TMI Blog2018 (12) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... and not Naphtha. In the new Tariff NGL is treated separate from motor spirit and continues to have a specific entry i.e. 2710 12 20 but Naphtha finds no mention under the new Tariff. However both have been grouped under light oils and preparations . If at this stage the report of chemical examiner about the sample in question is observed, it specifically mentions the product as a low boiling liquid petroleum product extracted from natural gas. The new tariff defines such a product specifically as NGL. Once this is so, there is no reason to still hold the product as Naphtha. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant for the purpose are that the respondent herein that is M/s GAIL (India) Ltd. is primarily engaged in the transportation of natural gas through pipelines. In addition to appellants are also engaged in manufacture of petroleum gases and other gaseous hydrocarbons, petroleum oils and oils obtained from bituminous minerals other than crude i.e. the products falling under Chapter heading 2710 of Excise Tariff at their different units situated at 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 + ₹ 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 ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.2009 and thereafter under Notification No. 18/2009 dated 7.7.2009. (iv) Naphtha is a petroleum product and liquid product of natural gas not less than 10% of which distils below 175 C and 95% of which distils below 240 C when subject to standard method test as per Bureau of Indian Standards and Hawley s Condensed Chemical Dictionary. Both NGL and Naphtha are low boiling liquid petroleum products under the category of light oils and preparations. (v) Naphtha has RVP slightly more than 10 psi can be treated as Naphtha, whereas NGL is having RVP more than 10 and upto 34 psi depending upon it volatility. (vi) Both Naphtha and NGL contain pentane and heavier hydrocarbon. (vii) The product cleared by the Noticee broadly satisfies the universally accepted parameters of Naphtha and also the definition and description of Naphtha as per various technical literature. The parameters of the product Naphtha cleared by the Noticee 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 cleara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recognized differently even by CETA. 4.1. The Ld. Counsel also impressed upon the fact that the only drawn sample along with test memo was the first sample having the report dated 31th August 2011. The remaining samples test reports as have been relied upon to an extent by the respondent, were obtained without preparation of any test memo. As the result, the Report of 31th August, 2011 only can be relied upon based whereupon it is abundantly cleared that the product of respondent is not Naphtha but NGL inviting extra duty of ₹ 15 per liter in addition to 14 per cent ad volerum duty. The authority below is therefore alleged to have committed an error while ignoring the said test report. It is also impressed upon that the contents are otherwise acknowledged and admitted in the statements of the officer in charge of respondents and also in the statements of the respondent s customers. While miserably ignoring those statements 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 sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sional rate of duty under Notification No. 18/2009/CE dated 7/7/2009. In the line of these submissions it is alleged that the Department had initiated a wrong investigation against the respondent. The show cause notices have wrongly proposed the demand of differential duty of excise on the product of respondent that is Naphtha wrongly allegeding the same to be a natural gasoline liquefied (NGL) classified under Tariff item 2710 11 20. 6. It is submitted that the chemical examiner s report dated 30th August 2011 is based on the false presumption that since the product is derived from natural gas it is a low boiling liquid other than Naphtha. It is submitted that there is ample of technical literature even the lab texts reports the shows that even Naphtha can be manufactured from natural gas as contrary to the stand of Chemical Examiner. The Ld. Counsel further impressed upon that the cross- examination of the Chemical Examiners 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the product in question is Naphtha. Legal and technical literature as to Naphtha (Acquisition Sales Search and Prevention of Use in Automobile) order, 2000, Indian standard glossary of Petroleum terms, Hawley s condense dictionary, literature from Indian Institute of Petroleum, Dehradun and handbook of hydro carbons, manual of Department Instruction of Excisable Manufactured Products etc. has been relied upon by the respondent to define Naphtha as a product different from natural gasoline liquid and as one having such specification as are reflected in the chemical examination reports dated 30th August 2011 thereby impressing upon that the product manufactured and cleared by the respondent/assessee is nothing but Naphtha to which the exemption under Notification 18/2009 and 18/2012 was very much available to the respondent. In alternative, it is argued that no duty can be demanded as the impugned product is classified 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 resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sical properties(see later Fuel Gas, LPG refinery gas (1-2%) C 1 to 4 Mainly propane and butane gases which can be compressed or liquefied 25 C Methane CH 4 (domestic heating) ethane another gaseous fuel, C3-4easily liquefied petroleum gas, portable energy source. g. bottled gas for heating and cooking(butane),higher pressure cylinders(propane),feedstock for other organic chemicals Gasoline C 5 TO 7 25 TO 75 C Easily vaporised, highly flammable, easily ignited, car fuel-petrol molecules Naphtha (20-40%) C 6 TO 10 75 TO 190 C Light Naphtha 150 to 240 C Heavy Naphtha No good as a fuel, but valuable raw material source of organic chemicals to make other things, cracked to make more petrol and alkenes Paraffin, Kerosene (10-15%) C 10 TO 16 190 TO 250 C Less volatile, less flammable than petrol, domestic central heating fuel, (paraffin) aircraft jet fuel(kerosene) Diesel oil, gas oil (15-20%) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umn where NGL distils into aromatic rich Naphtha (ARN) superior kerosene oil (SKO) High speed diesel(HSD) Aviation Turbine Fuel(ATF). Initial B.P. 35 C. Final boiling point is 75 more than 50 % evaporates at 60 C Final B.P. 240 C though initial B.P. is 35 C light Naphtha (35 C -140 C) Heavy Naphtha (140 C-240 C). Not less than 10% distils below 175 C It contains Mostly Pentanes (C5) with traces of Hexanes (C6/C6). It contains traces of Hexane and more of larger hydro carbons, Light Naphtha (C6-C8). Heavy Naphtha(C8-C12) Flash point is around 20. Flash point is as low as -2 Transparent clear liquid of low boiling point. Translucent, flammable, liquid of boiling point as 240 C (though within the range of low boiling point liquid) Density is around 80 API Around 10 API. NGL is a set of ARN, SKO, HSD ATF. Naphtha is subset thereof being the fractionating product Octane Rating low octane content High octane content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37.02 8. RVPat 37.8 C(psi) 10.23 10.23 10.15 10.1 9. Colour Colourless Colourless Colourless Colourless 10. End Point 121 C 121 C 13. If all these reports looked in comparison to the above observations based on the chemical literature, it is observed as: 13.1. The presence of lower hydro carbon i.e. pentane was found more than Hexane. As per the glossary of terms in Bureau of Indian standards, NGL is such petroleum product having fairly higher proportions of pentane and even butane and propane than the presence of higher hydro carbons. Had it been Naphtha, the sample would have traces of pentane with more of higher hydro carbons. But as per the chemical examination report, the impugned sample was found to have only two kinds of hydro carbons i.e. Pentane(C5) and Hexane(C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ha. 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 to be classified as light Naphtha, it first has to be Naphtha i.e. The compound having more Hexane(C6) and even higher hydrocarbons with traces of Pentanes(C5). 13.4. Chemical Examination report classified that sample has 53.21 -% of C5 and lesser percentage of C6 i.e. 33.20-%. Number of carbon being the key difference(as mentioned above) between NGL Naphtha, we are of the opinion that Chemical examiner has not committed any mistake in his report dated 30th August 2011 while making the observation that the sample is the low boiling point liquid other than Naphtha. The respondent had never contested the said report at the appropriate stage in appropriate manner. 14. The case law as relied upon by the respondent to impress that it was the duty of Department to prove the classification of the product/article is not applicable to the present facts and circumstances as department herein has already discharged its burden of proving the product manufactured by re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phtha 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 Manager,(Finance and accounts) of the respondent. He deposed about decentralisation of all locations of respondents as far as the finance is concerned. However payments of Central Excise duties are being made from respective units. He could not depose as to product of which unit is Naphtha. Not even in terms of the duty deposited by Gandhar Units whose sample has been acknowledged as NGL. Mr. M.B. Gohil and Shri C.N. Chatruvedi Executive Director (petrochemicals) of the respondent also deposed about distillation range of Naphtha that not less than 10 % of which distils below 175 C and not less than 95 % of which distils below 240 C. Accordingly, to them he rather deposed that he is not competent enough to offer any comments in the matter regarding the classification of the product and the differential duty liability in the matter. In his statement dated 3/3/2012. He deposed that, what leaves the LEF/C2-C3 column, in their plant after removal of lighter components, which f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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-butanized product of LPG column goes to the loading area. Thus it becomes clear that the product manufactured by the respondent has not come across the stage of distillation of NGL whereafter only the product collected could be Naphtha, as can readily be observed from the above discussed chemistry and even from the above said statements. From another statement of Mr. Kalara senior chemist of the respondent, it is clear that the sample is not denied. He specifically deposed that in their lab they were instructed only to test the density, IBP and FBP of the product manufactured they were never asked to report as to whether the said sample is Naphtha. Perusal of the statement of this witness makes it clear that he could not offer comments as to whether the density, IBP and FBP values as given in his report matches the characteristic of NGL or that of Naphtha. 16. Senior Manager Production Mr. Rajiv Kumar of M/s Reliance Industries Petro Chemical, the major customer of the respondent/assessee was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied 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 as an apparent admission that the product purchased by them from the respondent that is M/s Gail is different from Naphtha which has been purchased from other Naphtha manufacturing companies as per. 17. From the above discussions it becomes clear that the chemically NGL and Naphtha are two different products having overlapping physical and chemical properties but the key differences as discussed above have when seen in relation with the statements on record have established it beyond doubt that the product manufactured by the respondent/assessee is natural gasoline liquid (NGL) which attracts duty at the rate of 14 per cent ad volerum + ₹ 15 per liter and not Naphtha. 18. Now having seen the controversy from the Central Excise point of view we hold that; The Product of the respondent is admittedly the one falling the chapter under 27, the controversy is as to whether it falls under 2710 12 20 that is NGL or under 2710 12 90 i.e. Naphtha Chapter 27 deals with mineral fuels, mineral oils and produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an 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) ELT 321 (Supreme Court) has held that the classification of an excisable goods shall be determined according to the terms of headings as per Rules of Interpretation in the First Schedule, to the Tariff Act. Rule 2 thereof says that it is only when the headings of the chapter or section notes are not clearly determinative of the classification that Rule 3, 4 or 5 of the said general rules of Interpretation will come into the effect. The entries are to be construed according to common parlance understanding of the goods only in a situation where there is no statutory definition of the product. Hon ble Apex Court further clarified that ordinary rule of construction is that a provisions to statue must be construed in accordance with the language used therein unless there are compelling reasons such that the literal construction would reduce the provision to absurdity or would prevent manifest intension of the legislature from being carried out. Naphtha described here is in generic term. Since two separate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts,( 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 point liquids. 21. The Authority relied upon by the respondent are not opined applicable to the present case. As in that case the product was the one as that of remnant/return stream. The Hon ble Apex Court in that case has specifically held that in the absence of the definition of Naphtha in Central Excise Tariff, its understanding in technical books along with the report of Chief Chemist should be accepted for its classification. But, in the present case the product is the one as was admittedly collected from the bottom of LPG column and was de-botanized later and from the technical understanding as well as from the Report of chief chemist, it is NGL, i.e. the low boiling liquid other than Naphtha. It was also held by Hon ble Supreme Court that as per the Rules of Interpretation an Item if it is not specifically covered by way of the precedent entries, it would fall under a residuary entry. This finding rather support the product in the present case as the one falling under the specific entry that is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 after extraction of LPG remains natural gas, and therefore, lean gas is also to be classifiable under sub heading 2711 21 the product in hand is not natural gas but natural gasoline liquid specifically defines under Chapter heading No. 2710. 22. Further as per the information available in Wikipedia, respondent i.e. M/s Gail is the largest natural gas processing and distribution agency in India initially it was given the responsibility of constructing, operating and maintaining Hazira/Vijaypur/Jagdishpur /HVJ pipeline product it is one of the largest natural gas by pipeline product in the world. Its business is to secure gas for being transported to various part of the country though M/s GAIL has diversified into petro chemicals and liquid hydro carbons but the key product of M/s Gail is still natural gasoline liquid (NGL) (78.15), LPG 10 %, propane 3.5%, Naphtha 0.5% and other products 0.45 %. The sample collected is admittedly of the major product of the respondent seen from this information as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pine 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 duty. Resultantly the Department, in view of the proviso to Section 73 of Central Excise Act, is held to be very much entitled to invoke the extended period of limitation. Not only this, the penalties are also held to have been rightly proposed in the show cause notices but wrongly done away by the Adjudicating Authority below. The case law as relied upon by the respondent to impress that it being PSU no malafide can be attributed is not applicable to M/s GAIL where Government of India is not the only stake holder. We draw our support rather, from Bharat Petroleum Corporation Limited vs. Commissioner- 2015 (326) ELT A33 (SC) where it was held that mandatory penalties can be imposed on PSU there are precedent of involving penalty on PSUs. Hon ble High Court Madras in another case CCE, Chennai vs. Peter Miller Packers 2015(319) ELCT 631 (Madras), has also held that ignorance of law is not an excuse even to PSU, if there is element of apparent on its pact. In the present case the mis-declaration on pact of r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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