TMI Blog1998 (3) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... 500 kgs. of Insan-LE on 9-9-1986. 2. The Superintendent of Central Excise, Baroda issued a show cause notice on 3-3-1987 asking the Appellants to show cause why duty amounting to Rs. 76,34,398.94 should not be recovered under Rule 9(2) of the Central Excise Rules read with Section 11A of the Central Excise Act in respect of Insan-LE manufactured and removed by the Appellant for the period April, 1983 to August, 1986 on the ground that Insan-LE was classifiable as Motor Spirit under sub-heading 2710.19 and Modvat credit on inputs was wrongly taken. The Appellants were also asked to show why a sum of Rs. 1,47,782/- should not be recovered on 45,898 kgs. of Insan-LE allegedly manufactured illicitly and removed during the financial year 1984-85. The Appellants were also asked to show cause why duty amounting to Rs. 10,28,651.40 should not be recovered in respect of Insan-LE another by-product weighing 196.142 M.T. which allegedly illicitly manufactured and removed during the period 1982-83 to 1986-87 and it was further alleged that there was variation in quantity mentioned in statutory register RG 1 and that shown in the production reports of the Appellants and hence it was alleged t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the material before the Tribunal was not sufficient to decide the classification of the product and the matter was remanded to the Commissioner to determine the classification of the product under Chapter 27. As a result of the order of the Tribunal the Appellants made detailed explanation regarding classification of Insan-LE and also given their explanation for the shortages found. On classification they contended that Insan-LE is classifiable as Aviation Turbine Fuel (ATF) under sub-heading 2710.21 [of] CETA. They resisted the classification of the product as Motor Spirit under sub-heading 2710.19 saying that the product is not considerable for use as fuel in spark ignition engine. Only if it is found so suitable the question of classifying it as Motor Spirit under 2710.19 will arise. The Commissioner in the impugned order held that Insan-LE fulfills the criterion of suitability for use as fuel in spark ignition engine and hence correctly classifiable under 2710.19. On the shortages also he confirmed the demand as was done in the earlier order of the Commissioner and the Commissioner also ordered confiscation of the land and building, plant and machinery under Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that the same are not suitable for blending into any of their finished product. The learned Senior Counsel contended that this itself will show that the Insan-LE is not suitable for use as fuel in spark ignition engines. The learned Senior Counsel also pointed out that the department has not carried out any test regarding corrosion factor. This was an admitted position emerging from the cross-examination of the Chemical Examiner. 7. On the other hand that Appellants have led evidence by way of affidavit of Dr. I.B. Gulati, Retired Director of Indian Institute of Petroleum, where after detailed examination of the product Insan-LE and also subjecting it to the corrosion test, Shri Gulati has opined that it is not found to be accepted and used as Motor Gasoline. It is highly corrosive in nature and cannot be mixed in any proportion to meet the test for corrosion for Motor Gasoline. The learned Senior Counsel also referred to and relied upon the Board s clarification in respect of the classification of Heptene and Nonene under the Central Excise Tariff in F. No. 528/157/93-10 TU (15-9-1994) saying that this product can be classified under Aviation Turbine Fuel (ATF) for Centra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the department. He referred to the show cause notice in this case. Statement of N.K. Valecha, Production Superintendent of the Appellants dated 9-9-1986 to state that the product is a mixture of alcohol and Hydrocarbon classifiable under Chapter 29. The Appellants have claimed its classification under Chapter 29 knowing that it is not a separately defined chemical compound which only falls under that chapter. Again from the show cause notice the ld. DR argued that for Motor Spirit the requirement of Octane No. is 70 and the Octane No. of Insan-LE is much above that. The Appellants had not fully disclosed the nature of Insan-LE in their letter dated 8-9-1983 to the Superintendent, consequently does not indicate that it contains Hydrocarbons. On the other hand the certificate from the Chief Research Manager of Indian Oil Corporation, Shri Nanda has evaluated Insan-LE and has clearly indicated that on the basis of its characteristics the product can be used as a fuel for spark ignition engines and has a RON of 82.2 which is close to 83 RON Gasoline marketed earlier. It is said that in order to meet the current 87 RON the product can be suitably blended with TEL for use as Gasoline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 6 read as follows : 27.10 Petroleum oils and oils obtained from bituminous materials, 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. Motor spirit, that is to say, any hydrocarbon oil (excluding crude mineral oil) which has its flash point below 25 o C, and which, either by itself or in admixture with any other substance, is suitable for use as fuel in spark ignition engines. Other 2710.19 Kerosene (which is ordinarily used as an illuminant in oil burning lamps) and aviation turbine fuel, that is to say, any hydrocarbon (oil excluding mineral colza turpentine substitute) which has a smoke point of eighteen millimeters or more and has a final boiling point not exceeding 300 o C : 2710.2 - Aviation turbine fuel." The characteristics that the `Motor Spirit should satisfy for being classified as `Motor Spirit will be that it should be a Hydrocarbon oil and it should have a flash point below 27oC and it should have either by itself or admixture with any other substance suitable for use as fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Indian Oil Corporation Chief Research Manager, Shri J.R. Nanda has informed that the sample of Insan-LE has been evaluated at the Centre and his report is enclosed to that communication wherein it has been found that the product basically comprises a mixture of Hydrocarbon and non-hydrocarbon materials was present in traces only and that the product can be used as a fuel for spark ignition engines. The Research Octane Number as tested is 82.2. This is quite close to the 83 RON gasoline marketed earlier. However, in order to meet the current 87 RON the product can be suitably blended with TEL or used as a gasoline pool component . The other piece of evidence relied upon by the department is Kirk Othmer, Encyclopedia of Chemical Technology Vol. 14, according to which the product of the same composition as Insan-LE can be used as `Motor Spirit . It is stated therein under the Heading `Oxo Process that the Gaseous Paraffins mixed with starting olefin can be easily separated from the crude liquid product and can be re-cycled to the reactor if sufficient unreacted olefin is present, or can be used for fuel or return to the refining area. Liquid olefin-paraffin mixtures can also b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F. No. 528/157/93-CUS. (TU), dated 15-9-1994 on the subject of classification of Heptene and Nonene under Central Excise Tariff. The Ministry has inter alia stated that these items cannot be classified as `Motor Spirit under any of the sub-heading starting from 2710.11 ending with 2710.19 of the Central Excise Tariff since for all these sub-headings the criterion of suitability for use as fuel in spark ignition engine is prescribed. Ministry s letter further observed that, however, the Central Excise Tariff entry for Aviation Turbine Fuel (ATF) does not prescribe any end use but mainly defines the item with reference to technical specifications and the Ministry observed that as the product considered in that case met these technical specifications, they would merit classification as ATF under the Central Excise Tariff. Therefore on evidence as noted above since Insan-LE does not satisfy the criterion of suitability for use as fuel in spark ignition engines, because it is not practically or commercially so used, then the claim made by the Appellants that it should fall under sub-heading 2710.21 as Aviation Turbine Fuel which does not prescribe criterion of suitability, has lot of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal of production, although we are in agreement with the Commissioner in his finding that there cannot be an automatic set-off of shortages against excess, we find that the whole issue of shortages and excess has to be re-determined in the light of the decision now given on the classification of the product Insan-LE. Secondly it would also be required to be considered whether the Appellants should be given the margin of 1% condonation which they claim as being prescribed and accepted by the Central Board of Excise and Customs. They have referred to an order dated 19-2-1992 in their own case passed by the Commissioner of Customs Central Excise (Appeals), Bombay. In that case the Commissioner has observed that the Board have in their letter F. No. 8/4/61/CX. 3, dated 11-4-1961 had allowed condonation up to 1% as being condonable in respect of Motor Spirit because of loss due to evaporation during handling, filling, storage etc. In the present case it will be reasonable for the Commissioner to consider whether the loss percentage in this case would fall within the prescribed condonable limit and whether it could be extended to the Appellants while determining demand due to the short ..... X X X X Extracts X X X X X X X X Extracts X X X X
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