2000 (5) TMI 914 - AT - Central Excise

Issues Involved:
1. Classification of Hepton as Special Boiling Point Spirit (SBP) or Raw Naphtha.
2. Eligibility for concessional rate of duty under Notification No. 75/84-C.E.
3. Alleged misuse of concessional rate of duty.
4. Invocation of extended period of limitation for demand.
5. Imposition of penalty under Rule 173Q(i) of Central Excise Rules, 1944.

Detailed Analysis:

1. Classification of Hepton as Special Boiling Point Spirit (SBP) or Raw Naphtha:
The primary issue revolves around whether Hepton, a by-product obtained during the manufacture of Xylene, should be classified as Special Boiling Point Spirit (SBP) under Tariff Heading 2710.13 or as Raw Naphtha under Tariff Heading 2710.14. The appellants argued that Hepton, with a boiling point range of 65^0C to 125^0C, fits the definition of SBP Spirit and not Raw Naphtha. The Collector, however, rejected this classification based on the ISI glossary and chemical examiner's test results, which showed a different boiling range, concluding that Hepton does not qualify as SBP Spirit.

2. Eligibility for Concessional Rate of Duty under Notification No. 75/84-C.E.:
The appellants procured Raw Naphtha at a concessional rate under Notification No. 75/84-C.E. for the manufacture of Xylene. The Collector alleged that the appellants misused this concessional rate by clearing Hepton at a lower duty rate applicable to SBP Spirit instead of Raw Naphtha. The appellants contended that Hepton was an incidental by-product and should be eligible for the concessional rate.

3. Alleged Misuse of Concessional Rate of Duty:
The show cause notice alleged that the appellants misused the concessional rate by clearing Hepton at a lower duty rate. The appellants defended their actions by stating that Hepton was an inevitable by-product and that the classification lists were approved by the department, which was aware of the manufacturing process.

4. Invocation of Extended Period of Limitation for Demand:
The Collector invoked the extended period of limitation under the proviso to Section 11A of the Central Excise & Salt Act, 1944, citing suppression of facts and mis-declaration by the appellants. The appellants argued that there was no suppression of facts as all technical details were declared, and the classification lists were approved by the department. The Tribunal noted that the show cause notice was issued after a delay of four years, during which RT-12 returns and classification lists were regularly approved, indicating no suppression of facts.

5. Imposition of Penalty under Rule 173Q(i) of Central Excise Rules, 1944:
The Collector imposed a penalty of Rs. 25,00,000/- under Rule 173Q(i) for alleged misuse of concessional duty and suppression of facts. The appellants argued that there was no mala fide intention or suppression of facts to warrant such a penalty.

Separate Judgments:
Member (J):
The Member (J) found that the appellants had made a strong case both on merits and on the issue of limitation. It was noted that the appellants had declared all technical details, and the department had approved the classification lists and RT-12 returns. The delay of four years in issuing the show cause notice, without any new findings, indicated that the extended period of limitation could not be invoked. The Member (J) concluded that the demands were time-barred and allowed the appeal.

Vice President:
The Vice President disagreed, emphasizing that the appellants admitted to returning Raw Naphtha, which included Hepton, to the refinery. This admission, coupled with the chemical examiner's report and the ISI glossary, supported the Collector's conclusion that Hepton was Raw Naphtha. The Vice President upheld the Collector's order, including the demand and penalty, on both merits and limitation.

Third Member:
The Third Member agreed with the Member (J) on the issue of limitation. It was noted that the classification lists were approved, and there was no suppression of facts. The delay in issuing the show cause notice indicated that the department was not serious about prosecuting the case initially. Consequently, the demand was barred by limitation, and the appeal was allowed on this ground.

Majority Order:
The majority held that the demand was barred by limitation, set aside the Collector's order, and allowed the appeal on the ground of time bar.

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