2003 (5) TMI 428 - Commissioner - Central Excise

Issues Involved:
1. Classification of Dephenalised Oil (DP Oil)
2. Eligibility for Exemption under Notification No. 28/89-C.E., dated 1-3-89

Detailed Analysis:

1. Classification of Dephenalised Oil (DP Oil)
The primary issue revolves around the classification of Dephenalised Oil (DP Oil) produced by M/s. Neyveli Lignite Corporation, a Government of India Undertaking. The process involves heating raw briquettes to produce middle oil, which is further processed to remove phenol content, resulting in DP Oil. Historically, the classification of middle oil and DP Oil has been contentious.

Initially, the Assistant Collector classified middle oil as diesel oil under tariff item 9, later requiring a license for its use as fuel. However, due to its high phenol content, middle oil required dephenalisation to avoid furnace corrosion. Both middle oil and DP Oil were exempted from duty by government notifications.

In 1977, the Superintendent demanded duty on DP Oil, classifying it as 'diesel oil not otherwise specified.' This classification was later challenged, and the Assistant Commissioner classified DP Oil under tariff item 68, enjoying exemption under Notification 118/75.

Post-1986, with the introduction of HSN-based CET, DP Oil was classified under 2707.13 with NIL tariff rate. However, the classification was later changed to CET 2710.39, and duty was demanded. The appellant classified the product as diesel oil under CET 2710.40 and paid duty accordingly until 1994.

The Assistant Commissioner, in his order-in-original No. 67/97, rejected the department's proposed classification, finding non-aromatic constituents more pronounced in DP Oil. However, he erroneously classified DP Oil under 2710.90, a sub-heading not existing at the relevant time, rendering the order inoperative.

The Assistant Commissioner failed to re-examine the classification issue afresh as directed by the Commissioner of Customs (Appeals) in order-in-appeal No. 4/2001. The appellant argued that the burden of proof for classification lies with the department and cited relevant Supreme Court and CEGAT decisions supporting their claim.

The appellant provided evidence that DP Oil met the specifications for classification under 2710.40 (diesel oil) and argued that the classification should be based on chemical composition. The Assistant Commissioner's failure to address the classification issue and the reliance on an erroneous chemical examiner's report led to a non-speaking order.

The Commissioner (Appeals) directed a fresh examination of the classification issue, which the Assistant Commissioner circumvented, leading to a remand for reconsideration.

2. Eligibility for Exemption under Notification No. 28/89-C.E., dated 1-3-89
The appellant claimed exemption under Notification 28/89-C.E., arguing that DP Oil was used as fuel for generating steam within the same factory, which was used in the manufacture of excisable goods. The Assistant Commissioner incorrectly found that DP Oil was used in a different unit, thus denying the exemption.

The Commissioner (Appeals) had directed the Assistant Commissioner to consider the exemption claim, but this directive was not followed. The appellant provided evidence that DP Oil was used within the same factory, satisfying the conditions of Notification 28/89.

The Assistant Commissioner's failure to comply with the directive to examine the exemption eligibility necessitated a remand for reconsideration on both classification and exemption aspects.

Conclusion:
The appeal was allowed by way of remand, directing the Assistant Commissioner to re-examine the classification of DP Oil and its eligibility for exemption under Notification 28/89 comprehensively, within three months. The directive emphasized the importance of judicial discipline and adherence to quasi-judicial directives.

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