2009 (12) TMI 532 - AT - Central Excise

Classification of goods - product to be Organic Composite Solvent classified the product under Chapter sub-heading 3814 00 10 of the First Schedule of Central Excise Tariff Act 1985 duty payable @ 32% advalorem - show cause notice came to be issued requiring the appellants to explain as to why the product should not be classified under Chapter sub-heading 2710 1113 duty @ 16% - Commissioner to ascertain the use of the product in question as fuel in spark ignition engine not only on the basis of technical reports but also from the practical and commercial points of view Held that - reports obtained from private persons could be manipulated or influenced by the persons obtaining such report - test report of Chemical Examiner and Chief Chemist unless demonstrated as erroneous cannot be lightly brushed aside - without proper analysis of the materials on record and without giving opportunity to the parties to test veracity of the opinion of the experts placed on record the adjudicating authority in undue haste jumped to the conclusion about the classification of the product in question - set aside and the appeal is al lowed.

Issues Involved:
1. Classification of the product under the appropriate Chapter heading.
2. Recovery of short-paid Central Excise Duty along with interest and imposition of penalty.
3. Consideration of expert reports and the right to cross-examine the authors of those reports.

Issue-wise Detailed Analysis:

1. Classification of the Product:
The primary issue was whether the product should be classified under Chapter heading 2710 11 13 as claimed by the Department or under Chapter heading 3814 00 10 as contended by the appellants. The appellants claimed their product was an Organic Composite Solvent, while the Department argued it was a motor spirit. The definition of 'motor spirit' under the supplementary note to Chapter 27 requires the product to be suitable for use as fuel in spark ignition engines. The Tribunal emphasized that suitability should be assessed not only on the basis of expert opinion but also from a commercial point of view.

The Tribunal cited previous decisions, including Indu Nissan Oxo Chemical Inds. Ltd. and Jagdamba Petroleum (P) Ltd., to underline that the product's suitability must be practically and commercially fit for use as fuel in spark ignition engines. The Tribunal found that the Chemical Examiner's report was inconclusive, and the Indian Institute of Petroleum's report indicated that the product did not conform to the specifications for motor gasoline due to its highly unstable nature and higher benzene content.

2. Recovery of Short-paid Central Excise Duty:
The Commissioner had confirmed the duty demand of Rs. 2,74,40,128/- under Section 11A(1) of the Central Excise Act, 1944, along with interest and an equal amount of penalty. The Tribunal noted that the Commissioner had based his findings solely on the Department's reports without giving the appellants an opportunity to cross-examine the authors of those reports. The Tribunal held that the adjudicating authority must give the parties a fair chance to test the veracity of the expert opinions before making a decision on duty recovery.

3. Consideration of Expert Reports and Right to Cross-examine:
The appellants argued that they were denied the opportunity to cross-examine the authors of the reports submitted by the Department, which was a violation of their rights. The Tribunal agreed, stating that the right to cross-examine is not absolute but should be granted when the findings are based solely on expert opinions. The Tribunal found that the Commissioner had erred in rejecting the request for cross-examination without justifiable grounds. It was essential for the adjudicating authority to allow cross-examination to ensure a fair assessment of the expert reports.

Conclusion:
The Tribunal concluded that the Commissioner had not properly analyzed the materials on record and had denied the appellants a fair opportunity to cross-examine the experts. The impugned order was set aside, and the matter was remanded to the Commissioner for de novo adjudication in accordance with the law, ensuring that the appellants are given a proper opportunity to cross-examine the experts. The appeal was allowed on these terms.

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