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of <h1>Classification of Xylene and Ethylbenzene under Central Excise Tariff reclassified to 2707; penalty set aside</h1> Classification focused on whether Ethylbenzene constitutes an isomeric constituent of Xylene. Relying on HSN Explanatory Notes distinguishing xylene ... Classification of goods - Mixed Xylene - Interpretation of HSN Explanatory Notes - Mixtures and isomers Ethylbenzene versus dimethylbenzene (xylene) - Extended period of limitation and suppression - Bona fide belief - Imposition of penalty u/s 11AC - Central Excise Tariff Act, 1985 Heading 29.02 and Heading 27.07 - HELD THAT:- Reading the HSN Note of Chapter 29.02, we find that under the category “Aromatic Hydrocarbons” while explaining the meaning and scope of ‘Xylene’ at clause (I)(c), it is clearly mentioned that Ortho Xylene, Meta Xylene and Para Xylene are the isomers of Xylene and under clause (d), Ethylbenzene has been mentioned as a colourless inflammable, mobile liquid, contained in coal tar, normally manufactured from benzene and ethylene. Therefore, we are of the opinion that the view expressed by this Tribunal in Addisons Paints & chemicals Ltd.’s case is in consonance with the HSN notes and accordingly Ethylbenzene cannot be considered as an isomer of Xylene and accordingly its weight cannot be added to other constituents to arrive at the total weight of Xylene which ought to be 95% or more to classify the same under Chapter 2902 of CETA, 1985. Therefore, in our opinion, the correct classification of the product would be under Tariff entry 2707 30 00 as held in the impugned order. Limitation - HELD THAT:- Since the appellant chose to classify the product ‘Xylene’ under Chapter sub-heading 29024400 instead of 2707 30 00 of the Central Excise Tariff Act, 1985, it cannot be construed that they had suppressed the correct classification and thereby intended to evade payment of duty; on the other hand, the plea of bona fide belief about the classification claimed by the appellant cannot be ruled out. In these circumstances, invocation of extended period of limitation cannot be sustained. However, the demand is sustainable for the normal period of limitation. Since we have opined that the issue relates to determination of correct classification on the basis of facts available on record, which is purely a question of law, imposition of penalty is unwarranted. In the result, the impugned order is modified to the extent of setting aside the penalty and confirmation of demand for the extended period of limitation. Confirmation of demand for the normal period with interest is upheld. Accordingly, appeal is partly allowed to the extent mentioned as above. Issues: (i) Whether the manufactured product Mixed Xylene is classifiable under Chapter sub-heading 2902 44 00 or under Chapter sub-heading 2707 30 00; (ii) Whether demand can be confirmed by invoking the extended period of limitation and whether penalty under Section 11AC is sustainable.Issue (i): Whether Mixed Xylene falls under CTH 29024400 or 27073000.Analysis: The HSN Explanatory Notes to Heading 2902 state that xylene comprises three isomers (o-, m- and p-xylene) and to fall in Heading 2902 xylene must contain 95% or more by weight of xylene isomers, all isomers taken together. Ethylbenzene is described separately in the HSN and is chemically distinct from dimethylbenzene (xylene). Prior tribunal authority has held that Ethylbenzene cannot be treated as an isomer of xylene for classification under Heading 2902. The internal test reports show that the combined proportion of o-, m- and p-xylene is less than the 95% threshold required by the HSN note.Conclusion: The product is classifiable under Chapter sub-heading 2707 30 00 and not under Chapter sub-heading 2902 44 00; this conclusion is against the appellant.Issue (ii): Whether the extended period of limitation and penalty under Section 11AC can be invoked.Analysis: The manufacture and classification of the product had been declared to the Department since 2007, ER-1 returns and departmental audits recorded the composition and classification claimed by the appellant, and no chemical tests were directed earlier. The facts indicate disclosure of constituents and a plausible bona fide classification belief; hence suppression to invoke extended limitation is not established. As the classification dispute is essentially one of law based on facts on record, imposition of penalty is inappropriate.Conclusion: Invocation of the extended period of limitation and imposition of penalty under Section 11AC are not sustainable; the demand is maintainable only for the normal period with interest. This conclusion is in favour of the appellant on limitation and penalty, and in favour of the Revenue on classification for the normal period.Final Conclusion: The appeal is partly allowed by sustaining classification under Chapter sub-heading 2707 30 00 for the normal period with interest, setting aside the penalty and refusing invocation of the extended period of limitation.Ratio Decidendi: For tariff classification the HSN Explanatory Notes govern the meaning of 'xylene': only mixtures with 95% or more by weight of the xylene isomers (o-, m- and p-xylene) qualify under Heading 2902; Ethylbenzene is not an isomer of xylene and cannot be aggregated with xylene isomers to meet the 95% threshold.
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