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TMI Blog2002 (10) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... e ethyl alcohol is denatured before it is converted to acetaldehyde. The appellants are on record to claim that the denaturant is acetaldehyde. It would follow that the appellants would have manufactured the acetic acid from ethyl alcohol, without denaturing it, if the State Govt. Laws did not require them to denature it. Thus, the input for manufacture of acetic acid remains un-denatured ethyl alcohol. The fact that they are denaturing it is only under the requirements of State Government Laws and that does not change the chemical process itself. Hence, but for the requirements of State Govt. Laws, the appellants would have used ethyl alcohol and would not have incurred additional cost and time in undertaking the process of denaturing. The process of denaturing, therefore, does not affect the requirements of Pass Book Scheme under Sl. No. 1024. Similarly, no condition of Notification No. 104/95 are contravened just because denatured alcohol has been used as input instead of un-denatured ethyl alcohol which is manufactured in the factory of the appellants. The fact that Sl. No. 1240 does not qualify ethyl alcohol to be un-denatured or denatured, would show that the appellants can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also questionable" has no legal basis. I do not find substance in the arguments of the Lower Authority that the clarification given by the DGFT is vague or irrelevant as only the customs authorities are empowered to verify and recommend the credit amount. I find that the DGFT letter is only a clarification and confirms the legal position that the credit can be allowed for ethyl alcohol on "Deemed Import basis" as the norms identify ethyl alcohol as an input. As mentioned above, once ethyl alcohol is not qualified, the benefit would go to the appellants. Lastly, the Lower Authority has held that the credit should not be higher than the cost of the exported product. I do not find any such legal bar indicated either in Para 54 of the EXIM Policy or in C. N. No. 104/95. To this extent, the findings of the Lower Authority have no legal basis. In view of the above, the appeal is allowed. Sd/- (A.K. CHHABRA) COMMISSIONER (APPEALS)" 2. Revenue's contention in this appeal is that Undenatured Ethyl Alcohol and Denatured Ethyl Alcohol are distinct items in trade and industry. It is stated that this fact is evident from Customs Tariff Schedule ITC(HS) classification of Export and I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the Pass Book Scheme and therefore, undenatured Ethyl Alcohol cannot be considered as proper import/input material under this context, it is stated that the undenatured Ethyl Alcohol will not be called as ethyl alcohol. In other words Denatured Ethyl Alcohol is not known as Ethyl Alcohol and this fact is evident from the classification of the item under Customs Tariff ITC (HS) as relied. It is stated that undenatured ethyl alcohol is not used directly for the manufacture of Acetic Acid. It should be denatured from the undenatured Ethyl Alcohol, Acetaldehyde is manufactured. From Acetaldehyde, Glacial Acetic Acid is manufactured. It is stated that undenatured Ethyl Alcohol is used for potable purpose whereas denatured Ethyl Alcohol is for industrial purpose. It is also stated that when the item is not allowed for import it cannot be considered as deemed import content of export product. It is further, stated that Glacial Acetic Acid is the industrial chemical, relatable input material should also be of industrial grade. Denatured Ethyl Alcohol is the industrial grade whereas undenatured Ethyl alcohol is for making potable drinks beverages. It is, further, stated that undenatu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n import ethyl alcohol which should correspond to the denatured ethyl alcohol. It is his submission that Ethyl Alcohol in undenatured form cannot be imported. Undenatured ethyl alcohol of alcoholic strength of 80% or more are classifiable under heading 2207.10 with basic customs duty of 275% and Ethyl alcohol and other alcoholic spirit denatured of any strength was classifiable under Heading 2207.20 attracting basic customs duty at 10%. It is his submission that customs tariff heading 2207.10 covers undenatured ethyl alcohol of alcoholic strength by volume 80% or higher. This heading covers pure form ethyl alcohol with specific strength and this cannot be treated as industrial grade Ethyl Alcohol. He further submitted that Customs Tariff Heading 2207.20 covers "denatured ethyl alcohol". This is defined in HSN as "spirit mixed with substances to render them unfit for drinking but not to prevent their use for industrial purposes. The denaturants use vary in different countries according to the national legislation. They include Wood, naphtha, methanol, acetone, pyridine, aromatic hydrocarbons (benzenes etc.), colouring matter. The denaturaed Ethyl Alcohol is of industrial use." He po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that on the other hand the pass book scheme does not allow the import of negative list of items. He submitted that the DGFT clarification has failed to note that there is another description by name undenatured ethyl alcohol under the Heading 2207.10. The DGFT clarification is silent on the question of considering the inputs description as "undenatured Ethyl Alchol" of 80% of volume or higher and does not recommend credit under Heading 2207.10. He submitted that as per the Exim Policy and Customs Notification No. 104/95, customs authorities are empowered to make verification and recommend as to the amount of the credit equivalent to basic customs duty on the input used in the manufacture of export product manufactured and exported. Therefore the determination of the customs duty with reference to input description has been assigned to the customs authorities and not to the licensing authorities. Therefore, the judgments cited by the Respondents are not relevant to the subject goods. He submitted that input item described as Ethyl Alcohol should be classified under Heading 2207.20 and the customs duty applicable is only 10% ad valorem. He submitted that the Pass Book Credit shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an industrial product the reason being that it should be denatured by using chemicals first before it is put to use for industrial purposes. While the undenatured ethyl alcohol on which the input credit has been claimed by the Respondent is commercially known as concentrated alcoholic beverages and used for human consumption. This item falls under the negative list of the Pass Book Entry and the negative list items are not permissible for export. When we look into this aspect of the matter, the issue becomes very clear to us that the Assistant Commissioner has rightly noted that while considering the usage of undenatured ethyl alcohol it is nothing but concentrated alcoholic beverages and this primary raw material is required for manufacturing of alcoholic beverages. It is directly required for the manufacture of alcoholic beverages, while the manufacture of Denatured Ethyl alcohol are mainly used in the commercial industries and their requirement is ethyl alcohol undenatured. Further observation of the Assistant Commissioner is also acceptable while allowing Pass Book credit, the commercial use of the input is to be seen for the manufacture of Glacial Acetic Acid which is commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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