1990 (7) TMI 262 - AT - Central Excise

Issues Involved:
1. Classification of ethylene, propylene, and butadiene under the Central Excise Tariff Act, 1985.
2. Applicability of Chapter Notes and Section Notes in determining the classification.
3. Relevance of Explanatory Notes to the Harmonized System of Nomenclature (HSN).
4. Impact of the Finance Bill, 1986 on the classification.
5. Applicability of purity criteria for classification.
6. Relevance of the Finance Minister's speech in interpreting the tariff changes.
7. Applicability of Notification 276/67 and Notification 217/86.

Detailed Analysis:

1. Classification of Ethylene, Propylene, and Butadiene:

The primary issue in these appeals is the classification of ethylene, propylene, and butadiene manufactured by M/s. IPCL. Initially, these products were classified under sub-heading 2711.12 of the Central Excise Tariff Act, 1985, as they were specifically excluded from Chapter 29 by Chapter Note 2(c). However, the Finance Bill, 1986, amended Chapter Note 2(c) by omitting the words "ethylene, propylene, butadiene," making these products eligible for classification under Chapter 29 as organic chemicals. The Assistant Collector subsequently issued a show cause notice and concluded that these products should be classified under sub-heading 2901.90.

2. Applicability of Chapter Notes and Section Notes:

The Tribunal emphasized the importance of Chapter Notes and Section Notes in the classification process. Chapter Note 1(a) to Chapter 29 specifies that the headings apply only to "separate chemically defined organic compounds, whether or not containing impurities." Conversely, Chapter Note 1(a) to Chapter 27 excludes such compounds. The Tribunal found that the products in question are separate chemically defined organic compounds and thus fall under Chapter 29, even if they contain impurities.

3. Relevance of Explanatory Notes to the HSN:

The appellants argued that the show cause notice did not refer to the Explanatory Notes of HSN and that these notes have no legal value. However, the department contended that in the absence of specific guidelines in the Tariff, recourse to the HSN Explanatory Notes is justified as the Central Excise Tariff Act is broadly patterned on HSN. The Tribunal noted that while the Explanatory Notes have persuasive value, the main criterion for classification is the Chapter Notes.

4. Impact of the Finance Bill, 1986:

The amendment to Chapter Note 2(c) by the Finance Bill, 1986, was a significant factor. Prior to the amendment, the products were excluded from Chapter 29 and included in Chapter 27. Post-amendment, the exclusion was removed, making these products eligible for classification under Chapter 29. The Tribunal upheld the department's view that the amendment necessitated a reclassification of the products under Chapter 29.

5. Applicability of Purity Criteria:

The appellants contended that the products are not 100% pure and thus should not fall under Chapter 29. However, the Tribunal observed that Chapter Note 1(a) to Chapter 29 allows for impurities in separate chemically defined organic compounds. The Assistant Collector found that the products are separate chemically defined organic compounds, a position not disputed by the appellants. Therefore, the presence of impurities does not preclude classification under Chapter 29.

6. Relevance of the Finance Minister's Speech:

The appellants referred to the Finance Minister's speech indicating that the new tariff sought to preserve the pre-existing position. The Tribunal found that the speech, which prefaced remarks with "generally," did not override the clear statutory provisions. The continuity in the duty structure was intended "to the extent possible," implying no wholesale preservation of the pre-existing structure.

7. Applicability of Notification 276/67 and Notification 217/86:

The Tribunal held that once the products are not classifiable under Chapter 27, Notification 276/67 would not apply. However, the benefit of Notification 217/86 relating to MODVAT was extended to the appellants where conditions were satisfied.

Conclusion:

The Tribunal upheld the department's classification of ethylene, propylene, and butadiene under sub-heading 2901.90 of Chapter 29, following the amendment to Chapter Note 2(c). The appeals were rejected, affirming the lower authorities' orders.

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