9911796707
TMI Blog1991 (9) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... n connection with manufacture, production, storage and removal or disposal of the said goods under sub-rule (2) of Rule 173Q of the Central Excise Rules, 1944. However, an option to redeem on payment of rupees one lakh was given. (3) imposed penalty of Rs. 5 crores (rupees five crores) under Rule 173Q(a), (b), (d) of Central Excise Rules, 1944. 2. The appellants are engaged in the manufacture of, among other products, Ethylene, Propylene, Butadine, Benzene, and Carbon Black Feed Stock falling under Chapter 27 and 29 of Central Excise Tariff Act, 1985. They also manufacture Petroleum Resins falling under Heading No. 3911.10 of Central Excise Tariff Act, 1985. 3. The departmental officers during the course of inspection found several contraventions of the excise rules and found the appellants had by suppression, by reason of fraud, wilful misstatement obtained Raw Naphtha at concessional rate of duty under Notification No. 75/84-C.E., dated 1-3-1984 as amended by Notification No. 27/89-C.E., dated 1-3-1989. It was found that the appellants had manufactured goods other than those mentioned in their AL-6 application in violation of the terms and conditions of the concession granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alia - "(a) IPCL is drawing Raw Naphtha under Notification No. 75/84 and subsequently under 27/89 for production of products listed in the above notifications. Necessary A.L. 6 was filed, L6 obtained, RG 16 maintained and R.T. 11 submitted. In the A.L. 4 application filed in 1986 for consolidated issue of L4 licence, IPCL has mentioned Pyrolysis Gasolene as one of the products obtained. In the A.L. 6 application dated 11-7-1977, which was referred to as original A.L. 6 in the subsequent A.L. 6s, it was clearly mentioned that Pyrolytic BT Rich stream was one of the inevitable concomitants of the cracking process. (b) Pyrolysis Gasolene is one of the by-products obtained during the cracking of Raw Naphtha taken in terms of the aforesaid notification. From the Pyrolysis Gasolene both Benzene and Toluene are produced and isolated. Both Benzene and Toluene are products listed in the notification. Thus, the Raw Naphtha taken for use under Notification No. 75/84 and 27/89 was made use of for the manufacture of products listed in the notification. After stripping of Benzene and Toluene, the Pyrolysis Gasolene Residue left over is definitely a product which was incidental and unavoidable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use the residual naphtha was required to be returned to the lOC's refinery in terms of Explanation I contained in the said notification. If any stream of such naphtha was used in the manufacture of products not specified in the aforesaid notification, M/s. IPCL would forfeit the concession on Raw Naphtha enshrined in Notification No. 27/89-C.E. He held that if pyrolysis gasolene emerging from such Raw Naphtha is used in any stage in the manufacture of Petroleum Resins (which are not specified under Notification No. 27/89 would become inadmissible). He further held that Petroleum Resin is a product not specified in the Notification No. 27/89-C.E., dated 1-3-1989 and as such not eligible for concessional rate of duty. He further held that M/s. IPCL has deliberately, wilfully, and intentionally used raw naphtha for the purpose of manufacture of petroleum resins, in contravention of the provisions of the said notification and by suppressing, misstating those facts from the Department, then they would not be entitled for any benefit of the concessional rate of duty. He further held that if raw naphtha was to be brought for use in the manufacture of petroleum resins, then M/s. IPCL was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) With the separation of Benzene and Toluene from the Pyrolysis Gasolene, the obligation cast on the Appellants by the provisions of Notification No. 27/89-C.E., dated 1-3-1989 is fully discharged; (d) The residue left after the separation of Benzene and Toluene is a product emanating inevitably in the total process of cracking and isolation of these specified goods; (e) This residue is covered by Explanation 2 to Notification No. 27/89-C.E., dated 1-3-1989 and hence not chargeable to duty; (f) There is no obligation on the part of the appellants to return all the residues as 'Return Stream' to the Refinery; (g) C. 8/C. 9 Cut is recovered from the Residue left after separation of Benzene and Toluene and this is used for the manufacture of Petroleum Resins; (h) C. 8/C. 9 Cut recovered from the Residue is a product falling under Chapter 27 of the Central Excise Tariff and its subsequent utilisation for manufacture of Petroleum Resin is covered by Notification No. 28/89-C.E., dated 1-3-1989; (i) At no stage there is any suppression or mis-statement of facts relating to either the production of Pyrolysis Gasolene as one of the products emanating in the process of Thermal Crac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee had maintained RT 16. The details of receipt of Raw Naphtha and products manufactured had been noted in the register. RT 11 statement had also been submitted every month. With regard to the allegation that petroleum resin was not stated and details of it not entered in register, Shri Swaminathan contended that petroleum resin was not manufactured from Raw Naphtha but from residue arising from the products and listed items manufactured from Raw Naphtha. From the residue, 'C8 C9 Cut' was extracted, which goes for polymerization for petroleum resin. He contended that what was extracted from waste and residue cannot be said to have been manufactured from raw naphtha and the Department has no concern about it and no duty can be raised from such extraction of petroleum from wastes and residue. He contended that L-6 form submitted by assessee gives the details of this process (referred to page 56-58 of paper book) column 5, gives the details of manner of manufacture and it had been submitted in the year 1977. He referred to page 61 of paper-book and in Serial No. 8, the details of manufacture of petroleum resin from residue had been indicated. The L-4 licence dated 27-6-1984 at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 13. Shri Swaminathan, learned Consultant, contended that Raw Naphtha was totally cracked before residue and the question of withdrawal of concession did not arise. There was no naphtha left and hence the allegation that it was diverted was not sustainable. The Notification 27/89 had been complied with and what was done with residue left, after cracking of naphtha to obtain the listed items, was no concern of the Department. Hence, the allegation that Raw Naphtha was diverted for manufacture of petroleum resin was not at all correct. 14. He contended that after several items had been cracked and extracted from the raw naphtha, it no longer remained as raw naphtha and hence the learned Collector was not correct in presuming that the residue was also raw naphtha. He contended that there was no misuse of raw naphtha. He further contended that residue was covered by Explanation II of the Notification 27/89. He contended that there was no tax structure after residue and therefore it follows that Govt. had no intention to tax at this stage. He submitted that the learned Collector was wrong in coming to the conclusion and basing his findings on the statements given by Shri Bhatt, as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aphthas, petroleum chemicals, especially ethylene. Cracking for ethylene also produces propylene, butadine, pyrolysis gasoline, and fuel oil, source of synthetic natural gas. (a) VM & P (Varnish Makers and Painters) (petroleum spirits, petroleum thinner). Any of a number of narrow-boiling range fractions of petroleum with bp of approximately 93-204C, according to the specific use; distillation range 119-143C, d 07543, bulk d 6.280 lb/gal. pour point approximately -70F (-56C), flash p (TCC) 20F (-6.6C), autoign temperature 450F (232C). Hazard : Flammable, dangerous fire risk. Use : Thinners in paints and varnish. (b) blending. A petroleum fraction with volatility similar to the higher boiling fractions of gasoline. It is used primarily in blending with natural gasoline to produce a finished gasoline of specified volatility. (c) Cleaners. A dry cleaning fluid derived from petroleum and similar to Stoddard solvent, but not necessarily meeting all its specifications, flash p. 100F (37.7C). (2) coal-tar (a) heavy (high-flash naphtha). Properties: Deep amber to dark red liquid, a mixture of xylene and higher homologs, d 0.885-0.970, bp 160-220C (approximately 90% at 200C), flash p 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, phenolic resins, and polyurethanes from isocyanates. See POLYMER. Naphthenic acids are carboxylic acids of substituted cyclopentanes and cyclo-hexanes : they are present in crude oils. Commercial naphthenic acids lie in the molecular-weight range of 180-350. Owing to their oil solubility, naphthenates of appropriate metals are used as paint driers, fungicides, and lubricant additives. Cresylies (alkylphenols, cresylicacids and cresols) are made by refining by product tar acids from cake ovens or gas works, and by recovery from refinery waste streams containing petroleum acids. The lower-boiling fractions of cracked petroleum contain xylenols and smaller amounts of cresols, ethyphenols, trimethylphenols, and methylethylphenols, which are produced at higher cracking temperatures. Cresols are also made synthetically by methylation of phenol to produce meta-, para-, and ortho-cresols and 2,6-xylenol. Their chief uses are in phenolic resins, wire-enamel solvents, phosphate esters, ore-flotation reagents, oil and gasoline additives, antioxidants, and metal cleaners. See CRESOL. Petroleum processing. ........ .... Petroleum processing. The recoery and processing of various usable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a product arising incidentally in the course of the manufacture of petroleum products listed in the notification. The impugned product was marketed in different grades to various manufacturers of Textiles & Painting industry and had a separate trade mark namely 'Patrez'. Each grade of the impugned product used for separate industry were as follows. 80A grade was utilised by Tyre industry; 90 by dye industry and 100 grade also by dye and other industries. Therefore, the assessee's contention that it arose from waste materials was not a correct proposition, as also the process of manufacture indicated that it was deliberately produced, removed and marketed with profits. She contended that the removal was under SRP and hence the burden of proving the benefit of the notification lay on the assessee, which had not been discharged in this case. She contended that what went back was not the concern of the Department but what was deliberately removed for manufacturing a product not listed in the notification was the concern of the Department and the assessee was therefore liable to pay full duty on raw naphtha. She submitted that the assessee were not within the four corners of L-6 lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is alleged that this pyrolysis gasoline is partly sent to Petroleum Resin plant as feed stock, for the manufacture of petroleum resins and the other part, after removing lighter gases, is used in the manufacture of Benzene and the residual raw naphtha, pyrolysis gasoline, C5 and C7 stream emerging after processing is returned to Gujarat Refinery as Naphtha Return Stream. The Department's case is that this petroleum resin so manufactured out of Raw Naphtha through pyrolysis gasoline is not covered by Notification No. 75/84-C.E., dated 1-3-1984 as amended by Notification 27/89-C.E., dated 1-3-1989 and thus raw naphtha used in the manufacture of petroleum resins was not used for the purpose of in the manner stated in their application for obtaining L-6 licence. 22. The appellant filed their application in form A.L. 6 dated 11-7-1977 for grant of licence to obtain without payment of duty or part of the CED leviable thereon, raw naphtha to be used by them in the manufacture of the following products - 1) Carbon Black Feed Stock 2) Ethylene 3) Ethyne 4) Propylene polymer grade 5) Propylene chemical grade 6) Benzene 7) Butadine 23. They have given a declaration in the said applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Will be used in the complex for manufacture of Detergent Alkylate and Polybutadine Rubber and to be sold to customers. 7) Butadiene - Will be used for manufacture of polybutadiene Rubber within the complex." "8. Remarks - Since we propose to draw raw naphtha by 15th July, 1977, we request that the application may kindly be processed early. As indicated in the process description, fuel oil pyrolatic BT rich steam, hydrogenation rich gas, mixed C4 and ethene are inevitable concomitants of the cracking process in the Olofine Project. They are therefore either used as fuel or subjected to further process for extraction of Benzene & Butadiene." 24. As can be seen from the details of the said application form for grant of L- 6, there is no indication of manufacture of petroleum resin but in the remarks column as noted above they have stated that fuel oil pyrolatic BT rich stream, hydrogenation rich gas, mixed C4 and ethene are inevitable concomitants of the cracking process in the define project and that it would either be used as fuel or subjected to further process for extraction of Benzene and Butadiene. There is also no indication of emergence of pyrolysis gasoline and its part di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in blends with other resins such as Ester Gum, Alkyds, etc. In rubber sector, Petroleum Resins are mostly employed as a Tackifier. Petroleum Resins would be replacing Conmorene-Indent went resin currently used. We therefore request that the petroleum resins are classifiable under T.I. 68-CET." 27. In their application dated 7-10-1976 in Form A.L. 4 for grant of licence to manufacture of Petroleum Resins of various grades, they have indicated in Column 12 which deals with particulars of each kind of raw materials to be used in each manufacture, they have given the following details - 1. Pyrolysis Gasoline 2. BF-3 (Catalyst + Plain Water (Co-catalyst)) 3. Caustic Soda 4. Polymer inhibitor 5. Filter Aids. 28. The appellants have not indicated that raw naphtha is the input for the manufacture of petroleum resin but mentioned pyrolysis gasoline as an input. It is the defence of the appellants that raw naphtha is fully utilised on manufacture of pyrolysis gasoline and unused is also sent back in return stream. Only a part of pyrolysis gasoline is used as an input for manufacture of petroleum resin and even here the residue of petroleum resin is pumped back to the return stream. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hloride 17. 2-Ethyl Hexanol 18. Butanol 19. Hydrogen 20. Synthesis Gas 21. Ammonia Notification No. 28/89-C.E., dated 1-3-1989 G.S.R. In exercise of the powers conferred by sub-section (1) of Section 5A of the Central Excises and Salt Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts goods (other than blended or compounded lubricating oils and greases) falling under Chapter 27 of the Schedule to the Central Excises Tariff Act, 1985 (5 of 1986) produced in a factory and - (a) utilised in the factory in which the said excisable goods are produced, for the manufacture of other goods or as fuel for such manufacture (excluding fuel used for any internal combustion engine) or both; or (b) allowed to escape in the atmosphere by flare system or otherwise from the whole of the duty of excise leviable thereon which is specified in the said Schedule. 30. The sketches of the process and the appellants' contention of cut off point for applicability of the notification are also indicated supra. The statements given under Section 14 of the Central Excises & Salt Act, 1944 of Shri Upendra Muni Ray Bh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (without admitting) for argument sake that the said Pyrolysis Gasolene is classifiable under the Central Excise Tariff its captive consumption within our premises for the manufacture of Petroleum Resin is covered under Notification No. 28/89 dt. 1-3-1989, as amended. For the period prior to 1-3-1989 it is covered for full exemption for captive use in terms of Notification No. 276/67 dt. 21-12-1967, as amended. As per your contention that Pyrolysis Gasolene is an involuntary and incidental stream. In this connection please state that during the course of manufacture of Benzene, Pyrolysis Gasolene is not required. In this connection, I have to state that as already stated hereinbefore that the matter is highly complex and technical in nature for which I am not technically competent to describe the process involved. However, production of Benzene out of Raw Naphtha through the stage of Pyrolysis Gasolene is permissible under the aforesaid notifications, such Pyrolysis Gasolene being incidental/inevitable/involuntary to the manufacture of the specified intended product which inter alia included Benzene. I have been shown the classification list 4/88-89 dated 1-3-1989 filed by M/s. IP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emerged as inevitable, incidental, involuntary during the cracking of raw naphtha, that is Pyrolysis Gasolene is inevitable/involuntary/incidental and M/s. IPCL is not using Raw Naphtha in the manufacture of Benzene but using Pyrolysis Gasolene in the manufacture of Benzene, then what is the necessity to send the raw naphtha as a return stream after extracting Benzene from Pyrolysis Gasolene which is incidental/involuntary/inevitable stream. In this connection I have to state that it is the use of raw naphtha through the intermediate stage of Pyrolysis Gasolene in the manufacture of specified products i.e. Benzene wherefrom one of the constituents join the return stream pool and is sent back to Gujarat Refinery as return stream of the raw naphtha. Since Pyrolysis Gasolene would continue to remain as raw naphtha in absence of any specific definitions of the term as per my little knowledge of technicalities involved. Further, sending back the return stream to Gujarat Refinery (IOC) is a matter of policy, planning and the technological understanding between IPCL, Gujarat Refinery and the Ministry of Petroleum with a view perhaps to enrich the Petroleum Gasolene Pool of the country. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Benzene, Cixon and small stream of Toluol. In the process of separation of hydrogenated Pyrolysis Gasolene C. 5 and C. 7 streams are sent to Refinery as naphtha return stream along with C. 6 Raffinate known as Cixon obtained from Benzene Plant after recovery of Benzene. It is further clarified that wherever Cixon (C. 6 Raffinate) is not sold as Cixon product by M/s. IPCL, then only we sent to refinery along with C. 5 & C. 7 Stream as Naphtha Return Stream. I am asked to state whether the chemical composition of incoming stream from Gujarat Refinery and Return Stream sent to Refinery are same or otherwise. In this connection, I have to state that the Return Stream is a Naphtha as per definition of Naphtha. We are not doing chemical analysis as normal practice of return stream and hence it is difficult to say whether the chemical composition are same as that of Naphtha received from Refinery. I am asked to state whether the Pyrolysis Gasolene known as Pyrolysis B.T. Rich Stream can be termed as Naphtha. In this connection, I have to state that as per the definition of Naphtha Pyrolysis Gasolene is also a Naphtha. The Pyrolysis Gasolene also be termed as Naphtha is used partly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw Naphtha at the initial stages. 34. It is clear from the above para that Pyrolysis Gasolene, which the appellants themselves have termed it as "the initial raw naphtha itself and from which various products are being stripped, like Benzene, Toluene etc. The above para read with the Charts and the manufacturing process submitted by the appellants, read along with the statements of witnesses, which the Department is relying, clearly indicates that Pyrolysis Gasolene is the initial input i.e. raw naphtha, which after several products are extracted by polymerisation and other processes is sent back to Gujarat Refinery as a return stream, extracting petroleum motor spirits etc. from it. It is not the case of the appellants that this Pyrolysis Gasolene is a product which has emerged fully in a marketable form and capable of being marketed. They only contend that it is a residue. At every stage of stripping of one product, the balance of input continues to be raw naphtha. The technical information of raw naphtha from the Hawley's Chemical Dictionary at page 206, clearly indicates that several products can be extracted at varying temperatures from raw naphtha. After extraction of each ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also. This 'C8 C9 Cut' not being specified in the Table to the Notification No. 27/89-C.E., dated 1-3-1989 will not be entitled for grant of concessional rate of duty on raw naphtha diverted for manufacture of 'Petroleum Resin'. 37. There is a clear admission that Pyrolysis Gasolene is not 'goods' and it is a part of the return stream. In para 11 of the Appeal Memo, the appellants have admitted that "the residue obtained from the Pyrolysis Gasolene may be classified as Raw Naphtha but it is not the same Raw Naphtha which has been taken up for Thermal Cracking in terms of Notification No. 27/89-CE dated 1-3-1989". It is also admitted that the appellants had declared it as classifiable under Chapter/Heading 2710.19 at the rate of Rs. 2255.00 per KL at 15°C in their C.L. 4/88-89 dated 1-3-1989 only on the insistence of jurisdictional Central Excise Officers by declaring it as "an intermediate product". The appellants have also not resiled from the statements given by Shri S. Sarkar, Shri U.M. Ray Bhatt and Shri S.S. Bhatnagar but have admitted it to be factually correct. By considering these admissions and by going through their statements, which also have been extracted above, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was before the Asst. Collector so as to facilitate a comparison with the set of facts surrounding the present case and which have been highlighted and discussed above. 39. The appellants have explained that they had declared the input for 'Petroleum Resin' in their L-4 form; filed flow chart and had given manufacturing process also. But in all these materials, the appellants have stated that the input for 'Petroleum Resin' is 'Petroleum Gasolene' and it was not declared that the fractionalisation of 'C8 C9 Cut' from Petroleum Gasolene after removal of Benzene, Toluene is being used as input for manufacture of 'Petroleum Resin'. They left several vagueness and doubts and it has been done deliberately by misdeclaration as held by learned Collector. As such, the invocation of larger period for claiming the duty under proviso to Section 11A of the Central Excises & Salt Act is quite justifiable and maintainable. There being a clear violation of Rule 173Q with an intention to utilise the concessional benefit and to evade full duty payment, the penalty imposed is also justifiable. However, it has to be seen as to whether the duty calculation has been properly done. In this connection, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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