2014 (12) TMI 769 - AT - Customs

Commercial propane cleared as liquefied petroleum gases - concessional rate of duty - Classification of goods - commercial parlance test - LPG classifiable under CTH 2711 19 00 or under CTH 2611 12 00 - Notification 4/2006-C.E. dated 1-3-2006 - Entry at serial No. 27 - Held that - These goods are nothing but gases at the ambient temperature and pressure and are of petroleum origin. However these gases get liquefied even at the normal temperature but at certain pressure. Such goods are termed as liquefied petroleum gases. Even the Tariff entry further sub-classifies into two categories viz. liquefied and in gaseous state. Thus if natural gas is imported or cleared in gaseous form then it gets classified under 2711 21 but the same goods if imported or cleared in liquefied form then these get classified under 2711 11. The term petroleum gases is a generic term and covers a vide range of gases or mixture of such gases within its fold. For example ethylene propylene butylene butadiene butane propane are some of the petroleum gases. Each individual component such as ethylene and other gases mentioned earlier can be separated from the mixture and used for a specific purpose. - liquefied petroleum gases (LPG) is a term which is generic in nature and covers a wide range of petroleum gases which are in the liquefied form. Propane is one of such gas. Scope of the exemption notification - Held that - it is clear that the term liquefied petroleum gases though not defined in the Notification but is a term used in the Tariff as also other entries in the Notification. Since the Notification does not define the scope of the said term the scope of the term as envisaged in the Tariff will be applicable. As per our analysis in the Tariff liquefied petroleum gases would cover propane and therefore propane would be chargeable to concessional rate of duty as per the entry in the Notification. In the ISI Specification in the beginning it is stated that the term applies to a mixture of certain light hydrocarbons derived from petroleum. Clause 3.1.1 further clarifies that LP gases mainly consist of one or more of the specified hydrocarbons. Propane is one of the specified hydrocarbons. Para 3.1.2 also states that a small quantity of ethane ethylene pentane and pentene may also be present in the liquefied petroleum gases. In clause 4 different types of LP gases are mentioned. Commercial propane is specifically mentioned as a type of LP gases. We also note that one of the respondents in the present case is actually using the commercial propane as a fuel in its factory. We do not consider it necessary to go into the various details provided by the respondents from the internet. Suffice to state that these details indicate propane as liquefied petroleum gas. Thus in our view propane is considered as Liquefied Petroleum Gases (LPG) in trade or commercial understanding. No basis of stating that LPG is produced by mixing butane and propane in such a way that it meets the specification prescribed for LPG. Even if that is so the proper course for the Government would have been to include such specification in the Notification. It would have also been appropriate to include the end-use if the intention was to restrict the benefit of concessional rate to LPG used for fuel only. In the absence of such stipulation in the exemption Notification the benefit of concessional rate of duty cannot be restricted to LPG used as fuel but would be applicable to all types of liquefied petroleum gases falling under Headings 2711 20 00 2711 13 00 and 2711 19 00. Goods under dispute can be used either as fuel or in the manufacturing process. If used in the manufacturing process they are entitled to get the credit of duty paid by them. Thus they do not gain by paying the lower rate of duty. - Decided against Revenue.

Summary

Issues Involved:
1. Classification of "commercial propane" under Notification 4/2006-C.E.
2. Applicability of concessional rate of duty to "commercial propane."
3. Interpretation of the term "liquefied petroleum gases (LPG)" in the context of the Notification.
4. Common/commercial parlance understanding versus technical classification.
5. Revenue neutrality of the duty paid.

Detailed Analysis:

1. Classification of "Commercial Propane" under Notification 4/2006-C.E.:
The primary issue in all four appeals was whether "commercial propane" imported by the respondents and cleared as "liquefied petroleum gases (LPG)" falls within the scope of Notification 4/2006-C.E., dated 1-3-2006 - Entry at serial No. 27. The imported goods were classified under Tariff Entry 2711 12 00. The scope of the term "liquefied petroleum gases (LPG)" used in the Notification was not defined. The Commissioner concluded that commercial propane is a subclassification of liquefied petroleum gases and thus chargeable to CVD at the rate of 8% under Entry No. 27 of Notification 4/2006.

2. Applicability of Concessional Rate of Duty to "Commercial Propane":
The Revenue's main contention was that the concessional rate of 8% under Notification 4/2006-C.E., dated 1-3-2006, is applicable only to liquefied petroleum gases (LPG) and not to commercial propane. They argued that in common/commercial parlance, LPG is a mixture of propane and butane, and commercial propane in liquefied form should not benefit from the said Notification. The Tribunal, however, found that the Tariff and Notification understanding of the term "liquefied petroleum gases" would include propane, thereby making it eligible for the concessional rate of 8%.

3. Interpretation of the Term "Liquefied Petroleum Gases (LPG)" in the Context of the Notification:
The Tribunal noted that the term "liquefied petroleum gases" is generic and covers a wide range of gases or mixtures of gases within its fold, including propane. Various entries in Central Excise and Customs Notifications recognize that LPG can be used for manufacturing various items and as fuel. The Tribunal concluded that the term "liquefied petroleum gases" in the Notification would cover propane, making it eligible for the concessional rate of duty.

4. Common/Commercial Parlance Understanding Versus Technical Classification:
The Revenue argued that the term LPG should be understood in its common parlance meaning, i.e., as the gas used as fuel. However, the Tribunal emphasized that the understanding in the Central Excise Tariff, Central Excise Notification, or commercial understanding of the term "liquefied petroleum gases (LPG)" is broader and includes propane. The Tribunal referred to various judgments and ISI Specifications to support their conclusion that propane is considered as LPG in trade or commercial understanding.

5. Revenue Neutrality of the Duty Paid:
The respondents argued that the exercise is revenue neutral as they are eligible to take credit of the countervailing duty paid. They have taken credit of CVD @ 8%, which was actually paid by them. If the department had charged 14% at the time of clearance, they would have been entitled to take credit of 14%, resulting in no gain to the respondents. The Tribunal agreed with this argument, noting that the respondents do not gain by paying the lower rate of duty.

Conclusion:
The Tribunal dismissed all four appeals filed by the Revenue, concluding that "commercial propane" falls within the scope of "liquefied petroleum gases (LPG)" under Notification 4/2006-C.E., and is eligible for the concessional rate of duty at 8%. The Tribunal emphasized that the term "liquefied petroleum gases" covers a broad range of gases, including propane, and should not be limited to the common parlance understanding of LPG as only a fuel. The decision was pronounced in court on 11-4-2014.