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TMI Blog2019 (11) TMI 778X X X X Extracts X X X X X X X X Extracts X X X X ..... e; hence, there is no possibility of presence of water soluble inorganic acids in the Feed. Ash percentage - HELD THAT:- Ash is composed of materials that cannot be burnt out during the distillation process. These solid materials (such as dust and other impurities) are likely to be found in the residue crucible of the distillation columns. As the FCC Feed is composed wholly of intermediate streams drawn as side cuts (excluding the residue) from distillation columns, this residue will not be present in the Feed. The principal elements contributing to high ash contents of petroleum stocks are metallic salts and organometallic compounds. The FCC feed contains metals like Nickel, Sodium etc. in the 5-50 ppmw range (0.005%). Hence, ash content is never likely to be more than 0.1% by mass. Parameter of flash point - HELD THAT:- It is expected to generate sufficient vapours which form combustible mixture at around temperature of 150o C or more. Hence, the specification of minimum 66o C will necessarily be met. Parameter of sediment percentage by mass - HELD THAT:- As the FCC feed is composed wholly of intermediate streams drawn as side cuts (excluding the residue) from distillati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... K. VISHEN, JJ. For The Appellant (s) : MR PY DIVYESHVAR (2482) For The Opponent (s) : VISHAL AGRAWAL, DIMPLE GOHIL and AAYOG DOSHI for NANAVATI ASSOCIATES (1375) ORAL ORDER ( PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. By this appeal under section 130 of the Customs Act, 1962 (hereinafter referred to as the Act ), the appellant has called in question, the order dated 4.6.2019 passed by the Customs, Excise and Service Tax Appellate Tribunal, West Zonal Bench, Ahmedabad (hereinafter referred to as the Tribunal ) by proposing the following fifteen questions, stated to be substantial questions of law:- ( a) Whether provisions of para 4.1.15 of the FTP introduced by DGFT vide Notification No.31(RE- 2013)/2009-2014 dated 01.08.2013 is applicable to Advance Authorisation issued prior to 01.08.2013, in case where import and export under said Advance Authorisation were made after 01.08.2013? ( b) Whether in the Advance Authorisation Scheme, it is required to use permissible input as specified in relevant SION, for manufacture of export product and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorporated in export product? ( j) Whether Tribunal was correct in holding that inputs imported duty free could be utilised for the manufacture and export of the resultant products by importer for discharge of export obligation only or that export goods should have been produced only by using permissible inputs is an impossible requirement of FTP and is completely illogical? ( k) Whether in the facts and circumstances of the case, the CESTAT was justified in setting aside the OIO by solely relying upon the judgment of Hon ble P H High Court Order dated 01.07.2016, when the DGFT has challenged the same by filing an appeal in the Hon ble Supreme Court of India in Civil Appeal No.284/2017 against said order of High Court and the same has been admitted by the Apex Court? ( l) Whether in the facts and circumstances of the case, the CESTAT was justified in holding that the parameters framed under BIS 11489:1985 for the purpose of considering Fuel Oil as LSFO are not applicable in the instant case with regard to content of sulphur in LSFO? ( m) Whether CESTAT was correct in holding that Joint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted permissible input LSFO without payment of customs duty under Notification No.96/2009 Cus dated 11.9.2009 against the Advance Authorisations and had thus contravened the provisions of rule 14 of Foreign Trade (Regulation) Rules, 1993. It was proposed to demand customs duty on goods imported by the respondent under Advance Authorisation under section 28(4) along with interest under section 28AA and penalty under section 112 (a)/114A and 114 (iii) of Customs Act. By an order-in-original dated 20.2.2018 passed by the Commissioner of Customs, Jamnagar, the exemption availed by the respondent towards importation of Low Sulphur Fuel Oil (LSFO) against Advance Authorization scheme came to be denied on the ground that the said import had been made in violation of para 4.1.15 of the Foreign Trade Policy. Further that since LSFO was not used in the manufacture of Motor Spirit which the respondent had exported while claiming discharge of export obligation, it was not entitled to clear such LSFO duty free. The show cause notice proposed to deny the benefit of customs exemption Notification No.96/2009-Cus dated 11.9.2009, to the consignment of LSFO imported vide Bill of Entry No.F-65 dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim that it is entitled to such exemption and that its claim falls within the ambit of the exemption notification. It was submitted that the Tribunal has erred in holding that the Commissioner had chosen to cast an absolute burden upon the respondent. It was submitted that it was the responsibility of the respondent to establish that its claim with sustainable evidences as the burden of proof rests on it. It was submitted that the respondent claims that it had used VGO for manufacturing of export product and the test reports were based on three to four parameters, out of nine parameters as specified under IS 1593:1982 and that VGO does qualify as LSFO as the same conforms to the standards of IS 1593:1982. It was submitted that based on other aspects, it is established that the products VGO and LSFO are different products classifiable under different sub-headings of Chapter 27 of the Customs Tariff Act and prominent employees of the respondent have admitted and the Joint Director of CRCL, Kandla has opined that product VGO and LSFO are different products, therefore, the adjudicating authority was justified in coming to the conclusion that VGO and LSFO are different products. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock which is then cracked FCCU to yield various refinery finished products such as LPG, motor spirit, etc. In order to optimally utilize the spare FCCU capacity, the respondent imported LSFO which though an intermediate product is also marketed by many refineries world over as a finished product. The LSFO was imported against Advance Authorization dated 6.5.2013 which was issued in terms of Standard Input Output Norms (SION) A3263. The respondent first completed its export obligation against the subject Advance Authorization and another Advance Authorization dated 8.5.2013 by exporting a quantity of 55,034 metric tonnes of motor spirit. Post export of motor spirit, it imported the disputed consignment of LSFO vide Bill of Entry No. F-65 dated 11.10.2013 which was cleared by the Customs without payment of duty under the Advance Authorization dated 6.5.2013. The LSFO so imported was used within the refinery as a component of the FCCU feed stock from which motor spirit, amongst other finished products was produced. 7.1 It was submitted that the undisputed facts of the case are that the goods exported (Motor Spirit) and that imported (LSFO) by it are conforming to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1.15 was at all applicable in the present case, it was submitted that as per the order-in-original, the requirement of manufacturing export goods only from permissible inputs was introduced in the Foreign Trade Policy only vide DGFT Notification No. 31/(RE- 2013)/2009-14 dated 1.8.2013, by which para 4.1.15 was added. The show cause notice as well as the order-in-original rely heavily on para 4 of the said DGFT Notification dated 1.8.2013, which purports to explain the effect of the amendment by stating that the inputs actually used in the manufacture of export products should only be imported under the Authorization. It was submitted that it is clear that the amendment made in the Foreign Trade Policy by the said notification dated 1.8.2013 has been applied retrospectively by the lower authorities inasmuch as the Advance Authorization in question had been issued on 6.5.2013 which was prior to the said DGFT notification and that such retrospective application of a newly inserted provision in Foreign Trade Policy is impermissible in law. Reliance was placed upon decision of the Punjab and High Court in the case of Pushpanjali Floriculture Pvt. Ltd ., 2016 (340) ELT 32 (P H), w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er IS 1593:1982, the maximum sulphur content in fuel oils, depending upon its grade, cannot exceed the range of 3.5 to 4.5%. The IS standards records that a lower limit of sulphur can be specified by mutual agreement between the purchaser and the supplier if the purchaser wishes to buy LSFO for some specialized uses. It is thus clear that though a maximum sulphur content is prescribed in the ISI, the lower limit for sulphur content is not specified but left to the contracting parties to decide. Sweet VGO, which is produced in the refinery and from which exported motor spirit was produced according to the revenue, had sulphur content of much less than 1% and was, therefore, an LSFO meeting with all the specifications laid down in IS 1593:1982 and that some refineries market low sulphur fuel oil also by the description low sulphur waxy residue (LSWR). It was stated that SION A3263, while referring to import items LSWR/LSFO, in fact refers to the same product described differently by different refineries. 7.6 It was also submitted on behalf of the respondent that within the refinery, various intermediate streams emerging from different processing units are given very s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the respondent that the approach of the Commissioner that the export product should be manufactured only by using permissible inputs is based upon an improper understanding of the nature of standard input output norms (SION) notified by the DGFT. It was submitted that SION s only prescribe the quantity ratio in which duty free entitlements are to be allowed to an exporter, and do not reflect the actual ratio in which inputs are used for manufacturing export products. It was pointed out that the ratio of 1 MT : 1.265 MT given in the relevant SION A3263 for motor spirit : LSWR/LSFO is not the material balance equation representing the actual ratio of consumption and yield and in the manufacturing process, but it is only the ratio in which the duty free entitlement has been allowed. It was pointed out that it was physically impossible to produce 1 MT of motor spirit by using only 1.265 MT of LSWR/LSFO and that in actual practice about 5MT of LSFO is required to produce I MT of motor spirit, as several co-products such as SKO, LPG and HSD also emerge together with motor spirit. 7.8 It was further submitted that the revenue had ignored the fact that the licensing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tablish that VGO was conforming to all the prescribed specifications for LSFO. According to the respondent, the in-house testing is done for certain key parameters which includes three of the seven mentioned in the IS 1593:1982. Compliance with the remaining four parameters is inferred through property stream calculations. The respondent had submitted a technical note, explaining how compliance with the remaining four parameters of ash, acidity, sediment and water content can be inferred or derived from property stream calculation, which reads thus: The inferred/derived results in respect of other specifications prescribed in BIS 1593-1982 The following table indicates the requirement/specification of Fuel Oil (IS 1593 ). Last two columns of the table indicates results of tests carried out for samples from tanks T-503A/T-503B/T-503D and for combined feed (fresh feed) being processed in FCC unit. It is evident from test results tabulated in last two columns that both these streams are passing specifications of IS 1593 . SL No. Characteristics Method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10,000 cal/g) 10400- 10800 10500- 10800 The numbers given are from test reports obtained subsequent to the issue of the SCN. 4. Relative density at 15/15oC IS 1448 [P.16] or IS 1448 [P.32] To be reported (Marine Engines 0.99 Max) 874-908 875-928 Tested 5. Flash point, Pensky-Martens closed, o C IS 1448 [P.21] 66 Min 142-200 162-197 The flash point is the temperature at which sufficient vapors in presence of air will form combustible mixture and will flash/momentarily ignite, when given a spark LSFO FCC feed is heavier than diesel cut has IBP of around 300 degree C. It is expected to generate sufficient vapors which forms combustible mixture at around temperature of 150 degree C or more. Hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned, there is no inorganic acid present in the crude oil. There is no addition, use or generation of inorganic acids like HCl, H2SO4, HNO3, etc., during the refining process. Thus, there is no possibility of inorganic acid being present in the stream. Moreover, the FCC feed boils in the range of 300o C 570o C, whereas the boiling point of water is 100o C, thus, water would have evaporated earlier in the distillation process. Inorganic acids are water soluble and not oil soluble; hence, there is no possibility of presence of water soluble inorganic acids in the Feed. 12. Insofar as ash percentage is concerned, it was explained that ash is composed of materials that cannot be burnt out during the distillation process. These solid materials (such as dust and other impurities) are likely to be found in the residue crucible of the distillation columns. As the FCC Feed is composed wholly of intermediate streams drawn as side cuts (excluding the residue) from distillation columns, this residue will not be present in the Feed. The principal elements contributing to high ash contents of petroleum stocks are metallic salts and organometallic compounds. The FCC feed contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed to give specific names to differentiate different intermediate streams which arise within the refinery for e.g. from the CDU itself, we have HVGO, LVGO; Sweet VGO from VGOHT unit; cracked VGO from cracker Unit. These are all different members of VGO family and the VGO itself is a member of the larger family of LSFO. Q3. What if the penultimate intermediate product from which Motor Spirit is manufactured? A3. One of the most critical components of Motor Spirit comes from the Fluid Catalytic Cracking Unit (FCCU) whose raw material is called FCC feed. Q4. What is the FCC feed comprising of? A4. The FCC feed comprise of various kinds of VGOs some of which are described above. These streams come from different process units within the refinery. Q7. You have in your statement dated 03.08.2016, referred to the Sulphur content of VGO used as a feed but have not given the precise percentage of such Sulphur content. Can you clarify now? A7. I do not remember exact percentage but it generally remains low so that the Motor Spirit produced from it is meeting the Sulphur re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority has also placed reliance upon the submission of the respondent that LSFO and VGO have distinct use, marketability and description as well the fact that the respondent had classified the LSFO under CTH 2710 1950 which covers the description of Fuel Oil whereas VGO was classified by it under CTH 2910 19 90 which is covered under the description other . Relying upon the aforesaid description given by the respondent as well as the statements of persons holding responsible positions in the respondent company recorded under section 108 of the Customs Act, 1962, the adjudicating authority has held that the Feed stock used in the manufacture of motor spirit under the said shipping bill was VGO and not LSFO. The adjudicating authority has relied upon the submission of the respondent that LSFO and VGO have distinct use, marketability and description and has held that it is settled law that the said product would be regarded separate and distinct manufacturing product from each other for the purpose of customs law. It, accordingly, has turned down the submission of the respondent that VGO and LSFO are the same and has held that it would establish that the export goods, that is, moto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade Policy providing that the inputs actually used in manufacture of the export product should only be imported under the Authorisation and similarly inputs actually imported must be used in the export product, does not arise. 21. In the light of the above discussion, this court finds no infirmity in the approach adopted by the Tribunal in accepting the explanation put forth by the respondent, which has a duly scientific basis. From the facts noted hereinabove, it is evident that the conclusions arrived at by the Tribunal are based upon findings of fact recorded after appreciating the material on record. In the light of the findings noted hereinabove, it is not possible to state that the findings of fact recorded by the Tribunal are in any manner perverse to the material on record. The learned counsel for the appellant is not in a position to point out that the Tribunal has placed reliance upon any irrelevant material or that any relevant material has been ignored so as to dislodge the findings of fact recorded by the Tribunal after appreciating the material on record. In the absence of any perversity being pointed out in the findings of fact recorded by the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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