Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Shriram Ssk Ltd. on 16 July, 1999
Equivalent citations: 2000ECR614(TRI.-DELHI), 1999(114)ELT291(TRI-DEL)
ORDER A.C.C. Unni, Member (J)
1. These are 17 (Seventeen) Appeals filed by the Revenue. The issue being common, they were heard together and are being disposed of by this common order.
2. The basic question requiring consideration in the Appeals is whether Central Excise duty was leviable on Ethyl Alcohol during the relevant period and it was classifiable under Chapter Heading 3823. By the impugned orders, the Collector of Central Excise (Appeals), Pune had held that Ethyl Alcohol cannot be classified under Chapter 38. Various adjudication orders passed by Asstt. Collectors classifying it under Chapter Heading 3823 (as it stood at the relevant time) and demanding duty on that basis were set aside by the Collector (Appeals) in the impugned orders. The instant Revenue appeals challenge the finding of the first appellate authority.
3. FACTS : Respondents own distilleries producing Ethyl Alcohol of 95% v.v. (also known as rectified spirit/industrial alcohol) and declared their product as non-excisable in their classification lists which were duly approved by the Department. The Department however, issued Show Cause Notices (SCNs) subsequently to them to show cause why the product should not be classified under Chapter Heading 3823 and why excise duty leviable thereon should not be demanded. In adjudication, the Asstt. Collector held that Ethyl Alcohol was classifiable under Chapter Heading 3823 as 'miscellaneous chemicals not elsewhere specified' and confirmed duty demand. The Asstt. Collectors also held that the type of Ethyl Alcohol manufactured by the Respondents was not fit to be used as fuel for spark ignition engine and therefore were not classifiable under Chapter Heading 2204. In appeal, Collector (Appeals), Pune, reversed the adjudication orders of the Asstt. Collectors and held that Ethyl Alcohol was not classifiable under Chapter 38. Hence these Appeals.
4. Ld. JDR, Shri S.K. Das arguing the case of the appellant Collector submits that Ethyl Alcohol, being an Organic Chemical would normally be classifiable under Chapter 29. However, it became an excluded item under Chapter 29 only by virtue of Chapter note 2(b) of the said Chapter. Since Chapter note 2 of Chapter 29 excludes only excisable items from the coverage of Chapter 29, there can be no doubt that Ethyl Alcohol is also an excisable item just like other items mentioned in Chapter Note 2, such as Methane or Propane [excluded by Chapter note 2(c)] or Urea [excluded by Chapter note 2(e)]. However, unlike in the case of Methane/propane, which are included in Chapter 27 and in the case of Urea which has been included in Chapter 31 Ethyl Alcohol has not been mentioned as included in any specific Chapter. Moreover, since Ethyl Alcohol is an excisable item, the Department was right in including them under the residuary heading of 3823.00 under Chapter 38 dealing with Miscellaneous Chemical Products. The mere fact that the Ethyl Alcohol manufactured by the Respondents could not be classified under Chapter sub-heading 22.04 as "suitable for being used as fuel for spark ignition engines", it did not mean that the Ethyl Alcohol manufactured by the Respondents is a non-excisable item. Further, after Budget 1990, Ethyl Alcohol of any strength had come under Chapter sub-heading 22.04. Ld. JDR therefore contended that for the period starting from the inception of new Tariff Act till Ethyl Alcohol of any strength became classifiable under Chapter sub-heading 22.04 pursuant to the Finance Bill of 1990 i.e., upto 28-2-1990, Ethyl Alcohol was rightly classifiable under Chapter Heading 3822.00. He therefore pleaded that the impugned order of the Collector (Appeals) holding that Ethyl Alcohol was not classifiable under Chapter Heading 3823 be set aside and the duty demand made under the relevant Show Cause Notices be confirmed.
5. We have also heard Shri V.K. Gaikwad, ld. Advocate appearing for the Respondents. He submitted that during the period under dispute, i.e., upto 28-2-1990 after the introduction of the Central Excise Tariff Act, 1985, there was no specific Tariff entry for the type of Ethyl Alcohol manufactured by the Respondents. In view of the provisions of Entry 84, List I of the Seventh Schedule to the Constitution, excluding alcoholic liquor from the Legislative competence of Parliament for levy of duties of excise, excisability of Ethyl Alcohol under Central Excise had remained doubtful. As regards Entry 84, List I, Seventh Schedule to the Constitution and other entries relating to alcohol it was only after the decision of the Supreme Court in the case of Synthetics and Chemicals [1990 (1) SCC109] on 25-10-1989 holding that industrial alcohol was outside the legislative competence of State Legislature, the constitutional position relating to excisability for purposes of Central Excise became clear. In this connection, our attention had been drawn to the various Section notes and Chapter notes in the Central Excise Tariff Act which further supported the stand taken by the Respondents. First, it was submitted that Chapter 38 covered 'Miscellaneous Chemical Products'. Chapter note 2 of Chapter 38 provided that Heading No. 38.23 included "(a) cluster systems (b) fusel oil; Dippel's oil; (c) Ink remover; (d) Stencil correctors & other fluids and (e) ceramic firing testers, fusible (e.g. Seger cones)". Ethyl Alcohol was not included in the category of items included in Chapter Heading 38.20 and therefore Ethyl Alcohol was not covered by Chapter Heading 38.23 in terms of Chapter note 2. Further, ex facie, Ethyl Alcohol being an Organic Chemical was classifiable under Chapter 29 dealing with Organic Chemicals. However, by virtue of Chapter note 2 to that Chapter Ethyl Alcohol had been specifically excluded. Though no doubt the Central Excise Tariff Act, 1985 is based on the Harmonized System of Nomenclature (HSN) by virtue of Chapter note 2(b) of Chapter 29 of the Central Excise Tariff Act, Ethyl Alcohol stood excluded from Chapter 22 of the Act. Ld. Counsel for Respondents had further submitted that Ethyl Alcohol, being a product of fermentation industry cannot be considered to be part of Chemical Industry. HSN Explanatory Notes to Chapter Heading No. 38.23 covers Miscellaneous Chemical Products which are not chemically defined. Ethyl Alcohol which has a unique structural formula, C2H5OH, and other fixed constants such as specific gravity refractive index, boiling point, etc. is a separate chemically defined organic compound and therefore, not classifiable under sub-heading No. 38.23. It was also contended on behalf of the Respondents that it was a well settled principle of interpretation of Central Excise Tariff Act that Section notes and Chapter notes will have over-riding force over the headings in the Chapters. He had relied in this connection on the Tribunal decision in C.C.E. v. Metrowood Engineering Works [1989 (43) E.L.T. 660 (T)]. He further emphasised the fact that no samples of the product had been taken for chemical analysis or any test report relied upon by the Department to controvert appellants' claim that the Ethyl Alcohol produced by them did not possess the concentration required for being used as fuel for spark ignition engines for purposes of Chapter Heading 2204.
6. We have considered the submissions made on both sides and have given careful consideration to the arguments and have perused the records. It is clear from the statements of facts submitted along with the Revenue's appeals that the Revenue is not treating Ethyl Alcohol as different from rectified spirit/industrial alcohol. Ethyl Alcohol of 95.57% purity is commonly known as rectified spirit mainly used in the preparation of alcoholic liquor or for industrial use. Originally, in view of Entry 84, List I of Seventh Schedule read with other entries relating to alcohol excisability of Ethyl Alcohol for purposes of Central Excise levy was considered to be not free from doubt. Even after Judgement of the Supreme Court in Synthetics and Chemicals case reported in 1990 (1) SCC holding that Industrial Alcohol was outside the powers of the States for imposing of state excise duty, the Central Excise Tariff Act did not contain a specific entry on Ethyl Alcohol under a specific heading. The Apex Court had also further held that the said ruling will have only prospective application and not retrospective application. Therefore, in our view, although Ethyl Alcohol was considered as an item on which Parliament was competent to levy Excise Duty, before duty can be levied and demanded, it is further necessary to show that the said item is specifically included as an item in the Central Excise Tariff Act, 1985.
7. The question then arises as to which is the Tariff entry under which Ethyl Alcohol becomes an excisable product. As has been explained in the earlier part of this order dealing with the arguments of both sides, Ethyl Alcohol being an Organic Chemical should have normally found a place under Chapter 29. However, by virtue of Chapter note 2(b), Ethyl Alcohol has been specifically excluded. Further, as per Chapter Heading 2204 as it stood before the Finance Bill, 1989, Ethyl Alcohol which is not suitable for being used as fuel for spark ignition engines was not covered by Chapter heading 2204 during the period 1-3-1986 to 28-2-1989. The claim of the Respondents is that the Ethyl Alcohol produced by them did not have the purity for being used as fuel for spark ignition engines even during the period 1-3-1986 (the date on which Central Excise Act, 1985 came into force) and 28-2-1989 (the date of introduction of the Finance Bill) which covered the date of demand of duty against them. Hence, their contention is that even assuming that Ethyl Alcohol was excisable to Central excise duty by virtue of the Supreme Court ruling in the Synthetics and Chemicals case (supra), their product still did not come under Chapter Heading 2204 since the Ethyl Alcohol manufactured by them was not suitable for being used as fuel for spark ignition engines because of lesser purity. The Respondents, however, have not produced any test report in support. On this point, in the absence of any test report showing that the Ethyl Alcohol manufactured by the Respondents was not suitable for being used as fuel for spark ignition engines, we are not in a position to accept the Respondents' claim that no duty demand could have been raised against the Ethyl Alcohol manufactured by them.
8. Nevertheless, we also find it difficult to agree with the Department's contention that Ethyl Alcohol becomes classifiable under the residuary heading of Chemical Products and that it comes within the coverage of Chapter sub- heading 3823 as it stood at the relevant time. We hold that merely because Ethyl Alcohol has a specific chemical formula, C2H5OH, it will not automatically become classifiable under Chapter 38 dealing with Miscellaneous Chemical Products. We also do not accept the contention of the Department that since the Central Excise Tariff Act is based on HSN, no article or thing is left out of classification and all things/articles, products on earth are covered by the Central Excise Tariff. Such claim may be justified at best in relation to the comprehensive coverage of the Harmonised Commodity System and Coding System but not to the Central Excise Tariff Act. It has to be remembered that HSN does not proprio vigore (by its own force) apply to classification of goods under the Central Excise Act, 1985. For one thing, even while adopting the HSN for purposes of the Central Excise Act, departures, variations and modifications have been made while incorporating the over all scheme of HSN in the Central Excise Act, 1985. The Central Excise Act, being an Act of Parliament has necessarily to follow the larger Constitutional scheme incorporating the Federal structure demarcating areas of legislative competence between the Federal Government and the constituent States. Excise duty on Alcohol having been clearly enumerated under the State list, it was for a very long time considered that even non-potable Alcohol was beyond the competence of the Central Legislature for purposes of levying Central Excise duty. It was only after the Supreme Court decision in Synthetics and Chemicals case in 1989 that the legal position was clearly explained. Industrial Alcohol and non-potable Alcohol therefore became excisable by the Central Legislature. However, even the said ruling (which incidentaly arose not from any levy of Central Excise duty on Industrial alcohol but competence of State Legislature to impose the levy) did not, per se, hold that Industrial alcohol is classifiable under a particular heading under the Central Excise Tariff Act. The effect of the said Supreme Court decision was only to hold that legislative competence of State Legislature did not extend to levy of State Excise Duty on Industrial or non-potable alcohol.
9. To sustain a duty demand under the Central Excise Act, it is necessary not only to show that a certain product is not within the legislative competence of States for levy of State Excise duty it is also further necessary to show that the said item is covered under a specific tariff entry under the CETA, 1985.
10. Since we find that Ethyl Alcohol cannot be considered to be an article covered by Chapter Heading 38.23 as claimed by Revenue for the reasons given above and since we find that no other tariff entry can be said to cover Ethyl Alcohol during the relevant period, we find no reason to interfere with the impugned orders.
11. In the above view of the matter, we uphold the impugned orders and dismiss the 17 (seventeen) Appeals filed by the Revenue.
S.K. Bhatnagar, Vice President
12. While I broadly agree with the analysis as well conclusion about the Ethyl Alcohol, mentioned above. What is bothering me is the actual product(s) being manufactured by the appellants in this case for the simple reasons that various Or-ders-in-Original appear to have used various terms loosely and the submissions have been made as if varying description did not matter. A perusal of these orders show that the product(s) in question has been described variously as (1) rectified spirit (2) industrial alcohol (3) alcoholic liquor (4) ordinary denatured spirit (5) special denatured spirit (6) ethyl alcohol.
13. While chemically these items may contain varying percentage of ethyl alcohol the point which arises is as to how they are treated commercially that is whether they are treated as distinct commodities in the market.
14. Neither any chemical test report was submitted by either side nor the queries in this regard have been satisfactorily answered and both the sides have not been able to explain and clarify the position.
15. Again whether any of these items or ethyl alcohol in question was or was not suitable for being used as fuel spark ignition engine is a point which has a bearing on the question whether Heading 22.04 was attracted at any stage.
16. In the appeal memo the Department has stated that the products in question was not used for spark ignition engine but the point is whether it was suitable for being used as spark ignition engine.
17. Since the Department itself has not asked for classification under Heading 22.04 and has, in fact, argued against it, we have no cause for examining this aspect any further except to the extent of mentioning that the respondents contention that item was not suitable for being used as fuel/spark ignition engine could also not be accepted in the absence of any evidence to this effect.
18. Insofar as ethyl alcohol per se is concerned, I entirely agree with any learned colleague that in the facts and circumstances of the case, Heading 38.23 was not attracted and therefore, the appeals could not be accepted.