TMI Blog2010 (2) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. [Order per : P. Karthikeyan, Member (T)]. - Appeal No. E/436/08, E/644/09, E/685/09 E/274/09 are filed by the appellants, M/s. JSW Steels Ltd. (JSW) and appeal No. E/469/2009 is filed by the Revenue. Since a common issue is involved in these appeals, they are taken up together for disposal. Appeal No. E/436/08, E/644, 685/09 E/274/09 filed by JSW. 2. JSW are engaged in the manufacture of HR coils of steel from iron ore in an integrated process using Corex technology. In the course of manufacture, a spent gas termed by JSW as 'export gas' emerges. This product is processed and cleared on sale for use as fuel in the generation of power. The impugned orders demanded differential duty and imposed penalties under Rule 25 of CER, 2002 as per details given below : S/No. Appeal No. OIO No. date Period involved Differential duty (Rs.) Penalty (Rs.) u/r 25 of CER 1. E/436/08 02/2008 dated 5-3-08 5/2005 to 2/2006 3/2006 to 01/2007 13,64,48,146/- 10,60,06,796/- 1,00,00,000/- 2. E/274/09 13/2008 dated 19-12-08 02/2007 to 07/2007 8/2008 to 01/2008 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRI falls into the M-G, where it melts. The procedures for tapping the hot metal, as well as further processing of the hot melts, are exactly the same as for hot metal from the blast furnace. (iii) The Reduction Gas, which moves upwards in the reduction shaft after participating in the reduction process, exits from the top of the shaft and at this stage it is called 'Top Gas'. This gas is processed for removal of impurities and water by passing the said gas through Hot Gas cyclone, Packing Scrubber, Venturi Scrubber and Mist eliminator. Further the Top Gas is mixed with processed Reduction Gas to obtain what is called 'Export Gas'. This gas is then stored in a tank, under pressure and conveyed through pipeline to the buyers. The composition of the gases, as observed at different stages in the plant of JSW and as reported by the assessee is as follows :- Reduction Gas (RG) Top Gas (TG) (In percentage) Export Gas (EG) Carbon monoxide CO) 67.99 45.79 47.02 Carbon-dioxide (CO 2 ) 6.48 31.70 30.68 Hydrogen (H 2 ) 21.01 18.28 18.45 Me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss of production of steel. Corex was an iron making process and not a carbon monoxide manufacturing process. The corex furnace was not designed to produce carbon monoxide and common methods of manufacture of carbon monoxide were entirely different. It is submitted that the gas could be correctly classified under chapter sub-heading 2705 00 which covered coal gas, water gas, producer gas, blast furnace gas and similar gases, other than petroleum gases and other gaseous hydrocarbons. The impugned gas is similar to blast furnace gas of chapter heading 2705 used usually for heating and lighting. The Commissioner had found carbon monoxide to be the predominant compound in the mixture. The product could not be classified as carbon monoxide ignoring the presence of several other gases which comprised the product. 4. The learned Counsel for JSW submitted that the dispute stood settled in favour of the assessee by the Tribunal in the case of Philips Carbon Black Ltd. v. CCE [1999 (111) E.L.T. 835 (T)]. In the said decision, it was observed : "Mere fact that due to environmental laws, the assessee are compelled to burn the carbon monoxide content from the off-gas and use the heat so genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gas and similar gases, other than petroleum gases and other gaseous hydrocarbons." Coal gas is obtained by the distillation of coal in the absence of air, usually in gas works or coke ovens. It is a complex mixture of hydrogen, methane, carbon monoxide, etc., and is used for lighting or heating purpose. The heading includes the gas produced by underground gasification and also water gas, producer gas and similar gases, for example blast-furnace gas. It also covers mixtures of gases formed by cracking or reforming of mineral oils, petroleum gases or natural gases, usually in the presence of steam. These mixtures are similar in composition to coal gas and are used for heating or lighting purposes and in the synthesis of chemicals, e.g., methanol, ammonia. In the latter case, they are sometimes called "synthesis gas". However, the heading excludes the gases specified in heading 27.11." 6. The learned Special Counsel for the Revenue submitted that export gas is not a 'technological accident' taking place in the assessee's steel plant. He submitted that the appellants had made huge investment in the production of oxygen required in the manufacture of iron. As per the literature p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not possess any properties of a fuel and hence is an impurity in the fuel mixture. Carbon monoxide constituting 47% of the mixture is the predominant constituent and gives the gas its essential character. Chapter heading 28.11 does not prescribe any extent of purity requirement to regard whether the item in question should be classified as carbon monoxide or carbon dioxide under it. Reliance is placed on Mangalore Chemicals Fertilizers Ltd. v. CCE [1998 (98) E.L.T. 490] followed by Nizam Sugar Mills case [1998 (101) E.L.T. 62] wherein the Tribunal held similarly with reference to impure carbon dioxide. The chapter note 1 of chapter 28 reads as follows :- "Notes : 1. Except where the context otherwise requires, the headings of this Chapter apply only to : (a) Separate chemical elements and separate chemically defined compounds, whether or not containing impurities". As per the HSN Notes, the term impurities applies exclusively to substances whose presence in the single chemical arises solely and directly from the manufacturing process and includes by-products. The gases other than carbon monoxide i.e. carbon dioxide and hydrogen arise as a result of cracking of coal, whereas c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is not a technological accident in view of the Tribunal's decision in the case of the assessee reported as JSW Steel Ltd. v. CCE [2006 (204) E.L.T. 313 (Tri. - Bang.)] holding otherwise. We find that the export gas is excisable. We note that in the said order, the Tribunal had approved the Revenue continuing proceedings to demand duty on the impugned goods as final product but rejected the said plea being new and not forming part of the Show Cause Notice. Therefore we find that several case laws cited by the assessee, in support of the argument that revenue was barred from changing tack and seeking to demand excise duty on the impugned goods abandoning the pursuit to demand a percentage of its sale price under Cenvat scheme as thitherto, do not apply on the facts of the instant case. We find that the certificates of the experts furnished are to the effect that the corex process is an iron making process and not a common process employed to manufacture carbon monoxide. We find that the said certificates are not an impediment to a reasoned finding that the mixture of gases emerging in the process of production of iron is further processed by the assessee to produce export gas which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case. 10. Revenue seeks classification of EG under Chapter Heading 2811 which reads as follows : 28.11 other Inorganic Acids and other Inorganic Oxygen compounds of non-metals 2811.10 - Carbon dioxide - Sulphur dioxide and sulphur trioxide : 2811.21 - Consumed in the manufacture of sulphuric acid, within the factory of production 2811.29 - Other 2811.90 - Other It is claimed that the product being predominantly carbon monoxide, it falls under Chapter Sub Heading 281190 as inorganic oxygen compound of carbon, a non-metal. Assessee claims classification of the gas under CH 2705 which reads as follows : 2705 00 Coal Gas, water gas, producer gas and similar gases, other than petroleum gases and other gaseous hydrocarbons There is no specific entry for this product in the tariff. The assessee's claim rests on the similarity of the impugned gas to other gases like coal gas, water gas and producer gas. In this connection relevant HSN notes reads as follows : "27.05 - Coal gas, water gas, producer gas and similar gases, other than pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... classified under 281190 which covered carbon monoxide as an oxygen compound of carbon, a non-metal upto 28-2-2005 and by the entry 'carbon monoxide' in CSH 2811 24 90 from 28-2-2005 when the tariff entries were aligned with HSN entries. 11. As per Note 1(a) of chapter 28 of the tariff, separate chemically defined compounds fall under chapter 28 even if they contains impurities. As rightly argued by the Revenue the impugned product is predominantly carbon monoxide, a separate chemically defined compound and has the essential character of carbon monoxide. Impurities that emerge along with the product in the process of production does not preclude its classification as the particular separate chemically defined compound; in the instant case, carbon monoxide. The following notes in HSN cited by the Ld. Special Counsel support our finding. "(A) Chemically defined elements and compounds. (Chapter Note 1) Separate chemical elements and separate chemically defined compounds containing impurities, or dissolved in water, remain classified in Chapter 28. The term "impurities" applies exclusively to substances whose presence in the single chemical compound results solely and directly f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e part of the assessee. Penalty cannot be imposed for the reason that it was lawful to do so, in the absence of dishonest or contumacious conduct of the assessee as held by the Apex Court in Hindustan Steel v. State of Orissa [1978 (2) E.L.T. J159 (S.C.)]. Accordingly we set aside the penalties imposed and sustain the demands thus partly allowing the appeals filed by the assessee. Appeal No E/469/ 08 filed by the Revenue 13. JSW had filed classification for the impugned goods as corex gas of chapter heading 2705 attracting nil rate of duty up to 28-2-2005 and under heading No. 2811 29 40 thereafter. The Commissioner found that the appellants had not suppressed emergence of corex gas from the department. He found that the appellants had also not wilfully mis-stated relevant facts relating to the manufacturing process or characteristics of corex gas with intention to evade payment of duty. He observed that the investigation now conducted could have been conducted by the department when the classification lists were filed by the assessee. We find that the Commissioner rightly held that the larger period could not be invoked alleging wilful suppression of facts or mis-statement of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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