TaxTMI 
TaxTMI 
2010 (2) TMI 527
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....d differential duty and imposed penalties under Rule 25 of CER, 2002 as per details given below : S/No. Appeal No. OIO No. & date Period involved Differential duty (Rs.) Penalty (Rs.) u/r 25 of CER 1. E/436/08 02/2008 dated 5-3-08 5/2005 to 2/2006 3/2006 to 01/2007 13,64,48,146/- 10,60,06,796/- 1,00,00,000/- 2. E/274/09 13/2008 dated 19-12-08 02/2007 to 07/2007 8/2008 to 01/2008 1,90,61,906/- 4,41,80,708/- 60,00,000/- 3. E/644/09 05/2009 dated 13-4-09 02/2008 to 07/2008 5,23,43,050/- 50,00,000/- 4. E/685/09 07/2009 dated 30-6-09 08/2008 to 01/2009 4,51,42,473/- 45,00,000/- Duty demand for the period prior to May 2005 for an amount of Rs. 1,08,34,81,271/- was dropped by the Commissioner on the ground of limitation. JSW has filed appeals No. E/436/08, E/644/09, E/685/09 and E/274/09 contesting revision of classification of export gas as carbon monoxide of chapter heading 28.11 from 27.05 of the Ist Schedule to the Central Excise Tariff Act, 1985 (the tariff) and consequent confirmation of duty demand. The department has contested th....
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....tion of the gases, as observed at different stages in the plant of JSW and as reported by the assessee is as follows :- Reduction Gas (RG) Top Gas (TG) (In percentage) Export Gas (EG) Carbon monoxide CO) 67.99 45.79 47.02 Carbon-dioxide (CO2) 6.48 31.70 30.68 Hydrogen (H2) 21.01 18.28 18.45 Methane (CH4) 1.62 1.61 1.62 According to the assessee, 'export gas' comprises the following gases :- Carbon monoxide 47.02% : Carbon dioxide 30.68% : Hydrogen 18.45% : Methane 1.62% : In the appeals filed before the Tribunal and during hearing, the appellants have submitted that the product in question is not manufactured by choice. The gas emerges in the process of production of HR coils in the corex mill. The product is an inevitable technological accident. The assessee is under compulsion by the environmental authorities not to vent out the export gas. They are under threat of being forced to shut down the manufacturing facility unless emission of this gas is limite....
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....ct. 4. The learned Counsel for JSW submitted that the dispute stood settled in favour of the assessee by the Tribunal in the case of Philips Carbon Black Ltd. v. CCE [1999 (111) E.L.T. 835 (T)]. In the said decision, it was observed : "Mere fact that due to environmental laws, the assessee are compelled to burn the carbon monoxide content from the off-gas and use the heat so generated from lean/off gas, it cannot be said to be excisable goods." Vide order reported in the case of JSW Steel Ltd. v. CCE [2006 (204) E.L.T. 313 (T- Bang.) = 2006 (4) S.T.R. 481 (Tri. - Bang.)], the Tribunal had decided that corex gas arose as a technological necessity during the manufacture of HR coils and was an off gas; the provisions of Rule 57CC of erstwhile Central Excise Rules, 1944 or Rule 6 of Cenvat Credit Rules, 2002/2004 were not attracted. He relied on the Explanatory Notes to support the claim that the subject product is appropriately classifiable under chapter heading 2705. The learned Counsel placed reliance on the judgment of the Hon'ble Apex Court in the case of South Bihar Sugar Mills Ltd. v. Union of India [1978 (2) E.L.T. J336 (S.C.)] to buttress the claim that the impugned product....
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....is gas". However, the heading excludes the gases specified in heading 27.11." 6. The learned Special Counsel for the Revenue submitted that export gas is not a 'technological accident' taking place in the assessee's steel plant. He submitted that the appellants had made huge investment in the production of oxygen required in the manufacture of iron. As per the literature published by JSW, the assessee's factory operating to full capacity, consumes 5000 tons of oxygen every day. A product called 'reduction gas' containing 67.99% carbon monoxide is produced for the production of iron by reduction of oxygen in the iron ore. Some amount of carbon monoxide gets converted into carbon dioxide in the process. The assessee had described this product in their classification lists filed as corex gas of chapter heading 2705.00 . This was a mis-declaration in that the gas cleared on sale was 'export gas'. The impugned product had the essential character of carbon monoxide and had to be classified as carbon monoxide of chapter heading 28.11 in terms of Interpretative Rule 2(a). He invited our attention to an article on fuel gas in McGraw-Hill Encyclopedia of Science & Technology. As per the a....
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....ally defined compounds, whether or not containing impurities". As per the HSN Notes, the term impurities applies exclusively to substances whose presence in the single chemical arises solely and directly from the manufacturing process and includes by-products. The gases other than carbon monoxide i.e. carbon dioxide and hydrogen arise as a result of cracking of coal, whereas carbon monoxide is produced as a result of the induced exothermic chemical reaction of injected pure oxygen with burning carbon in the form of non-coking coal. The impurities hydrogen, carbon dioxide and methane in EG are in the nature of by-product gases that arise in the course of manufacture. Hence, the said EG is a separate chemically defined compound viz. carbon monoxide whether or not containing impurities, meriting classification under 28.11. 7.2 Pertinent Harmonized System of Nomenclature (HSN) notes on heading 28.11 read as follows : "28.11 other Inorganic Acids and other Inorganic Oxygen compounds of non-metals - Other inorganic acid : 2811.11 - Hydrogen fluoride (hydrofluoric acid) 2811.19 - Other - Other inorganic oxygen compoun....
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.... making process and not a common process employed to manufacture carbon monoxide. We find that the said certificates are not an impediment to a reasoned finding that the mixture of gases emerging in the process of production of iron is further processed by the assessee to produce export gas which is liable to excise duty under an appropriate entry in the tariff. On classification, we find the plea that Section heading of Section VI covers goods of chemical or allied industries and therefore export gas cannot be classified under chapter 28 of Section VI to be without merit. As per the interpretive Rule 1 of Central Excise Tariff Act, 1985, section headings are for ease of reference and do not have statutory force. Impugned orders establish that the impugned goods fetch considerable price and there are regular buyers. We find that the product is not marketed as carbon monoxide is no legal hurdle to classify it under the entry for carbon monoxide if the item conforms to the description of that entry. In the instant case the impugned gas is a manufactured product and has a market. The product is known to the trade dealing in it. From the agreements entered into by JSW for sale of EG, w....
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....he similarity of the impugned gas to other gases like coal gas, water gas and producer gas. In this connection relevant HSN notes reads as follows : "27.05 - Coal gas, water gas, producer gas and similar gases, other than petroleum gases and other gaseous hydrocarbons. Coal gas is obtained by the distillation of coal in the absence of air, usually in gas works or coke ovens. It is a complex mixture of hydrogen, methane, carbon monoxide, etc., and is used for lighting or heating purpose. The heading includes the gas produced by underground gasification and also water gas, producer gas and similar gases, for example blast-furnace gas. It also covers mixtures of gases formed by cracking or reforming of mineral oils, petroleum gases or natural gases, usually in the presence of steam. These mixtures are similar in composition to coal gas and are used for heating or lighting purposes and in the synthesis of chemicals, e.g., methanol, ammonia. In the latter case, they are sometimes called "synthesis gas". However, the heading excludes the gases specified in heading 27.11." Though the gas is a mixture of carbon monoxide (47.02%), carbon dioxide (30.68%), hydrogen (18.45%) and m....
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....y defined compounds containing impurities, or dissolved in water, remain classified in Chapter 28. The term "impurities" applies exclusively to substances whose presence in the single chemical compound results solely and directly from the manufacturing process (including purification). The substances may result from any of the factors involved in the process and are principally the following : (a) Unconverted starting materials. (b) Impurities present in the starting materials." 11.1 The ratio of the decisions of the Tribunal in Nizam Sugar Factory Limited v. CCE (supra) & Mangalore Chemicals and Fertilizers v. CCE (supra) cited by the Ld Special Counsel for the Revenue is that impure carbon dioxide arising during the course of fermentation of molasses are excisable goods. They are classifiable under TI 14H of the erstwhile CETA, 85 up to 28-2-86 and under SH 2811 20 of CETA, 1985 thereafter. We find that in those cases carbon dioxide was a by-product arising in the course of production of sugar. The relevant entries of chapter heading 28.11 are reproduced in para 10 above. Carbon monoxide is covered by the entry 281190. The HSN notes relied on by the Revenue (para 7.2 ....