2011 (2) TMI 647 - AT - Central Excise

Waiver of pre-deposit - Classification of the oil left in the kettle after distillation, which is called Reduced Oil or Residual Oil - HSN Explanatory Notes to these Headings cannot be ignored and the classification of the product, in question, has to be determined keeping in view the HSN Explanatory Notes - In the present case, the Commingled Crude Oil is subjected to distillation at 200 centrigrade and by the process of distillation, the lighter component constituting about 30% of the total weight of the crude oil is separated and is sold as composite organic solvent - Though the department without any chemical test seeks to classify this product under sub-heading No. 2713 90 00 as residue of petroleum oil , we find that the product, in question, answers to the description of topped crude mentioned as the products covered under Heading No. 2710 in the HSN Explanatory Notes as per HSN explanatory notes, topped crude is covered by 2710, the product, in question, would be covered under Heading 2710 and if this is so, it would not attract nil rate of duty, as none of the products covered in this heading, other than the waste oil, attract nil rate of duty and the product, in question, obviously cannot be called waste oil - this is not a case for total un-conditional waiver. The appellant, therefore, are directed to deposit an amount of Rs. 50,00,000 - Application is disposed of

Issues Involved:
1. Classification of Residual Oil
2. Requirement of Pre-deposit
3. Validity of Test Reports and Evidence
4. Penalty Imposition

Issue-wise Detailed Analysis:

1. Classification of Residual Oil:
The core issue revolves around the classification of the residual oil left after the distillation of Commingled Crude Oil. The appellant contends that the residual oil should be classified under Heading 2709 00 00 of the Central Excise Tariff, which pertains to crude oil and attracts a nil rate of duty. Conversely, the Department argues that the residual oil should be classified under sub-heading 2713 90 00 as "other residues of petroleum oils or of oils obtained from bituminous minerals," which does not attract a nil rate of duty. The Tribunal noted that the process undertaken (distillation at 200^0C) is not minor and changes the essential character of the crude oil, thus ruling out classification under Heading 2709. The Tribunal also considered the possibility of classifying the product under Heading 2710 as "topped crude," based on the HSN Explanatory Notes, which also would not attract a nil rate of duty.

2. Requirement of Pre-deposit:
The appellant sought a waiver from the requirement of pre-deposit of the duty demand of Rs. 83,74,061/- along with interest and an equal amount of penalty. The Tribunal considered whether the appellant had a prima facie case. Given that the classification under Heading 2709 was ruled out and the product could be classified under either Heading 2710 or 2713, both of which do not attract a nil rate of duty, the Tribunal concluded that the appellant did not have a strong prima facie case. Consequently, the Tribunal directed the appellant to deposit Rs. 50,00,000/- within eight weeks, with the balance amount of duty, interest, and penalty being waived until the disposal of the appeal.

3. Validity of Test Reports and Evidence:
The appellant relied on test reports from HBTI, Kanpur, and IIT, Delhi, which classified the residual oil as crude oil. However, the Department did not send the samples for testing and relied on the HSN Explanatory Notes and statements from traders. The Tribunal noted that the HBTI's communication to the Department confirmed that the process undertaken was not minor, and there was a significant difference between the starting material and the residual oil. The Tribunal emphasized the importance of chemical testing in determining the correct classification, as highlighted by the Supreme Court in the case of CCE v. Reliance Silicones Ltd.

4. Penalty Imposition:
The original order imposed a penalty of Rs. 83,74,061/- on the appellant and Rs. 5 Lakh on the authorized signatory, Shri Mahesh Shukla. Upon remand, the Commissioner confirmed the duty demand and imposed an equal amount of penalty on the appellant but did not impose any penalty on Shri Mahesh Shukla. The Tribunal did not specifically address the penalty on Shri Mahesh Shukla in this order but focused on the classification issue and the requirement of pre-deposit for the appellant.

Conclusion:
The Tribunal concluded that the classification of the residual oil under Heading 2709 was ruled out, and it could be classified under either Heading 2710 or 2713, both of which do not attract a nil rate of duty. Consequently, the appellant did not have a strong prima facie case for a total unconditional waiver of the pre-deposit requirement. The Tribunal directed the appellant to deposit Rs. 50,00,000/- within eight weeks, with the balance amount of duty, interest, and penalty being waived until the disposal of the appeal. The stay application was disposed of accordingly.

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