2002 (10) TMI 470 - AT - Central Excise

Issues Involved:
1. Whether the importer/respondents committed any contravention under the Pass Book Scheme.
2. Whether the use of denatured ethyl alcohol instead of undenatured ethyl alcohol affects the compliance with the Pass Book Scheme.
3. Whether the credit given to the importer/respondents against the export of Glacial Acetic Acid was properly given.
4. Whether the clarification provided by the DGFT regarding the use of ethyl alcohol as input is valid and applicable.

Issue-wise Detailed Analysis:

1. Whether the importer/respondents committed any contravention under the Pass Book Scheme:
The Commissioner (Appeals) held that the importer/respondents did not commit any contravention under the Pass Book Scheme. The Commissioner noted that the process of denaturing ethyl alcohol, as required by Tamil Nadu Government laws, does not alter the chemical process itself. The input for the manufacture of acetic acid remains undenatured ethyl alcohol, and the denaturing process mandated by state laws should not affect the requirements of the Pass Book Scheme. The Commissioner also found that the Pass Book Scheme does not specify whether the ethyl alcohol should be denatured or undenatured, allowing the appellants to claim the most favorable rate.

2. Whether the use of denatured ethyl alcohol instead of undenatured ethyl alcohol affects the compliance with the Pass Book Scheme:
The Commissioner (Appeals) concluded that using denatured ethyl alcohol instead of undenatured ethyl alcohol does not contravene the conditions of Notification No. 104/95. The denaturing process is only a requirement of state laws and does not change the chemical process involved in manufacturing acetic acid. The Commissioner also noted that the Pass Book Scheme does not restrict availing credit for inputs appearing in the negative list, and the clarification from the DGFT supports the contention that credit can be allowed for ethyl alcohol on a "Deemed Import basis."

3. Whether the credit given to the importer/respondents against the export of Glacial Acetic Acid was properly given:
The Revenue contended that undenatured ethyl alcohol and denatured ethyl alcohol are distinct items in trade and industry, with different classifications and pricing. The Revenue argued that the Pass Book Scheme is intended to neutralize the duty incidence of basic customs duty on deemed imports of the export product, and undenatured ethyl alcohol is a negative list item not allowed for import. The Assistant Commissioner had determined that the input credit should be based on denatured ethyl alcohol, which is an industrial grade product, rather than undenatured ethyl alcohol, which is used for potable purposes. The Assistant Commissioner's findings were upheld by the Tribunal, noting that the commercial use of the input should be considered, and the input for Glacial Acetic Acid should be denatured ethyl alcohol.

4. Whether the clarification provided by the DGFT regarding the use of ethyl alcohol as input is valid and applicable:
The Revenue argued that the DGFT clarification was vague and did not address the specific issue of undenatured ethyl alcohol. The Tribunal agreed with the Revenue, stating that the DGFT clarification failed to note the distinction between undenatured and denatured ethyl alcohol under the Customs Tariff Heading 2207.10. The Tribunal held that the clarification provided by the DGFT is not pertinent and cannot override the legislative intent and the specifics of the Import-Export Policy. The determination of customs duty with reference to the input description is assigned to the customs authorities, and the DGFT clarification does not recommend credit under Heading 2207.10.

Conclusion:
The Tribunal allowed the Revenue's appeal, upholding the Assistant Commissioner's findings that the input for the manufacture of Glacial Acetic Acid should be denatured ethyl alcohol, and the credit given to the importer/respondents based on undenatured ethyl alcohol was not justified. The Tribunal found that the clarification provided by the DGFT was not applicable and did not align with the legislative intent and the specifics of the Import-Export Policy.

← Previous Next →