2018 (11) TMI 1381 - AT - Central Excise

Classification of goods - Naptha - Revenue has sought to classify Naptha as Other Special Boiling Point Spirits under Chapter sub heading 2710.13 (prior to 01.03.2005) and under heading 2710 11 13 (after 01.03.2005) - whether Naphtha can be classified as a motor spirit ? Held that - Practically identical case has been decided by Tribunal in the case of Bharat Petroleum Corporation Ltd 2018 (4) TMI 829 - CESTAT MUMBAI . In the said decision also the issue in dispute was whether Naphtha can be classified as a motor spirit . The evidence was a test reports undertaken that the temperature for 5% recovery by volume and the temperature be 90% recovery fell in the range prescribed for SBPS. However, in the said case, no test was done for the suitability of the use of the product either by itself or with any other substance as fuel in spark ignition engine. In this case, the said test has been conducted. To qualify as Motor spirit two very specific tests have to be followed, in respect of the testing for the possibilities of use in admixture with other substances Motor Spirit‟ is concerned - In the instant case testing in admixture with any other substance other than mineral oil, has not been carried out, therefore, there is no evidence to hold that the product answers to description Motor Spirits amd therefore, would be classifiable under heading 2710.14 (prior to 01.03.05) and heading 2710 11 13 (after 01.03.2005). Revenue has failed to establish that the product in question is classifiable as Motor Spirit under the description of single dash heading of motor spirits (prior to 01.03.2005) and triple dash (after 01.03.2005) - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of bottom end products as 'Naphtha' or 'Other Special Boiling Point Spirits'.
2. Applicability of Special Excise Duty on the classified product.
3. Interpretation of the term 'motor spirit' under the Central Excise Tariff Act.
4. Validity of the chemical examiner's report and its implications on classification.
5. Reliance on previous Tribunal decisions and their applicability to the current case.

Issue-wise Detailed Analysis:

1. Classification of Bottom End Products:
The primary issue was whether the bottom end products produced during the manufacture of LPG should be classified as 'Naphtha' under Chapter subheading 2710.14 (prior to 01.03.2005) and 2710 11 19 (after 01.03.2005), or as "Other Special Boiling Point Spirits" under subheading 2710.13 (prior to 01.03.2005) and 2710 11 13 (after 01.03.2005). The Tribunal considered the chemical composition and the distillation process of the product, which consists of hydrocarbons such as pentane, hexane, heptanes, etc. The product was bought and sold as Naphtha, and the appellant argued that it should be classified accordingly.

2. Applicability of Special Excise Duty:
Revenue sought to classify the product as "Other Special Boiling Point Spirits," which would attract Special Excise Duty under the second schedule to the Central Excise Tariff Act. The Tribunal examined whether the product met the criteria for 'motor spirit' as defined in the Act, which includes having a flash point below 25°C and being suitable for use as fuel in spark ignition engines.

3. Interpretation of 'Motor Spirit':
The definition of 'motor spirit' was crucial in determining the classification. The Tribunal referred to the definition in the Central Excise Tariff Act and previous decisions, which required the product to satisfy two conditions: having a flash point below 25°C and being suitable for use as fuel in spark ignition engines. The Tribunal noted that the product in question did not meet these criteria based on the chemical examiner's report and previous case law, particularly the Indian Oil Company case.

4. Validity of Chemical Examiner's Report:
The chemical examiner's report dated 06/04/2006 indicated that the sample, when mixed with motor spirit, had an octane number (RON) of 90.4, suggesting suitability for use as fuel in spark ignition engines. However, the Tribunal found that the test was conducted in admixture with motor spirit, which did not satisfy the requirement that the product itself or in admixture with any other substance (other than mineral oil) should be suitable for use as fuel. The Tribunal emphasized that the burden of proof was on the department to show that the product met the criteria for 'motor spirit'.

5. Reliance on Previous Tribunal Decisions:
The Tribunal relied heavily on previous decisions, particularly the cases of Oil India Ltd. and Bharat Petroleum Corporation Ltd. In these cases, the Tribunal had held that the product must meet the definition of 'motor spirit' to be classified under the disputed headings. The Tribunal found that the Revenue had failed to prove that the product met these criteria, as no tests were conducted to show suitability for use as fuel in spark ignition engines.

Conclusion:
The Tribunal concluded that the Revenue had not established that the product in question was classifiable as 'motor spirit' under the relevant headings. The appeals were allowed, and the classification as 'Naphtha' was upheld. The Tribunal emphasized the importance of satisfying both criteria for 'motor spirit' and the need for appropriate testing to support classification claims. The decision reinforced the principles established in previous cases and highlighted the burden of proof on the Revenue in classification disputes.