2018 (8) TMI 550 - AT - Central Excise

Classification of goods - appellants procured Commingled Crude oil and Dehydration process was undertaken - whether the goods would be classified under CTH 27101950 or under CETH 27090000? - Held that - It appears that the process undertaken is only Dehydration and not akin to Distillation - in the above process, only water is removed from the Crude oil and is collected and re-channeled. As normally understood, Distillation is the technique of heating a liquid to create vapour which is collected when cooled separate from the original liquid. It is based on the different boiling point or volatility and values of the components, the technique may be used to separate components of a mixture or to add in purification. HSN 27.10 categorically states that the products covered by this heading are those who have undergone any process other than those specified in the Explanatory Note to Heading 27.09. In view of the above, it is clear that for the products to fall under 27.10 they have to undergo the processes which are other than those listed under 27.09 - in the instant case, the processes undertaken by appellants are not those beyond the cases listed therein - thus, there is no hesitation in holding that the impugned product is rightly classifiable under CTH 27090000. It was incumbent on the Department to immediately study the process of manufacture or to get it examined by an expert or by getting the samples so as to conclude that the process undertaken by the appellants amounted to manufacture and a clearly distinguishable product having a distinct name, character and use has emerged. This was not done so. Therefore, merely alleging that the burden was on the appellants is not acceptable - the onus of proving the classification is on the Department which has not clearly discharged the burden of doing so. Going by the process undertaken by the appellants, HSN Notes and the ratio of cases referred, it can be concluded that the product emerging out of the process undertaken by the appellants is rightly classifiable under CTH 27090000 - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of the product under the Central Excise Tariff.
2. Determination of whether the process undertaken amounts to "Dehydration" or "Distillation."
3. Burden of proof for classification.
4. Validity of the Show Cause Notice (SCN) and the subsequent demand for duty.

Issue-wise Detailed Analysis:

1. Classification of the Product:
The appellants initially classified their product under CTH 27101950 and later under CTH 27090000, asserting that the oil manufactured falls under this heading as per Chapter 27 of the Central Excise Tariff and HSN. The Tribunal referenced several cases (Ok Play (India) Ltd. Vs. CCE, Rudraksh Petrochem Pvt. Ltd. Vs. CCEx, CCEx. Vs. Bajrang Petro Chemicals Pvt. Ltd., and Oil India Ltd. Vs. CCEx) to support the classification under CTH 27090000.

2. Dehydration vs. Distillation:
The appellants argued that their process was "Dehydration," not "Distillation." They provided detailed descriptions of their process, emphasizing that only water was removed from the crude oil, which aligns with the definition of dehydration. The Tribunal agreed, noting that the process did not change the essential character of the crude oil and was not akin to distillation. The Tribunal cited HSN 8379 and HSN 27.10 to substantiate that dehydration processes fall under CTH 27090000.

3. Burden of Proof:
The appellants contended that the burden to prove the correct classification lies with the Department, referencing cases such as Puma Ayurvedic Herbal (P) Ltd. Vs. Commissioner of C.Ex., Nagpur, UOI Vs. Garware Nylons Ltd., and Essar Oils Vs. CC. The Tribunal found that the Department failed to conduct necessary examinations or obtain expert opinions to refute the appellants' classification. The Tribunal emphasized that the Department did not take immediate action upon receiving the appellants' classification submissions and audit reports.

4. Validity of the SCN and Duty Demand:
The Tribunal noted that the Department's audit team had visited the factory and did not raise any issues regarding the product or process. Therefore, issuing a SCN in April 2008 to recover duty for the period from 2006 to 2008 was deemed inappropriate. The Tribunal also dismissed the argument that the appellants' sale of off-specification oil was illegal, as it was irrelevant to the classification issue.

Conclusion:
The Tribunal concluded that the product emerging from the appellants' process is rightly classifiable under CTH 27090000. The appeal was allowed with consequential relief, emphasizing that the Department did not discharge its burden of proving the classification.

Order:
The appeal was allowed, and the order was pronounced in open court on 08/08/2018.