TMI Blog2013 (3) TMI 240X X X X Extracts X X X X X X X X Extracts X X X X ..... table for use in spark ignition engine in admixture with other products cannot be sustained and the decisions cited by the learned counsel also are of no help to the appellants. However, we cannot straightway classify the product as a special boiling spirit without rejecting or considering the competing heading under Chapter 29. The very fact that no purity has been prescribed for n-Hexane or Hexane and the definition of impurities given in the HSN and the fact that there can be two terms namely pure and commercially pure would, in our opinion, support the appellants’ case. The technical expert has also stated that improving the purity by decreasing the range of boiling points would involve abnormal conversion cost and render the product commercially unviable. This has not been challenged or proved otherwise. Therefore the submission of the appellants on the basis of supplier’s letters and technical expert opinion and the terminology used for pure and commercially pure to say that the product imported by them even if it contains only 40% or more of Hexane would still be classifiable as Hexane since the impurities or other products found in the product are covered by the defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Customs Tariff and the ITC-HS. In respect of 28 (out of the 58) Bills of Entry, clearance was sought against Advance Licences permitting duty-free import of the two brands mentioned above. The Commissioner, in the impugned order, has held that the said products are correctly classifiable as special boiling point spirits of Chapter Heading 27.10 of the Customs Tariff. Besides demanding differential duty of Customs by invoking the proviso to Section 28(1) of the Customs Act, 1962, the impugned order also holds that the import of the said goods was unauthorized as import of products falling under Chapter Heading 27.10 was canalized and, therefore, could not have been imported directly by the appellant. Redemption fine and penalties have been imposed under different provisions of the Customs Act, 1962 for wrong classification of the goods as well as for their unauthorized import. 2. Heard both the sides in great detail and both wanted to make written submissions. Accordingly appellants were directed to make written submissions by 5th of October and serve a copy to the respondents. However, the appellants could not make the written submissions by 5th October and without waiting for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds has been defined in the Explanatory Notes to the HSN (Chapter 29) as - A separate chemically defined compound is a substance which consists of one molecular species (e.g. covalent or ionic) whose composition is defined by a constant ratio of elements and can be represented by a definitive structural diagram. In a crystal lattice, the molecular species corresponds to the repeating unit cell. As n-hexane has a defined molecular structure C6H14 and a definite molecular weight, n-hexane is a separate chemically defined compound. This fact is admitted in Para 13(c) of the Show Cause Notice itself; (e) the Explanatory Notes to the HSN under Chapter 27 (at pages 21 to 31 of the compilation) specifically state that the said Chapter 27 does not cover separate chemically pure state as such Products are classifiable under Chapter 29. Relevant extracts from the HSN Explanatory Notes are set out herein below for ease of reference : (i) Explanatory Notes to chapter 27 in General (page 21 of the compilation) : Goods of this Chapter may be crude or refined; however, with the exception of methane and propane, when they are separate chemically defined organic compounds in the pure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommercially pure Hexane despite the N-hexane content being 63.93% in that product; (i) it was submitted that the two products in question are commercially Pure Hexanes. This position has been confirmed not only by the supplier, Exxson Mobil in its letter dated 5-9-2009 but also by a technical expert, Dr. Tilak Guha, in his opinion dated 20-11-2009. The opinion of Dr. Guha remains uncontroverted dispute as despite our offer to produce him for cross-examination vide our submission dated 2-12-2006, the department neither cross-examined him not controverted his opinion by dealing with it in the Order or by producing a contra opinion from some other expert. Even otherwise, neither the Show Cause Notice nor the impugned order discloses any evidence or basis to dispute the position that the two products are Commercially pure Hexanes . This position therefore, remains uncontroverted by evidence. 4. The counsel for the Revenue sought to distinguish the above referred decision in IPCL s case on the ground that the percentage of n-hexane in the product imported by appellant was much less than 63.93% that existed in the case of IPCL. The counsel however, did not dispute the fact that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant for the first time and had not been relied upon in the Show Cause Notice. It was further submitted that what was binding upon the courts and authorities are the Explanatory Notes (which do not prescribe any specific purity criterion for hexanes, unlike for many other chemicals as pointed out in Para 4(c) above and not individual opinion which do not represent the views of the Council. The classification opinions do not have any general application and they are regarded as individual opinions only with reference to the facts of a particular case. Subsequently, if those opinions are found to be valid for general application, they are incorporated in the Explanatory Notes to the Harmonized System. In CCE v. Woodcraft Products Ltd. - 1995 (77) E.L.T. 23 and O.K. Play (India) v. CCE - 2005 (180) E.L.T. 300, the Hon ble Supreme Court has held that HSN along with Explanatory Notes provide a safe guide for interpretation of entry. The Hon ble Supreme Court has not expressed a similar opinion with regard to the classification opinions and do not have the same value as the Explanatory Notes to the Harmonized system. 6. The Commissioner has relied upon the test report of SGS and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and (b) that, in any case, the product is a mixture of several acyclic Hydrocarbon Isomers of n-hexane and are, therefore, excluded from Chapter 29 by virtue of Chapter Note 1 (b), which reads thus : (b) admixtures of two or more isomers of the same organic compound (whether or not containing impurities), except mixtures of acyclic hydrocarbon isomers (other than stereoisomers), whether or not saturated (Chapter 27); 9. In reply, it was pointed out by the appellant s counsel that 2-Methyl Pentane and 3 Methyl Pentane are not Pentanes but are Hexanes only as the chemical formula for these two is C6H14. Pentanes, on the other hand, have five carbon atoms and their formula is C5H12. Therefore, the contention of the counsel for the Revenue that the products in question were Pentane, is incorrect. In fact, no such case was ever made either in the Show Cause Notice, or in the impugned order. In fact Para 13(e) of the notice describes these two chemicals as isomers of Hexane and not pentanes as contended by the revenue s counsel. 10. Insofar as the second contention is concerned, it was submitted that; (a) Note 1(b) is irrelevant for the reason that the products are specificall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was placed on the meaning of the expression impurities as set out in the Explanatory Notes to the HSN which reads thus : The term impurities applies exclusively to substances whose presence in the single chemical compound results solely and directly from the manufacturing Process (including purification). These substances may result from any of the factors involved in the process and are principally the following : (a) Unconverted starting materials. (b) impurities present in the starting materials. (c) Reagents used in the manufacturing process (including purification). (d) By-products. The Hon ble Tribunal enquired whether the chemicals other than hexanes which are present in the product fall in the definition of impurities as given above they were unconverted starting material or impurities present in the starting material. The suppliers have now confirmed vide their letter dated 14th October, 2011 (copy enclosed as Exhibit A ) that these elements were naturally present in the feedstock and could not be removed in the process of fractionation due to their having boiling points which were very close to that of n-hexane. These four substances a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e clarification will address the Indian Customs queries. 13. Since it is not the case of the Revenue that the presence of any of the 4 isomers of n-hexane or the other seven components mentioned in the list above was through deliberate addition of such components into this product or a deliberate intention to live them behind so as to render the end-product suitable for a specific use, the products cannot be regarded as a mixture particularly in the light of the clarification given by the suppliers, which are duly corroborated by the Kirk-Othmer Encyclopedia which describes the said products as commercially pure n-hexane. These clarifications as well as composition in Kirk-Othmer Encyclopedia clearly, shows that the various isomers of Hexane as well as other seven ingredients of the end product are permissible impurities whose presence in the final product is a direct result in the manufacturing process. These elements were present in the starting feedstock (LVN) and continue to remain in the final products due to having their close boiling point range, with the result they are difficult to remove and separate from n-hexane. The typical composition of Naphtha (LVN) as set out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arily exclude mixtures of separate chemically defined compounds . The Commissioner, in the order, has not dealt with this Board Circular even though the same was binding upon the Revenue authorities. 16. Apart from the submissions made hereinabove, which establish that n-hexane is classifiable under Chapter 29 of the Customs and Central Excise Tariffs and not under Chapter 27, there is a further and additional reason as to why in any event the same cannot be classified under Heading 2710.12 of the Central Excise Tariff. Heading 2710.12 of the Central Excise Tariff appears under the following description : - Motor spirit, that is to say, any hydrocarbon oil (excluding crude mineral oil) which has its flash point below 25 C and which either by itself or in admixture with any other substance is suitable for us as fuel in spark ignition engines. Thus, before the department can classify the imported goods under Heading 2710.12 of the Central Excise Tariff for the purpose of additional duty of customs, the department must establish by evidence that the following two requirements are satisfied : (a) that the imported goods have flash point below 25 C; and (b) that the imported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... park ignition engines must be either by itself or in admixture with any other substance. There is absolutely no evidence that n-hexane by itself is used as fuel for spark ignition engines. As regards use in admixture with any other substance. The Tribunal has in Oil India Ltd. v. CCE - 2002 (148) E.L.T. 802 in Para 8 held that any other substance must be substance other than mineral oil . There is absolutely no evidence led by the department to show that n-hexane in admixture with a substance other than mineral oil is used as fuel in spark ignition engines. 20. Without prejudice to the above submissions, it was pointed out that most of the imports covered by the impugned order were made against Advance Licences, which specifically cover the products with reference to their specific brands. Since the Advance Licences do not mention any particular classification, the products are entitled for duty-free clearances regardless of their classification and are also entitled to be imported without restriction as a specific licence exists in the form of Advance Licences for these imports. This contention of the appellant has not been considered by the Commissioner and therefore the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned product in the above-mentioned case was Exxsol Hexane RD, which is the same product as in the subject case. However, the Hon ble Bangalore Bench decided the matter on grounds of legality, viz. that DGFT clarification regarding classification was binding on the customs authority, without going into the question whether the impugned goods should, on merits, be classified under chapter 29 or otherwise. Therefore, the question of classification on merits remains open. While there is no doubt that DGFT clarification in the matter of Import Policy shall be binding on the Customs authority, same cannot be said about classification of a product under Customs Tariff. Besides, it is pertinent to mention that the impugned order of Hon ble Bangalore Bench of CESTAT has been appealed against by the Revenue and the issue is sub-judice in the apex court. It may also be pointed out in this regard that DGFT clarification dated 14-7-2004 referred to in para 8 of the order of Hon ble Bangalore Bench, refers only to a policy decision to cover import of Hexnne in chapter 29 of ITC (HS) classifications of Export and Import items, 2002-2007. The above policy decision going by the very nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as separate chemically defined organic compounds , based on some entries in the Kirk-Othmer Encyclopedia of Chemical Technologies which state that such mixtures are regarded in industry as commercially pure hexane , and proceeded to decide the case based on that premise. The contention of the respondent, on the other hand is that it is by now well established by several judicial pronouncement that definition of a product given in Customs Tariff or HSN for that matter shall prevail upon its scientific/industrial definition or common parlance for the purpose of its classification, as doing so would go against legislative intent, and would make Note 1(b) of Chapter 29, as well as significant portions of the Explanatory Notes to Note I of the said chapter, redundant. (3) How the relevant terms relating to classification of the impugned product have been defined in the Tariff chapter notes and explanatory notes? Let us now see how the relevant terms have been defined in the Customs Tariff and the HSN Chapter Note 1 of Chapter 29 reads as follows : 1.- Except where the context otherwise requires, the headings of this Chapter apply only to : (a) Separate chemically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of its classification under Chapter 29. In the subject case, the impugned product, viz. Exxsol Hexane RD, is a mixture of acyclic isomers as also other hydrocarbons, having varied ratio of elements, such as C6H14, C5H12, C5H10, etc. (refer table under Issue No. 5). It does not also have a definitive structural diagram, as the relative position of the elements is at variance in the diagrams. As for example, in n-Hexane all six Carbons are in a straight line, whereas in other isomers and compounds, the positioning of all the carbons is not uniformly in straight line, and is, therefore, structurally different (Refer table under Issue No. 6). The impugned product cannot also be construed as n-Hexane, as the percentage of n-Hexane in the product falls well below 50%. Going by the clear stipulation in HSN such mixtures of acyclic hydrocarbon isomers are excluded from chapter 29, and will fall under chapter 27. The definition of chemically defined compounds , as provided in HSN is a safe guide to resolve disputes on tariff classification, as has been held by the Apex Court in the matter of L.M.L. Ltd. v. Commissioner of Customs, vide 2010 (258) E.L.T. 321. (4) What is the difference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 H 14 Cyclopentane C 5 H 10 2,3 Dimethyl Butane C 6 H 14 Methyl Cyclopentane C 6 H 12 2 Methyl Pentane C 6 H 14 Cyclohexane C 6 H 12 3 Methyl Pentane C 6 H 14 2,4 Dimethyl Pentane C 7 H 16 2,2,3 Trimethyl Butane C 7 H 16 These hydrocarbons have formulae different from C6H14, which is the formula of hexane (the product in question belongs to this group by the rule of predominance), as the composition of these hydrocarbons is not defined by the same constant ratio of elements as that of hexane, and they are clearly not of the same molecular species as hexane. Group (ii) The hydrocarbons in Group (ii) are defined by the same constant ratio of elements as hexane, namely C6H14. Therefore, whether they are of, Y. same molecular species as hexane or not depends on the whether they satisfy the second requirement : - whether they can be represented by a definitive structural diagram . 6. What is meant by a definitive structural diagram ? The properties of a compound depend not only on the component elements consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yl Pentane (CH 3 ) 2 CH (CH 2 ) 2 CH 3 h ch 3 h h h h c c c c c h h h h h h 3, Methyl Pentane CH 3 CH 2 CH (CH 3 ) CH 2 CH 3 h h ch 3 h h h c c c c c c h h h h h 2,3 Dimethyl Butane CH 3 CH (CH 3 ) CH (CH 3 ) CH 3 h h ch 3 ch 3 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer from each other only in structure, they cannot technically be considered as impurities. 3. Isomers whose presence in a substance results directly from the production process of that substance may occasionally be considered to be an impurity in general industrial parlance, but not as per Customs Tariff. Besides, the impugned product being, imported there is no way to ascertain or verify the production process at the country of or production. 4. For the purposes of Chapter 29, however, isomers cannot be considered as impurities. This is because Note 1(b) separately and specifically refers to mixtures of isomers of the same organic compound, whether or not containing impurities. If isomers could be regarded as impurities, then substances comprising a mixture of isomers would fall under Note 1(a), and Note 1(b) would become redundant. The legislative intent was clearly to distinguish between isomeric components and non-isomeric components of a substance, and exclude the former from the scope of the ambit of impurity for purposes of classification in this chapter. 5. Furthermore, even if it is assumed that isomers are impurities, the combined volume of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of clarity, all five substances are isomers of one another. They can therefore, be grouped together as acyclic hydrocarbon isomers of Hexane . 3. The product in question is, therefore, a mixture of acyclic hydrocarbon isomers (88.67%), which contains impurities (11.33%). (8) If excluded from Chapter 29, which sub-head under Chapter 27 would apply to the goods in question, and why? 1. The hexane isomers are mineral oils obtained by refining petroleum, and are therefore covered under chapter 27: Mineral fuels, mineral oils and products of their distillation . 2. If a mineral oil is obtained by refining crude petroleum oils then it is classified under 2709 00 00. If it is obtained by refining petroleum not in its crude form then it is classified under 2710. 3. The product in question has been obtained, as admitted by the assessees [p. 102 Para 25.3.e of Paper Book] not by fractionally distilling crude oil, but by the refining of naphtha, which is itself manufactured by refining crude oil. Therefore, the impugned goods are petroleum oils obtained by the processing of non-crude mineral oils, and fall under heading 2710. 4. This classification is further reinforced the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom bituminous minerals, these oils being the basic constituents of the preparations, other than waste oils 2710 11 -- Light oils and preparations : --- Motor Spirit : 2710 11 11 ---- Special boiling point spirits (other than benzene, toluol) with nominal boiling point range 55-115 C kg. 20% 2710 11 12 ---- Special boiling point spirits (other than benzene, benzol, toluene and toluol) with nominal boiling point range 63-70 C kg. 20% 4. In support of the claim for classification of the product imported by the appellant under Chapter 27, the adjudicating authority and the learned special counsel have relied upon the following points. 4.1 If the individual percentage content of n-Hexane or any of its isomers is less than 95% of aluminium, the products fall under the category of light oils and preparations which falls under CETH 2710 11 00. 4.2 Reliance was placed on the report of the Customs House Laboratory, Kolkata. 4.3 Reliance was also placed on compendia of classification opinion published by World Customs Organisation wherein ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mically defined compound. 5.4 Explanatory notes to the HSN under Chapter 27 specifically states that Chapter 27 does not cover separate chemically defined organic compounds in the pure or commercially pure state . The product imported by the appellant is in commercially pure state. 5.5 The explanatory notes to Chapter 29 covers Hexanes under Heading 29.01. Use of the term Hexane clearly shows that heading covers nominal n-Hexane which is chemically pure but also covers commercial grades of Hexane. 5.6 Kirk-Othmer Encyclopedia of chemical technology gives the meaning of the expression commercial Hexane as narrow boiling mixtures of Acyclic compounds that Methyl Cyclopentane, Cyclohexane, and Benzene. It also says that minor amounts of C5 and C7 Hydrocarbons also may be present. The supplier has confirmed that the products in question are commercially pure Hexanes. 5.7 Further a technical expert Dr. Tilak Guha in his opinion dated 20-11-2009 also supports this view. The opinion of the technical expert has not been countered by producing contra evidence or technical opinion opining otherwise. 6. The special counsel had contended that the percentage of n-Hexane in this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 117 (c) Ram Remedies Pvt. Ltd. v. CCE - 2010 (254) E.L.T. 170 (d) Shriram Petroleum Industries v. CCE - 2010 (255) E.L.T. 317. 8. We have already reproduced the Tariff Heading 2710 11 12 under which the product is proposed to be classified by the Revenue. According to the notes to Chapter 27, references in Heading 2710 to petroleum oils and oils obtained from bituminous minerals includes not only petroleum oils and oils obtained from bituminous minerals but also similar oils as well as thus consisting manual of mixed unsaturated Hydrocarbons. Further, the sub-heading notes also provide that light oils and preparations are those of which 90% or more by volume distillate at 200 C. The supplementary note defines motor spirit and special boiling spirits also. While the definition of motor spirit requires the flash point to be below 25 C, it also requires that the Hydrocarbon oil either by itself or in admixture with any other substance is suitable for use as fuel in spark ignition engine. The definition of special boiling spirit does not require suitability for use in spark ignition engines. There is no dispute that the product under consideration has the boiling point ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel had relied upon several decisions to support his submission that unless the product is tested to examine its suitability for use in spark ignition engine as required in the definition of motor spirit in the tariff product could not have been classified. This shows that in that case also the question was whether a product can be classified as a motor spirit when its suitability for use in spark ignition engine has not been tested. In the case of Ram Remedies Pvt. Ltd. also the products were classified under Heading CETH 2710 90 as others. In that case the Tribunal had observed that the tariff Heading under 2710 itself prescribed suitability for use as fuel in spark ignition engine as one of the requirements unlike this case where motor spirit and special boiling spirits have separate definitions. Therefore the decision in the case of Ram Remedies Pvt. Ltd. has no application. In the case of Shriram Petroleum Industries, it was observed that CETH 2710.13 which covered other special boiling point spirits is one of the special sub-divisions of the main heading which reads motor spirit, that is to say, any Hydrocarbon oil. Therefore, the heading was as motor spirit which requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not. There is no doubt that even if the product contains some impurities, it would still be classifiable under Chapter 29 as a separate chemically defined organic compound. Chemically defined compound has been defined in the explanatory notes as a substance which consists of one molecule of species whose composition is defined by a constant ratio of elements and can be represented by a definitive structural diagram. 15. According to Revenue, on going through the definition it is quite clear that a separate chemically defined organic compound ought to fulfill the two criterions namely a constant ratio of elements and a definitive structural diagram. It has been submitted that the product in question is a mixtures of Hydrocarbons having valid ratio of elements namely C6H14, C5H12, C5H10 etc. It also does not have a definitive structural diagram. In n-Hexane all these carbons are in a straight line whereas in other isomers and compounds they are not in line and therefore structurally different. It was also submitted that impugned product cannot be considered as n-Hexane since the percentage of n-Hexane in the product is below 50% and further mixtures of Acyclic Hydrocarbons isomers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h hazard, risk of Neurotoxicity and handling needs special precautions and procedures further increasing the cost. The supplier also has stated that output of n-Hexane depends upon the quality of feedstock and this is supported by technical literature submitted by the appellants also. The conclusion that emerges from the supplier s report, evidences available on record and technical literature is that, the product in question is the result of fractional distillation of LVN. No evidence has been produced by the Revenue to show that commercially the product is known as anything other than Hexane or n-Hexane. The explanatory notes in the HSN also clearly provide that unconverted starting materials and impurities present in the starting materials are to be treated as impurities. In fractional distillation, what is done is taking out the products in a specific boiling point range and no chemical reaction is involved. That being the position, what is obtained as a result of distillation is what was originally present in the starting material. It is nobody s case that any of the components found in the chemical report is other than what was contained in the starting material and no eviden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impurities or other products found in the product are covered by the definition of impurities, would come under Chapter 29 appear sustainable. 19. The claim of the appellants is further supported by the fact that the chapter note itself recognizes that chemically defined compound can have impurities and wherever a specific purity criterion is required the same has been prescribed and in the case of Hexane it has not been prescribed would also help the appellants case. Since the other products/components of the product before us are covered by the definition of impurities as given in the HSN, the product continues to remain covered by chapter Note 1(a) which defines separate chemically defined organic compounds. No doubt the Note 1(a) would support the view that even mixtures would come under chemically defined compound if the product satisfies the requirements of purity and commercial parlance. In view of the fact that the pure and commercially pure products are covered by the heading and there is no specific definition provided for pure or commercially pure in the case of Hexane, the obvious conclusion would be to go for trade parlance. No evidence has been put forth by Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te 1(b) is considered since in our opinion Note 1(a) itself is sufficient to classify the product under Chapter 29. 24. In view of the above discussion, the claim of the appellants has to be sustained on merits. Since we have upheld the classification claim made by the appellants, it would not have been necessary for us to go into other issues. Nevertheless, we consider it appropriate to deal with some other points also. 25. As regards limitation and liability to mandatory penalty, in view of the complexities involved in classification and in view of the fact that commercially the product is known as Hexane and also in view of the fact that the issue of classification of the very same product had come before the Tribunal and a view had been taken that even mixtures of Acyclic Hydrocarbons can be classified under Chapter 29 (in the case of IPCL), it would not be appropriate to sustain imposition of penalty since the issue is one of interpretation of different tariff headings, the application of Interpretative Rules, technical literature, etc., and two views are possible. In such a situation, imposition of penalty on the appellants is not correct. Therefore even if we were to hol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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