1998 (3) TMI 279 - AT - Central Excise

Issues Involved:
1. Classification of Ethyl Alcohol under CET sub-heading No. 2204.00.
2. Suitability of Ethyl Alcohol as fuel for spark ignition engines.
3. Suppression and time bar regarding the duty demand.
4. Applicability of exemption notifications Nos. 75/84 and 106/86.

Detailed Analysis:

1. Classification of Ethyl Alcohol under CET sub-heading No. 2204.00

The primary issue in this appeal was the classification of Ethyl Alcohol manufactured by the appellants under sub-heading No. 2204.00 of the Central Excise Tariff (CET). The Revenue sought to classify the goods under this heading, which covers "Ethyl alcohol of any grade (including such alcohol when denatured or otherwise treated) which either by itself or in admixture with any other substance, is suitable for being used as fuel for spark ignition engines."

2. Suitability of Ethyl Alcohol as fuel for spark ignition engines

The appellants contended that their Ethyl Alcohol was not suitable for use as fuel for spark ignition engines. They relied on the Tribunal's decision in the case of Cellulose Products of India Ltd. v. Collector of Central Excise, Vadodara, which held that Ethyl Alcohol with a concentration of 95% and about 5% water was not suitable for use as fuel for internal combustion (I.C.) engines or spark ignition engines. The Tribunal had previously determined that such a product was not classifiable under T.I. 6(II) to the erstwhile Central Excise Tariff prior to 28-2-1986 or under Heading No. 22.04 of the CET from 28-2-1986 onwards.

3. Suppression and time bar regarding the duty demand

The appellants argued that there was no suppression on their part as the Department had been aware of their production since 1987. They had communicated with the Department, asserting that their rectified spirit of 94.68% Ethyl Alcohol by volume could not be used as fuel for spark ignition engines. The show cause notice was issued on 24-6-1992, and the demand was raised for the period from 1-4-1987 to 29-2-1989. The Tribunal found that the appellants had a bona fide belief that their product did not attract duty under the relevant heading, and thus succeeded on the question of time bar.

4. Applicability of exemption notifications Nos. 75/84 and 106/86

The appellants also argued that even if their product fell under the relevant tariff entries, it would qualify for the benefit of exemption granted under Notification Nos. 75/84 and 106/86 during the relevant periods. The Tribunal held that the classification under Tariff Item 6(ii) or Heading 22.04 would not be applicable to the impugned product. However, the Tribunal noted that the grounds on which the concessional rates of duty under these notifications had been refused were not approved. The failure to follow the procedure under Chapter X of the Central Excise Rules was deemed a condonable deficiency of procedure, given that the goods had been cleared to specific users and evidence was available regarding their end use.

Conclusion:

Following the Tribunal's decision in the case of Cellulose Products of India Ltd. v. CCE, Vadodara, the appeal was allowed. The Tribunal did not agree with the views taken by the adjudicating authority, and the order was set aside. The appellants' contentions regarding the non-applicability of the respective Tariff entries and the exemption notifications were upheld.

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