2024 (12) TMI 881 - AT - Central Excise

Classification of Propylene/Propene-PP feed stock manufactured by the appellants - whether, the same merits classification under CETI 2902 9090 as claimed by the appellants; or, is it classifiable under CETI 2711 1400 as determined by the learned Commissioner in the impugned order? - invocation of extended period under Section 11A of the Central Excise Act, 1944 - imposition of penalty under Section 11AC ibid. HELD THAT - It could be seen that by applying the GIR 1, the position is made clear that Chapter Heading 27.11 covers within its scope and ambit, mainly of Petroleum gases and other gaseous hydrocarbons. However, separate chemically defined organic compounds, other than pure methane and propane, are not covered under chapter 27 and are to be classified under chapter 29. Further, separate chemically defined organic compounds, whether or not containing impurities remain classified under Chapter 29. Moreover, it is only pure methane and propane of chapter 27 which are excluded from the scope of coverage of chapter 29 and not propene (propylene). Thus, the distinguishing factor for classification of the impugned product i.e., propylene/propene is to determine whether these are separate chemically defined compounds and further its purity, as per standards such as BIS or other laid down norms by Indian Institute of Petroleum, which is one of the constituent laboratories under the umbrella of Council of Scientific Industrial Research (CSIR), which has facilities for testing ASTM/IP/UOP/BIS standards for analyzing and evaluating of petroleum products. The impugned order has not examined all the aforesaid aspects for arriving at a proper classification of the impugned goods. It is not the case of the Revenue, that Propene/propylene is a new product that was manufactured by the appellants and as such its classification as per self-assessment made by the appellants are mis-classified. It is a fact on record that right from the beginning of the petroleum refinery operations of the appellants at the Mahul refinery, Propene/propylene was being manufactured and were cleared for home consumption. Heading 2711 covers under its scope liquified petroleum gases and other gaseous hydrocarbons as well as such products in gaseous state. Liquified propylene is specifically covered under sub-heading 2711.14 and in gaseous state is covered under 2711.29. However, if such propylene is in a pure state or commercially pure state, being separate chemically defined hydrocarbons, then the same is classifiable under heading 29.01. The records of the case also show that the customers of the appellants have placed orders for the product as Poly Propylene Feed Stock , Propylene as these are known commercially in the trade for use in their further manufacture of chemicals. Therefore, as observed by us, the determining factor for classification of the propylene/ propene manufactured by the appellants would be determination of the purity level and whether it is a separate chemically defined compound or not. The test reports stated to have been examined by the learned Commissioner does not throw light on the above factual aspects for determining proper classification of the impugned goods. Therefore, the findings of the learned Commissioner is faulty and does not help in determining proper classification of the impugned goods. Invocation of extended period of limitation - suppression of facts or not - HELD THAT - The classification of the impugned product was initially approved by the Department under the classification adopted by the appellants, and the issue of misclassification of the impugned product was raised during the audit scrutiny by the department authorities. The periodical returns filed by the appellants before the department authorities, clearly show that all information relating to the production and clearance of the impugned products, were in the knowledge of the Department, including the classification of the product, and there was no suppression of fact or mis- statement in the declaration filed by the appellants. Further, CBIEC s instructions issued vide Circular No. 808/5/2005-CX dated 25.08.2005, clearly state that 8-digit classification code is a technical change adopted in the numbering scheme for Central Excise classification, and all possible assistance to trade industry may be provided by the Department for switching over to such new 8-digit tariff. Hence, the invocation of extended period for confirmation of demand on the ground of willful suppression or mis-statement is not legally sustainable. The impugned order dated 30.06.2014 classifying imported goods under heading 2711 1400 does not stand the scrutiny of law and therefore it is not legally sustainable. In order to determine the proper classification of the impugned goods as per law, it is considered necessary that the matter should be remanded back to the original authority - the impugned order set aside - appeal allowed by way of remand.

Issues Involved:

1. Classification of 'Propylene/Propene-PP feed stock' under the appropriate Central Excise Tariff Item (CETI).
2. Legality of invoking the extended period for demand of duty under Section 11A of the Central Excise Act, 1944.
3. Imposition of penalties under Section 11AC of the Central Excise Act, 1944 and Rule 26 of Central Excise Rules, 2002.

Issue-wise Detailed Analysis:

1. Classification of 'Propylene/Propene-PP feed stock':

The primary issue was whether the 'Propylene/Propene-PP feed stock' should be classified under CETI 2902 9090, as claimed by the appellants, or under CETI 2711 1400, as determined by the Commissioner. The classification affects the applicable Central Excise duty rate. The Tribunal examined the relevant legal provisions, including the Central Excise Act, 1944, the Central Excise Tariff Act, 1985, and the Harmonized Commodity Description and Coding System (HSN) Explanatory Notes. The Tribunal noted that the classification should be based on the purity level of propylene, with propylene having a purity of 90% or more classified under heading 29.01, and less than 90% under heading 27.11. The Tribunal found that the test report relied upon by the Commissioner did not provide a specific purity percentage, which is crucial for classification. Therefore, the Tribunal concluded that the classification decision was faulty and required a re-examination based on proper evidence and legal provisions.

2. Legality of invoking the extended period for demand of duty:

The Tribunal scrutinized the invocation of the extended period for duty demand, which was based on alleged misclassification and suppression of facts by the appellants. The Tribunal observed that the appellants had filed classification declarations and periodical returns with the Department, which indicated that the Department was aware of the product's classification and there was no suppression of facts. The Tribunal referred to the Supreme Court's judgment in Collector of Central Excise Vs. Chemphar Drugs & Liniments, which requires something positive other than mere inaction or failure on the part of the manufacturer to invoke the extended period. The Tribunal found no evidence of willful misstatement or suppression by the appellants and thus held that the invocation of the extended period was not legally sustainable.

3. Imposition of penalties:

The Tribunal examined the imposition of penalties under Section 11AC of the Central Excise Act, 1944, and Rule 26 of Central Excise Rules, 2002. The penalties were based on the alleged misclassification and intent to evade duty. However, since the Tribunal found that the classification issue was not properly determined and the extended period for demand was not justified, the basis for imposing penalties was also not sustainable. The Tribunal set aside the penalties imposed on the appellants.

Conclusion:

The Tribunal set aside the impugned order dated 30.06.2014, which classified the goods under heading 2711 1400, confirmed the demand of duty, and imposed penalties. The Tribunal remanded the matter back to the original authority for re-determination of the proper classification of the impugned goods, ensuring that all relevant data and additional information submitted by the appellants are considered during the de novo proceedings. The appeals were allowed in favor of the appellants by way of remand.

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