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2013 (3) TMI 240
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....permitting duty-free import of the two brands mentioned above. The Commissioner, in the impugned order, has held that the said products are correctly classifiable as "special boiling point spirits" of Chapter Heading 27.10 of the Customs Tariff. Besides demanding differential duty of Customs by invoking the proviso to Section 28(1) of the Customs Act, 1962, the impugned order also holds that the import of the said goods was unauthorized as import of products falling under Chapter Heading 27.10 was canalized and, therefore, could not have been imported directly by the appellant. Redemption fine and penalties have been imposed under different provisions of the Customs Act, 1962 for wrong classification of the goods as well as for their unauthorized import. 2. Heard both the sides in great detail and both wanted to make written submissions. Accordingly appellants were directed to make written submissions by 5th of October and serve a copy to the respondents. However, the appellants could not make the written submissions by 5th October and without waiting for the same, the special counsel for the respondent made written submissions which were received on 11-11-2011. However, be....
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....emically defined compound is a substance which consists of one molecular species (e.g. covalent or ionic) whose composition is defined by a constant ratio of elements and can be represented by a definitive structural diagram. In a crystal lattice, the molecular species corresponds to the repeating unit cell." As n-hexane has a defined molecular structure C6H14 and a definite molecular weight, n-hexane is a separate chemically defined compound. This fact is admitted in Para 13(c) of the Show Cause Notice itself; (e) the Explanatory Notes to the HSN under Chapter 27 (at pages 21 to 31 of the compilation) specifically state that the said Chapter 27 'does not cover separate chemically pure state' as such Products are classifiable under Chapter 29. Relevant extracts from the HSN Explanatory Notes are set out herein below for ease of reference : (i) Explanatory Notes to chapter 27 in 'General' (page 21 of the compilation) : "Goods of this Chapter may be crude or refined; however, with the exception of methane and propane, when they are separate chemically defined organic compounds in the pure or commercially pure state, they are to be classified in Chapter 29." (ii)....
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....es' and the products 'Exxsol Hexane RD' was held to be is a 'commercially pure Hexane' despite the N-hexane content being 63.93% in that product; (i) it was submitted that the two products in question are 'commercially Pure' Hexanes. This position has been confirmed not only by the supplier, Exxson Mobil in its letter dated 5-9-2009 but also by a technical expert, Dr. Tilak Guha, in his opinion dated 20-11-2009. The opinion of Dr. Guha remains uncontroverted dispute as despite our offer to produce him for cross-examination vide our submission dated 2-12-2006, the department neither cross-examined him not controverted his opinion by dealing with it in the Order or by producing a contra opinion from some other expert. Even otherwise, neither the Show Cause Notice nor the impugned order discloses any evidence or basis to dispute the position that the two products are "Commercially pure Hexanes". This position therefore, remains uncontroverted by evidence. 4. The counsel for the Revenue sought to distinguish the above referred decision in IPCL's case on the ground that the percentage of n-hexane in the product imported by appellant was much less than 63.93% that existed....
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....upon in the absence of background facts in the context of which such an opinion was given. It was further pointed out that the extracts produced by the learned counsel for the Revenue have been furnished to appellant for the first time and had not been relied upon in the Show Cause Notice. It was further submitted that what was binding upon the courts and authorities are the Explanatory Notes (which do not prescribe any specific purity criterion for hexanes, unlike for many other chemicals as pointed out in Para 4(c) above and not individual opinion which do not represent the views of the Council. The classification opinions do not have any general application and they are regarded as individual opinions only with reference to the facts of a particular case. Subsequently, if those opinions are found to be valid for general application, they are incorporated in the Explanatory Notes to the Harmonized System. In CCE v. Woodcraft Products Ltd. - 1995 (77) E.L.T. 23 and O.K. Play (India) v. CCE - 2005 (180) E.L.T. 300, the Hon'ble Supreme Court has held that HSN along with Explanatory Notes provide a safe guide for interpretation of entry. The Hon'ble Supreme Court has not expressed a ....
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....f n-hexane and (b) that, in any case, the product is a mixture of several acyclic Hydrocarbon Isomers of n-hexane and are, therefore, excluded from Chapter 29 by virtue of Chapter Note 1 (b), which reads thus : "(b) admixtures of two or more isomers of the same organic compound (whether or not containing impurities), except mixtures of acyclic hydrocarbon isomers (other than stereoisomers), whether or not saturated (Chapter 27);" 9. In reply, it was pointed out by the appellant's counsel that 2-Methyl Pentane and 3 Methyl Pentane are not Pentanes but are Hexanes only as the chemical formula for these two is C6H14. Pentanes, on the other hand, have five carbon atoms and their formula is C5H12. Therefore, the contention of the counsel for the Revenue that the products in question were Pentane, is incorrect. In fact, no such case was ever made either in the Show Cause Notice, or in the impugned order. In fact Para 13(e) of the notice describes these two chemicals as isomers of Hexane and not pentanes as contended by the revenue's counsel. 10. Insofar as the second contention is concerned, it was submitted that; (a) Note 1(b) is irrelevant for the reason....
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....ufactured by the suppliers. In this regard reliance was placed on the meaning of the expression 'impurities' as set out in the Explanatory Notes to the HSN which reads thus : "The term "impurities" applies exclusively to substances whose presence in the single chemical compound results solely and directly from the manufacturing Process (including purification). These 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. (c) Reagents used in the manufacturing process (including purification). (d) By-products. The Hon'ble Tribunal enquired whether the chemicals other than hexanes which are present in the product fall in the definition of impurities as given above they were unconverted starting material or impurities present in the starting material." The suppliers have now confirmed vide their letter dated 14th October, 2011 (copy enclosed as Exhibit 'A') that these elements were naturally present in the feedstock and could not be re....
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....e having boiling points close to the target range of 64 -70°C also separate along with n-hexane. These two substances therefore remain in the final product i.e. Exxsol(tm) Hexane Fluid. We hope that the above clarification will address the Indian Customs queries." 13. Since it is not the case of the Revenue that the presence of any of the 4 isomers of n-hexane or the other seven components mentioned in the list above was through deliberate addition of such components into this product or a deliberate intention to live them behind so as to render the end-product suitable for a specific use, the products cannot be regarded as a 'mixture' particularly in the light of the clarification given by the suppliers, which are duly corroborated by the Kirk-Othmer Encyclopedia which describes the said products as commercially pure n-hexane. These clarifications as well as composition in Kirk-Othmer Encyclopedia clearly, shows that the various isomers of Hexane as well as other seven ingredients of the end product are permissible impurities whose presence in the final product is a direct result in the manufacturing process. These elements were present in the starting feedstock (LVN) ....
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....te chemically defined compounds' of Chapter 29 do not necessarily exclude 'mixtures' of separate chemically defined compounds'. The Commissioner, in the order, has not dealt with this Board Circular even though the same was binding upon the Revenue authorities. 16. Apart from the submissions made hereinabove, which establish that n-hexane is classifiable under Chapter 29 of the Customs and Central Excise Tariffs and not under Chapter 27, there is a further and additional reason as to why in any event the same cannot be classified under Heading 2710.12 of the Central Excise Tariff. Heading 2710.12 of the Central Excise Tariff appears under the following description : - Motor spirit, that is to say, 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 us as fuel in spark ignition engines. Thus, before the department can classify the imported goods under Heading 2710.12 of the Central Excise Tariff for the purpose of additional duty of customs, the department must establish by evidence that the following two requirements are satisfied : (a) th....
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....laid down in the aforesaid decisions, the studies as relied upon cannot be evidence of such use. There must be evidence of substantial actual and commercial use. 19. Moreover, the use as fuel spark ignition engines must be either by itself or in admixture with any other substance. There is absolutely no evidence that n-hexane by itself is used as fuel for spark ignition engines. As regards use in admixture with any other substance. The Tribunal has in Oil India Ltd. v. CCE - 2002 (148) E.L.T. 802 in Para 8 held that any other substance must be "substance other than mineral oil". There is absolutely no evidence led by the department to show that n-hexane in admixture with a substance other than mineral oil is used as fuel in spark ignition engines. 20. Without prejudice to the above submissions, it was pointed out that most of the imports covered by the impugned order were made against Advance Licences, which specifically cover the products with reference to their specific brands. Since the Advance Licences do not mention any particular classification, the products are entitled for duty-free clearances regardless of their classification and are also entitled to be im....
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....lf of the respondents were the following : "(1) How the judgment of Hon'ble Bangalore Bench of CESTAT, vide 2010 (250) E.L.T. 225 in the matter of Unimers India Ltd., relied upon by the appellant, is distinguishable from the subject case? The impugned product in the above-mentioned case was Exxsol Hexane RD, which is the same product as in the subject case. However, the Hon'ble Bangalore Bench decided the matter on grounds of legality, viz. that DGFT clarification regarding classification was binding on the customs authority, without going into the question whether the impugned goods should, on merits, be classified under chapter 29 or otherwise. Therefore, the question of classification on merits remains open. While there is no doubt that DGFT clarification in the matter of Import Policy shall be binding on the Customs authority, same cannot be said about classification of a product under Customs Tariff. Besides, it is pertinent to mention that the impugned order of Hon'ble Bangalore Bench of CESTAT has been appealed against by the Revenue and the issue is sub-judice in the apex court. It may also be pointed out in this regard that DGFT clarification dated 14-7-2004 ref....
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.... is clearly non est in the subject case. 4. The Hon'ble Ahmedabad Bench took the view that mixtures of acyclic isomers of n-Hexane should be considered as 'separate chemically defined organic compounds', based on some entries in the Kirk-Othmer Encyclopedia of Chemical Technologies which state that such mixtures are regarded in industry as 'commercially pure hexane', and proceeded to decide the case based on that premise. The contention of the respondent, on the other hand' is that it is by now well established by several judicial pronouncement that definition of a product given in Customs Tariff or HSN for that matter shall prevail upon its scientific/industrial definition or common parlance for the purpose of its classification, as doing so would go against legislative intent, and would make Note 1(b) of Chapter 29, as well as significant portions of the Explanatory Notes to Note I of the said chapter, redundant. (3) How the relevant terms relating to classification of the impugned product have been defined in the Tariff chapter notes and explanatory notes? Let us now see how the relevant terms have been defined in the Customs Tariff and the HSN Chapter Note 1 ....
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....se and careful reading of the above definition given in HSN, it is patently clear that a separate chemically defined compound ought to have the following two criteria : 1) a constant ratio of elements, as also, 2) a definitive structural diagram, for the purpose of its classification under Chapter 29. In the subject case, the impugned product, viz. Exxsol Hexane RD, is a mixture of acyclic isomers as also other hydrocarbons, having varied ratio of elements, such as C6H14, C5H12, C5H10, etc. (refer table under Issue No. 5). It does not also have a definitive structural diagram, as the relative position of the elements is at variance in the diagrams. As for example, in n-Hexane all six Carbons are in a straight line, whereas in other isomers and compounds, the positioning of all the carbons is not uniformly in straight line, and is, therefore, structurally different (Refer table under Issue No. 6). The impugned product cannot also be construed as n-Hexane, as the percentage of n-Hexane in the product falls well below 50%. Going by the clear stipulation in HSN such mixtures of acyclic hydrocarbon isomers are excluded from chapter 29, and will fall under chapter 27. The definition of "....
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....carbons, as the table above shows. The component hydrocarbons can be broadly divided into two groups : Group (i) Group (ii) Component Formula Component Formula n-Pentane C5H12 n-Hexane C6H14 Iso-pentane C5H12 2,2 Dimethyl Butane C6H14 Cyclopentane C5H10 2,3 Dimethyl Butane C6H14 Methyl Cyclopentane C6H12 2 Methyl Pentane C6H14 Cyclohexane C6H12 3 Methyl Pentane C6H14 2,4 Dimethyl Pentane C7H16 2,2,3 Trimethyl Butane C7H16 These hydrocarbons have formulae different from C6H14, which is the formula of hexane (the product in question belongs to this group by the rule of predominance), as the composition of these hydrocarbons is not defined by the same constant ratio of elements as that of hexane, and they are clearly not of the same molecular species as hexane. Group (ii) The hydrocarbons in Group (ii) are defined by the same constant ratio of elements as hexane, namely C6H14. Therefore, whether they are of, 'Y.' same molecular species as hexane or not depends on t....
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.... c - c - c - c - c - h - - - - - - h h h h h h 2, Methyl Pentane (CH3)2 CH (CH 2)2 CH 3 h ch3 h h h - - - - - h - c - c - c - c - c - h - - - - - h h h h h 3, Methyl Pentane CH3 CH2 CH (CH3) CH2 CH 3 h h ch3 h h - - - - - h - c - c ....
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....efined by a varying ratio of elements, or because they cannot be represented by a definitive structural diagram' the Exxsol Hexane RD in the subject case does not qualify as a separate chemically defined compound for the purpose of its classification under chapter 29. (6) Can isomers be considered impurities? 1. The technical definition of an impurity is: "a substance inside a confined amount of liquid, gas, or solid, which differs from the chemical composition of the material or compound." 2. As isomers do not differ from one another in their chemical composition, but differ from each other only in structure, they cannot technically be considered as impurities. 3. Isomers whose presence in a substance results directly from the production process of that substance may occasionally be considered to be an impurity in general industrial parlance, but not as per Customs Tariff. Besides, the impugned product being, imported there is no way to ascertain or verify the production process at the country of or production. 4. For t....
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....ated as impurities by the said Hon'ble Bench. (7) Are these mixtures of acyclic hydrocarbon isomers? 1. Exxsol Hexane RD is a mixture of various hydrocarbons' consisting of : (a) normal Hexane (38.63%) (i) n-Hexane (b) acyclic hydrocarbon isomers of n-Hexane (50.04%): (i) 2,2 Dimethyl Butane (ii) 2,3 Dimethyl Butane (iii) 2 Methyl Pentane (iv) 3 Methyl Pentane (c) cyclic hydrocarbon isomers of Hexane (10.52%) : (i) Methyl Cyclopentane (ii) Cyclohexane (d) other hydrocarbons (non-isomers of Hexane) : (i) n-Pentane (ii) iso-Pentane. (iii) cyclopentane (iv) 2,4 Dimethyl Pentane (v) 2,2,3 Trimethyl Butane. 2. Although n-Hexane and the four acyclic hydrocarbon isomers have been grouped separately above for the sake of clarity, all five substances are isomers of one another. They can therefore, be grouped together as 'acyclic hydrocarbon isomers of Hexane'. 3. The product in question is, therefore, a mixture of acyclic hydrocarbon ....
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....The contention of the Revenue is that the product is not a separate chemically defined compound and therefore it is correctly classifiable as special boiling point spirit classifiable under 2710 11 12 of the Schedule to the Customs Tariff Act, 1975. Before proceeding further it would be appropriate to reproduce the relevant competing tariff headings. 2901 Acyclic Hydrocarbons Unit Rate of duty Standard Preferential Areas 2901 10 00 Saturated Kg. 15% - 2710 Petroleum oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations; waste oils - Petroleum oils and oils obtained from bituminous minerals (other than crude) and preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations, other than waste oils ....
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....n as provided by the supplier also clearly identified the imported product as a petroleum derived complex substance with aliphatic and cyclo Pharphanic hydrocarbons and not as a separate chemically defined compound. Admittedly the product is a mixture of isomers of Hexane less than 95% and non-isomers. Various samples tested revealed that n-Hexane percentage varies from 40% to 50%. 5. Appellant's submissions to contend that the product cannot be classified under CETH 27 are as follows : 5.1 Revenue did not discharge the burden of proving that the classification declared by the appellants was wrong by bringing on record cogent and reliable evidence. 5.2 Issue of classification of Hexane stands concluded by the decisions of the Tribunal in the case of Indian Petrochemicals Ltd. vide Order No. A/1280/WZB/AHD/11 dated 25-3-2011 [2011 (274) E.L.T. 299 (Tri.-Ahmd.) and Unimers India v. CC, Mangalore Ltd. reported in 2010 (250) E.L.T. 225 (Tri.-Bang.). 5.3 The product imported by the appellant is specifically covered by the chapter Heading 29.01 which specifically excludes separate chemically defined compound. N-Hexane has a defined molecular structure C6H1....
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....Hydrocarbons isomers. 6.2 Further, other elements such as Cyclic Hydrocarbons and Acyclic Hydrocarbons were naturally present in the feedstock namely light virgin naphtha and are therefore permissible impurities. 6.3 Since the process of fractionation of hydrogenated LVN in this case is to separate the product in the boiling point range of 64°C to 70°C, all the Hydrocarbons which have the boiling points within its range which exist in the feedstock continue to exist in the ultimate product also. Therefore these are permissible impurities. 7. Reliance was also placed on the Board's Circular No. 574/11/2011-CX., dated 22-2-2001 where Board had clarified that even if a product is a mixture of chemicals the same can be classified under Chapter 29 by virtue of general Note 1(a) read with Rule 3(b) of Interpretation Rules. In addition, it was also submitted that for a product to be classified as a special boiling spirit, besides showing the flash point below 25°C, it is also necessary to show that the product is suitable for use as fuel either by itself or in admixture with any other substance. Reliance was placed on the following decisions : (a)&nb....
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....e evidence for classification. Admittedly, the tests conducted by SGS as well as Customs House Laboratory have shown that the product fulfills the requirement of the range of boiling points and flash point for classification under Heading 2710 11 12. Further, Revenue has also not dealt with the claim that the product should be suitable for use in admixture with any other product for classification under motor spirit under Heading 2710 11 12 is applicable only to motor spirit and not to special boiling spirits as mentioned above. We have considered the four decisions cited by the learned counsel in support of his submission that the department is required to prove that the product is suitable for use in spark ignition engine in admixture with other products for classification under special boiling spirits. In Indu Nissan Oxo Chemical Industries, the product under consideration was Insan LE of by-product arising in the course of manufacture of Oxo alcohol. The Tribunal held that the product cannot be classified as motor spirit. Therefore the issue there was whether the product Insan LE can be classified as motor spirit. In the case of Avani Petrochem Ltd. Revenue had relied upon the ....
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....grouped under light oils and preparations which is preceded by "- -". Since special boiling spirits are not sub-headings of the heading motor spirit in the present tariff, the claim of the appellant is that Revenue has to establish that the product is suitable for use in spark ignition engine in admixture with other products cannot be sustained and the decisions cited by the learned counsel also are of no help to the appellants. 11. However, we cannot straightway classify the product as a special boiling spirit without rejecting or considering the competing heading under Chapter 29. Therefore, we proceed to examine whether the product can be classified under CETH 29 at all. 12. Before proceeding further, it would be appropriate to consider the composition of imported product. The composition of imported product as submitted by the appellants in para 7 of their written submission, contains 38.63% of n-Hexane, about 50% of isomers of Hexane and balance consists of Cyclic Hydrocarbons and Acyclic Pentanes. 13. According to Chapter Note 1 of Chapter 29, the headings apply only to : (a) Separate chemically defined organic compounds, whe....
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....materials or impurities which existed in the starting material. Other than the report of the Customs House Laboratory and the report of SGS, Revenue has no evidence to show that this claim is wrong. Both these reports do not go into this aspect at all. Further, the opinion given by the technical expert Dr. Tilak Guha, has also not been challenged by the Revenue nor controverted by producing contrary evidence. This also supports the case of the appellants. Dr. Tilak Guha, the technical expert whose opinion has been relied upon by the appellants has stated clearly that in terms of purity represented by n-Hexane content, the product can be of two categories namely commercially pure grade containing n-Hexane in the range of 40% to 64% by volume and technically pure grade containing n-Hexane from 65% to 90% or more. He has also stated that the cost of production of hexane by fractionation distillation technology increases exponentially with increasing level of purity due to the increasing capital cost and energy cost. He has also explained that the benefit/cost ratio in the performance of hexane diminishes beyond a certain level of hexane purity which is about 60% and it becomes commerc....
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....es of isomers of saturated Acyclic Hydrocarbons : (i) separate isomers not less than 95% pure (ii) mixtures of isomers containing less than 95% of a single isomer." According to the learned special counsel and the Revenue, the above opinion of WCO with regard to classification has persuasive value though not binding effect. First of all the opinion is 13 years old and as submitted by the learned counsel for the appellants, such opinions are discussed and when accepted, are incorporated in the tariff. Even after 13 years, this opinion has not been incorporated in any of the notes or in the tariff. Even now in some cases like Phenol 90%, Ethylene 95%, purity has been specifically prescribed for classification under Chapter 29. The very fact that no purity has been prescribed for n-Hexane or Hexane and the definition of impurities given in the HSN and the fact that there can be two terms namely pure and commercially pure would, in our opinion, support the appellants' case. The technical expert has also stated that improving the purity by decreasing the range of boiling points would involve abnormal conversion cost and render the....
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....nsisting of different materials or made up of different components shall be classified as if they consisted of the material or components which give them their essential character. In this case among all the components, the percentage of n-Hexane content is the maximum. The product is called Hexane. Further 88.7% of the total content consists of n-Hexane and its isomers. There is no evidence to show that the product is not a mixture of different components. In this case from the evidences on records and reports available and the opinion of technical expert and literature, it emerges that the essential character of the product is derived from Hexane. 21. In the explanatory notes to Chapter 29.01 of HSN, at (A) it is specifically stated that saturated acyclic hydrocarbons of the heading include Hexanes, with six atoms of carbon. The use of word 'Hexanes' and not Hexane supports the case of appellants and if we take the heading as hexanes, hexanes percentage in the product is more than 88%. This would satisfy the predominance test also. 22. In terms of Rule 3(c) of Interpretative Rules also, the appellants have a case since even if is held that Revenue has been able to....