Customs, Excise and Gold Tribunal - Delhi
Gas Authority Of India Ltd. vs Commissioner Of Customs And Central ... on 13 October, 2003
Equivalent citations: 2003(90)ECC857, 2004(163)ELT37(TRI-DEL)
ORDER V.K. Agrawal, Member (J)
1. The issues involved in this Appeal, filed by M./s Gas Authority of India Ltd. are whether the process of mixing Butane and Propane amounts to manufacture and consequently whether the Appellants are eligible to MODVAT credit of duty paid on Butane under rule 57A of the Central Excise Rules, 1944.
2. Shri V. Lakshmi Kumarn, learned Advocate, submitted that Appellants manufacture liquefied Petroleum Gas (LPG in short and avail of MODVAT Credit of the duty paid on inputs; that natural Gas is received from M/s. ONGC through HBJ pipeline which is processed for extraction of LPG (C3 and C4 approximately 50 : 50); that the said natural gas contains more Propane (C3) that Butane (C4); that the quantity of Propane not utilized in the manufacture of LPG at the first instance is subsequently mixed with Butane which they receive from Oil Companies for manufacture of LPG; that taking into account the quantum of LPG manufactured, required quantity of Mercaptum is also added in the mixture; that a show cause notice dated 30.3.2000 was issued to them for demanding duty on Propane and disallowing MODVAT Credit in respect of Butane on the ground that the production of LPG by admixture of Butane and Propane does not amount to manufacture; that the Commissioner, under the impugned Order, has confirmed the demand of duty on Propane by denying benefit of exemption under Notification No. 67/95-C E., dated 16.3.1995 and has disallowed MODVAT Credit of duty paid on Butane holding that both propane and Butane are combustible in nature and by merely mexing of two LPGs, i.e., Propane and Butane, no different product having different character and use comes into existence; the inputs used are LPG and the resultant product is also LPG and as such the process of mixing of Propane and Butane is not a process amounting to manufacture.
3.1 The learned Advocate, further, submitted that the term LPG is defined only as a mixture of Butane and Propane; that as per the Modern Petroleum Technology Book by Mr. G.D. Hobson, the term LPG refers to mixtures of C3 and C4 hydrocarbons which are predominantly propane, propylene, n-butane, bytylene and iso-butane; that in Perry's Chemical Engineers' Hand Book, Seventh Edition edited by Don W. Green, LPG is defined as under :
"Liquied Petroleum Gas. The terms liquefied petroleum gas (LPG) is applied to certain specific hydrocarbons which can be liquefied under moderate pressure at normal temperature but are gaseous under normal atmosphere conditions. The chief constituents of LPG are Propane, Propylene, butane, bytylene, and iso-butane."
3.2 In Britannica, the term LPG is defined as under :-
"Liquified Petroleum Gas, also called LP Gas or LPG, any of several liqued mixtures of the Volatile hydrocarbons propane, butane and butane. A typical commercial mixture may also contain ethane and ethylene as well as a volatile mercaptan, an odorant added as a safety precaution."
3.3.1 The learned Advocate mentioned that in Kirk-Orhmer Encyclopedia of Chemical Technology LPG is defined as a mixture of butane and propane, typically in a ratio of 60 : 40 butane-propane; that as per Liquified Petroleum Gas (Regulation & Supply and distribution) Order, 1993 "liquefied petroleum gas" means a mixture of certain light hydrocarbons which may include propane, isobutne, normal butane, butylenes, etc. which are gaseous at normal ambient temperature and atmospheric pressure but may be condensed to liquid state at normal ambient temperature but the application of pressure and which conforms to to Indian Standard Specification No. IS : 4570.
4. The learned Counsel contended that thus Propane and Butane are the components of LPG which is primarily sold in India for domestic purpose; that Propane and Butane are not used as such as fuel for domestic purpose; that the composition of Propane, Butane and LPG are totally different which is evident from the details given in Gas Processing Environmental Aspects & Methods by Mr. James G. Speight; that when the properties are different, it can not be said that they maintain the same characteristics after admixture resulting into LPG; that Butane and Propane having innumerable number of end uses whereas LPG has only one end use namely, as fuel; that hence the finding of the Commissioner that Butane and Propane prior to and after admixture are only fuel is unsustainable. He mentioned that in the following case, Tribunal has held that blending amounts to manufacture-
(i) In Indian Oil Corporation Ltd. vs. CCE, New Delhi, 2002 (145) ELT 305 (T) it has been held that mixing of LDO with additives results into emergence of a new product viz., Malaria Larvicide, Oil having distinct character.
(ii) In Vijaya Packers vs. CCE, Cochin, 1994 (71) ELT 254 (T) it has been held that process of sifting and blending dextrose monohydrated with tricalcium Phosphate and Vitamin D results into a new product Glucovita Gulucon D.
(iii) Collector of Customs, Madras vs. Air Control & Systems, 1988 (33) ELT 568 (T) wherein blending of sodium hexametaphosphate with tephaguard has been held to amounting to manufacture.
(iv) Brooke Bond India Ltd. vs. U.O.I. 1984 (15) ELT 32 (AP).
5. He also mentioned that classification of butane and propane is dependent on their purity; that the product of higher purity is considered as different from product of lesser purity; that for example propane of lesser purity is identified as petroleum product and propane of purity higher than 90% is considered as an organic chemical; that in the case of LPG, it is an admixture of two hydrocarbons at a given percentage; that the physical properties of the admixture product is bound to vary from the properties of its constituents; that propane and butane may fall under the category of fuel with reference to their one of the innumerable number of end use but that alonewould not be sufficient to hold that the products prior to admixture and after admixture are one and the same; that when the classification of butane/propane even independently is different based on its purity, their classification after its admixture can not be the same. He also emphasised that on account of admixture, there is transformation an a new product has emerged; that transformation does not necessarily means chemical transformation as held in the case of Choksi Brothers vs. CCE, Bombay, 1996 (84) ELT 491. Finally he submitted that the Commissioner has failed to appreciate the fact that they have paid Central Excise duty at the time of clarence of LPG from their factory; that no penalty is imposable as they have not contravened any of the provisions of the Central Excise Act or Rules with an intent to evade duty ;that necessary declaration had also been filed and RT 12 returns have been filed monthly.
6.Countering the arguments, Shri Vikas Kumar, learned Senior Departmental Representative, submitted that the question in the present Appeal is not the Cooking gas used in the indian houses but whether mixing of Propane and Butane amounts to manufacture; that Propane and Butane are known as Liquified Petroleum Gas. he referred to the Book 'Gas Processing-Environmental Aspects & methods' by James G. Speight wherein it is mentioned that originally, the gas-processing plants were used to remove the gasoline components to be used as a blending stock for motor gasoline and "other fuel needs then caused a shift of focus to the liquefied petroleum gas (Propane Butane and / or mixture thereof, contended that Propane and Butane independently are known as LPG and the LPG obtained by the Appellant is a mixture of two LPGs and as such no new product having different character, name or use comes into existence; that thus the process of mixing Propane and Butane does not amount to manufacture. He also referred to Kirk Othermer Enclyopedia of Chemical Technology according to which LPG "is commercially available as Propane, butane and butaine-Propane mixture. he relied upon the decision in the case of Hansa Metallics Ltd. vs. Union of India, 2001 (133() ELT 543 (Punjab and Haryana) and Gujarat Steel Tubes Ltd. vs. State of Kerala, 1989 (42) ELT 513 (SC). Reliance has also been placed on the judgment in the case of Tungabhadra Industries Ltd. vs. Commercial Tax Officer, Kumool AIR (1961) Supreme Court 4123
7. The learned Senior Departmental Representative, further, submitted that as a new and different article having a distinctive name, character or use does not emerge there is no manufacture; that as per Kirk Other Encyclopedia of Technology, vapour pressure of commercial propane is 1434 and commercial butane-Propane mixtures is also 1434; that this goes to show that there is not difference between the two products; that accordingly benefit of Notification No. 67/95 for captive consumption of propane would not be available and the Appellants are liable to discharge duty on Propane; that the basic requirement for availing MODVAT Credit under Rule 57 A is that the inputs should be used in or in relation to the manufacture of a final product; that as in the instant case, no manufacturing takes place, Butane can not be termed as an input and accordingly MODVAT Credit of the duty paid on Butane has been correctly disallowed.
8. We have considered the submissions of both the sides. The entire case of the Revenue rests on the premises that both Propane and Butane are by themselves Liquefied Petroleum Gas and, therefore, mixing of these two gases does not bring into existence a new and different article as the resultant product is also known as Liquefied Petroleum Gas. The facts which have not been disputed by the Revenue are that Propane obtained by processing of natural gas is mixed with duty paid Butane obtained by the Appellants from oil companies to make Liquefied Petroleum Gas. It is also not the case of Revenue that LPG is not obtained by blending of Propane and Butane According to Perry's chemical Engineers' Hand Book, the Chief constituents of LPG are Propane Propylene, Butane, butylenes and is cobutane. As per Indian standard IS : 4576-1578 [Specification For Liquefied Petroleum Gases] the term Liquefied Petroleum Gas "applies to a mixture of certain light hydrocarbons derived from petroleum which are gaseous at normal ambient temperature and atmospheric pressure but may be condensed to the liquid state at normal ambient temperature by the application of moderate pressure." Same is business market is a distinct commercial commodity. The High Court rejected the contention of the Appellant that there would be double taxation both on coffee and also the mixture of coffee and chicory. We are thus of the view that the process of mixing of propane and butane undertaken by them to get Liquefied Petroleum Gas amounts to manufacture. Once the activity undertaken by the Appellants amounts to manufacture, the benefit of exemption under Notification No. 67/95-CE will be available to them in respect of Propane and they would be eligible to avail credit of duty paid on Butane. Appeal is thus allowed.