2002 (6) TMI 402 - AT - Central Excise

Condensate and lean gas from LPG plant: disclosure, classification as natural gas (Heading 2711.21), excise demands time-barred, penalties quashed.

The dominant issues were whether extended limitation under the proviso to s.11A of the Central Excise Act could be invoked for demands on condensate and ... Classification of condensate - Petroleum products - suppression of facts - claiming exemption from excise duty in respect of condensate under Notification No. 179/86-CE, as amended from time to time - Demand - Limitation - HELD THAT:- There was no need for exemption to oil condensate. The department was, therefore, fully aware of the emergence of condensate in the appellant's LPG plant. On facts as above, which are not in dispute, the only conclusion that could be arrived at is that, there had not been any suppression of facts on the part of appellant, nor wilful mis-declaration in order to attract the larger period of limitation under the proviso to Section 11-A of the Central Excise Act. Therefore, the demand under the show cause notice dated 5-3-90 is not sustainable in law and is barred by limitation. The impugned order dated 29-11-91 which upheld the demand under the above show cause notice for the period 1-4-82 to 29-2-88 and which imposed penalty only to be set aside and we do so. The matter was considered again by the Assistant Collector and he took the same view under the order dated 29-3-90 which was confirmed in the order impugned. While passing the order dated 18-3-93 the adjudicating authority has not applied its mind to the directions contained in the order of this Tribunal dated 7-9-91 either in the matter of use of condensate as fuel or on the issue how condensate can be excluded from the Heading 2709 when it has to be treated as a crude. Therefore, the demand under the impugned order is unsustainable both on merits as also on the ground of bar of limitation for certain period. The order, therefore, stands set aside. Dutiability and classification of lean gas generated in the LPG plant - Prior to the introduction of the Central Excise Tariff Act, 1985, natural gas was classified under Tariff Item 68 of the erstwhile Central Excise Tariff in accordance with Tariff Advice No. 61/82, dated 13-10-82 issued by the Board. The natural gas produced in a mine was exempt from payment of duty under Notification No. 179/85-C.E., dated 1-8-85. The appellant has made out a case both on merits as well as on the question of limitation. The allegation in the show cause notice was that the assessee wilfully misstated and withheld facts in respect of clearance of lean gas. The effect of the above communication cannot be got over by stating that the officers of the department are laymen. Since the assessee had brought to the knowledge of the department the required information in time, we are of the view that the larger period of limitation under the proviso to Section 11A cannot be resorted to in this case. The entire demand is, therefore, barred by limitation. On merits also we are of the view that the appellant is fully justified in contending that since the lean gas is treated as natural gas it has to come under Heading 2711.21 and not under 2711.29. In the result the impugned order is set aside. All the appeals stand allowed. Issues Involved:1. Classification of condensate.2. Classification of lean gas.3. Limitation and suppression of facts.Issue 1: Classification of Condensate (Appeal Nos. E/2238/92-C and E/474/95-C)M/s. Oil India Ltd. set up an LPG plant for recovery of LPG from natural gas, and the LPG plant is treated as part of a mine under the Mines Act, 1952. During the process, lighter fractions of crude oil (C5 and C6+) present in vapor form get condensed and termed as condensate. The condensate was used for various purposes, including injection back to the reservoir, flushing pipelines, and mixing with crude oil for supply to oil refineries. The appellant claimed exemption from excise duty under Notification No. 179/86-CE. However, a show cause notice dated 5-3-90 proposed to levy excise duty on the condensate under erstwhile Tariff Item 6(1) and sub-heading 2710.19 of the Central Excise Tariff. The Collector upheld the classification and demand, which the appellant challenged on the grounds of wrong classification and limitation.The Tribunal found no basis for the allegation of suppression of facts by the appellant, as the department had been informed about the condensate's emergence as a by-product. The Tribunal concluded that there had not been any suppression of facts or willful mis-declaration by the appellant, making the demand under the show cause notice dated 5-3-90 unsustainable and barred by limitation. Therefore, the impugned order dated 29-11-91, which upheld the demand and imposed a penalty of Rs. 50,000/-, was set aside.In Appeal No. E/474/95-C, the impugned order dated 9-5-94 upheld a demand for the period 1-3-88 to 31-7-89. The appellant argued that condensate is classifiable as crude mineral oil under Tariff Entry 2709.00, not under sub-heading 2710.19. The Tribunal referred to the Board's Tariff Advice 83/14/80-CX., which clarified that condensate is crude oil. The Tribunal concluded that condensate should be classified under sub-heading 2709.00, and the demand under the impugned order was unsustainable both on merits and on the ground of limitation for certain periods. The order was set aside.Issue 2: Classification of Lean Gas (Appeal No. E/2629/92-C)This appeal relates to the dutiability and classification of lean gas generated in the appellant's LPG plant. The natural gas, after removal of easily liquifiable components, is termed lean gas if the total GPM of the gas is less than 2.5. The lean gas has the same end use as wet natural gas and is sold at the price fixed by the Ministry of Petroleum for natural gas.Before the introduction of the Central Excise Tariff Act, 1985, natural gas was classified under Tariff Item 68 and was exempt from duty under Notification No. 179/85-C.E. With effect from 1-3-86, natural gas and other gaseous hydrocarbons were classified under Heading 27.11. The appellant contended that lean gas should be classifiable under sub-heading 2711.21 and entitled to exemption under Notification No. 179/85. However, a show cause notice dated 27-5-91 proposed to charge duty on lean gas by classifying it under sub-heading 2711.29. The adjudicating authority confirmed the demand under order dated 15-1-92.The Tribunal found that the appellant had made out a case both on merits and on the question of limitation. The Tribunal noted that the appellant had informed the department about the production of lean gas in a communication dated 24-5-82. Therefore, the larger period of limitation under the proviso to Section 11A could not be resorted to, making the entire demand barred by limitation. On merits, the Tribunal concluded that lean gas should be classified under Heading 2711.21 and not under 2711.29. The impugned order was set aside.Conclusion:All the appeals were allowed, and the impugned orders were set aside on the grounds of wrong classification and limitation. The Tribunal emphasized that there was no suppression of facts or willful mis-declaration by the appellant, and the classification of condensate and lean gas should align with the relevant tariff entries and exemptions.