TaxTMI 
TaxTMI 
2000 (5) TMI 914
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....use 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 dated 1-3-1984 (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-C.E. 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-C.E. and thereby they are mis-using 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 4-10-1990 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 t....
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....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 Naphtha 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 looses its identity, and therefore, the question of removal of Raw Naphtha as Hepton does not arise. Therefore, it was contended that the allegation contained in the show cause notice is incorrect and mis-leading. It was further contended that 'Heavy Ends' emerge....
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....is processed to get the maximum C.8 Aromatic Hydrocarbons which are subsequently utilised in the manufacture of xylene. It was also noted that only some paraffins are converted into aromatics. He has drawn an inferance 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, naphthanes & aromatic & different in boiling ranges. He has also noted that the return stream sent to IOC by IPCL after manufacturing the....
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....rocess 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 mis-declared 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 dated 26-3-1973 which is at pages 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-C.E., dated 1-3-1984, 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....
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....aring 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 mis-declaration/mis-statement 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 breath 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 scrutini....
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....n stream to GR. Some times a part of the LR is taken separately as Hepton. The bottom product of deheptanizer (C8R) is mixed with Isomerisate from Isom section and sent to Ortho-meta splitter for Ortho-Xylene recovery. ORTHO XYLENE UNIT: Here C8 Reformate from reformer unit and C8 Isomerizate from Isom Unit is Mixed and distilled in OM Splitter 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 crystallizer feed from O-Xylene unit is sub-cooled 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 liquor from crystallization is preheated, mixed with Recycle H2 gas and reacted ....
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....ication 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 50°C, FBP 125 to 135°C Flash Point ... Below twenty-five degrees of Centigrade thermometer. Total Aromatics ... 30 to 45% Toluenes ... Minimum 30% The produce 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. 6.03 of Notfn. No. 75/84, dated 1-3-1984. It is a medium Aromatic Low Boiling Solvent and is a colourless clear liquid with characteristic Aromatic Odour." 12. From the K.K. Othmer....
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....eir 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....
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....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-C.E. 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 Notificati....
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....nd 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 - (I) "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 347o F (175o C) 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; Kerosene; and similar petroleum products (ASTM D 86). F.p - 73oC; b.p. 30-60oC; flash point 57oF (-50o C); autoignition temp. 550o F (287o C) sp. gr. 06. (2) coal -tar (a) Heavy (high-flash naphtha)." Th....
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....I also find that the period of dispute is Nov. 1985 to June, 1990. During the period prior to 1-3-1986 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. 1-3-1986 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 description. 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 Notification No. 75/84 has been amended several times. During relevant period prior to 1986 it proposed separate reference numbers namely - 6.01 - Motor Spirit; 602, ....
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....oved     CL No. 9/87-88/C-refers" 42. Classification List effective from (Blank) 1990-91 (serial no. of classification list 1A/91-92) incorporates, inter alia the following declarations: " 6. HEPTON 2710.19 KL 15°C   SPECIFICATIONS : DENSITY - 0.74 TO 0.76 ASTM DISTILLATION - IBP 50°C FBP 125 TO 135^0C FLASH POINT - Below 25° of centigrade ther  mometer. TOTAL AROMATICS - 30 TO 45% TOLUENE - Minium 30% The product is a Special Boil Spirit consisting of Hydrocarbons derived from Petroelum (other than Benzene, Benzol, Toluene & Toluol) and falls under the category '(C) Others' at a Sr. No. 6.03 of Notfn. No. 75/84 dated 1-3-1984. It is a medium Aromatic Low Boiling Solvent and is a colourless clear liquid with characteristic Aromatic colour." The benefit of Notification No. 75/84 was claimed in the list effective from 17-3-1985 and not in those effective from 28-2-1986, 1-3-1988 and 1-3-1989 respectively. But in the C/List for 1990-91 (Sr. No. 1A/91-92, the benefit of Notification No. 75/84 is again claimed for Hepton. 43. It is not clear as to how the appellants have claimed the ....
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....his Notification was not applicable). 47. That apart as already mentioned, the question which arises and remains to be answered 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 (1A/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 loose 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....
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....ember, (J)]. - 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 or the finding and observation of the Vice President, the order of the Collector was required to be upheld". 57. 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. 58. Heard both sides with reference to the difference of opinion. 59.  On point of limitation Shri Willingdon Chritian, ld. Advocate submitted that demand was barred by time, since show cause notice was issued on 14-12-1990 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 suppres....
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.... is set aside and the appeal is allowed on the point of limitation". 60.  He also cited following decisions in support of his contention on time bar issue : M/s. Oudh Sugar Mills Ltd. v. CCE, Kanpur - 1999 (108) E.L.T. 779 (Tribunal) CCE, Calcutta-II v. M/s. Mehra Electric Company - 1999 (113) E.L.T. 626 (Tribunal) M/s. Omkar Textile Mills Ltd. v. CCE, Ahmedabad - 1999 (107) E.L.T. 787 (Tribunal) M/s. Beico Electrical Insulations Pvt. Ltd. v. CCE, Aurangabad - 1999 (114) E.L.T. 755 (Tribunal) 61.  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 classfication 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 - 115^OC. 2710.12 - Special boiling point spirits (other than Benzene, Benzol, Toluene and Toluol) with nominal boiling point range 63-70°C. 2710.13 - Other special boiling point spirits (other than B....
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....onsidered 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 dated 1-3-1984, following the procedure laid down in Chapter 10 of Central Excise Rules, 1944 for manufacutre 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 it is cleared as such as provided in Notification No. 75/84-CE and thereby they are mis-using 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 an....