2023 (6) TMI 785 - SC - Central Excise

Supreme Court Upholds CESTAT Decision on Classification of Mixed Fuel Oil

The Supreme Court upheld the CESTAT's decision, dismissing the appeals due to the Revenue's failure to prove that Mixed Fuel Oil (MFO) met the criteria ... Classification of goods - liquefied petroleum gas (LPG) and mixed fuel oil (MFO) - classifiable under Chapter 2710.11.19 or under Chapter 2710 19 90 of the First Schedule to the Central Excise Tariff Act, 1985 - HELD THAT:- Since both tariff entries fall within Chapter 2710, the chapter notes are an internal guide to their interpretation. Supplementary note (a), therefore holds the key to interpretation; it states that “motor spirit” means any hydrocarbon oil (excluding crude mineral oil) which has its flash point below 25°C and which either by itself or in admixture with any other substance, is suitable for use as fuel in spark ignition engines.” A plain reading of the note would reveal that all the ingredients have to be satisfied. It is not sufficient if the product is a hydrocarbon oil or that it has a flash point below 25°C; it should qualify both conditions, and also fulfil the last condition that by itself, or in admixture with any other substance should be suitable for use as fuel in spark ignition engines. It is crucial that the admixture should be with any other substance. The use of the term “other” is significant because it is meant to exclude the reference to a class of oils, i.e., hydrocarbon oil. In the present case, this court finds merit in the GAIL’s argument, which was accepted by the CESTAT, which is that the Chemical Examiner’s report clearly revealed that the MFO was not mixed with any “other” substance; it was mixed with motor gasoline. In Oil India Limited [2002 (6) TMI 402 - CEGAT, NEW DELHI] it was held that Since the main heading itself excludes crude, it cannot be taken that subsequent exclusion will bring it back under Heading 2710. There is also merit in the contention of the appellant that reference to admixture with any other substance is to be taken as substance other than mineral oil. The description under the heading ‘Motor Spirit’ tallies with the description under Item 6 in the old Tariff. The decision of CESTAT was affirmed by this court, which dismissed the Revenue’s appeal, in COMMISSIONER VERSUS OIL INDIA LTD [2003 (2) TMI 489 - SC ORDER]. In the present case too, there is no material to substantiate the revenue’s argument, that the product (MFO) conformed to the description of “other” motor oil which inter alia, was, after its admixture with any substance, other than hydrocarbon oil. On the contrary, the product was mixed with motor gasoline, which concededly is a hydrocarbon oil. Appeal dismissed. Issues Involved: Delay in filing appeals, classification of Mixed Fuel Oil (MFO), interpretation of tariff entries under Chapter 27 of the Central Excise Tariff Act, 1985, and the admissibility of Chemical Examiner's report.Detailed Analysis:1. Delay in Filing Appeals:The Supreme Court condoned the delay in filing the Civil Appeals Diary Nos. 13865/2020, 14994/2020, 15825/2020, and 15335/2020.2. Classification of Mixed Fuel Oil (MFO):The core issue revolves around the correct classification of GAIL's product, MFO. The Revenue argued that MFO should be classified under Tariff Item 2710 11 19 as 'motor spirit,' while GAIL contended it should fall under Tariff Item 2710 19 90 as 'other.'3. Interpretation of Tariff Entries:The Supreme Court examined the competing tariff entries under Chapter 27 of the Central Excise Tariff Act, 1985. The relevant entries were:- 2710 11 19: 'Other motor spirits'- 2710 19 90: 'Other'The court emphasized the importance of Supplementary Note (a) to Chapter 27, which defines 'motor spirit' as any hydrocarbon oil (excluding crude mineral oil) with a flash point below 25°C, suitable for use as fuel in spark ignition engines, either by itself or in admixture with any other substance.4. Admissibility of Chemical Examiner's Report:The Revenue relied on the Chemical Examiner's report, which stated that the sample distilled 90% by volume at 165°C, meeting the definition of light oil preparations. However, GAIL argued that the product was tested in admixture with motor gasoline, which does not conform to the description 'any other substance' as required by the supplementary note.Analysis and Reasoning:1. Rival Tariff Entries:The court extracted and analyzed the relevant tariff entries, emphasizing that all conditions in Supplementary Note (a) must be satisfied for a product to be classified as 'motor spirit.' These conditions include:- The product must be a hydrocarbon oil, excluding crude mineral oil.- It must have a flash point below 25°C.- It must be suitable for use as fuel in spark ignition engines, either by itself or in admixture with any other substance.2. Examination of Chemical Examiner's Report:The court found merit in GAIL's argument that the Chemical Examiner's report revealed the MFO was mixed with motor gasoline, not with 'any other substance.' This distinction is crucial because the supplementary note requires admixture with a substance other than hydrocarbon oil.3. Precedent Cases:The court referred to previous decisions, including Oil India Limited v. CCE, which held that the term 'any other substance' should be interpreted as excluding hydrocarbon oils. This precedent supported GAIL's contention that the mixture of MFO with motor gasoline did not satisfy the conditions for classification as 'motor spirit.'Final Judgment:The Supreme Court upheld the CESTAT's decision, concluding that the Revenue failed to establish that MFO met the criteria for classification under Tariff Item 2710 11 19. Consequently, the appeals were dismissed without an order on costs.