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2018 (12) TMI 91 - AT - Central ExciseMisdeclaration of goods - Department observed that the respondent is mis-declaring one of the products that is Natural Gasoline Liquid (NGL) as Naphtha at the time of clearance from their factory premises - benefit of N/N. 18/2009/CE dated 7/7/2009 (as amended) - entire case revolves upon the report of chemical examiner dated 30th August 2011. Whether the product manufactured by the respondent is NGL having excise duty at the rate of 14 per cent ad volerum plus ₹ 15 Rs per liter having tariff entry as 2710 12 20 or it is Naphtha having the excise duty at the rate of 14 per cent ad volerum and tariff entry as 2710 12 90? Held that - The chemically NGL and Naphtha are two different products having overlapping physical and chemical properties but the key differences as discussed have when seen in relation with the statements on record have established it beyond doubt that the product manufactured by the respondent/assessee is natural gasoline liquid (NGL) which attracts duty at the rate of 14 per cent ad volerum ₹ 15 per liter and not Naphtha. In the new Tariff NGL is treated separate from motor spirit and continues to have a specific entry i.e. 2710 12 20 but Naphtha finds no mention under the new Tariff. However both have been grouped under light oils and preparations . If at this stage the report of chemical examiner about the sample in question is observed, it specifically mentions the product as a low boiling liquid petroleum product extracted from natural gas. The new tariff defines such a product specifically as NGL. Once this is so, there is no reason to still hold the product as Naphtha. Irrespective that Naphtha is a low boiling liquid petrol product but as is discussed above, it is not directly extractable from natural gas this may be the reason for no specific entry called Naphtha under Chapter 27. The classification of the product in the Central Excise Tariff has to be done as per the rules of Interpretation, Chapter notes and Section notes contained in the Tariff. The definition under the trade parlances and Commercial understanding or definition under any other literature including scientific literature can only be referred if specific definition is not given in the chapter or the section notes. It may be seen that chapter heading 2710 old 6 digit Tariff, which existed in 2005 there was a specific sub heading 2710 14 for Naphtha and 2710 15 for NGL, both were the products grouped under broad heading of motors spirit however in the present 8 dejected Tariff entry of Naphtha has been removed and natural gasoline liquid is grouped under a variety of light oils and preparations (2710 12) and continues to exist being classified under Tariff item 2710 12 20. Supplementary note (b) of Chapter 27 of CETA defines NGL as a low boiling liquid petroleum product extracted from natural gas. NGL has been separated from the group of Motors sprits. Earlier NGL, SBPS and Naphtha all were under the Tariff Group of Motors spirits,( as discussed above). This we take as a ground to hold that legislate intended to seggregate NGL, it being a different product then Naphtha irrespective both being low boiling point liquids. The evidence on record is that the product of respondent has more of C5 with traces of C6 and other higher hydro carbons as nil. Seen from this angle the product in hand is NGL having a specific definition in the Tariff. The question of construing it as Naphtha from the view point of the ordinary or popular sense has no relevance. Time Limitation - Held that - In the present case the mis-declaration on part of respondent has already been established. Major duty difference on the mis-declared product is also held to be the strategy of tax evasion. Merely that assessee is PSU is not sufficient to set aside the SCN as being barred by time - SCN not barred by time. Thus, Commissioner rather has proceeded with the pre-supposed mind of holding the product of respondent being Naphtha. The findings accordingly are held as apparently wrong hence are hereby set aside - appeal allowed - decided in favor of Revenue.
Issues Involved:
1. Classification of the product as Natural Gasoline Liquid (NGL) or Naphtha. 2. Applicability of excise duty rates. 3. Validity of the chemical examiner's report. 4. Procedural discrepancies in sample collection. 5. Statements of respondent’s officers and customers. 6. Interpretation of technical literature and legal definitions. 7. Invocation of the extended period of limitation. 8. Imposition of penalties. Detailed Analysis: 1. Classification of the Product: The primary issue was whether the product manufactured by the respondent should be classified as Natural Gasoline Liquid (NGL) under tariff item 2710 12 20, which attracts a higher excise duty, or as Naphtha under tariff item 2710 12 90, which attracts a lower excise duty. The Tribunal concluded that the product is NGL based on chemical properties and manufacturing processes. The product was found to have more pentane (C5) and hexane (C6), which are characteristics of NGL, rather than Naphtha. 2. Applicability of Excise Duty Rates: The Tribunal found that NGL attracts an excise duty of 14% ad valorem plus ?15 per liter, whereas Naphtha attracts only 14% ad valorem. The classification as NGL thus warranted the higher duty rate. 3. Validity of the Chemical Examiner's Report: The Tribunal upheld the chemical examiner's report dated 30th August 2011, which classified the product as NGL. The report was found to be consistent with the chemical properties of NGL, including its boiling point and the presence of pentane and hexane. 4. Procedural Discrepancies in Sample Collection: The Tribunal noted procedural discrepancies in the collection and testing of samples from different units but found these discrepancies insufficient to invalidate the chemical examiner's report. The initial sample and test memo were deemed reliable. 5. Statements of Respondent’s Officers and Customers: Statements from the respondent’s officers and customers supported the classification of the product as NGL. For instance, the General Manager described the product as a low boiling liquid petroleum product extracted from natural gas, corroborating the chemical examiner's findings. 6. Interpretation of Technical Literature and Legal Definitions: The Tribunal referred to various technical literatures, including the Indian Standard Glossary of Petroleum Terms and Hawley’s Condensed Chemical Dictionary, to understand the chemical properties of NGL and Naphtha. It concluded that NGL and Naphtha are overlapping but distinct products, with NGL having more pentane and a lower boiling point range. 7. Invocation of the Extended Period of Limitation: The Tribunal held that the Department was entitled to invoke the extended period of limitation due to the mis-declaration of the product as Naphtha, which suggested an intent to evade duty. The mis-declaration was considered a deliberate strategy for tax evasion. 8. Imposition of Penalties: The Tribunal found that penalties were rightly proposed in the show cause notices but were wrongly dismissed by the Adjudicating Authority. The mis-declaration was seen as a positive act of misrepresentation with the intent to evade duty, justifying the imposition of penalties. Conclusion: The Tribunal set aside the order of the Commissioner Central Excise & Service Tax (LTU) and allowed the Department's appeal. It concluded that the product manufactured by the respondent is Natural Gasoline Liquid (NGL) and not Naphtha, attracting a higher excise duty. The Tribunal also upheld the invocation of the extended period of limitation and the imposition of penalties.
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