TaxTMI 
TaxTMI 
2018 (12) TMI 91
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....t Gandhar, Vaghodiya, Pata and Vijaypur. All having separate Central Excise registration certificates for the manufacture of the said excisable goods. Subsequently they have also obtained CTU membership on 10.4.2012. The Department observed that the respondent is mis-declaring one of the products that is "Natural Gasoline Liquid" (NGL) as "Naphtha" at the time of clearance from their factory premises NGL has a specific entry as Central Excise Tariff item 2710 12 20 (earlier at 2710 11 20), which attracts Central Excise Duty of 14 % ad volerum + Rs. 15 per liter whereas Naphtha has specific entry 2710 11 90 (earlier 2710 12 90) of the schedule to Central Excise Tariff Act 1985 (CETA) and that it attracts the duty at the rate of 14 per cent ad volerum by along with the benefit of exemption under Notification No. 18/2009/CE dated 7/7/2009 (as amended). The Department on the basis of test Reports, alleged that respondents by such mis-declaration have short paid the duty to the extent of Rs. 15 per litter on manufacture and clearance of NGL. Resultantly following five Show Cause Notices for the different units of the respondents were issued. S.N. SCN issued by (Comm.) Plant ....
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....icee is similar to that of other manufactures of Naphtha i.e. ONGC, BPCL and MRPL. The product is bought and sold as Naphtha as is otherwise apparent from respondent, major customers and on the basis of individuals test reports submitted at the time of clearance of the product. Further Indian Institute of Petroleum has also certified the, product as Naphtha. (viii) There is no suppression of fact on the part of the Noticee with the intent to evade payment of duty, as there is no evidence of alleged act. Hence no penalty can be imposed under Section 11 AC of CEA. Being aggrieved of the said order the Department is before us vide the in present appeal. 3. We have heard Shri Harpreet Singh Standing Counsel for the appellant and Shri V.Lakshmi Kumar Ld. Advocate & Shri Anurag Kapur Ld. Advocate for the respondent/assessee. 4. It is submitted on behalf of Department that the committee of Chief Commissioner constituted statutorily under Section 35 E (1) of the Act, after examining the order in original has viewed the same as "not legal nor proper" as the same has wrongly determined the product of the respondent as Naphtha despite obtaining the parameters from the Like M/s MRP....
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....atements as a corroborative piece of evidence to the report of chemical examiner the Adjudicating Authority definitely has committed error. The Department has accordingly prayed for the order under challenge to be set aside. In addition it is submitted that since there is major duty difference between NGL and Naphtha, the impugned mis-classification cannot be ruled out to be a deliberate strategy with intention to evade the payment of additional duty on NGL. The Department was thus entitled to invoke the extended period of limitation. The findings of the order under challenge to that effect also are prayed to be set aside appeal is accordingly prayed to be allowed. 5. While rebutting all these arguments, it is submitted on behalf of the respondent assessee that they are the manufacturers of liquefied petroleum gas (LPG) and Naphtha at four of their plants. It is submitted that initially they were manufacturing NGL ,however, due to presence of high amounts of pentane their product was extremely volatile. Due to which the provisions were made to spike the manufactured NGL back into the feed stream along with the lean gas. It is impressed upon that the said factum has dully been re....
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.... vanishes entire sanctity in the report which is the sole criteria for the Department to inhibit the impugned adjudication against the respondent. The Ld. Counsel further impressed upon that the Chemical examiner has miserably been silent about giving any reason as to why sample tested cannot be treated as Naphtha. The Chemical Examiner is alleged to have a wrong understanding that Naphtha and NGL are two different chemical/ petroleum products obtained from two different sources. It is reiterated that Naphtha can also be obtained from Natural Gas. The report of examiner is, therefore, alleged to be full of discrepancies and thus is unreliable. 6.1. The sample which was drawn by the Department subsequently were with the malafide motive of testing Reid Vapour Pressure (RVP), the same being differentiating criteria for the impugned both the products. However no new test memo was issued at the time of subsequently drawn samples. There otherwise is discrepancy about who visited Vadodara unit for drawing and testing samples. Ld. Counsel pointed out towards the contradiction in the statement of chemical examiner and that of Mr. Krishan Kumar, in-charge of engineering laboratory i....
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....lassified under Chapter heading 2709. 6.4. It is further impressed upon that the end use of Naphtha and natural gasoline liquid are absolutely different. However Naphtha can also be manufactured from natural gas contrary to the stand of the chemical examiner. Had the respondent been not providing Naphtha to its customers he would have been amenable to litigation on account of the breaching its contractual obligations. Since the definition of Naphtha as not been provided within the frame work of laws, it is required that Naphtha is to be understood. Finally it is submitted that in the manner the persons engaged in the trade understand it to be in commerce parlance and that the onus of classification lies upon the Revenue. The respondent assessee has relied upon falling the case laws; 7. After hearing both the parties, at length and perusing the entire record and literature referred we are of the opinion: 8. The moot question to be adjudicated herein is as to whether the product manufactured by the respondent /assessee is Natural Gasoline Liquid (NGL) having excise duty at the rate of 14 per cent ad volerum plus Rs. 15 Rs per liter having tariff entry as 2710 12 20 or ....
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....C 14 TO 20 250 TO 350°C Less volatile than petrol, diesel fuel for some cars and larger vehicle like haulage trucks, trains, central heating fuel, also cracked to make more petrol and alkenes Heavy fuel oil, heating oil, lubricating oil, greases C> 20 TO ̴ 30 >350°c Not so easily evaporated, not as flammable, safe to store, liquid fuel oil for power stations and ships, quite viscous(sticky)and can also be used for lubricating oils(lubricants, mineral oils) and greases. RESIDUE-fuel oil, lubricating oils, waxes And Bitumen (40-50%) C>30, maybe up to several hundred High boiling liquids or low melting solids, that boil over 350°C Bitumen components boil over a 500°C-700°C Low melting solids used as candle wax, clear waxes and polishes(can be dyed)And the biggest molecules make bitumen/asphalt-low melting solid used on roads as it forms a thick, black, tough and resistant adhesive surface on cooling, used as a roofing waterproofing material(it sticks rock chips on roofs or road surfaces) Based on the above mentioned literature we have been concluding that the NGL and Naphtha are highly overlapping constituents of oil refineries....
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....ss low boiling liquid. It is manly composed of lighter mineral hydrocarbon oil, having following characteristic, % C5 = 53.21 %C6 =33.50 % Evaporation at 60°C = 66.0 Distillation Range = 38°C to 121°C Density at 15°C = 0.6730 The sample is a low boiling liquid, extracted from Natural gas. It confirms to the requirement of "Natural Gasoline liquid" (NGL) as specified in CETA. It is other than Naphtha". 12. The samples from two units were subsequently withdrawn and the test reports result thereof are as follows; VADHODIA GANDHAR PATA VIJAYPUR N 30/8/2011 10/1/2012 30/08/2012 10/1/2012 23/3/2012 23/3/2012 1. Density at15°C 0.673 0.6863 0.6728 6798 2. API gravity 74.6 78.81 76.65 3. Flash Point(Below) 25°C 25° C 25 C 25 C 4. Distillation range 38-121°C 38-121° C 41-121°C 36-121° C 39-125 C 39-128C 5. %of evaporated at 60°C 66 70 40 70 65 58 6. C5 53.21 86.71 37.5 74.6 55.1 44.47 7. C6 33.5 39.4....
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....t of NGL is 30° to 140°C i.e. the range is overlapping but the range classifies that for a product to be Naphtha only 10 per cent and more thereof has to distilled below 175°C as per impressed upon definition of Hawley's Condensed Chemical Dictionary (relied upon the respondent assessee). Whereas in the present case more than 66% of product has evaporated at 60° temperature. Thus there remains no doubt that the sample belongs to the product having comparatively lesser boiling point range, which is NGL as apparent from above discussed chemistry. Thus irrespective, that both are NGL as well as Naphtha classified as low boiling liquid petroleum product extracted from natural gas but the fact remains is that the product herein is the one which is evaporating at its maximum at lower temperature and as observed from the above table concluded from the literature provided by the respondent, it is NGL which has lesser boiling point range than that of Naphtha. The argument of respondent that light Naphtha also has lower range of boiling point is also not acceptable because the sample herein has more number of Pentane (C5) with traces of Hexane(C6) & as discussed, for sample t....
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....ed to yield a stabilised natural gasoline. The same is acknowledged as a distinct product extracted from a specified raw material viz natural gas. In his statement dated 31st August 2012, he also acknowledged the feasibility report of LPG recovery plant Pata as was submitted by the senior officer of respondent itself, that the said report specifically envisages the product therein to be NGL. He specifically stated that the plant was initially erected to manufacture NGL however some modifications were carried out subsequently to produce some other products such as special boiling point solvents (SBPS) and Naphtha. He then detailed the procedure adopted at their factory deposing that natural gas is used as the raw material by them from which first LPG (C3,C4) got separated in the LGP chamber. The condensate thereof is transferred to the NGL fractioning chamber from the top whereof is recovered NGL (C5,C6) and from the bottom whereof the another low boiling point liquid i.e. Naphtha is collected. This witness when was specifically asked about the key differences between NGL and Naphtha, he expressed his inability. Similar inability was expressed by Shri L.R. Gupta, the General Mana....
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....dent: are Ethane/Propane mixture, LPG, Pentane and Naphtha. The hydrocarbons extracted from Natural gas. He also deposed the procedure of extraction in due corroboration to Mr. M.B. Gohil. However with reference to NGL, he denied his knowledge even about the full name thereof. Now, if the statement of Mr. Arjan Kalara Jadav Chief Manager Operations is perused. It appears that respondents were extracting the NGL from the bottom of LPG column, he also deposed that before year 2011 respondent used to crack the said NGL further to form MFO but thereafter the said NGL used to be sent to a butanizer to obtain the required suitable product. 15.3. When all these testimonies it become clear that the product manufactured by respondent is the one as is collected from the bottom of LPG column the said product was earlier used to be cracked to be converted into MFOs but beyond the year 2011 the said product is simply butanized. It is also apparent from the statement of Mr. M B Gohil that the sample as was collected on 24/08/2011 with test report of chemical examiner dated 30th August 2011, was collected from the loading area. Above all these statements makes it ample clear that the de-....
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....e people from other petro chemical industries as that of M/s Bharat Petroleum Corporation (BPL) M/s ONGC the major oil marketing companies as were recorded are also perused. They all acknowledged that the Naphtha they are manufacturing is extracted from refined crude oil in their crude distillation units. As already discussed above, that is the characteristic manufacturing process for Naphtha. Admittedly and apparently, the Naphtha by respondent assessee is not manufactured by crude oil but by natural gas that too not by the method of distillation but by method of condensation. Mr. M.B. Gohil more specifically defined the product of respondent based on Indian Glossary of Petroleum Products as low boiling liquid petroleum product extracted from natural gas. When these testimonies are read together these are observed to have ample. He has gone to the extent of stating that Propane and Butane are fairly high natural gas which are removed to yield stabilized natural gasoline thus natural gasoline is classified by him as the distinct product from a specific parameters finds natural gas 16.2. Thus from the statements of various customers of the respondent/assessee it is coming a....
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....ons distinguishes NGL & Naphtha. Since NGL is defined in Chapter notes, NGL reflected in the Notification is a derivative of Natural Gas and Naphtha being shown separately other than NGL, it is a product of Petroleum oil. Also in the exemption Notification Naphtha has been categorically placed under CETA 2710 of the schedule to CETA, thus it becomes clear that Naphtha can be classified under the broad category of other light oils and preparations i.e. under 2710 11 90 also. 19. Thus irrespective that Naphtha is a low boiling liquid petrol product but as is discussed above, it is not directly extractable from natural gas this may be the reason for no specific entry called Naphtha under Chapter 27. The classification of the product in the Central Excise Tariff has to be done as per the rules of Interpretation, Chapter notes and Section notes contained in the Tariff. The definition under the trade parlances and Commercial understanding or definition under any other literature including scientific literature can only be referred if specific definition is not given in the chapter or the section notes. Hon'ble Supreme Court in the case of Cannought Plaza Restaurant Pvt. Ltd. 2012 (286....
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....esent case is also availing the benefit of exemption Notification about Naphtha but word Naphtha has not find any place under new Tariff Entry. Any benefit cannot be claimed of non existing entry irrespective the product exist and is classifiable under any other Tariff head. At this stage it may be seen that chapter heading 2710 old 6 digit Tariff, which existed in 2005 there was a specific sub heading 2710 14 for Naphtha and 2710 15 for NGL, both were the products grouped under broad heading of motors spirit however in the present 8 dejected Tariff entry of Naphtha has been removed and natural gasoline liquid is grouped under a variety of light oils and preparations (2710 12) and continues to exist being classified under Tariff item 2710 12 20. Supplementary note (b) of Chapter 27 of CETA defines NGL as a low boiling liquid petroleum product extracted from natural gas. NGL has been separated from the group of Motors sprits. Earlier NGL, SBPS and Naphtha all were under the Tariff Group of Motors spirits,( as discussed above). This we take as a ground to hold that legislate intended to seggregate NGL, it being a different product then Naphtha irrespective both being low boiling poin....
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....ent is very much apparent from his reliance upon the case Gail vs. Commissioner 2004 (17) ELT 78 (Tribunal-Delhi) where the respondent has impressed upon the NGL to have fallen under Chapter heading 2719. Also respondent in alternative, has prayed for rejecting this appeal on this grounds submitting that no extra duty is leviable under heading no. 2719. This submission rather amounts as apparent acknowledgment on the part of the respondent for its product to be NGL and not Naphtha. It is also observed from this case law that it was acknowledged on the part of the M/s Gail "it is universally known that in the process of extraction of LPG from natural gas NGL would be imparted. As already discussed above the product of respondent is the one which is extracted from LPG column it has to be NGL and not Naphtha. The said case however is not applicable to the present case for the reason that the product involved therein was the condensate whereas the product in hand is the one collected from the bottom of LPG column. Similar acknowledgment of appellant is apparent in another of its case Commissioner vs. Gail 2015 (390) ELT 5 Supreme Court where M/s Gail took the stand that natural gas aft....
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.... distils below 121°C and this the literary evidence that NGL has much lower distillation range than Naphtha, the Adjudicating Authority has committed the blatant error while still holding the product as Naphtha. The conclusion arrived at by the Adjudicating Authority below are the correct characteristic for a product to be Naphtha. But the authority has filed to apply those conclusions to the evidence on record and the available literature(chemistry). The decision under challenge is held to be non-speaking decision reflecting a pre-supposed mind of the authority in ignorance of the entire material on record. 24. Finally coming to the plea of Show Cause Notices being barred by time; From the entire above discussion, it is clear that the product of the respondent has wrongly been classified by the respondent as Naphtha. It is also apparent fact that the Naphtha has much lesser Excise Duty as less as Rs. 15 liter. In view thereof mis-declaration cannot be ruled out to be a strategy for tax evasion. We also opine that the act to the extent of even claiming exemption on the mis-declarated product is a positive act of mis-representation of the facts with sole intention to evade....