2013 (3) TMI 240

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..... resent tariff, the claim of the appellant is that Revenue has to establish that the product is suitable for use in spark ignition engine in admixture with other products cannot be sustained and the decisions cited by the learned counsel also are of no help to the appellants. However, we cannot straightway classify the product as a special boiling spirit without rejecting or considering the competing heading under Chapter 29. The very fact that no purity has been prescribed for n-Hexane or Hexane and the definition of impurities given in the HSN and the fact that there can be two terms namely pure and commercially pure would, in our opinion, support the appellants’ case. The technical expert has also stated that improving the purity by decreasing the range of boiling points would involve abnormal conversion cost and render the product commercially unviable. This has not been challenged or proved otherwise. Therefore the submission of the appellants on the basis of supplier’s letters and technical expert opinion and the terminology used for pure and commercially pure to say that the product imported by them even if it contains only 40% or more of Hexane would still be classifiable as .....

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..... ing 2901 of the Customs Tariff and the ITC-HS. In respect of 28 (out of the 58) Bills of Entry, clearance was sought against Advance Licences permitting duty-free import of the two brands mentioned above. The Commissioner, in the impugned order, has held that the said products are correctly classifiable as "special boiling point spirits" of Chapter Heading 27.10 of the Customs Tariff. Besides demanding differential duty of Customs by invoking the proviso to Section 28(1) of the Customs Act, 1962, the impugned order also holds that the import of the said goods was unauthorized as import of products falling under Chapter Heading 27.10 was canalized and, therefore, could not have been imported directly by the appellant. Redemption fine and penalties have been imposed under different provisions of the Customs Act, 1962 for wrong classification of the goods as well as for their unauthorized import. 2. Heard both the sides in great detail and both wanted to make written submissions. Accordingly appellants were directed to make written submissions by 5th of October and serve a copy to the respondents. However, the appellants could not make the written submissions by 5th October and .....

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..... Separate chemically defined compounds has been defined in the Explanatory Notes to the HSN (Chapter 29) as - "A separate chemically defined compound is a substance which consists of one molecular species (e.g. covalent or ionic) whose composition is defined by a constant ratio of elements and can be represented by a definitive structural diagram. In a crystal lattice, the molecular species corresponds to the repeating unit cell." As n-hexane has a defined molecular structure C6H14 and a definite molecular weight, n-hexane is a separate chemically defined compound. This fact is admitted in Para 13(c) of the Show Cause Notice itself; (e) the Explanatory Notes to the HSN under Chapter 27 (at pages 21 to 31 of the compilation) specifically state that the said Chapter 27 'does not cover separate chemically pure state' as such Products are classifiable under Chapter 29. Relevant extracts from the HSN Explanatory Notes are set out herein below for ease of reference : (i) Explanatory Notes to chapter 27 in 'General' (page 21 of the compilation) : "Goods of this Chapter may be crude or refined; however, with the exception of methane and propane, when they are separate chemical .....

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..... three components of the product were regarded by the Hon'ble Tribunal as 'permissible impurities' and the products 'Exxsol Hexane RD' was held to be is a 'commercially pure Hexane' despite the N-hexane content being 63.93% in that product; (i) it was submitted that the two products in question are 'commercially Pure' Hexanes. This position has been confirmed not only by the supplier, Exxson Mobil in its letter dated 5-9-2009 but also by a technical expert, Dr. Tilak Guha, in his opinion dated 20-11-2009. The opinion of Dr. Guha remains uncontroverted dispute as despite our offer to produce him for cross-examination vide our submission dated 2-12-2006, the department neither cross-examined him not controverted his opinion by dealing with it in the Order or by producing a contra opinion from some other expert. Even otherwise, neither the Show Cause Notice nor the impugned order discloses any evidence or basis to dispute the position that the two products are "Commercially pure Hexanes". This position therefore, remains uncontroverted by evidence. 4. The counsel for the Revenue sought to distinguish the above referred decision in IPCL's case on the ground that the percenta .....

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..... xt of which such an opinion was given. It was further pointed out that the extracts produced by the learned counsel for the Revenue have been furnished to appellant for the first time and had not been relied upon in the Show Cause Notice. It was further submitted that what was binding upon the courts and authorities are the Explanatory Notes (which do not prescribe any specific purity criterion for hexanes, unlike for many other chemicals as pointed out in Para 4(c) above and not individual opinion which do not represent the views of the Council. The classification opinions do not have any general application and they are regarded as individual opinions only with reference to the facts of a particular case. Subsequently, if those opinions are found to be valid for general application, they are incorporated in the Explanatory Notes to the Harmonized System. In CCE v. Woodcraft Products Ltd. - 1995 (77) E.L.T. 23 and O.K. Play (India) v. CCE - 2005 (180) E.L.T. 300, the Hon'ble Supreme Court has held that HSN along with Explanatory Notes provide a safe guide for interpretation of entry. The Hon'ble Supreme Court has not expressed a similar opinion with regard to the classification op .....

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..... cluded from Chapter 29 by virtue of Chapter Note 1 (b), which reads thus : "(b) admixtures of two or more isomers of the same organic compound (whether or not containing impurities), except mixtures of acyclic hydrocarbon isomers (other than stereoisomers), whether or not saturated (Chapter 27);" 9. In reply, it was pointed out by the appellant's counsel that 2-Methyl Pentane and 3 Methyl Pentane are not Pentanes but are Hexanes only as the chemical formula for these two is C6H14. Pentanes, on the other hand, have five carbon atoms and their formula is C5H12. Therefore, the contention of the counsel for the Revenue that the products in question were Pentane, is incorrect. In fact, no such case was ever made either in the Show Cause Notice, or in the impugned order. In fact Para 13(e) of the notice describes these two chemicals as isomers of Hexane and not pentanes as contended by the revenue's counsel. 10. Insofar as the second contention is concerned, it was submitted that; (a) Note 1(b) is irrelevant for the reason that the products are specifically covered under Chapter 29 by virtue of Note 1(a) itself; (b) Note 1(b) is otherwise inapplicable as it .....

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..... e HSN which reads thus : "The term "impurities" applies exclusively to substances whose presence in the single chemical compound results solely and directly from the manufacturing Process (including purification). These substances may result from any of the factors involved in the process and are principally the following : (a) Unconverted starting materials. (b) impurities present in the starting materials. (c) Reagents used in the manufacturing process (including purification). (d) By-products. The Hon'ble Tribunal enquired whether the chemicals other than hexanes which are present in the product fall in the definition of impurities as given above they were unconverted starting material or impurities present in the starting material." The suppliers have now confirmed vide their letter dated 14th October, 2011 (copy enclosed as Exhibit 'A') that these elements were naturally present in the feedstock and could not be removed in the process of fractionation due to their having boiling points which were very close to that of n-hexane. These four substances are therefore "permissible impurities" whose presence in the final product is due to the fact these were naturally present .....

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..... s." 13. Since it is not the case of the Revenue that the presence of any of the 4 isomers of n-hexane or the other seven components mentioned in the list above was through deliberate addition of such components into this product or a deliberate intention to live them behind so as to render the end-product suitable for a specific use, the products cannot be regarded as a 'mixture' particularly in the light of the clarification given by the suppliers, which are duly corroborated by the Kirk-Othmer Encyclopedia which describes the said products as commercially pure n-hexane. These clarifications as well as composition in Kirk-Othmer Encyclopedia clearly, shows that the various isomers of Hexane as well as other seven ingredients of the end product are permissible impurities whose presence in the final product is a direct result in the manufacturing process. These elements were present in the starting feedstock (LVN) and continue to remain in the final products due to having their close boiling point range, with the result they are difficult to remove and separate from n-hexane. The typical composition of Naphtha (LVN) as set out in the book "Manufacturing Ethylene" by L.P. Halle .....

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..... classifiable under Chapter 29 of the Customs and Central Excise Tariffs and not under Chapter 27, there is a further and additional reason as to why in any event the same cannot be classified under Heading 2710.12 of the Central Excise Tariff. Heading 2710.12 of the Central Excise Tariff appears under the following description : - Motor spirit, that is to say, any hydrocarbon oil (excluding crude mineral oil) which has its flash point below 25°C and which either by itself or in admixture with any other substance is suitable for us as fuel in spark ignition engines. Thus, before the department can classify the imported goods under Heading 2710.12 of the Central Excise Tariff for the purpose of additional duty of customs, the department must establish by evidence that the following two requirements are satisfied : (a) that the imported goods have flash point below 25°C; and (b) that the imported goods are suitable for use as fuel in spark ignition engines either by themselves or in admixture with any other substance. In the present case, the evidence relied upon in the Show Cause Notice merely shows that the imported goods have flash point below 25°C. Ther .....

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..... v. CCE - 2002 (148) E.L.T. 802 in Para 8 held that any other substance must be "substance other than mineral oil". There is absolutely no evidence led by the department to show that n-hexane in admixture with a substance other than mineral oil is used as fuel in spark ignition engines. 20. Without prejudice to the above submissions, it was pointed out that most of the imports covered by the impugned order were made against Advance Licences, which specifically cover the products with reference to their specific brands. Since the Advance Licences do not mention any particular classification, the products are entitled for duty-free clearances regardless of their classification and are also entitled to be imported without restriction as a specific licence exists in the form of Advance Licences for these imports. This contention of the appellant has not been considered by the Commissioner and therefore the order is rendered untenable. 21. Appellant also submitted that the demand is also time barred as there is no suppression or misstatement which can be attributed to the appellant in case of this kind where it had acted bona fide by declaring the true description of the prod .....

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..... ation was binding on the customs authority, without going into the question whether the impugned goods should, on merits, be classified under chapter 29 or otherwise. Therefore, the question of classification on merits remains open. While there is no doubt that DGFT clarification in the matter of Import Policy shall be binding on the Customs authority, same cannot be said about classification of a product under Customs Tariff. Besides, it is pertinent to mention that the impugned order of Hon'ble Bangalore Bench of CESTAT has been appealed against by the Revenue and the issue is sub-judice in the apex court. It may also be pointed out in this regard that DGFT clarification dated 14-7-2004 referred to in para 8 of the order of Hon'ble Bangalore Bench, refers only to a policy decision to cover import of Hexnne in chapter 29 of ITC (HS) classifications of Export and Import items, 2002-2007. The above policy decision going by the very nature of it was of a general nature, and did not deal with a particular classification case where the composition and chemical properties of the product were of relevance in the light of the relevant chapter notes of the Customs Tariff and Explanatory No .....

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..... ent that definition of a product given in Customs Tariff or HSN for that matter shall prevail upon its scientific/industrial definition or common parlance for the purpose of its classification, as doing so would go against legislative intent, and would make Note 1(b) of Chapter 29, as well as significant portions of the Explanatory Notes to Note I of the said chapter, redundant. (3) How the relevant terms relating to classification of the impugned product have been defined in the Tariff chapter notes and explanatory notes? Let us now see how the relevant terms have been defined in the Customs Tariff and the HSN Chapter Note 1 of Chapter 29 reads as follows : '1.- Except where the context otherwise requires, the headings of this Chapter apply only to : (a) Separate chemically defined organic compounds, whether or not containing impurities; (b) Mixtures of two or more isomers of the same organic compound (whether or not containing impurities), except mixtures of acyclic hydrocarbon isomers (other than stereo isomers), whether or not saturated (chapter 27);' In the explanatory notes of Chapter 29 in HSN (2007), the term "chemically defined compound" has been defin .....

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..... all six Carbons are in a straight line, whereas in other isomers and compounds, the positioning of all the carbons is not uniformly in straight line, and is, therefore, structurally different (Refer table under Issue No. 6). The impugned product cannot also be construed as n-Hexane, as the percentage of n-Hexane in the product falls well below 50%. Going by the clear stipulation in HSN such mixtures of acyclic hydrocarbon isomers are excluded from chapter 29, and will fall under chapter 27. The definition of "chemically defined compounds", as provided in HSN is a safe guide to resolve disputes on tariff classification, as has been held by the Apex Court in the matter of L.M.L. Ltd. v. Commissioner of Customs, vide 2010 (258) E.L.T. 321. (4) What is the difference between n-Hexane and Hexane? Can n-Hexane also be called an isomer, or is it separate from the isomers? 1. Hexane (often used in plural, as 'Hexanes') is a generic term covering all the hydrocarbons, which contain 6 carbon atoms and 14 Hydrogen atoms in each molecule of the substance. All substances having the formula C6H14 are thus considered to be a type of hexane. 2. N-Hexane is one of the hydrocarbons .....

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..... ot of the same molecular species as hexane. Group (ii) The hydrocarbons in Group (ii) are defined by the same constant ratio of elements as hexane, namely C6H14. Therefore, whether they are of, 'Y.' same molecular species as hexane or not depends on the whether they satisfy the second requirement : - whether they 'can be represented by a definitive structural diagram'. 6. What is meant by a definitive structural diagram'? The properties of a compound depend not only on the component elements constituting the compound and the ratio in which they are to be found, but also on the particular manner in which these constituents combine. The manner in which the constituents combine is known as the structure of the compound, and can be depicted using a 'structural diagram'. The meaning of the word 'definitive', as per the Merriam Webster Dictionary, is : 1 : serving to provide a final solution or to end a situation . 2 : authoritative and apparently exhaustive 3a : serving to define or specify precisely b : serving as a perfect 4 : fully differentiated or developed 4 5 : .....

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..... ve different structures. By their very definition, therefore, mixtures of isomers automatically fall outside the ambit of Note 1(a), and can only be considered under Note 1(b) of Chapter 29. (8) As the component hydrocarbons of the impugned product, viz. Exxsol Hexane RD, are not of the same molecular species, either because their composition is defined by a varying ratio of elements, or because they cannot be represented by a definitive structural diagram' the Exxsol Hexane RD in the subject case does not qualify as a separate chemically defined compound for the purpose of its classification under chapter 29. (6) Can isomers be considered impurities? 1. The technical definition of an impurity is: "a substance inside a confined amount of liquid, gas, or solid, which differs from the chemical composition of the material or compound." 2. As isomers do not differ from one another in their chemical composition, but differ from each other only in structure, they cannot technically be considered as impurities. 3. Isomers whose presence in a substance results directly from the production process of that substance may occasionally be considered to be an impurity in general i .....

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..... and not any of the isomers which were found to be present in the consignment of Exxsol Hexane. It is, therefore, clear that isomers were not treated as impurities by the said Hon'ble Bench. (7) Are these mixtures of acyclic hydrocarbon isomers? 1. Exxsol Hexane RD is a mixture of various hydrocarbons' consisting of : (a) normal Hexane (38.63%) (i) n-Hexane (b) acyclic hydrocarbon isomers of n-Hexane (50.04%): (i) 2,2 Dimethyl Butane (ii) 2,3 Dimethyl Butane (iii) 2 Methyl Pentane (iv) 3 Methyl Pentane (c) cyclic hydrocarbon isomers of Hexane (10.52%) : (i) Methyl Cyclopentane (ii) Cyclohexane (d) other hydrocarbons (non-isomers of Hexane) : (i) n-Pentane (ii) iso-Pentane. (iii) cyclopentane (iv) 2,4 Dimethyl Pentane (v) 2,2,3 Trimethyl Butane. 2. Although n-Hexane and the four acyclic hydrocarbon isomers have been grouped separately above for the sake of clarity, all five substances are isomers of one another. They can therefore, be grouped together as 'acyclic hydrocarbon isomers of Hexane'. 3. The product in question is, therefore, a mixture of acyclic hydrocarbon isomers (88.67%), whi .....

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..... pecial boiling point spirit classifiable under 2710 11 12 of the Schedule to the Customs Tariff Act, 1975. Before proceeding further it would be appropriate to reproduce the relevant competing tariff headings. 2901 Acyclic Hydrocarbons Unit Rate of duty Standard Preferential Areas 2901 10 00 Saturated Kg. 15% - 2710 Petroleum oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations; waste oils - Petroleum oils and oils obtained from bituminous minerals (other than crude) and preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations, other than waste oils 2710 11 -- Light oils and preparations : --- Motor Spirit : 2710 11 11 ---- Special boiling point spirits (other than benzene, toluol) with nominal boiling point range 55-115°C kg. 20% 2710 11 12 ---- Special boiling point spirits (other tha .....

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..... ws : 5.1 Revenue did not discharge the burden of proving that the classification declared by the appellants was wrong by bringing on record cogent and reliable evidence. 5.2 Issue of classification of Hexane stands concluded by the decisions of the Tribunal in the case of Indian Petrochemicals Ltd. vide Order No. A/1280/WZB/AHD/11 dated 25-3-2011 [2011 (274) E.L.T. 299 (Tri.-Ahmd.) and Unimers India v. CC, Mangalore Ltd. reported in 2010 (250) E.L.T. 225 (Tri.-Bang.). 5.3 The product imported by the appellant is specifically covered by the chapter Heading 29.01 which specifically excludes separate chemically defined compound. N-Hexane has a defined molecular structure C6H14 and a defined molecular weight, it is a separate chemically defined compound. 5.4 Explanatory notes to the HSN under Chapter 27 specifically states that Chapter 27 does not cover separate chemically defined organic compounds 'in the pure' or 'commercially pure state'. The product imported by the appellant is in commercially pure state. 5.5 The explanatory notes to Chapter 29 covers Hexanes under Heading 29.01. Use of the term Hexane clearly shows that heading covers nominal n-Hexane .....

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..... efore these are permissible impurities. 7. Reliance was also placed on the Board's Circular No. 574/11/2011-CX., dated 22-2-2001 where Board had clarified that even if a product is a mixture of chemicals the same can be classified under Chapter 29 by virtue of general Note 1(a) read with Rule 3(b) of Interpretation Rules. In addition, it was also submitted that for a product to be classified as a special boiling spirit, besides showing the flash point below 25°C, it is also necessary to show that the product is suitable for use as fuel either by itself or in admixture with any other substance. Reliance was placed on the following decisions : (a) Indu Nissan Oxo Chemical Industries Ltd. - 1998 (101) E.L.T. 201 (Tri.) (b) Avani Petrochem Ltd. v. CCE - 2010 (249) E.L.T. 117 (c) Ram Remedies Pvt. Ltd. v. CCE - 2010 (254) E.L.T. 170 (d) Shriram Petroleum Industries v. CCE - 2010 (255) E.L.T. 317. 8. We have already reproduced the Tariff Heading 2710 11 12 under which the product is proposed to be classified by the Revenue. According to the notes to Chapter 27, references in Heading 2710 to petroleum oils and oils obtained from bituminous minerals includes not only pe .....

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..... the department is required to prove that the product is suitable for use in spark ignition engine in admixture with other products for classification under special boiling spirits. In Indu Nissan Oxo Chemical Industries, the product under consideration was Insan LE of by-product arising in the course of manufacture of Oxo alcohol. The Tribunal held that the product cannot be classified as motor spirit. Therefore the issue there was whether the product Insan LE can be classified as motor spirit. In the case of Avani Petrochem Ltd. Revenue had relied upon the view of Chief Technical Service Manager of IOCL, Vadodara who had clarified that the solvents in question can be blended with other petroleum streams to meet specifications for motor spirit. It was also observed by the Tribunal that the learned counsel had relied upon several decisions to support his submission that unless the product is tested to examine its suitability for use in spark ignition engine as required in the definition of motor spirit in the tariff product could not have been classified. This shows that in that case also the question was whether a product can be classified as a motor spirit when its suitability fo .....

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..... r the product can be classified under CETH 29 at all. 12. Before proceeding further, it would be appropriate to consider the composition of imported product. The composition of imported product as submitted by the appellants in para 7 of their written submission, contains 38.63% of n-Hexane, about 50% of isomers of Hexane and balance consists of Cyclic Hydrocarbons and Acyclic Pentanes. 13. According to Chapter Note 1 of Chapter 29, the headings apply only to : (a) Separate chemically defined organic compounds, whether or not containing impurities. (b) Mixtures of two or more isomers of the same organic compound mixtures of Acyclic Hydrocarbons whether or not saturated. 14. Before going to Note 1(b), it is necessary to consider whether Note 1(a) covers the product of the appellant or not. There is no doubt that even if the product contains some impurities, it would still be classifiable under Chapter 29 as a separate chemically defined organic compound. Chemically defined compound has been defined in the explanatory notes as a substance which consists of one molecule of species whose composition is defined by a constant ratio of elements and can be represented b .....

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..... ing n-Hexane in the range of 40% to 64% by volume and technically pure grade containing n-Hexane from 65% to 90% or more. He has also stated that the cost of production of hexane by fractionation distillation technology increases exponentially with increasing level of purity due to the increasing capital cost and energy cost. He has also explained that the benefit/cost ratio in the performance of hexane diminishes beyond a certain level of hexane purity which is about 60% and it becomes commercially unviable. He says that technically it is feasible to produce hexane of purity of 90% or more but because of the need for bringing down the boiling range to less than 1°C, the cost increases beyond commercial feasibility and further he has also stated that Hexane containing n-Hexane above 80% by volume poses severe health hazard, risk of Neurotoxicity and handling needs special precautions and procedures further increasing the cost. The supplier also has stated that output of n-Hexane depends upon the quality of feedstock and this is supported by technical literature submitted by the appellants also. The conclusion that emerges from the supplier's report, evidences available on recor .....

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..... r classification under Chapter 29. The very fact that no purity has been prescribed for n-Hexane or Hexane and the definition of impurities given in the HSN and the fact that there can be two terms namely pure and commercially pure would, in our opinion, support the appellants' case. The technical expert has also stated that improving the purity by decreasing the range of boiling points would involve abnormal conversion cost and render the product commercially unviable. This has not been challenged or proved otherwise. Therefore the submission of the appellants on the basis of supplier's letters and technical expert opinion and the terminology used for pure and commercially pure to say that the product imported by them even if it contains only 40% or more of Hexane would still be classifiable as Hexane since the impurities or other products found in the product are covered by the definition of impurities, would come under Chapter 29 appear sustainable. 19. The claim of the appellants is further supported by the fact that the chapter note itself recognizes that chemically defined compound can have impurities and wherever a specific purity criterion is required the same has bee .....

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..... ated acyclic hydrocarbons of the heading include Hexanes, with six atoms of carbon. The use of word 'Hexanes' and not Hexane supports the case of appellants and if we take the heading as hexanes, hexanes percentage in the product is more than 88%. This would satisfy the predominance test also. 22. In terms of Rule 3(c) of Interpretative Rules also, the appellants have a case since even if is held that Revenue has been able to make out a case for classification under Chapter 27 and appellants have made out a case for classification under Chapter 29 and both have equal merits, the heading which across numerically last has to be taken into consideration and in that case also, the product becomes classifiable under Chapter 29 only. 23. We are not considering whether the product goes out of Chapter 29 when the Explanatory Note 1(b) is considered since in our opinion Note 1(a) itself is sufficient to classify the product under Chapter 29. 24. In view of the above discussion, the claim of the appellants has to be sustained on merits. Since we have upheld the classification claim made by the appellants, it would not have been necessary for us to go into other issues. Neve .....

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