another judgment, Sol. Kahaner & Bro. v. U.S. Cust. Ct 372 F. Supp. 1393,1396, it had been held that for an item to be suitable for a particular purpose within meaning of Tariff Act, the merchandise need not be chiefly used for a stated purpose but there must be evidence of more than a casual, incidental, exceptional or possible use; the use must be substantial. In another US Customs case, it was held that "Suitable for use" as used in determining classification of a product for customs purposes meant actually, practically and commercially fit for such use and not casual, incidental or possible use. Though these are not decisions connected with Central Excise Tariff, the scope of the term as held in the aforesaid judgments is a useful guide. Nearer home, on the scope of this very item 6 of the Central Excise Tariff, there is the decision of the Allahabad High Covirt in Central Distillery and Chemical Works, Meerut v. Inspector of Central Excise, M.O.R., Meernt reported in 1978 (2) E.L.T. (J 194) wherein it was held that all kinds of ethyl alcohol will not be power alcohol that is to say, motor spirit within item 6 unless it was also established that it was suitable for operating or running internal combustion engines. It was further observed that the governing factor of the definition is that the product of the manufacturing process undertaken by the petitioner would be suitable for running Internal Combustion Engines. It is only then that it could be covered by the definition of Motor Spirit.
22. We find that the Collector has placed reliance on the contents of the letter dated 4-5-1987 signed by Shri M.C. Fernandes of Indian Oil Corporation. The assertions to the contrary in the letters placed before him by the appellants have been rejected by him. Thus the statement in Shri J.R. Nanda's letter that Rectified spirit normally containing 5% water cannot be used for blending in petrol due to phase separation and allied problems and that 100% Ethanol (Ethyl alcohol) alone can be used as fuel in Spark ignition engines with major modifications in the present passenger car engines has been dismissed with the observation that this in no way helped the party. The question, in our view, is not whether only 100% Ethanol is the suitable product. We are not concerned with such a product but with rectified spirit which has a concentration of around 95% Ethyl Alcohol and about 5% water. Whether this is suitable for use as required is the crucial question. On this question the discussions so far have established that it is not. This is a factor in the appellants' favour. The appellants have obtained statements from several offices, organisations and bodies in support of their stand that their product is not suitable for use in the manner referred to in the Tariff entry in question. These are from the Directorate of Prohibition and Excise, Ahmedabad, Dealers of Petroleum products, Manufacturers of Motor Vehicles. While dealing with the letter issued by the first mentioned office stating that there is no provision under the relevant act or rules to sell Ethyl Alcohol for fuel purposes and that no permission or licence has been granted to petrol dealers to buy and sell rectified spirit to be used as fuel in automobile engines, the Collector has mentioned that this letter does not actually bear on the issues in the case as it was not disputed that the Government has not permitted the use of rectified spirit either by itself or in admixture with any other substance as fuel in automobile engines, for the present. According to the Collector, the basic issue is as to whether the product in question is potentially usable/suitable for such use. He has further observed that if the sale of Ethyl Alcohol towards fuel in automobiles is not permitted by the Government as a matter of deliberate policy in the country, it would not imply that the product is actually or potentially not usable for such purpose or is not known to be suitable for such use. We do not agree with his finding that the decisions on marketability as against non-marketing, Plasmac Machine Manufacturing Co. P. Ltd. v. Collector, Bombay, 1991 (51) E.L.T. 161 (SC) Supreme Court and Tribunal decisions in Tube Investments of India Ltd. and Singareni Collieries - 1989 (42) E.L.T. 484 and 1989 (37) E.L.T. 361 respectively can be applied to draw a parallel with use as against potential for use. Actually it is not that even the potential for such use with the composition of Ethyl alcohol in Rectified spirit has been established. The Collector, while discussing the evidence in this regard, has mentioned that it is not as if the Water contents in an alcoholic blend would render it totally unusable as fuel in spark ignition engines. He has further stated that the problem of phase separation which it was claimed by the appellants is a deterring factor is not insuperable. Considerable modification of engine and providing for separate feeding system for petrol and the alcohol in the motor vehicle so that the two mix only in the engine are required. These bring not clearly that the use of the product in question for the intended purpose is ruled out for the purpose of Tariff Classification.
23. This position is consistent with the stand of the Government as seen from the 1989 Budget Instructions and the Circular 55/89, dated 18-9-1989 of the Central Board of Excise and Customs. These are extracted below :-
Budget Instructions dated 28-2-1989 "There have been some disputes regarding the scope of Heading 2204 covering ethyl alcohol suitable for use in spark ignition engines. Since there is no substantial use of ethyl alcohol as fuel in spark ignition engines in the country this entry is being deleted. The deletion will take effect from the date on which the Finance Bill becomes an Act. However, a separate exemption for goods falling under goods Heading 2204.00 is issued so that these goods are exempted from Central Excise duty from 1-3-1989 (see Notfn. 1-3-1989). As and when the usage of alcohol for this purpose increases and potential for revenue collection develops, the Collectors may bring the matter to the notice of the Board."
Circular dated 18-9-1989 Central Excise - Excisability of ethyl alcohol - Rectified spirit/special denatured spirit/ordinary denatured spirit - Issue of show cause notices for the period prior to 1-3-1989 - Classification regarding.
Certain doubt have been expressed about the excisability of ethyl alcohol commonly known as industrial alcohol for the period prior to 1-3-1989. It has also been represented by the trade that, in some of the Central Excise Collec-torates, demands in respect of Central excise duty payable on ethyl alcohol commonly known as industrial alcohol, have been raised for the period prior to 1-3-1989.
2. The issue regarding excisability of ethyl alcohol/industrial alcohol has been examined by the Board. A survey floated among the field formations with regard to the position of control and levy of duty on rectified spirit and industrial alcohol etc. by State excise authorities indicates that in majority of cases the manufacture of rectified spirit/industrial alcohol etc. is under the control of State authorities. As you are aware, Heading 22.04 was deleted from the Central Excise Tariff with effect from 12-5-1989 by the Finance Act, 1989. While the issue whether rectified spirit/industrial alcohol etc. which is not of I.C. engine grade is covered by Tariff Item No. 6(ii) of the old CET and Heading No. 22.04 of the Schedule to the Central Excise Tariff Act, 1985 is still being debated, a few Writ petitions have been filed in the Supreme Court challenging the control exercised by the State Governments over the activity of manufacture of industrial alcohol, rectified spirit etc. in the Writ Petitions, it has been contended that the power to levy duty on industrial alcohol etc. vests only with the Central Government but not State Governments.
3. The Board is, therefore, of the view that it would only be appropriate to wait for the Supreme Court's judgment at the said Writ petitions and not to adjudicate the show cause notices issued in this regard till the cases are decided by the Supreme Court.
4. The above guideline may be brought to the notice of the lower field formations and the trade interest may also be suitably advised.
In the said circular, it has been pointed out that the question whether rectified spirit/industrial alcohol etc. which is not I.C. engine grade was covered by Item 6(ii) of the old Central Excise Tariff and Heading 22.04 of the Schedule to the Central Excise Tariff Act, 1985 was still being debated. This position had also been taken note of by the Ministry of Law in their U.O. Note dated 6-8-1987 a copy of which has been made available. The fact that the practice was not uniform and collectorates other than Baroda had not been treating the product as falling under the item/Heading in question has come out in the note. Copies of orders passed in this regard in the Pune and Chandigarh Collectorates have been submitted while any such decisions elsewhere may not be conclusive of the classification question, as rightly held by the Collector on the authority of decisions and judgments to that effect, the fact that such possibilities existed did point to the entertainment of a bonafide belief on the part of the appellants that their product did not attract duty under that Heading. They had contested the directions from the Departmental authorities to take licence and follow the required formalities. This cannot be taken to amount to wilful misstatement or suppression. The appellants do succeed on the question of time bar. For the reasons considered by us in the preceding paragraphs, we are of the view that the appellants' contention on merits regarding the non-applicability of the respective Tariff entries to their product also deserves to be upheld. We order accordingly.
24. An alternative plea was taken by the counsel that even if it is held that the goods in question do fall under the relevant tariff entries they would not attract the tariff rate of duty but would qualify for the benefit of exemption granted under Notification Nos. 75/84, dated 1-3-1984 and 106/86, dated 27-2-1986 during the relevant periods. As we have held that the classification under Tariff Item 6(ii) or Heading 22.04 as the case may be would not get attracted for the impugned product become relevant. However, the grounds on which the concessional rates of duty under these notifications have been refused is not approved by us. Such a benefit had been refused on the ground that the appellants had not followed the procedure under Chapter X of the Central Excise Rules. In the circumstances of the case, the failure to follow the said procedure is a condonable deficiency of procedure. The goods had been cleared to specific users and evidence was available regarding their enduse. In the circumstances, the claim for concessional assessment was not rejectable only for the reason that the procedure under Chapter X had not been followed.
25. Our findings to the above effect are equally applicable to all the appeals considered by us in this group of cases. We have gone through the respective appeals and the corresponding orders which had led to the same. For the same reasons, we allow these appeals also.