Customs, Excise and Gold Tribunal - Delhi
Indian Petrochemicals Corporation ... vs Collector Of Central Excise on 12 May, 2000
Equivalent citations: 2000(71)ECC135, 2000ECR785(TRI.-DELHI)
ORDER S.L. Peeran, Member (J)
1. This appeal arises from the Order-in-original No. 27/MP/91 dt. 22.3.1991, passed by the Collector of Central Excise, Baroda.
2. In the impugned order, the Collector has confirmed the demands raised in the show cause notice dt. 14.12.1990 for clearances of Hepton i.e. S.B.P. Spirit on payment of duty at the rate of Rs. 1995 per KL at 15oC instead of payment of duty at the rate of Rs. 2750 per KL at 15oC and at the rate of duty of Rs. 2255 from 1.3.88 during the period from November, 1985 to June, 1990. He has also imposed a penalty of Rs. 25,00,000 Under Rule 173Q (i) of Central Excise Rules, 1944.
3. The allegations made in the show cause notice is that the appellants are procuring Raw Naphtha from IPCL and Gujarat Refinery on demand of concessional rate of duty as provided under Notification No. 75/84 dt. 1.3.84 (as amended) following the procedure laid down in Chapter X of Central Excise Rules for manufacture of Xylene. On receipt of information by Preventive Staff of Baroda, on 20th August, 1987 visited the assessees' unit to check the information that out of Raw Naphtha so procured is also used by the assessee for other products other than specified in the Notification No. 75/84-CE and part of rest of the raw Naphtha were cleared as Hepton i.e. Special Boiling Point Spirit on payment of duty at Rs. 1995 per MT instead of payment at the rate of Rs. 2750 per MT if it is cleared as such as provided in Notification No. 75/84-CE and thereby they are misusing the concession extended to raw naphtha by the said Notification. After necessary inquiries, they issued a show cause notice after a lapse of time of 4.10.90 calling upon the assessees to pay the differential duty and also explain as to why they should not be penalised. The assessee filed a detailed reply supported by technical material to who that there was no suppression of facts, misclassification or removal of raw naphtha in the case of Hepton. A plea of time bar was also raised. It was also pointed out that the classification list had been filed from time to time from 1984-85 to 1988-89 and they had claimed the classification of the product 'Hepton' as SBP Spirit for payment of duty of Rs. 1995 per KL under the said Notification and prior to this period it had been classified as SBP Spirit and claimed the rate of duty applicable to SBP Spirit in the Classification Lists filed by them. It was contended that the department was aware of the emergence of the product Hepton while processing raw naphtha for manufacture of Xylenes and that the department had approved the classification lists and the clearances of the product had been effected on the basis of rate of duty approved in respect of classification lists and assessments had also been finalised accordingly. They denied the allegation that raw naphtha are part of rest of the raw naphtha cleared as 'Hepton' i.e. SBP Spirit on payment of lower duty. It had been contended that the investigation had not found anything new by recording that Xylenes are manufactured out of Raw Naphtha through a catalytic reforming process where the main reactions are conversion of Nepthenes into Aromatics, Paraffins into Aromatics Hydrocraking etc; that after the above reactions the mixture is condensed and the off Gases are obtained and removed and the remaining liquid called as "C.5 Reformate" containing all Hydrocarbons above C.5 Ranges is fed to the Deheptanizer Distilliation Column whereas a result of Distilliation at the required temperature, the light stream is separated from the top of the Deheptanizer of Xylenes as it mainly contains Paraffins. This stream is called as light reformate stream, a mixture of C.5, C.6, C.7 Hydrocarbons along with small percentage of C.8 Hydrocarbons etc. It was also contended that what is recorded in this paragraphs is a systematic summary of the process of manufacture of Xylenes submitted by them from time to time as and when called for by the department; that, however, what emerges from the contents of para 3 of the show cause notice is that the entire quantities of Raw Naphtha obtained for the manufacture of Xylenes are entirely fed to the plant; that the light of reformate stream (later terms as LR-5012 or Hepton) emerges as an inevitable consequence of processing of Naphtha; and that this stream joins other streams like BT Rich Stream before return as Return Stream of Raw Naphatha to Gujarat Refinery and/or its sale as Hepton. It was also contended by the assessees before the Collector that the emergence, sale and/or return of Hepton (LR-5012) in no way affects the production. Xylenes either in quantity or in quality that can be manufactured out of Naphtha received from Gujarat Refinery as no quantities of Xylenes are possible to be produced out of the stream termed as Hepton (LR-5012) otherwise, it would have been their pleasure to use it so; that after removal of the off Gases with same Hexanes and formation of C.5 Reformate containing all Hydrocarbons above C.5 Ranges, that too, consequent upon catalytic reforming process, the original Raw Naphtha has been subjected to the manufacturing process relatable to the 'intended use' and it thus loses its identity, and therefore, the question of removal of Raw Naphtha as Hepton doe snot arise. Therefore, it was contended that the allegation contained in the show cause notice is incorrect and misleading. It was further contended that 'Heavy Ends' emerges as an inevitable during the course of manufacture of Xylenes out of Raw Naphtha and this fact had been confirmed by the order of the Assistant Collector dt. 18.2.82 which had not been challenged by the department. He also relied on the letter dt. 4.6.76 of the Superintendent, by which he had informed that when Raw Naphtha is intended for use in the manufacture of any one of more of the products specified, the production of goods which are incidental/inevitable/involuntary in such production would not disturb the scheme of exemption. They also submitted that they require Raw Naphtha of having distilliation range 110oC to 140oC and same is btained from IOC. This distilliation range and distilliation range of Hepton differs from each other in addition to difference in physical/chemical properties as also constituents and hence the allegation that Hepton is a Raw Naphtha, is not correct. They also submitted that the test result of Hepton was furnished to them on 9.11.90 after a lapse of 4 years of drawing the sample on 22.9.86. They challenged the correctness of the test result inasmuch as that the product was required to have been tested for flash point, flame height, chemical composition, chemical properties, physical properties, general end use, PONA (Paraffins, Olefins, Nepthelenes, Aromatic): initial boiling point and final boiling point and whether it satisfied the characteristics shown against Chapter 27 or otherwise. It was pleaded that the Chemists had carried out only two test results in respect of flash point and boiling point range and hence any test result being incomplete cannot be against them. It was contended that the sample was drawn from one lot and test results cannot be applied to other lots. In this regard, they relied on several judgments also. They also submitted that the demand were time barred.
The Collector did not accept any of their contentions and rejected the same. He has relied on the ISI glossary of Petroleum Terms to held that Hepton is not special boiling point spirit in view of the chemical examiners' test result showing range of Hepton is 65oC to 125oC and as per IPCL its range is 50oC to 125oC or 135oC. He has also noted that from the manufacture of Xylene only C.8 range of Aromatic Hydrocarbons are required. As the Raw Naphtha do not contain sufficient percentage of C.8 range hydrocarbon the same is processed to get the maximum C.8 Aromatic Hydrocarbons which the subsequently utilised in the manufacture of Xylene. It was also noted that only some paraffins are converted into aromatics. He has drawn an inference that 100% conversion of paraffin into Aromatics did not take place. Hence, the stream obtained after the above mentioned reactions still contain a part of paraffins which they received in the feed raw naphtha which is separated by way of distillation, as this stream is at all not required for further manufacture of Xylene. The part of this stream is being stored and sold as Hepton & part of the stream is being returned to IOC along with other stream as naphtha. He has also noted that the assessees are not returning the raw naphtha having the same specification and boiling rage as that of received by them for their specific purpose. The feed raw naphtha which they get for manufacturing specified chemicals and the raw naphtha which they return after such use are having different composition i.e. different in it contains of paraffins, napthanes and aromatic and different in boiling ranges. He has also noted that the return stream sent to IOC by 1PCL after manufacturing the xylene is considered as raw naphtha even though its specification and properties are different than that of raw naphtha received by IPCL from IOC for manufacture of xylene. He has held that in terms of Explanation to the Notification No. 75/84 dt. 1.3.84 as amended, it would be concluded that the quantity of raw naphtha is entitled to the exemption and the quantity which is returned will also be termed as naphtha even though its properties and specifications are different. After noting the difference of specifications of raw naphtha and Hepton in para 24. of the order, he has concluded that the specifications of feed raw naphtha is totally different from Hepton even though part of the stream is returned along with other stream as raw naphtha to IOC. He has rejected the assessee's contention that Hepton has been obtained as an inevitable/incidental product. He has also rejected the appellants' contention that the department had been approving classification list form time to time and that the demands cannot be confirmed for larger period. While noting all their pleas the Collector has concluded that they had information and not furnished all the facts and hence it leads to deliberate misstatement and suppression of facts, which attract extended period of time limit in terms of the proviso to Section (1) of Section 11A of the Central Excises & Salt Act, 1944 and he has proceeded to impose penalty also.
4. Arguing for the appellants, the Learned Advocate Shri Willingdon Chritian reiterated the grounds taken up before the Collector. He relied on the judgment in their own case rendered by the Hon'ble Supreme Court as reported in 1997(19)RLT.77, wherein on a similar allegation and confirmation of demand for products arising as inevitable/incidental manufacture of Benzene, the Hon'ble Supreme Court held that the appellants are entitled to the benefit of Notification. It is his contention that the Hepton cannot be treated as raw naphtha and the Collector has Committed a serious error in directing the appellants to pay the duty assessed on raw naphtha. It is his contention that they were getting raw naphtha under Chapter X and the department cannot impose duty against the returned stream and the only remedy available if at all was to deny the benefit of Notification to Hepton. As Hepton was obtained during distillation process to obtain xylene, therefore, the Notification itself granted benefit for such goods and hence they were required to pay only duty as fixed for that product and not pay the duty as fixed for raw naphtha. He submits that the department had proceeded on totally erroneous presumption which is totally unsustainable in law. He submits that they were filing the classification list in respect of the product and the same had been approved from time to time. There is nothing which had been suppressed or misdeclared and hence the question of confirming duty for larger period did not arise. There is no mala fide intention at all to impose penalty in this regard. He also relied on the Trade Notice dt. 26.3.1973 which is at page 76 and 77 of the paperbook which clarifies that the concessional rate of duty prescribed for raw naphtha at Sr No. 3 of the Table annexed to Government's Notification No. 75/84-CE dt. 1.3.84, as amended is intended for use in the manufacture of anyone or more products specified in Column 4 of the said Table, notwithstanding the production of other goods which are incidental/inevitable/involuntary in such production and that, in such cases, the whole of the Raw Naphtha would be deemed to have been used in the manufacture of product(s) for the manufacture of which Raw Naphtha was obtained. He also pointed out that the test cannot be relied as the copy was furnished after 4 years and he did not carry out all the required test. He pointed out that even as per the test result, there is nothing on the department to conclude that the item is a raw naphtha by itself and not Hepton. He pointed out that the specifications for raw naphtha and Hepton were totally different. He referred to several technical literature and technical details to support his plea. The Learned Advocate submits that the show cause notice has been issued after 4 years and during this period there was nothing required for the department to investigate or to keep the issue pending so long to issue the show cause notice. He submits that as a result of delayed, issue of show cause notice 4 years, that by itself is a ground to set aside the demands. He also pointed out that all the RT-12 returns had been finalised including confirmation of classification list during this period after the visit of officers and recording of statements and taking of the samples. Therefore, he submits that there is no ground to invoke the extended larger period.
5. The Learned DR supported the Collector's order. He submits that although the show cause notice had been issued after 4 years after the statement and test result were taken, yet it cannot be a ground not to confirm the duty. The Learned DR pointed out that the statement of the officers of the appellants had been recorded Under Section 14 of the Act and the Collector had rightly relied on the same to conclude that what was acquired was raw naphtha by itself and not Hepton. He submitted that there was no proper declaration from the party and the fact of RT-12 returns being finalised and the classification list confirmed is no ground for not confirming the demands.
6. On a careful consideration of the pleas raised by both the sides, we are of the considered opinion that the appellants have made out a strong case in their favour both on merits as well as on issue of limitation. In this matter even at the stay stage, the Tribunal had dispensed with the predeposit of duty and penalty amount after hearing both the sides. Be that as it may, we notice that the appellants had been declaring all the technical details pertaining to the products. They had also shown that the item Hepton arose as a product, while manufacturing the xylene and it was as a result of inevitable/incidental in the process of manufacture of xylene. On perusal of the entire records, it is clear that there is no suppression of facts leading to an inference that there has been misdeclaration/misstatement or suppression of facts to attract larger period. It is also pertinent to note that the department has taken 4 years to issue the show cause notice, in the meantime the RT 12 returns and classification list have been confirmed and approved from time to time. It was also pertinent to note that during this 4 years, the appellants had not been furnished with the test result. The department had not taken any steps to carry out any investigation so as to explain the delay of 4 years to issue the show cause notice. In cases where truck loads of records are seized from various places in the length and breadth of the country, in such circumstances, it could not be possible for the department to issue the show cause notice in a time bound frame. Since the enormous evidence would require to be scrutinised, finalised and corroborative evidence found, to prepare the show cause notice. Such a circumstance does not exist in the present case and therefore, it can easily be concluded that the period of more than 4 years taken, after visit of the officers and taking samples by itself clearly demonstrate that the department was initially not serious to prosecute the case. It is also clear that the department was fully aware of the process of manufacture and hence the larger period cannot be confirmed in the instant case.
7. The appellants at pages 82 to 85 of the paperbook has given brief description of xylene process, the same is noted herein below:
BRIEF DESCRIPTION OF XYLENE PROCESS Naphtha (110 to 140oC cut) from Gujarat Refinery received and stored in a tank in GPA Plant. Initially naphtha is processed in Reformer Unit. Product from Reformer Unit goes to stabilizer column C-101. Top product is off-gas, bottom product is C5 Reformate, which is fed into C-102 Deheptanizer column. Top product of this column is HEPTON, which is stored in tank T-011/A of capacity 500 KL. From loading areas tankers are to be filled. Bottom product goes to OMS column C-201. Top product of this column goes to P-xylene recovery system, bottom product goes to C-301 Rerun column, Top product of this column is O-xylene, stored in a tank, bottom product is C-- Aromatics.
In P-xylene unit, P-xylene is separated. Filtrate generated in this unit goes as feed to Isomerization Section. Product from Isomerization Unit goes to OMS column C-201, alongwith C-102 bottom product. Block diagram of the process is attached.
Xylene plant consist of following Sections:
1. Reforming Unit
2. Ortho Xylene Unit
3. P-Xylene Unit
4. Isomerization Unit.
Description of the process is given below:
REFORMING UNIT:
A110-140oC cut Naphtha from Gujarat Refinery (GR) is processed in Reforming unit to covert C8 procursors of Naphtha into CB arromatics. Naphtha is preheated, Mixed with Recycle H2 gas and Reformed over platinum Catalyst at 510oC and 16.0 kg/cm2 pressure. The reaction products are cooled, light gases are removed and the remaining liquid is sent for distillation to deheptanizer. Hence light Hydrocarbons are removed from top of the column as light reformate. This light reformate (LR) constitutes a part of the return stream to GR. Sometimes a part of the LR is taken separately as Hepton. The bottoms product of deheptanizer (C8R) is mixed with Isomerisate from Isom Section and sent to Urtho-meta splitter for Ortho Xylene recovery.
ORTHO XYLENE UNIT:
Here C8 Reformate from reformer unit and C8 lsomerizatefrom Isom Unit is Mixed and distilled in OM Splittei column. Top of this column is sent to crystallization unit for P-Xylene production and Bottom product is sent to oxylene column. Pure oxylene is obtained at the top of OX column and bottom of this column is sent to a refining column. Refining column top is called solvent C9 and heavy ends removed from bottom of this column are mixed with LR and forms part of the return stream to GR.
P-Xylene Unit:
The crystallizerfeed from O-Xylene unit is subcooled to -60oC to remove P-Xylene crystals which are then filtered, dried and melted to produce P-Xylene product. The mother liquor from crystallizer is sent to Isomerization Section for further processing. Some times part of the mother liquor is removed as mixed Xylene.
Isomerization Unit:
The mother iquor from crystallization is preheated, mixed with Recycle H2 gas and reacted over a catalyst at 400oC and 13.0 kg/cm2 pressure. Reaction products are cooled, light gases removed and distilled to remove low boiling Hydrocarbons. The distillate is called BT and this also constitutes a part of the return stream to GR. Bottoms of the distillation tower is called Isomerizate and it is sent to orthoxlyene unit for production of ortho/para xylenes.
8. From the Macmillan Dictionary of Chemistry by D.B. Dlibbent at page 313 gives the definition of the term Naphtha, which is reproduced herein below:
Naphtha A term used to describe special boiling point spirits (SBP) but also used as description of light distillate feedstock for gas or petrochemical manufacture. The boiling range is generally about 40 - 150oC.
Coal tar naphtha is a distillate obtained from coal tar, boiling in the range 80-200oC. It may be divided into narrower cuts, e.g. 'light' or 'heavy' naphtha, etc.
9. At page 429 and at page 494, it gives the definition of Special Boiling Point Spirit, the same is noted herein below:
Special boiling point spirits (SBP) Refined solents of specially selected boiling ranges distilled from gasoline fractions. SBP are usually classified by means of their boiling ranges, e.g. SBP 62/82oC. They are used for many industrial purposes such as solvents for rubber and for the extraction of oil from seeds. See white spirits.
White spirits, mineral solvents Essentially a mixture of hydrocarbons, usually from a petroleum source, b.p. 130-220oC, and having a flash point above 40oC. White spirits are used as paint thinners and as solvents for a variety of purposes.
10. The definition of Naphtha appearing in the Condensed Chemical Dictionary, at page 718 is noted herein below:
Naphtha (1) petroleum (petroleum ether). A generic term applied to refined, a partly refined, or unrefined, petroleum products and liquid products of natural gas not less than 10 per cent of which distill below 347oF (175oC), and not less than 95 percent of which distill bellow 464oF (240oC) when subjected to distillation in accordance with the Standard Method of Test for Distillation of Gasoline, Naphtha, Kerosine, and Similar Petroleum Products (ASTM D 86) F.p. -73oC; b.p. 30-60oC flash point -57oF (50oC); autoignition temp. 550oF (287oC) sp. gr., 0.6.
11. In the classification list No. 12/84-85, the appellants have given the description of Hepton, which is noted herein below:
HEPTON Specifications Density ... 0.74 to 0.76.
ASTM Distillation ....IBP 50oC FBP 125 to 135oC Flash Point ... Below twenty-five degrees of Centigrade thermometer. Total Aromatics ... 30 to 45% Teluens ... Minimum 30%
The product is a Special Boiling Point Spirit consisting of Hydrocarbons derived from Petroleum (other than Benzene, Benzol, Toluene and Toluol) and falls under the category "(c) Other" at Sr. 6.08 of Notfn. No. 75/84 dt. 1.3.84. It is a medium Aromatic Low Boiling Solvent and is a colourless clear liquid with characteristic Aromatic Odour.
12. From the K K Othmer's Encyclopedia of Chemical Technology, Third Edition, Volumn 17 at pages 218 to 232, deals with "Petroleum (Refinery Process, Survey)". Page 218 refers to recovery of naphtha from feed by distillation and such process has been referred to as straight-run or virgin naphtha. It states that the feed to catalytic reforming is a naphtha fraction boiling in the 80-230oC range. Lighter fractions are not amenable to reforming, whereas heavier fractions would give products that remain outside of the gasoline boiling range since reforming gives only a small decrease in boiling point. It states that by-product hydrogen amounts to typically to 140-180m3/m3 of feed (202-253 ft3/bbl) with a yield of C5 and higher of 80-85% vol%. At page 219, the literature deals about number of reforming reactions, which increases octane, including dehydrogenation of cycloparaffins (naphthenes) to aromatic material, isomerization to more highly branched compounds, some conversion of linear to cyclic molecules, and cracking to lighter compounds. It states that although the boiling range is not significantly altered by more of these reactions, the yield of light paraffins is increased enough to make reforming an important source of isobutane which can be blended into gasoline or used in alkylation. It further states that reforming is also an excellent source of the BTX fraction, the source of benzene, toluene, and xylenes for chemicals manufacture. It states that reforming generates large quantities of net hydrogen, which supplies much of the hydrogen needed for hydrotreating. Since reforming reactions occur at high hydrogen pressure, the products all are saturated rather than olefinic. It states that the following reactions take place in reforming; dehydrogeneration of cycloparaffins; isomerization of paraffins; dehydrocyclization of paraffins; hydrocracking of paraffins; and removal of sulfur, olefins, nitrogen, and oxygen if present in the feed. It states that the first two reactions proceed easily, whereas the next two are slower but more important in high severity operations. Reforming improves octane rating in part by removing low octane paraffins from the gasoline boiling range. A high yield of isobutane results, but the yield of lighter fractions is low.
13. On perusal of the entire literature, it is clear that the appellants have taken all the pains to explain through their technical literature and taken a technical plea that Hepton arises during the course of manufacture of xylene as an inevitable/incidental/involuntary and that it is covered by the proviso to the Notification. It is very significant to note that the burden of classification is on the Revenue, and where the assessee claims the benefit of Notification with all materials, then the burden shifts on the Revenue to counter the same by producing rebuttal evidence from the experts. The same has not been done. The Collector has not given any technical reasons for rejecting the enormous technical evidence and has arrived at his own conclusion without any basis, which is not tenable and unsustainable. As can be noted from the boiling point of naphtha as well as Hepton the specifications which had been recorded in para 24.2 of the order itself clearly discloses that there is a vast difference in the technical details of raw naphtha with that of Hepton. It is difficult to understand as to how the Learned Collector would conclude that the Hepton is nothing but raw naphtha while still holding in para 24.3 that the specifications of feed naphtha is totally different from Hepton. In view of this serious contradiction, there is no reason to uphold the ame. In the appellant's case, the Hon'ble Supreme Court held that the benefit o Notification cannot be denied to part of paraffins, gasoline generated during the process of manufacture of specified goods from raw naphtha when it is clear that such nonspecified goods arise as a result of inevitable/incidental/involuntary to the process of manufacture. The Tribunal's order confirming the demands had been se aside by the Hon'ble Supreme Court. This judgment is totally applicable botl. on law and facts of the present case and it is required to be applied in the present case. In view of this, after taking into consideration, the technical evidence and the submissions of the appellants, it is clear that the department has not proved their case and the same is required to be set aside both on merits and on time bar by allowing the appeal. Appeal allowed.
S.K. Bhatnagar, Vice President
14. With due respect to the Hon'ble Member (J), my views and orders are as under:
15. I find that one of the main bone of contention is the explanation incorporated in the Notfn. No.75/84-CE and 27/89-CE as they stood during the relevant period.
16. The explanation included under the column (4) of the Table annexed to the Notification 75/84-CE and indicated against entry at serial No. 3 'Raw Naptha' reads as under:
Explanation: For the purpose of determining the quantity of rawnaptha entitled to the exemption if out of the quantity of raw naptha received by any refinery declared as such under Sub-rule (2) of Rule 140 of the C.Ex. Rules, 1944, any quantity is returned after such use to my refinery declared as aforesaid for further processing and/or blending for production of finished excisable goods falling under Chapter 27 of the said Schedule, such quantity shall be excluded.
17. The Hon'ble Supreme Court has also referred to the Notification No. 27/89- CE and reproduced the Explanation in their judgment in the Indian Petrochemicals Corporation Ltd. 1997 (19) RLT 77 (SC) which reads as follows:
Explanation:
1. The amount of naphtha consumed in the manufacture of the products shall be calculated by subtracting from the quantity of naphtha by the factory manufacturing the products the quantity of naphtha returned by the factory to a refinery, declared as such under Sub-rule (2) of Rule 140 of the C.Ex. Rules, 1944.
2. In cases where certain goods which are incidental, inevitable, or involuntary to the process of manufacture the products specified in the said Table are produced in the course of the manufacture, the exemption under this notification shall not be denied for the reason that the said goods are not products specified in the said Schedule.
It is significant that the second paragraph of the Explanation mentioned in, the above judgment is conspicuous by its absence in Notification No. 75/84-CE.
18. First and foremost therefore, we are required to determine whether the conditions indicated in the Explanation have been satisfied and if so, to what extent?
19. I find that in this connection the main allegation of the department is that out of quantity of raw naphtha received from Indian Oil Corporation, the entire quantity is not used in the manufacture of the product specified in the Notification but as part of it is returned to IOC & a part of it is utilised in the manufacture of the so-called Hepton a part of which is also included in the return stream (and a part is sold).
20. With reference to this point, I find that in the written submission filed before the Tribunal, the appellants have admitted to the extent that there is a return of stream. Raw Naphtha and described it as follows:
After separation of the different Xylenes, the residues are brought together along with the light reformate to form the return stream. The total composition (formed by several streams in the aromatic plant) of the returns stream fulfils the criteria for raw naphtha of a different grade. Therefore, it is a fallacy to say that what IPCL returns to refinery is not raw naphtha put a different product. Both the intake from the refinery and the return to the refinery are raw naphtha but of different specifications. The Notification does not, in the Explanation, contemplate that what is returned to the refinery should be the same grade of raw naphtha which is taken from them. What is required in terms of Notification is that the return stream should also confirm to specifications of raw naphtha.
21. In other words, the return stream includes Raw Naphtha.
22. In view of this position, the appellants are hit by Explanation incorporated in the Notification 75/84-CE (as amended) and the first clause of the Explanation incorporated in the second Notification (27/89-CE).
23. It is immaterial as to at what stage the return was taking place and whether it was necessitated by non-conversion or partial-conversion (and the extent thereof) of its constituents.
(i) Once the quantity which is taken is not fully consumed in the manufacture of the specified product and remains unutilised or partially utilised (for whatever reasons) this quantity will have to be taken into account and the benefit of exemption Notification will have to be limited to the extent specified in the Explanation.
(ii) Further, "Raw Naphtha" has been described in Hawley's Dictionary as a "generic term". It is therefore, wide ranging and is of various specifications but we are here not concerned with such details as the material in question admittedly remains 'Raw Naphtha' even at the stage of return.
And till the return stream consists of raw naphtha, this fact will have to be taken into account.
24. Insofar as the second point regarding 'Hepton' is concerned, again, it is mentioned in the appeal memo, that it is a brand name given by the IPCL and therefore, does not find any place in technical literature.
25. In view of this fact, it was necessary for the Department to examine whether the product called as 'Hepton' by the appellants fell within the range of Raw Naphtha.
26. In Gessner G. Hawley's "The Condensed Chemical Dictionary, it is significantly mentioned that "Naphtha' is --
(1) "A generic term applied to refined, partly refined, or unrefined, petroleum products and liquid products of natural gas not less than 10 per cent of which distil below 347oF (175oC, and not less than 95 per cent of which distil below 464oF (240oC) when subjected to distillation in accordance with the Standard Method of Test for Distillation of Gasoline, Naphtha, Kerosine, and similar petroleum products (ASTM D 86). F.p -73oC, b.p. 30-60oC; flash point -57oF (-50oC), autoignition temp. 550oF (287oC) sp. gr. 06.
(2) coal - tar
(a) Heavy (high-flash naphtha).
Therefore, what is required to be seen is whether in view of this position the charge of the department that Raw Naphtha was being cleared in the guise of Hepton is correct.
27. The appellants have mentioned, inter alia that they have been selling some Hepton and clearing it after paying duty but the point is whether they were clearing it after declaring the required details of the product correctly and paying duty at the appropriate rate.
28. In a number of Tribunal's orders, it has been repeatedly held that the description of the product in the C/List must be sufficient to enable the officers to come to a correct conclusion, inter alia, about the identity of the goods and its classification and/or eligibility to a particular notification.
29. The other point is as to whether the product 'Hepton could be considered as S.B.P. The appellants have also mentioned that "Light Reformat or Hepton is not being returned as such to IOC. It is mixed with other streams coming out of the plaint at different stages of processing and the total product is returned as Raw Naphtha."
30. It is immaterial from our point of view whether light reformat is a by-product or co-product or inevitable product formed during the process of the manufacture of the specified product insofar as the point relating to identity of the material what is returned and/or which is sold is concerned.
31. Whether the product 'Hepton' could be considered as Special Boiling Spirit could only be determined by chemical test.
32. Once, therefore, the C/Lists had been finally approved, the burden rested an the Department to prove that whatever had been described in the C/Lists was factually incorrect and the approval had been obtained by mis-representation of fact.
33. In this respect, I find that the Ld. Collector has referred to the report of the Chemical Examiner.
34. Furthermore, ISI Glossary IS (4039/1968) has also been taken into account by the Collector for concluding range 40°C to 60°C to 80°C has to be considered as narrow distillation range and from the view of Range point, 'Hepton' is not a special boiling point spirit as declared/claimed and removed by IPCL.
35. In other words, 'Hepton' is having wider distillation range under sub-heading and being one not covered under sub-heading 2710.11 and 2710.12 or 2710. 13 would fall under sub-heading 2710.14.
36. I also find that the period of dispute is November 1985 to June 1990. During the period prior to 1.3.86 the old tariff was in vogue and the criteria for classification under 6(1) was different there than in the new tariff which came in force w.e.f. 1.3.86 in which the tariff heading 27.10 was differently worded and wider in amplitude. It broadly incorporated earlier provisions relating to Motor Spirit but was divided into several sub-headings each with the prescribed range and or discription. The significance of change lies in the fact that special boiling spirits with indication of boiling point range were incorporated in new tariff whereas in the old one, it was not so. The old tariff defined the 'Motor Spirit' falling under Item (6) and the 'Mineral Oil' falling under sub-item 6(1) and provided the criteria of flash point and suitability for use. The criteria for Special Boiling Point Spirits (other than Benzene, Benzol, Toluene and Toluol) with nominal boiling point ranges were incorporated only in the new tariff Notfn.No. 75/84 has been amended several times. During relevant period prior to 1986 it proposed separate reference numbers namely -6.01 for Motor Spirit; 6.02, 6.03, 6.04, 6.05 and 6.06 for Raw Naphtha (depending upon intended use); and 6.08, 6.09 for Special Boiling Spirit with nominal Boiling Ranges. It was significant that the rates of duty prescribed for various reference numbers incorporated criteria for intended use as well in respect of Raw Naphtha as well as Special Boiling Spirits and the Collector's findings is that the test report in the present case does not confirm the assessees' declared boiling point range and it is the correctness of this finding which is to be adjudged.
37. It is noteworthy that in the C/List effective from 17.3.85 includes, inter alia, the following declaration:
HEPTON T.I. 6(1) Specifications Density ... 0.74 to 0.76 ASTM Distillation ... IBP 50oC FBP 125 T0 135oC Flesh Point ... Below twenty-five degrees of Centigrade thermometer.
Total Aromatics ... 30 to 45% Toluene ... Minimum 30%
The product is a special Boiling Point Spirit consisting of Hydrocarbons derived from Petroleum (other than Benzene, Benzol, Toluene and Toluol) falls under the category '(C) Others' at Sr. 6.08 of Notfn.No. 75/84 dt. 1.3.84. It is a medium aromatic Low Boiling Solvent and is a colourless clear liquid with characteristic Aromatic Odour.
38. C/List effective from 28.2.86 incorporates, inter alia, the following declaration:
OTHER SPECIAL BOILING POINT SPIRITS (OTHER THAN BENZENE, BENZOL, TOLUENE AND TOLUOL):
HEPTON HAVING NOMINAL BOILING_2710.13 POINT RANGE SO-130oC.
39. However, the details of specifications and the remarks indicated in the previous lists have not been reproduced.
40. The C/List effective from 1.3.88 incorporates inter-alia, the declaration as under:
6 HEPTON 2710.13 KL 15oC (A BY-PRODUCT)
41. The C/List effective from 1.3.89 again does not contain any remarks or details. It corporates declaration as under:
6. "HEPTON -- 2710.13 KL 15oC Note: Sr.No. 6 of earlier approved CLNo. 9/87-88/C-refers.
42. Classification List effective from (Blank) 1990-91 (serial No. of classification list IA /91-92) incorporates, inter-alia the following declarations:
6. HEPTON 2710.19 KL15oC Specifications DENSITY - 0.74 to 0.76 ASTM DISTILLATION - IBP 50oC FBP 125 to 135oC FLASH POINT - Below 25oC of centigrade thermometer.
TOTAL AROMATICS - 30oC 45% TOLUENE - Minimum 30%
The product is a Special Boil Spirit consists of Hydrocarbons derived from Petroleum (other than Benzene, Benzol, Toluene & Toluol) and falls under the category '(C) Others' at a Sr.No.6.03 of Notfn. No.75/84 dt. 1.3.84. It is a medium Aromatic Low Boiling Solvent and is a colourless clear liquid with characteristic Aromatic colour.
The benefit of Notfn. No. 75/84 was claimed in the list effective from 17.3.85 and not in those effective from 28.2.86, 1.3.88 and 1.3.89 respectively. But in the C/List for 1990-91 (Sr.No. IA/91 -92, the benefit of Notfn. No. 75/84 is again claimed for Hepton.
43. It is not clear as to how the appellants have claimed the classification of the product 'Hepton' under heading 2710.19 for some period and under 2710.13 during the rest of the period. A question naturally arises whether the method of production, composition or specifications changed at any time; although, that does not seem to be the case as the same specifications and remarks which are in the list effective from 17.3.85 have been repeated in the C/List for 1990-91 (IA/91-92) and the claim for benefit of Notfn. No. 75/84 has re-emerged.
44. It is significant that Notfn. No. 75/84 has undergone many amendments. During old tariff period in the table annexed to the Notification, reference numbers 6.02, 6.03, 6.04, 6.05 and 6.06 cover Raw Naphtha prescribing different rates of duty depending on intended use; And Sr.Nos. 6.08 and 6.09 cover special boiling point spirit with nominal boiling point range (and intended use criteria was provided against 6.09); The nominal boiling point range 55-115°C and 63-70°C were excluded from the Notification after new Tariff was introduced (and were incorporated in the tariff itself).
45. In the post-1986 period in the amended Notification No. 75/84 covered in 1986-87, the Motor Spirit at serial No. 1, Raw Naphtha at Serial Nos. 2, 3, 5, 6 (depending upon intended use) and specified SBPs (nominal range 63-73oC) at serial number 8 (for specified intended use). In 1988-89, Motor Spirit falling under 2710.19 was at serial number 1 and Raw Naphtha at 1 A, 2, 3, 4, 5, 6, 8 and SBP at serial number 8 and before (that is only 1A & 4 serial number were added). In 1989-90, serial numbers 3, 4 were deleted and remaining entries remained at the same serial number.
46. It is significant that serial number 6 covered only Raw Naphtha intended for use for affluent treatment to control water pollution and serial number 8 covered only those specified SBPs which have the nominal boiling point 63-70oC (which is not declared range) meant for specified intended use. In the present case, surprisingly, the benefit for Hepton has not been claimed in terms of any of the serial numbers but under so-called 6.08 which does not exist. Was it a case of typographical error? But even if it was their intention was to write serial number 8, since declared range of Hepton is different, it would not be covered by this serial number (since no other serial number has been claimed, this Notification was not applicable).
47. That part as already mentioned, the question which arises and remains to be answered is as to why in the post-1986 period, the classification has been claimed under 2710.13 in the lists for 1986,1988 and 1989 but 2710.13 in the subsequent list for 1990-91 (1 A/91-92) for the same product.
48. In this context, the Collector's finding to the effect that the chemical test report does not confirm the declared boiling point range also gains in significance and the appellants lose credibility and the Department's case gains higher degree of probability as it becomes apparent that the appellants have not been telling the whole truth.
49. The appellants have also not been able to give satisfactory explanation about the Collector's observations regarding S.B.P. range of the product being different from that in the new tariff.
50. They have surprisingly no contract as such with IPCL but as if that was not enough, they have also failed to produce any document indicating so-called understanding with IOC (referred to by their officer Shri Gohil) regarding the specification of the feed Naphtha and the quality of the return stream although, he had mentioned that as per 'understanding', this quality should not be worse than that of the feed Naphtha in terms of ISI specifications of Motor Spirit.
51. The appellants' own submissions only go to confirm the Collector's finding to the effect that return stream included Raw Naphtha, and they have also not been able to dislodge the Collector's finding that what was sold in the name of Hepton was also Raw Naphtha although it was given the brand name of Hepton.
52. In my opinion it is a case of misleading declaration and incomplete disclosure which was not sufficient for the purpose of arriving at a correct decision and the net result has been that it has led to mis-classification and loss of revenue.
53. Hence looking to the totality of the facts and circumstances, the extended period of time-bar was available to the Department.
54. The Supreme Court judgment in the appellants own case is with reference to the second clause in the Explanation to the Notfn.No. 75/84-CE whereas in the present case, we are concerned with the Explanation incorporated in Notfn.No.75/84-CE and the first clause of the Notfn.No. 27/89-CE. Hence the Supreme Court judgment by itself does not advance the cause of the appellants and in view of the appellants' own admission that the return stream included raw naphtha, they were hit by the Explanation. Further the Chemical Examiner's test report also tilts this case in favour of the Department.
55. All the above factors taken together only go to show that the Departmental action was justified and the Collector was right in his conclusion. The Department therefore, succeeds on merit as well. I therefore, uphold the order of the Collector and reject the appeal.
DIFFERENCE OF OPINION In view of the difference of opinion between the Hon'ble Member (J) and the Vice President, the matter is submitted to the Hon'ble President for referring to a Third Member on the following point:
Whether the appeal was required to be allowed as proposed by the Hon'ble Member (J) or in view of the finding and observation of the Vice President, the order of the Collector was required to be upheld.
G.A. Brahma Deva In view of the difference of opinion between the Hon'ble Member (Judicial) and the then Vice-President the following point is referred to me to express my views as third member:
Whether the appeal was required to be allowed as proposed by the Hon'ble Member (J) or in view of the finding and observation of the Vice-President, the order of the Collector was required to be upheld Two issues are involved. Whether department was justified in invoking the larger period and whether item 'Hepton' cleared by the appellant is classifiable as Special Boiling Range (SBP) spirit under 2710.13 as claimed by the party or under 2710.14 as 'Raw Naphtha' as per the department is another issue to be considered herein.
Heard both sides with reference to the difference of opinion.
On point of limitation Shri Willingdon Chritian, Ld. Advocate submitted that demand was barred by time, since show cause notice was issued on 14.12.90 for the period November 1985 to June 1990. He said that classification list in respect of the product in question was duly filed from time to time and same has been approved. There is nothing which has been suppressed or misdeclared and hence question of confirming duty for larger period did not arise. Further, he said that department was of the view that relevant clause in the Notification No. 75/84 as such was not indicated in the classification list, but, he said that dispute is in respect of classification not of exemption in terms of aforesaid Notification. He said that the item in question is S.B.P. spirit and indication of boiling point range is relevant to determine the classification and boiling point range was duly indicated in the classification list as incorporated in the tariff. In fact Chemical Examiner in his report dated 22.9.86 also indicated the boiling point range of the item is 65oC to 125oC and this was precisely shown by the party in the respective classification lists. He said in the case classification list effective from 17.3.85 full details and description of the item in question was given with remarks and in the subsequent classification lists since it was same product, same was shown with boiling point range. It is true that the party has claimed classification under heading 2710.13 for the major period and some portion of the period it was claimed under 2710.19. He submitted that since the classification list was duly approved, there was no justification to invoke the larger period and in support of his contention he referred to the decision of the Tribunal in the case of. Kingslay Corporation (P) Ltd. v. CCE, Calcutta-I wherein it was observed that "If the Assistant Commissioner was having any doubt in his mind as regards the use of the goods and their classification, proper enquiry could have been made by him before granting the approval. In fact, the approval to the classification lists granted Under Rule 173B is presumed to have been given by the proper Officer after satisfying himself about the nature of the goods. We also take note of the fact that the appellants on their own changed the classification list in the year 1990 which classification was accepted by the department and the classification list was approved vide adjudication order dated 17.7.1990. Even then, the show cause notice in question was issued after about 2 years i.e. on 21.2.1992. In the circumstances, we do not find any justification for invoking the larger period of limitation. Accordingly, the impugned order is set aside and the appeal is allowed on the point of limitation".
He also cited following decisions in support of his contention on time bar issue:
Oudh Sugar Mills Ltd. v. CCE, Kanpur CCE, Calcutta-II v. Mehra Electric Co.
Omkar Textile Mills Ltd. v. CCE, Ahmedabad Beico Electrical Insulations Pvt. Ltd. v. CCE, Aurangabad On merits he submitted that specifications of feed Raw Naphtha which they get for manufacturing specified chemicals is totally different from Hepton. He said that boiling point of range is relevant to decide the classification and in this context he referred to the relevant tariff entries which are as follows:--
2710.11- Special boiling point spirits (other than Benzene, Benzol, Toluene and Toluol) with nominal boiling point range 55-115oC.
2710.12 - Special boiling point spirits (other than Benzene, Benzol, Toluene and Toluol) with nominal boiling point range 63-70oC.
2710.13 - Other special boiling point spirits (other than Benzene, Benzol, Toluene and Toluol) 2710.14 - Raw Naphtha.
2710.10 - Other.
In this context, he referred to the decision of the Supreme Court in the every party's case wherein it was observed with reference to the exemption Notification 27/89 that the entire quantity of raw naphtha so obtained was subjected to processing for the purpose of obtaining items enumerated in the table. The appellant did not set apart any quantity of raw naphtha for the purpose of obtaining petroleum resins. It has merely subjected the residual pyrolysis gasolene to further processing in the petroleum resin plant for the manufacture of petroleum resins. This residual pyrolysis gasolene cannot be equated with raw naphtha which was obtained at concessional rate of duty. Further, Explanation 2 of the notification provides that in cases where certain goods which are incidental, inevitable or involuntary to the process of manufacture of the products specified in the said table are produced in the course of manufacture the exemption under this notification shall not be denied on the ground that these goods are not products specified in the said Schedule.
Arguing for the Revenue, Shri Srivastava, Ld. JDR submitted that the point involved in this case whether the item in question can be considered as Special Boiling Point spirit as claimed by the party or Raw Naphtha as per the department. He said that none of the technical literature refers to the boiling point range and Chemical Examiner also opines the same with reference to the item in question. He said that there is an agreement to return unutilised Raw Naphtha to Indian Oil Corporation and since unutilised Raw Naphtha has been returned which is inclusive of Hepton and accordingly Hepton cleared by the assessee is nothing but Raw Naphtha. He submitted that decision referred to by the other side is not relevant in this context. On limitation he said that since the full description was not given in the respective classification lists which are relevant during the period in question, the department was justified in invoking the larger period. He said that even boiling point range was also not given in some of the classification lists and he supported the view taken by the Hon'ble Vice President referring to paras 37 to 43 of his order.
I have carefully considered the matter. The appellants are the manufacturer of various petrochemical products. They also procure Raw Naphtha from Indian Oil Corporation on payment of concessional rate of duty provided in the Notification No. 75/84-CE dt. 1.3.84, following the procedure laid down in Chapter 10 of Central Excise Rules, 1944 for manufacture of Xylenes. According to the department out of Raw Naphtha so procured is also used by the assessee for other products other than specified in the Notification No. 75/85 and part of rest of the Raw Naphtha were cleared as Hepton i.e. Special Boiling Point Spirit on payment of duty at Rs. 1995 per MT instead of payment at the rate of Rs. 2750 per MT if is cleared as such as provided in Notification No. 75/84-CE and thereby they are misusing the concession extended to raw naphtha by the said notification. According to the party what they cleared is only Special Boiling Point Spirit and not Raw Naphtha as understood by the department. It was also contended that the department was aware of the emergence of the product Hepton while processing Raw Naphtha for manufacture of Xylene and that the department had approved the classification list and the clearances of the product had been affected on the basis of rate of duty approved in respect of classification list and further it also been finalised accordingly. Without going into merits of the case whether item in question is classification as Special Boiling Point Spirit as claimed by the party or Raw Naphtha as per the department, I find that there is a lot of force in the arguments advanced on behalf of the assessee on time bar issue as observed by the Hon'ble Member (Judicial) in his order that the appellants had been declaring all the technical details pertaining to the products. They had also shown that the item Hepton arose as a product while manufacturing Xylene and it was as a result of inevitable/incidental in the process of manufacture of Xylene. In the instant case the department has taken 4 years time to issue show cause notice and in the meantime the RT-12 return and classification list have been confirmed and approved from time to time. No convincing reason is forthcoming why department had taken 4 years time. This position had been properly analysed by the Member (Judicial) in his order. Further, he observed in his order that it can easily be concluded that the period of more than 4 years taken, after visit of the officers and taking samples by itself clearly demonstrate that the department was initially not serious to prosecute the case. It is also clear that the department was fully aware of the process of manufacture and hence the larger period cannot be confirmed in the instant case. Furthermore, in the instant case the clearances were approved. The clearances were always under approved classification list and the appellants has paid duty at the rate approved in those classification list. The goods were declared correctly as Hepton Special Boiling Spirit in those classification list. If the Central Excise Authorities required any more details about ingredient or any other details it was for them to ask for and obtain those particulars before approving in the classification list, as Central Excise classification product is a responsibility of Central Excise Officer. In fact the approving any of classification list granted Rule 173B is presumed to have been given by the proper officer after satisfying himself about the nature of the goods. In these facts and circumstances the allegation of misdeclaration or suppression of facts is not sustainable. Since, I am in agreement with Member (Judicial) on time bar issue which will result in allowing the appeal as proposed by him. I do not feel it necessary to go into other issues raised by both sides. Accordingly, the view expressed by the Member (Judicial) is concurred with on time bar issue. Case file is returned to the bench to pass an order accordingly.
MAJORITY OPINION We hold that the demand is barred by limitation, set aside the order and allow the appeal on the ground of time bar.