2009 (8) TMI 442 - AT - Central Excise

Classification- - Demand for Rs.4, 66, 90, 279/- in respect of clearances of various petroleum hydrocarbon solvents during the period August 1998 to 24-1-2000 has been confirmed against the appellant M/s. Avani Petrochemicals along with interest as applicable. Penalty of equal amount has also been imposed under Section 11AC of CEA 1944. Penalty of Rs.10 lakhs has been imposed on Managing Director and land buildings plant and machinery have been confiscated and allowed to be redeemed on payment of fine of Rs.5 lakhs. The appellants are challenging this order which has been issued on the ground that the petroleum hydrocarbon solvents manufactured by the appellant are classifiable under Chapter sub-heading 2710.19 of First Schedule to CETA 1985. Held that- In the absence of specific test report in support of the product and in view of the fact that the admittedly even at the time of visit of the officers samples were not available facilitating the test for suitability of product for use in spark ignition engine the Commissioner s order cannot be sustained. In view of the above the demand cannot be sustained and consequently the penalties imposed upon the appellant-company as well as Managing Director also cannot be sustained. Accordingly the impugned order is set aside and the appeals are allowed with consequential relief to the appellants.

Summary

Issues:
Demand for Rs.4,66,90,279/- in respect of clearances of various petroleum hydrocarbon solvents, classification of the solvents under Chapter sub-heading 2710.19 of First Schedule to CETA, 1985, imposition of penalties under Section 11AC of CEA, 1944, confiscation of assets, reliance on technical opinion, failure to conduct specific tests for product suitability, non-compliance with Tribunal's directions, setting aside the impugned order.

Analysis:

1. Classification of Solvents:
The appellant challenged the order confirming a demand for Rs.4,66,90,279/- for clearances of petroleum hydrocarbon solvents, arguing that the solvents should be classified under Chapter sub-heading 2710.19 of the First Schedule to CETA, 1985. The Commissioner relied on technical opinions and test reports of samples available during the officers' visit to the factory. The Tribunal emphasized the need to test the product's suitability for use in spark ignition engines to classify it as motor spirit. It was noted that the product's suitability for use was a crucial criterion, and reliance solely on flash point criteria was insufficient. The Tribunal found that the Commissioner's order could not be sustained due to the lack of specific test reports supporting the product's suitability for use in spark ignition engines.

2. Penalties and Confiscation of Assets:
In addition to the demand, penalties were imposed under Section 11AC of CEA, 1944, and a penalty of Rs.10 lakhs was levied on the Managing Director. Furthermore, assets such as land, buildings, plant, and machinery were confiscated, with the option to redeem them upon payment of a fine of Rs.5 lakhs. However, since the demand itself could not be sustained due to the classification issue, the penalties imposed on the appellant-company and the Managing Director were also set aside.

3. Non-Compliance with Tribunal's Directions:
The Tribunal had previously remanded the matter for re-examination by the Commissioner, emphasizing the need for testing the product's suitability for classification under the relevant sub-heading. However, it was observed that the Commissioner did not carry out the required examination, specifically regarding the product's suitability for use in spark ignition engines. The Tribunal found that the Commissioner's reliance on the technical opinion was not conclusive and that the absence of specific test reports rendered the order unsustainable.

4. Final Decision:
Ultimately, the Tribunal set aside the impugned order, allowing the appeals and providing consequential relief to the appellants. The demand, penalties, and confiscation of assets were deemed unsustainable due to the lack of conclusive evidence regarding the product's suitability for use in spark ignition engines. The judgment was pronounced on 13-8-2009 by the Appellate Tribunal CESTAT, Ahmedabad, with detailed reasoning provided by Member (T), B.S.V. Murthy.