TaxTMI 
TaxTMI 
TaxTMI 
2021 (8) TMI 114
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....ent and as 'gas condensate' by the respondent. 3. The respondent, it has been stated, manufactures products falling under Chapter 27 of the First Schedule to the Central Excise Tariff Act, 1985 [the Tariff Act ], including Liquified Petroleum Gas [LPG] and Naphtha from natural gas at its plants situated at Gandhar, Vaghodia, Lakwa, Vijaipur & Pata and the process of manufacture has been described by the respondent in the following manner: "Firstly, the natural gas is dried and filtered to remove impurities such as moisture and dust. Thereafter, dried and filtered natural gas is cooled in the course of which, the components of natural gas namely, ethane, propane, butane, pentane and higher hydrocarbons are liquefied, along with some traces of methane. This liquefied portion is subjected to further fractioning where the lighter hydrocarbons mainly C1 (methane), C2 (ethane) and C3 (propane) are removed and the heavier fractions containing C3+ hydrocarbons are sent to the next column viz. LPG column. In the LPG column, mixture of propane and butane is separated from the top and the remaining heavier factions composed of C5 and C6+ hydrocarbons are fed into the NGL fractioning column....
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....r fraction; that in LEF column, lighter hydrocarbons, namely, methane, ethane and propane is removed from the top of column; that material from the bottom of the LEF column is fed into LPG column where it is further fractioned; that is results into LPG from top of the column, and from the bottom of the Column heavier hydrocarbons containing Pentane - Hexane etc. i.e. C5 plus, popularly known as NGL, being drawn which is a condensate, nothing but Petroleum in natural state and classifiable under C.H. 2709.00 of the Central Excise Tariff which applies to "Petroleum Oils and Oils obtained from bituminous materials, crude". The issue of classification of this condensate stands settled by the judgment of Hon'ble CESTAT in the case of Oil India LTD. V/s. CCE, Shillong, 2002 (148) ELT 802, which was also upheld by the Hon'ble Supreme Court as reported in 2004 (170) ELT A 116/ (S.C.) and also another judgment of CESTAT in the case of M/s. GAIL, Waghodia, 2004 (170) ELT 75 (Tn. Del.). 3.3 It further appears that this also came to notice during investigation that said NGL is used in the manufacture of NAPHTHA from April2011, and before that it was used in the manufacture of Special Boiling....
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....me allegations. 8. The respondent filed replies to the aforesaid show cause notices and denied all the allegations made therein. It was inter-alia, submitted that the respondent was not liable to pay NCCD as the same was exempt under Notification dated 14.05.2003; that the intermediate product, being a mixture of liquid hydrocarbons, was not an excisable product as the same was not marketable and, therefore, no NCCD was payable on the same; and the respondent also placed reliance on a Board Circular dated 09.01.2004 to contend that NCCD is payable on crude obtained from oil fields only. 9. The Commissioner dropped the demands proposed in the aforesaid six show cause notices by a common order dated 14.07.2014. The reasons stated by the Commissioner, in short, are as follows: (i) NCCD was introduced on 'petroleum oils and oils obtained from bituminous minerals, crude' falling under Chapter Heading No. 2709 of the Tariff Act in the Budget of 2003-04. Simultaneously, an exemption Notification dated 01.03.2003 was issued which provided exemption from payment of NCCD on crude oil obtained from certain specified oil fields. The said notification was substituted by Notification dated 1....
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....ing authority failed to appreciate that NCCD is imposable as it is classifiable under the Chapter Heading 2709 of the Tariff Act. 11. Shri O.P. Bisht and Shri Rakesh Agarwal, learned Authorised Representatives of the Department appearing for the Appellant made the following submissions:- (i) The appellant had earlier filed Excise Appeal No. 55666/2014 regarding classification of the product manufactured by the respondent to assail the order dated 23.07.2014 passed by the Commissioner dropping the demands by holding that the product cleared by the respondent was Naphtha falling under Heading 2710 12 19 or 2710 12 90 of the Tariff Act and entitled to exemption under Notifications dated 01.03.2006 and 01.07.2009. This Excise Appeal was decided by the Tribunal by order dated 30.11.2018 [Commissioner of C. Ex. & ST. LTU, Delhi vs. Gas Authority of India reported in 2019 (366) ELT 941 (Tri-Delhi).] holding that the classification of the product is NGL and not Naphtha. The respondent filed on appeal against this order of the Tribunal before the Supreme Court and by an order dated 14.02.2019, the Supreme Court stayed the operative part of the order of the Tribunal. Thus, when the classi....
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....(S.C.) ]; b) Collector of Central Excise, Patna vs. Tata Iron & Steel Co. Ltd [2004 (165) E.L.T. 386 (S.C.) ]; and c) Union of India vs. Ahmedabad Electricity Co. Ltd [2003 (158) E.L.T. 3 (S.C.)]; (iv) In any case, the manufacturing process employed by the respondent is a continuous process which does not allow for extraction of the intermediate product i.e. mixture of liquid hydrocarbons at the intermediate stage. The manufacturing process is completely mechanized and automatic and at no stage controlled by the respondent; (v) The Circular dated 09.01.2004 clarifies the above submission that NCCD on Crude Petroleum Oil should be charged only on the total quantity of Crude Petroleum Oil produced and supplied from the oil field to the refineries. In the instant case, the mixture of hydrocarbons, termed as NGL by the department, is neither produced in the oil field nor supplied to the refineries by the respondent and so no NCCD is recoverable from the respondent; (vi) If the demand cannot be quantified, then provisions of levy fail; consequently, there can be no demand. The quantity of intermediate product produced by the respondent could not be quantified and s....
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....tives of the Department have been considered. 14. It will be necessary to examine the product of which the classification has been sought and then determine whether NCCD is leviable on it. 15. The show cause notices, portions of which have been reproduced in paragraph 6 of this order, describe the product as "heavier hydrocarbons containing pentane/hexane popularly known as NGL." This has been stated to be a condensate classifiable under Heading 2709 of the Tariff Act. The respondent has also described the process undertaken by it and the same has been reproduced in paragraph 3 of this order. There is no apparent difference in the description of the process undertaken by the respondent. 16. It is seen that natural gas is first dried and filtered to remove impurities. It is then cooled as a result of which certain components of natural gas like ethane, propane, butane, pentane and higher hydrocarbons are liquefied with some traces of methane. This liquefied portion is subjected to further fractioning where the lighter hydrocarbons like methane, ethane and propane are removed and the heavier fractions containing C3+ hydrocarbons are sent to the LPG column. In this LPG column, mixt....
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...., therefore, not marketable. It would, therefore, not be an excisable product. Consequently, it is not leviable to Central Excise duty. 21. It needs to be remembered that the Tribunal in Gas Authority of India, which is a case pertaining to the respondent, did not accept the contention advanced on behalf of the Department that the product namely NGL, was marketable. The Tribunal also held that the product would be classifiable under Heading 2709 of the Tariff Act. The relevant portion of the decision of the Tribunal is reproduced: 1. In these two appeals, filed by M/s. Gas Authority of India Ltd., against the Orders-in-Original, the common issue involved is whether Natural Gas Liquid (NGL) is marketable and whether it is classifiable under Heading 27.10 of the Schedule to the Central Excise Tariff Act or under Heading No. 27.09/27.11 of the Tariff. 2. Sh. V. Lakshmikumaran, learned Advocate, mentioned that the appellants manufacture Liquefied Petroleum Gas (LPG) from natural gas; that natural gas is the mixture of various hydrocarbons and broadly consists of C1, C2, C3, C4 (Propane & Butane); that in the process of extraction of LPG, a mixture of C5 and C6 called as NGL emerge....
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....een decided by the Appellate Tribunal in the case of Oil India Ltd., [2002 (148) E.L.T. 802 (T) = 2002 (51) R.L.T. 1030 (CEGAT)]. The Tribunal has relied upon Board's Tariff Advice No. 121, dated 17-11-1981 which reads as under: "The Ministry of Petroleum, Chemicals & Fertilizers, (Department of Petroleum) who were consulted, have examined the matter in detail in consultation with the Oil & Natural Gas Commission and Oil India Ltd., who are the producers of crude oil in the country. Based on their opinion, the Ministry have advised the Condensate is a petroleum in natural state and is crude oil. Having regard to the advice tendered by the Ministry of Petroleum based on the opinion of the trade understanding, Board is of the views that Condensate is classifiable as crude mineral oil under Item 68 CET." 5.2. The Tribunal, in view of the said Tariff Advice, came to the conclusion that Condensate is a petroleum in a natural state and is crude oil and it is to be classified as crude mineral oil falling under sub-heading 2709.00 of the Tariff which applies to "Petroleum oils and oils obtained from bituminous materials, crude." The Tribunal also observed that Heading 27.10 speci....
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....iable under Heading 2709 which refers to petroleum oils and oils, obtained from bituminous materials, crude. The relevant portion of the decision of the Tribunal is reproduced below:- 8. In view of the Board's clarification dated 17-11-81 the Revenue cannot take up a contention that condensate will not come under Item 68 of the old Tariff. The above clarification further makes it clear that condensate is a petroleum in natural state and is crude oil. It is to be classified as crude mineral oil. If that be so, it would directly come under sub-heading 2709.00 which takes in petroleum oils and oils obtained from bituminous materials and crude. When we examine the Heading 2710 we find that the main heading makes a specific exclusion of crude. If that be so, there is no merit in the contention that because of an exclusion clause provided under Motor Spirit, condensate has to undergo a test of flash point and use as a fuel in spark ignition engine for being excluded from the Heading 2710. Since the main heading itself excludes crude, it cannot be taken that a subsequent exclusion will bring it back under Heading 2710. There is also merit in the contention of the appellant that referen....
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....d out by the revenue that even according to the respondent, it stored starch hydrolysate in tanks before transporting it through pipes but according to the appellant, the storage of starch hydrolysate was only for a period of a few hours only as a step in the process of transfer thereof to sorbitol. It, therefore, appears to us that there was substantial evidence that having regard to the nature of the goods that this was unlikely that the goods in question were marketable. This should be judged in the background of the evidence that the goods have not been marketed in a pragmatic manner. All this again would have to be judged in the light of the fact that revenue has not adduced any evidence whatsoever though asked to do so. It was pointed out that if the Department was to charge duty of excise on this starch hydrolysate as one form of glucose it would be the burden on the Department to establish that starch hydrolysate was not merely marketable but was being marketed as glucose in some form. This would be so since what is liable for duty under Item 1-E is glucose in any form and, therefore, in order to demand duty under that Section, the Department must establish that the product....
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.... was marketed or is marketable. In fact, the contention of the respondent is that the condensate that emerges is captively consumed for the manufacture of Naphtha and the process of manufacture is a continuous and integrated one, which breaks only at the stage of emergence of Naphtha. The respondent also contends that no extraction of the condensate emerges from the bottom of LPG column, since this mixture, upon its emergence, passes to the next column immediately for extraction of Naphtha. The respondent further claims that gas condensate is not manufactured or cleared by the respondent and, therefore, no new product emerges during the manufacture of Naphtha from the LPG column. No evidence has been led by the Department to controvert this factual position stated by the respondent. 32. Such being the position, there is no hesitation in holding that NCCD would not be leviable on gas condensate, even though it is classifiable under Heading 2709, since it was not marketed and is also not marketable. 33. In view of the aforesaid discussion, it would not be necessary to examine the other two contentions raised by the respondent regarding the Notification dated 01.03.2003 or the Circu....
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....r a Notification dated 07.07.2009. In terms of the above Notifications, the product falling under Chapter Heading 2710 was exempt from duty of excise in excess of 14% / 16%. 38. The show cause notices proposed a demand of differential duty of excise on the product on the ground that the goods were NGL, classifiable under Tariff Item No. 2710 11 20 / 2710 12 20 and were not classifiable under Tariff Item No. 2710 11 90 / 2710 12 90, as claimed by the respondent. Consequently, the show cause notices proposed a demand of duty @ 16% / 14% + Rs. 15 per litre with imposition of penalty and recovery of interest. 39. In response to the show cause notices, the respondent denied all the allegations and contended that the product in question was classifiable under Tariff Item 2710 11 90. The respondent also pleaded alternatively that the product in question, being a condensate of natural gas, was classifiable under Chapter Heading 2709 and chargeable to 'NIL' rate of duty. 40. The Commissioner, by order dated 24.07.2014, dropped the entire demand of duty proposed in all the show cause notices primarily for the reason that the product fell under Heading 2710 and was entitled to exemption un....
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....the show cause notices, which were the subject matter of the earlier Excise Appeal and the show cause notices which are the subject matter of the present Excise Appeal. The Department had previously issued multiple show cause notices to the respondent alleging that the product was classifiable as 'NGL' under Tariff Item No. 2710 12 20 of the Tariff Act. However, the present show cause notices have been issued by the Department claiming classification of 'NGL' under Chapter Heading No. 2709 of the Tariff Act. 46. It is, therefore, not possible to accept the contention of the learned Authorized Representative appearing for the Deparmtment that the product should be classified as NGL under the same Heading as was classified in the order of the Tribunal passed in the earlier Excise Appeal. The show cause notices, in the present Excise Appeal, proceed on the footing that the heavier hydrocarbons (gas condensate) should be classified under Heading 2709 of the Tariff Act. The Department cannot, in this Excise Appeal, be permitted to take a stand that is contrary to the stand taken in the show cause notices. 47. The aforesaid discussion leads to the inevitable conclusion that the product....