Custom, Excise & Service Tax Tribunal
Datta Hydro Chem Pvt. Ltd. vs Commissioner Of Customs Excise And ... on 24 November, 2022
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
REGIONAL BENCH
Excise Appeal No. 911 of 2012
(Arising out of Order-in-Appeal No. P-III/RS/87/2012 dated 21.03.2012
passed by the Commissioner of Central Excise (Appeals), Pune-III)
M/s. Datta Hydro-Chem Pvt. Ltd. Appellant
A-48/56/57, MIDC Kurkumbh,
Tal. Daund, Pune 413 801.
Vs.
Commissioner of Cus., Excise & ST, Pune-III Respondent
ICE House, 41-A Sassoon Road, Opp. Wadia College, Pune 411 001.
Appearance:
Ms. Manasi Patil, Advocate, for the Appellant Shri Deepak Bhilegaonkar, Additional Commissioner, Authorised Representative for the Respondent CORAM:
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) HON'BLE DR. SUVENDU KUMAR PATI, MEMBER (JUDICIAL) Date of Hearing: 24.11.2022 Date of Decision: 24.11.2022 FINAL ORDER NO. A/86155/2022 PER: SANJIV SRIVASTAVA This appeal is directed against order in appeal No. P- III/RS/87/2012 dated 21.03.2012 of the Commissioner of Central Excise (Appeals), Pune -III. By the impugned order while disposing of the appeal filed by the revenue against the order in original of the Additional Commissioner, Commissioner (Appeals) has held as follows:
"14. In view of the foregoing, I set aside the impugned OIO and order the following:
Confirm the duty of Special Excise of Rs. 41,15,768/- + Education Cess of Rs. 82,316/- under the provisions of Section 11A(1) of the CEA.
Confirm the demand of interest at appropriate rate on the afore mentioned amount under Section 11AB of the CEA.
2 E/911/2012 Impose penalty of Rs. 41,98,084/- under Section 11AC of the CEA.
15. The appeal filed is disposed off accordingly."
1.2 Additional Commissioner has in order in original held as follows:
"ORDER I drop the proceeding initiated against M/s. Datta Hydro Chem Pvt., A-48/56/57, MIDC, Kurkumbh Tal. Daund Dist Pune- 413801 under the show cause notice issued to them vide F. No. V(27)15-33/Adj/ADC/2011 dated 07.05.2010."
2.1 Appellant is engaged in the manufacture of DSOL Hexane and DSOL (30.40) falling under Chapter Sub-Heading (CSH)NO.27101112 and 2710119 respectively, of the Central Excise Tariff Act, 1985 ('the Tariff Act', in short).
2.2 During the course of Audit and scrutiny of the records of the assessee, it was observed that the assessee had cleared DSOL Hexane and DSOL (30, 40) falling under CSH No. 27101112 and 27101119, respectively on payment of Central Excise duty at the rate of 16% BED + 2% Edn. Cess, during the year 2005-06 from April, 05 to Feb, 06. It was observed that the product in question was also attracting 16% Special Excise Duty (SED) under Second Schedule to the Central Excise Tariff Act, 1985 +2% Edn. Cess, thereon. The assessee vide letter dated 04.05.2009 had contended that the product in question falling under CSH No.2710.11 had been exempted from SED under Notification No. 4/2005 CE dated 1.3.2005 and hence clearances had been made on payment of duty at BED 16% + Edn. Cess 2%. Scrutiny of the Notfn. No. 4/2005-CE dated 1.3.2005 revealed that no exemption for SED had been granted to the products falling under CSH No. 27101112 and CSH No. 27101119 and that the SED is applicable as per Second Schedule to the Tariff Act. Therefore, it appeared that the assessee had misinterpreted the meaning of said Notification and had failed to pay SED @ 16% + Edu. Cess 2%, as payable in addition to the duties already paid. It further appeared that the assessee short- paid SED amounting to Rs 41,15,768/- + Edn. Cess Rs 82,316/-, on the clearances of DSOL Hexane (CSH No. 27101112) and 3 E/911/2012 DSOL (30,40) (CSH No 27101119) made during the year 2005- 06,from April, 05 to Feb, 06.
2.3 A show cause notice dated 07.05.2010 was issued to the appellant asking them to show as to why:-
i. The SED duty of Rs 41,15,7681/- + Edn. Cess Rs 82,316/-
for the period April 2005 to Feb.2006, should not be demanded and recovered from them under proviso to Section 11 A (1) of the Central Excise Act, 1944. ii. Interest at appropriate rate on the aforesaid amount so demanded should not be recovered from them under Section 11 AB of the Act and iii. penalty should not be imposed on them under Section 11AC of the Act 2.4 The show cause notice was adjudicated by the Additional Commissioner as per order referred in para 1.2 above. Aggrieved revenue filed a appeal before Commissioner (Appeal) which has been disposed as per the impugned order referred in para 1 above. Hence this appeal.
3.1 We have heard Ms Manasi Patil, Advocate for the appellant and Shri Deepak Bhilegaonkar, Additional Commissioner, Authorized Representative for the revenue.
3.2 Arguing for the appellant, learned counsel submits-
disputed product being Hexane & sold as "D SOL HEXANE"
is correctly and appropriately classifiable under Chapter 29 and not under Chapter 27;
that the disputed product by name 'Hexane', finds specific mention under Explanatory notes to HSN under Heading 2901 under title "SATURATED ACYCLIC HYDROCARBONS"
at Sr. No. 4....."Hexanes, with six atoms of carbon"; specific Heading prevails over generic one, for the purpose of classification of a product;
that the disputed product i.e. DSOL Hexane is correctly classifiable as Organic Chemical under Heading 2901 and not under Tariff Item 2710 11 12/ 2710 11 19 (although erroneously classified by Appellants);
Original authority, after considering the end use of Hexane in industries for manufacture of paint, thermocol, etc. [invoices at P/68 to P/80 of appeal] and on examination of 4 E/911/2012 product, correctly held Hexane to be classifiable under Heading 2901;
DSOL Hexane, an organic chemical, cannot be considered to be motor spirit for levy of Special Excise Duty (SED for short) under Second Schedule to Central Excise Tariff Act (CETA for short), as:
o it is not conforming to meaning assigned to "motor spirit" under Supplementary Note (a) to Chapter 27; o Hexane is not suitable for use as fuel in spark ignition engines;
o Dept., has not subjected to tests to the above effect; though, initially, Appellants claimed classification of disputed products wrongly under Chapter 27, on realizing the mistake, they can change to correct classification, at any stage and classification of product under a particular heading, under a mistaken belief, would not debar the assessee from arriving at the correct classification, once additional duty is demanded, as such demand would lead to reopening of assessment;
it is the original authority who has to decide correct classification of the dispute products, before saddling with any duty liability and, hence, raking up correct classification issue, though not alleged in SCN, is well within four corners of law and, hence, decision on classification by original authority is proper and legal; non-mention of "NIL" and mention of hyphen "-" in column No. 5 (Rate under the Second Schedule) under Notification No. 4/2005-CE dated 01.03.2005 (page 26 of compilation) cannot be a cause for demanding duty in a case where:
o Motor Spirit commonly known as petrol, falling under Sub Heading No. 2017 11, were chargeable to special excise duty;
o while all goods, other than Motor Spirit, were chargeable only to Basic Excise Duty under First Schedule to CETA and not leviable to SED under second schedule;
o when Motor Spirit is exempt from SED under Notification 4/2005-CE (Sr. No.7), goods other than
5 E/911/2012 Motor Spirit cannot be subjected to special excise duty under second schedule.
even if it is assumed that disputed products are classifiable under Chapter 27, still the Appellants are eligible for exemption from payment of SED, under Notification No.4/2005-CE;
since no percentage of duty was indicated against Sr.No.8 of Notn.No.4/2005-CE in column (5), unlike 16% in column (4) thereof, no SED was payable;
SCN dated 7.5.2010 demanding duty for the period April 2005 to February, 2006, is clearly barred by limitation as there is no specific allegation of suppression etc. contemplated in proviso to Section 11A(1) of the CEA and also factual position was within the knowledge of Dept. 3.3 Arguing for the revenue learned authorized representative reiterates the findings recorded in the impugned order and submits that appellant were themselves classifying the said goods under chapter 27 and paying the duty. The dispute is only in respect of the SED as the Notification No 4/2005-CE indicated the effective rate of SED as "-". The same notification used the phrase "Nil" where duty was sought to be exempted.
4.1 We have considered the impugned order along with the submissions made in appeal and during the course of arguments.
4.2 Additional Commissioner while dropping the demands made have recorded following findings:
"8. ..... Thus, there are basically two issues involved in this case and what needs to be examined is correct interpretation of the exemption notification in question, especially with regard to the 'hyphen' in column no.5, against Sr. No.8 in the table annexed to the notification, whether to mean as 'nil' duty or otherwise. The subsidiary issue is what is the correct classification of the assessee's products and whether the assessee's endeavor to seek a fresh classification is appropriate and if so, upon that, whether they are eligible to the exemption from the SED under the same notification.
09. A careful scrutiny of the said Notification i.e. Notification No. 4/2005 dated 1.3.2005 reveals the following facts. The said Notification was issued keeping the public interest in view and it 6 E/911/2012 exempts excisable goods of the description specified in column (3) of the Table below and falling within the Chapter, heading, sub-heading or tariff item of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amended by the Central Excise Tariff (Amendment) Act, 2004 (5 of 2005), specified in the corresponding entry in column (2) of the said Table;
(a) from so much of the duty of excise leviable thereon under the First Schedule to the Central Excise Tariff Act (hereinafter referred to as the First Schedule), as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the said Table; and
(b) from so much of the Special duty of excise leviable thereon under the Second Schedule to the Central Excise Tariff Act (hereinafter referred to as the Second Schedule), as is in excess of the amount calculated at the rate specified in the corresponding entry in column (5) of the said Table.
The relevant portion of the table is reproduced below;
S. Chapter or Description of Rate under Rate
No. heading or goods the First under
subheading or Schedule the
tariff item Second
Schedule
1 2 3 4 5
7 2710 11 Motor spirit 8% plus Nil
commonly known Rs.5.00 per
as petrol litre
8 2710 11 All goods (other 16% -
than motor spirit
commonly known
as petrol)
Here it is observed that, as far as the products in question concerned, (and if it is said that they are to be classified under the Chapter sub-heading 271011,) then it is seen from the table of the Notification, at column 5 of Sr. No. 8, i.e. Rate under Second Schedule is mentioned as '-. Therefore it can only be inferred, from this, that no rate has been prescribed under the Second Schedule for all products falling under the said chapter/ 7 E/911/2012 sub-heading, as described in column (1). And according to the para (b) of the said Notification, any amount, in excess of the amount calculated at the rate specified in the corresponding entry in column (5), stands exempted. Since no rate has been specified in this column for the said products, it is very clear that the said product is exempted from SED. Therefore the very basis of issue of the show cause notice itself is defeated. The fact that earlier the said assessee was paying the said SED, under a mistaken belief, cannot under any circumstance, be considered a ground to charge any duty, which by law is not leviable on the said assessee.
10. From the submissions of the assessee vide letter dated 18.08.2010, it is seen that their process of manufacture is mainly of subjecting the mixture of Hydro Carbons, procured from Gas Authority of India Ltd. (GAIL), to distillation. GAIL have cleared the said Hydro Carbons on payment of duty, under CH No. 2710 11 12 and 2710 11 19. The assessees have produced copies of specimen GAIL's bills. The copies confirm the fact. The assessees have further submitted that the products manufactured by them are used in Thermocol Industry, for manufacture of thermocol through blowing process. They have also produced certificates from their buyers to this effect and so this submission also is right. The assessees have claimed that they were under mistaken belief that DSOL Hexane and DSOL (30, 40) are classifiable under tariff item 2710 11 12 and 2710 11 19, and so were clearing the same considering the Second Schedule duty (SED) also payable thereon, till 28.02.2006. They have also claimed that they were under a bona-fide belief that "hyphen" in Column 5 at Sr.No.8 of the Table to Notification No. 4/2005-CE dated 01.03.2005, means exemption to all goods, other than Motor Spirit, falling under Sub-Heading 2710 11, and accordingly they classified their products under Sub-heading 2710 11 and cleared the same on payment of Basic Excise Duty at the rate of 16% under First Schedule and without payment of any duty chargeable under the Second Schedule to CETA. It was only after receipt of the Notice to Show Cause, that they analyzed various entries in the Central Excise Tariff and understood that different types of Hydro Carbons are classifiable under Chapter 29, also, and found that the disputed, products 8 E/911/2012 find appropriate parentage under Heading 2901; and since Hexane is acyclic hydro carbon isomer, would be correctly classifiable under heading 2901. They have relied on relevant portion of the Explanatory Notes to HSN wherein Hexanes is shown at serial no 4, under the head of Saturated Acyclic Hydrocarbons. They have further stated that Heading 27.10 covers only those preparations containing by weight 70% or more of petroleum products or oils from bitumen mixture, not elsewhere specified in CETA. Since the disputed products i.e. DSOL Hexane and DSOL (30, 40) are specifically covered under Heading 2901 hence, classification thereof under Heading 2710 is ruled out. They have after reproducing the Tariff heading of 2710, submitted that these items cover Motor Spirits with different special boiling points. They have also stated that the disputed products, DSOL Hexane and DSOL (30, 40), are not Motor Spirit and, hence, classification thereof under any of the aforesaid four Tariff items is ruled out. They have also submitted certificates from Technical Experts, in support of their claim. They have also contended that the Heading providing the most specific description of an item has to be preferred to the Heading providing generic description, for the purpose of classification of the goods under CETA, in terms of Rule 3(a) of the Rules of Interpretation and in the instant case, Heading 2901 covers the impugned products, viz. DSOL Hexane and DSOL (30, 40), more specifically as against the Dept.'s claim of its classification under Heading 2710.
11. The second issue therefore to be considered is whether the classification now adopted by the assessee for their two products under Chapter 29 is correct. On referring to the product in question i.e. DSOL Hexane, against the Alphabetical Index of HSN Explanatory notes under Chapter 29, it is seen that the note lays down that:
Heading 2901 of HSN Explanatory Notes:-The saturated acyclic hydrocarbons of this heading includes Hexane, with six atoms of carbon.
12. The disputed products, as the name itself indicates contain 6 atoms of carbon as claimed by the assessee. They have also stated that it is pure and/or commercially pure Hexane, and pure 9 E/911/2012 or commercially pure Hexane is not covered under Chapter 27, as the goods covered under Chapter 27 are "mixtures of Hydrocarbons", whereas the Hexanes covered under Chapter 29 are of pure grade, without any admixture. Presuming the assessee's submission that theirs is pure Hexane, and in the light of the GAIL's bills. end user's certificates, flow chart, experts certificates, the classification under Chapter 29 then appears correct.
On scrutiny of the Chapter notes of Chapter 27 CHAPTER NOTE IN RESPECT OF CHAPTER 27 (MINERAL FUELS, MINERAL OILS AND PRODUCTS OF THEIR DISTILLATION; BITUMINOUS SUBSTANCES; MINERAL WAXES)
1. The Chapter does not cover :
a) Separate chemically defined organic compounds, other than pure methane and propane which are to be classified in heading No. 27.11;
b) Medicaments of heading No. 30.03 or 30.04; or
c) Mixed unsaturated hydrocarbons of heading No. 33.01, 33.02 or 38.05
2. References in heading No. 27.10 to "petroleum oils and oils obtained from bituminous minerals include not only petroleum oils and oils obtained from bituminous minerals but also similar oils as well as those consisting mainly of mixed unsaturated hydrocarbons, obtained by any process provided that the weight of the non-aromatic constituents exceeds that of the aromatic constituents However, the references do not include liquid synthetic polylefins of which less than 60% by volume distils at 300 degree Celsius, after conversion to 1,013 millibars when a reduced pressure, distillation method is used (Chapter 39) AND WHEREAS CHAPTER NOTE ON CHAPTER 29 (ORGANIC CHEMICALS) READS AS UNDER:
1. Except where the context otherwise require, the headings of this Chapter apply only :
a) Separate chemically defined organic compound whether or not containing impurities;
b) Mixtures of two or more isomers of the same organic compound (whether or not containing impurities) 10 E/911/2012 except mixtures of acyclic hydrocarbon isomers (other than steroisomers), whether or not saturated (Chapter 27);
c) The products of headings Nos. 29.36 to 29.39 or the sugar ethers and sugar esters, and their salts, of heading No. 29.40 or the products of heading No. 29.41, whether or not chemically defined;
d) The products mentioned in (a), (b) or (c) above dissolved in water;
e) The products mentioned in (a), (b) or (c) above dissolved in other solvents provided that the solution constitutes a normal and necessary method of putting up these products adopted solely for reasons of safety or for transport and that the solvent does not render the product particularly suitable for specific use rather than for general use;
f) The products mentioned in (a), (b), (c) or (e) above with an added stabilizer necessary for their preservation or transport;
g) The products mentioned in (a), (b), (c), (d), (e) or
(f) above with an added anti- dusting agent or a colouring or odoriferous substance added to facilitate their identification or for safety reasons, provided that the additions do not render the product particularly suitable for specific use rather than for general use;
h) The following products, diluted to standard strengths, for the production of azo dyes, diazonium salts, couplers used for these salts and diazotisable amines and their salts.
In view of the above Chapter Note, once it is clear that the disputed solvent i.e. (Hexane) seems classifiable under Chapter 29, Once it is held that the disputed solvents 9Hexane) are classifiable under Chapter 29, the question of payment of SED under 2nd Schedule will not arise, as SED is not leviable on goods falling under Chapter 29.
11 E/911/2012 13 However, turning to the exemption notification, it is seen that under this notification against the Heading 2710, at serial no. 8, only a "-" (hyphen) is shown, as discussed at length above. The assessee, when classifying their Hexanes presumed this hyphen to mean Nil rate of duty and hence did not pay any SED on its clearances. It is therefore required to be seen whether in legal terms a hyphen means anything. On consideration of this point, it is seen that there is no precedence to this symbol or sign in the notification. The heading of the table says "Rate under the Second Schedule "-" Whereas in the other column of Rate under First Schedule, rate is specified. The notification says "exempts from so much of duty as in excess of rate specified in column (5)", which only would means that rate of duty under Second Schedule is "Nil". Further, in common sense the hyphen or a simple single horizontal line can only mean naught, which again means Nil only. Hence if the assessee presumed it to be Nil rate of duty, there is nothing wrong in it. Further, presuming that the hyphen was to mean some other rate of duty, then it is not clear from the notification as to then what rate was to be applied for payment of SED by any assessee covered by the entry. In fact, it is also seen that for demand of duty, for the relevant period, the demand notice has taken applicable rate to be 16% viz. the tariff rate. However, even this rate does not seem to have any basis in absence of any rate specified in the notification, except that full rate prescribed under the tariff is taken ignoring the notification altogether. Since, the notifications are the modes through which the Government implements the rate of duty on any goods keeping the public interest in mind, and the tariff rate as upper limit in mind, and such a power is vested in the Government by a specific empowering Section 5A of the Central Excise Act, 1944, ignoring the notification for levy, charge or recovery of duty would be against the taxation principles. Thus, in any case, even if the disputed goods are held to be classifiable under Headings 2710, the same would not chargeable to SED under 2nd Schedule, as SED is exempt under Notification No. 4/2005- CE dated 13.2005 (at SrNo8). In this background, the change of classification does not alter the liability to SED, or rather non-
12 E/911/2012 liability to it, of the assessee in respect of the two products in question.
14. It is a fact that once the Department reopens the assessment, the assessee is at liberty to question all the factors, including rate of duty, classification, valuation etc. However as against the contention of the assessee there is no opening of any assessment in this case. The department has only raised a demand of SED which it presumed is applicable to the assessee's two products and it is the assessee who has claimed that classification of their impugned products was wrongly under Heading 2710, correct one should be under Chapter 29, and that the Assessing Officer ought to have guided them for the correct classification of the said products under Chapter 29. If they felt that they mistakenly have classified the said product under Chapter 27, they can claim the correct classification at a later date, say at the time of decision of this demand, which they are doing and have done and so there cannot be any grievance on this account. The judgments cited by them in this regard are therefore superfluous. The show cause notice has not debarred them from coming with correct classification and so there cannot be any dispute in this regard.
15. From the above it can be seen that the two main issues to be decided are one whether the disputed products fall under chapter 27, and attract SED, as per Notification No 4/2005-CE dated 01.03.2005; and second whether the same would be appropriately classifiable under Chapter 29, as claimed by the assessee, and if so what would be the position of the instant case, ultimately come down to only one point and that is whether the "hyphen" in the column meant for rate of duty in any exemption notification can mean a particular rate of duty or can mean nil rate of duty. The answer to this question has been discussed at length above and in any case, by no stretch of imagination, it can be assigned the meaning of "16%" as held in the demand notice. In fact the demand notice is altogether silent on this point and does not throw any light as to how a rate of 16% is considered for the demand. Hence it is to be held that the products in question are exempted from SED in the relevant period, even if classified under the heading 27, as was done by the assessee earlier.
13 E/911/2012
16. In the event, in strict sense giving findings on the classification which is not disputed by the demand notice, would be unwarranted. However since the assessee has opened that door it needs to be examined, though this need not to be taken as an endorsement to their new classification and be considered as only an examination of their say on the point against the demand in the demand notice.
17. In this regard I find that the assessee has opted to get their products properly classified. From the flow chart submitted by the said assessee it is found that the said product is obtained during the process of distillation of Pentane. The assessee after issuance of the show cause notice; analyzed the Central Excise Tariff and then understood that different types of Hydrocarbons are classifiable under Chapter 29. I find that the product 'Hexane' is in fact acyclic hydrocarbon. The chemical formula is found to be C6H14. As per the HSN, acyclic Hydrocarbons are classifiable under Chapter sub-heading no. 2901 00.00. It would not be out of context to mention that the chapter 27 is mainly for "Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes", and whereas Chapter 29 covers "Organic Chemicals". Even though the said Hexane is obtained by way of distillation of a product; which may have been earlier extracted out of mineral fuels; at the relevant time of manufacture at the assessee's premises, it is in form of acyclic Hydrocarbon. This hydrocarbon being in form of an organic chemical, can only be classified appropriately under Chapter 29. Further I also find that the relevant portion of the Explanatory Notes to HSN show Hexane at serial no 4, under the head of Saturated Acyclic Hydrocarbons. This leaves no space for any doubt that the product in dispute is correctly classifiable under Chapter 2901 00 00. The assessee have also submitted their Lab Analysis Report to establish that the product in fact is "Hexane", with molecular formula of C6H14. They have also produced the lab reports to establish that they are in fact receiving "Pentane"; from GAIL, which is actually a mixture of Pentane; Hexane; etc. which are separated by way of distillation process. These additional evidences cement their stand.
14 E/911/2012
18. Now, since it is found that the product in dispute is actually classifiable under Chapter sub-heading no. 2901 00 00, there is no question of recovery of SED, as demanded in the said show cause notice. Once this is done, I do not find it necessary to though, I find it difficult to agree with their contention because they have not produced any evidence that there was any voluntary disclosure of information from their side. Further, since the proposal for demand itself fails, there remains no question of recovery, interest and penalty on the assessee.
19. It would, however, not be out of context to record here, once again that the issue before me not being of classification of their product, their re-classification under a new Chapter has been examined purely for examining their claim to exemption from SED. The classification sought for is for the product which was cleared long back and cannot be subjected to any chemical analysis now for confirmation of their compositions etc. The new classification has been examined only on the basis of their submissions and documents produced as evidence. Hence this should not be taken as any certificate for the assessee's new classification, in favour or against the Department and it would be in the interest of legal propriety for both the assessee and the Department that the present products/goods are properly chemically tested, classified and future duties discharged accordingly."
4.3 Commissioner (Appeals) has in the impugned order set aside the above order of Additional Commissioner recording the following findings:
5. I have carefully examined the grounds of appeal, submissions made by the respondent during the personal hearing and the materials on record. Show Cause Notice (SCN) dated 07.05.2010 was issued demanding Special Excise Duty (SED) from the respondent for the excisable goods manufactured and cleared under Tariff items 27101112 and 27101119 on the ground that exemption from SED is not available vide Sr. No. 8 of the table in Notification No. 4/2005- CE for the products classifiable under sub-heading 271011.
6. The said SCN was adjudicated vide the impugned Order-in- Original dated 31.10.2011. During the adjudication proceedings, 15 E/911/2012 respondent argued that they had wrongly classified the products under sub-heading 271011 and the product is appropriately classifiable under heading 2901 and the products classifiable under heading 2901 is not leviable to SED. It is also pertinent to note that the respondent never claimed exemption under Notification No. 4/2005-CE till non-payment of SED was pointed out by audit. However, the adjudicating authority concluded that even if the products are classifiable under Chapter 27, they are eligible for SED exemption vide Sr. No. 8 of the Table to Notification No. 4/2005-CE. Adjudicating authority also concluded that the product is correctly classifiable under Chapter heading 2901 and in that case respondent is not leviable to SED. Accordingly, the adjudicating authority dropped the proceedings of the SCN vide the impugned Order-in-Original.
7. Respondent claimed exemption from SED vide letter dated 04.05.2009 for the products classifiable. under sub-heading 271011 against the Sr. No. 8 of the table to Notification No 4/2005-CE which pertains to all goods classifiable under heading 2710 11, other than motor spirit commonly known as petrol. In the said notification under the Column (5) pertaining to the rate of SED leviable under the second Schedule against Sr No 6 it is mentioned as "-". In the same Notification, where the goods are fully exempted from SED, under the Column (5) it is mentioned as "NIL" and not as "-". It is, therefore, clear and beyond any doubt that wherever the products described under Column (3) are exempted from levy of SED, "NIL" is mentioned in Column (5) against the relevant entry.
8. As per Section 2 of CEA, excise duty is leviable on excisable goods at the rates specified in the First Schedule and Second Schedule. Notification No. 4/2005-CE exempts excisable goods from so much of the SED leviable under the Second Schedule as is in excess of the amount calculated at the rate specified in of the Column (5) against the corresponding entry of the table to the said Notification. In the case of goods falling under Heading 271011 of CETA, other than motor spirit, commonly known as petrol,, no rate is specified in Column (5). Column (5) against Sr. No. 8 is left blank by indicating "-". It is pertinent to note that in the table to the said notification wherever the goods described in Column (3) are fully exempted from levy of SED, 16 E/911/2012 the same is mentioned as "Nil" under Column (5). It is clearly evident from the method followed in the said notification to indicate the full exemption from levy of SED, it is quite evident that there is no exemption from levy of SED for the goods under consideration and are leviable to SED at the standard rate since "-" is indicated in Column (5) against the goods falling under sub heading 271011 of CETA. Full exemption from SED is indicated only as "NIL" and not as "-". The interpretation of the adjudicating authority to extend the benefit of exemption under Notification 4/2005-CE to the appellant for the products classifiable under Tariff item 27101112 and 27101119 is legally not sustainable and therefore liable to be set aside. "_" means not applicable or not relevant and cannot be construed as "NIL"
9. Exempted goods is defined in Rule 2(d) of the CCR as excisable goods which are exempt from the whole of the duty of excise leviable thereof and includes goods which are chargeable to "NIL" rate of duty. In the present case, the tariff rate for goods falling under sub heading 271011 of the Second Schedule to the CETA is not "NIL". In the Notification No. 4/2005-CE dated 01.03.2005, against tariff item 271011 is also not indicated as 'NIL" but as "-". In the CEA, the rules made thereunder and the Notification issued under the CEA, nowhere exemption is indicated as "-" and wherever full exemption is provided, it is always indicated as "NIL".
10. Respondent classified and cleared the products manufactured under tariff items 2710 11 12 and 2710 11 19 which are leviable to SED at the standard rate, without any exemption. I entirely agree with the grounds of appeal that the benefit of exemption from levy of SED against S.No. 8 of Notification No. 4/2005-CE is not available for the goods manufactured and cleared by the respondent classifying under the tariff items 27101112 and 27101119.
11. The adjudicating authority accepted the alternate claim of the respondent that the product is classifiable under Heading 2901 and SED is not leviable for products falling under Heading 2901. The issue of classification is not the subject matter of the SCN. Certainly the adjudicating authority adjudicated the issue which is not part of the SCN issued. The question is can there be 17 E/911/2012 adjudication without issue of SCN. Before adjudication, no views have been obtained from the field officer on the issue of classification. The issue has been examined merely on the submissions made by the respondent. The contention of the appellant is that the adjudicating authority has travelled beyond the SCN and on this ground also the Order-in- Original needs to be set aside.
12. Though the respondent is well within his right to correct the mistake, in respect of the classification of the product, if any, this needs detailed examination by the proper officer as rightly observed by the adjudicating authority and that too when the products under consideration were cleared long back. In spite of the clear observation, the adjudicating authority changed the classification and classified the product under Heading 2901 of CETA. Any change in classification warrants careful examination of all material facts and is to be decided by the proper officer and that too when the change in classification has impact on the tax consequence.
13. I agree with the grounds of appeal that the adjudicating authority has travelled beyond the scope of the SCN while passing the order on the issue of the new classification of the product. The order in respect of classification of the product not being the subject matter of the SCN, is liable to be set aside. The product classifiable under the tariff items 27101111 and 27101119 are not eligible for exemption under Notification No. 4/2005-CE and accordingly leviable to SED at the standard rate. Therefore, the demand made in the SCN along with applicable rate of interest is legally correct. The impugned order extending the benefit of Notification No 4/2005-CE to the respondent for the goods falling under tariff items 2710 11 12 and 27101119 is set aside and the demand of SED of Rs. 41,15,768/- is confirmed under proviso to Section 11A of the CEA along with applicable rate of interest and Section 11AB of the CEA. Since this is clearly a case of non-payment of duty by the respondent consciously and was detected during the course of audit, this is a case of suppression of material facts and mis-declaration with an intention to evade payment of Central Excise duty and warrants levy of penalty under Section 11AC is leviable. Accordingly, I order to impose penalty of Rs. 41,98,084/-."
18 E/911/2012 4.4 The observations made by the Commissioner (Appeals) in respect of the notification need to be seen by considering the entire notification No 4/2005- CE which is reproduced below in entirety.
In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods of the description specified in column (3) of the Table below and falling within the Chapter, heading, sub-heading or tariff item of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amended by the Central Excise Tariff (Amendment) Act, 2004 (5 of 2005), specified in the corresponding entry in column (2) of the said Table,-
(a) from so much of the duty of excise specified thereon under the First Schedule to the Central Excise Tariff Act (hereinafter referred to as the First Schedule), as is in excess of the amount calculated at the rate specified in the corresponding entry in column (4) of the said Table; and
(b) from so much of the Special duty of excise leviable thereon under the Second Schedule to the Central Excise Tariff Act (hereinafter referred to as the Second Schedule), as is in excess of the amount calculated at the rate specified in the corresponding entry in column (5) of the said Table.
Table
S. Chapter or Description of goods Rate Rate under
No. heading or under the the Second
sub- First Schedule
heading or Schedule
tariff item
(1) (2) (3) (4) (5)
1. 1507 to All goods Nil -
1515
2. 1516 All goods Nil -
3. 1905 90 10 All goods 8% -
4. 2403 10 10 All goods, not bearing a Nil Nil
brand name
19 E/911/2012
5. 2403 91 00 All goods, not bearing a Nil Nil
brand name
6. 2403 99 All goods other than Nil Nil
90 pan masala containing
tobacco, not bearing a
brand name
7. 2710 11 Motor spirit commonly 8% plus Nil
known as petrol Rs.5.00
per litre
8. 2710 11 All goods (other than 16% -
motor spirit commonly
known as petrol)
9. 2710 19 30 High Speed Diesel (HSD) 8% plus -
Rs.1.25
per litre
10. 2711 19 Liquefied Petroleum Nil -
00 Gases (LPG) for supply
to household
domestic consumers
11. 2710 Kerosene for ultimate Nil -
sale through public
distribution system
12. 2710 19 40 Light Diesel Oil 16% plus -
Rs.2.50
per litre
13. 3605 Matches (other than 12% -
Bengal lights)
14. 7113 Article of jewellery on 2% -
which brand name or
trade name is indelibly
affixed or embossed
on the articles of
jewellery itself
15. Any Parts used within Nil -
Chapter the factory of
production for
manufacture of power
tillers of heading 8432
16. 7117 All goods 8% -
17. 84 or 90 The following goods, 8% -
namely:- (i)Electronic milk
fat tester; (ii)Electronic
solid non-fat (SNF) tester.
From the plain reading of the said notification it is evident that the notification has used "-" throughout the table appended and hence the use of "-" in the S No 8 of the notification follows the pattern of Notification. The First and Second Schedule as it existed after introduction of the 8 digit tariff read as follows:
20 E/911/2012 First Schedule
--- Motor Spirit:
2710 11 ---- Special boiling point spirits (other than benzene, 11 toluol) with nominal boiling point range 55-
115°C 2710 11 ---- Special boiling point spirits (other than benzene, 12 benzol, toluene and toluol) with nominal boiling point range 63-70°C 271011 ---- Other special boiling point spirits (other than 13 benzene, benzol, toluene and toluol) 271011 ---- Other 19 27101120 --- Natural gasoline liquid ( NGL) 27101190 --- Other Second Schedule 2710 11 Special boiling point spirits (other than kg. 16% 11 benzene, toluol) with nominal boiling point range 55-115° C 2710 11 Special boiling point spirits (other than kg. 16% 12 benzene, benzol, toluene and toluol) with nominal boiling point range 63-70 ° C 2710 11 Other special boiling point spirits (other than kg. 16% 13 benzene, benzol, toluene and toluol) 2710 11 Other kg. 16% 19 --
From the perusal of the above entries it is evident the First Schedule and Second Schedule to the tariff do not use the phrase Motor Spirit commonly known as petrol. The only phrase used is Motor Spirit in the First Schedule. This triple dash entry is followed by the four dash entries at 2710 11 11, 2710 11 12, 2710 11 13 and 2710 11 19. Thus all the goods which fall under these four entries are necessarily Motor Spirits. As per the Second Schedule entries only these four entries are subject to specific rate of duty, and by virtue of the Sl No 7 of the Notification No 4/2005-CE all these four entries are exempt from payment of duty for the reason that they are "Motor Spirits commonly known as petrol." In common parlance the phrase 'Motor Spirit" and 'Petrol' are used interchangeably. Secondly by the use of phrase Motor Spirit commonly known as petrol in the 21 E/911/2012 notification, the scope of the --- tariff entry is not being restricted. If something gets classified under any of these four entries, then it has to be "Motor Spirit". That being so it will be exempt from payment of duty by use of phrase "Nil" in the column (5). All other goods which get classified under the heading 2710 11 are not subject to any Special Excise Duty, and hence notification uses the "-" as there is no levy. Accordingly the impugned order, which seeks to interpret the use of "-" in Notification to imply that special excise duty is leviable without any reference to second and first schedule of the Central Excise Tariff Act, 1985 is not based on sound reasoning and cannot be sustained.
4.6 In any case the exemption notification 4/2005-CE and the entries made therein has to be read along with the preamble to the notification. Clearly the notification exempt any duty as specified in the second schedule, which is in excess of that specified in the notification. Use of "-" do not mean that the entry is redundant. For this reason what so ever interpretation is given in our view impugned order cannot be sustained on this ground.
4.7 Appellant has also challenged the show cause notice in the adjudication proceedings on the issue of classification, stating that the classification adopted by them was erroneous and the goods being organic chemicals used for industrial purposes are correctly classifiable under the Chapter 29. Adjudicating authority has allowed the plea taken by the appellant and has give relief on that account also however by the impugned order, Commissioner (Appeal) has held contrary only for the reason that appellant could not have challenged the classification adopted by them at the time of clearance of the goods. We find the said view of Commissioner (Appeal) contrary to the settled law as per the following decisions:
Metlex (I) Pvt Ltd [2004 (165) ELT 129 (SC)]
9. However, the more important aspect is whether there can be said to be any manufacture. Undoubtedly, the Appellants had filed the Classification List. But merely because a party mistakenly files a Classification List does not mean that he has to pay duty, if in law, he is not bound 22 E/911/2012 to pay duty. If there is no manufacture then the mere fact that a Classification List has been filed would not make them liable to pay duty.
10. In reply to the Show Cause Notice it was clearly contended that there was no manufacture. Once this contention was taken, it had to be dealt with by the Assistant Collector. It is settled law that if the Revenue claims that there is manufacture, then the burden of proving the fact is entirely on the Revenue. In this case even though the point was specifically taken, the Assistant Collector skirts the issue and does not decide the same.
Thus, there is no evidence on record that manufacture has taken place.
Asian Peroxide Ltd [2003 (155) ELT 431 (SC)]
2. The only grievance in this appeal is that the Tribunal had gone into the issue regarding the rate of duty and the calculation of the duty when the subject matter of the show cause notice as well as the proceeding before the departmental authorities was limited strictly to the valuation of the goods clear to the DTA. It is not in dispute that in answer to the show cause notice the respondent could have raised the dispute with regard to the rate and calculation of the duty as well as the valuation of the goods in question.
4.8 Thus we do not find any merits in the impugned order.
5.1 Appeal is allowed.
(Order pronounced in the open court) (Sanjiv Srivastava) Member (Technical) (Dr. Suvendu Kumar Pati) Member (Judicial) tvu