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TMI Blog2021 (8) TMI 114X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. However, the present show cause notices have been issued by the Department claiming classification of NGL under Chapter Heading No. 2709 of the Tariff Act. It is, therefore, not possible to accept the contention of the learned Authorized Representative appearing for the Deparmtment that the product should be classified as NGL under the same Heading as was classified in the order of the Tribunal passed in the earlier Excise Appeal. The show cause notices, in the present Excise Appeal, proceed on the footing that the heavier hydrocarbons (gas condensate) should be classified under Heading 2709 of the Tariff Act. The Department cannot, in this Excise Appeal, be permitted to take a stand that is contrary to the stand taken in the show cause notices. The aforesaid discussion leads to the inevitable conclusion that the product heavier hydrocarbons described as gas condensate is classifiable under Heading 2709 but NCCD would not be leviable because the product is not marketable. Extended period of limitation - suppression of facts or not - HELD THAT:- From the reply filed by the respondent in response to the show cause notices it is seen that the contention that is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d portion is subjected to further fractioning where the lighter hydrocarbons mainly C1 (methane), C2 (ethane) and C3 (propane) are removed and the heavier fractions containing C3+ hydrocarbons are sent to the next column viz. LPG column. In the LPG column, mixture of propane and butane is separated from the top and the remaining heavier factions composed of C 5 and C 6+ hydrocarbons are fed into the NGL fractioning column. From the top of this column, C5 (pentane) is separated and the bottom product which contains liquid hydrocarbons having carbon atoms ranging from C6 and C6+ and some amounts of C5 are stored in the tanks. This product stored in the tanks and cleared by the Respondent on payment of duty, is Naphtha. ( emphasis supplied ) 4. Investigations were initiated by the Department and periodical show cause notices were issued to the units of the respondent. The details of the six show cause notices are as follows: No. Show Cause Notice issued by Commissioner Plant Date of issue Period of demand Amount of demand in Rupees 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same is further sent to LEF and LPG columns for further fraction; that in LEF column, lighter hydrocarbons, namely, methane, ethane and propane is removed from the top of column; that material from the bottom of the LEF column is fed into LPG column where it is further fractioned; that is results into LPG from top of the column, and from the bottom of the Column heavier hydrocarbons containing Pentane Hexane etc. i.e. C5 plus, popularly known as NGL, being drawn which is a condensate, nothing but Petroleum in natural state and classifiable under C.H. 2709.00 of the Central Excise Tariff which applies to Petroleum Oils and Oils obtained from bituminous materials, crude . The issue of classification of this condensate stands settled by the judgment of Hon ble CESTAT in the case of Oil India LTD. V/s. CCE, Shillong, 2002 (148) ELT 802, which was also upheld by the Hon ble Supreme Court as reported in 2004 (170) ELT A 116/ (S.C.) and also another judgment of CESTAT in the case of M/s. GAIL, Waghodia, 2004 (170) ELT 75 (Tn. Del.). 3.3 It further appears that this also came to notice during investigation that said NGL is used in the manufacture of NAPHTHA from April2011, and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... five show cause notices are for different periods and contain the same allegations. 8. The respondent filed replies to the aforesaid show cause notices and denied all the allegations made therein. It was inter-alia, submitted that the respondent was not liable to pay NCCD as the same was exempt under Notification dated 14.05.2003; that the intermediate product, being a mixture of liquid hydrocarbons, was not an excisable product as the same was not marketable and, therefore, no NCCD was payable on the same; and the respondent also placed reliance on a Board Circular dated 09.01.2004 to contend that NCCD is payable on crude obtained from oil fields only. 9. The Commissioner dropped the demands proposed in the aforesaid six show cause notices by a common order dated 14.07.2014. The reasons stated by the Commissioner, in short, are as follows: (i) NCCD was introduced on petroleum oils and oils obtained from bituminous minerals, crude falling under Chapter Heading No. 2709 of the Tariff Act in the Budget of 2003-04. Simultaneously, an exemption Notification dated 01.03.2003 was issued which provided exemption from payment of NCCD on crude oil obtained from certain specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... product did not emerge during the process of manufacture of Naphtha. The adjudicating authority failed to appreciate that NCCD is imposable as it is classifiable under the Chapter Heading 2709 of the Tariff Act. 11. Shri O.P. Bisht and Shri Rakesh Agarwal, learned Authorised Representatives of the Department appearing for the Appellant made the following submissions:- (i) The appellant had earlier filed Excise Appeal No. 55666/2014 regarding classification of the product manufactured by the respondent to assail the order dated 23.07.2014 passed by the Commissioner dropping the demands by holding that the product cleared by the respondent was Naphtha falling under Heading 2710 12 19 or 2710 12 90 of the Tariff Act and entitled to exemption under Notifications dated 01.03.2006 and 01.07.2009. This Excise Appeal was decided by the Tribunal by order dated 30.11.2018 [ Commissioner of C. Ex. ST. LTU, Delhi vs. Gas Authority of India reported in 2019 (366) ELT 941 (Tri-Delhi). ] holding that the classification of the product is NGL and not Naphtha. The respondent filed on appeal against this order of the Tribunal before the Supreme Court and by an order dated 14.02.2019, the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the Supreme Court: a) Gujarat Narmada Valley Fert. Co. Ltd. vs. Collector of Ex. Cus. [ 2005 (184) E.L.T. 128 (S.C.) ]; b) Collector of Central Excise, Patna vs. Tata Iron Steel Co. Ltd [ 2004 (165) E.L.T. 386 (S.C.) ]; and c) Union of India vs. Ahmedabad Electricity Co. Ltd [ 2003 (158) E.L.T. 3 (S.C.) ]; (iv) In any case, the manufacturing process employed by the respondent is a continuous process which does not allow for extraction of the intermediate product i.e. mixture of liquid hydrocarbons at the intermediate stage. The manufacturing process is completely mechanized and automatic and at no stage controlled by the respondent; (v) The Circular dated 09.01.2004 clarifies the above submission that NCCD on Crude Petroleum Oil should be charged only on the total quantity of Crude Petroleum Oil produced and supplied from the oil field to the refineries. In the instant case, the mixture of hydrocarbons, termed as NGL by the department, is neither produced in the oil field nor supplied to the refineries by the respondent and so no NCCD is recoverable from the respondent; (vi) If the demand cannot be quantified, then provisions of levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30.11.2011 in Gas Authority of India is misconceived. 13. The submissions advanced by the learned counsel for the appellant and the learned Authorized Representatives of the Department have been considered. 14. It will be necessary to examine the product of which the classification has been sought and then determine whether NCCD is leviable on it. 15. The show cause notices, portions of which have been reproduced in paragraph 6 of this order, describe the product as heavier hydrocarbons containing pentane/hexane popularly known as NGL. This has been stated to be a condensate classifiable under Heading 2709 of the Tariff Act. The respondent has also described the process undertaken by it and the same has been reproduced in paragraph 3 of this order. There is no apparent difference in the description of the process undertaken by the respondent. 16. It is seen that natural gas is first dried and filtered to remove impurities. It is then cooled as a result of which certain components of natural gas like ethane, propane, butane, pentane and higher hydrocarbons are liquefied with some traces of methane. This liquefied portion is subjected to further fractioning where the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the product is marketable. 20. This submission advanced by learned counsel for the respondent deserves acceptance for the reason that there is indeed no evidence led by the Department to substantiate that the product is marketable. It also transpires that the mixture of heavier hydrocarbons emerging during the manufacturing process of LPG, mainly consists of C4+ hydrocarbons which are very volatile in nature and cannot be transported, bought or sold in the market. The product is, therefore, not marketable. It would, therefore, not be an excisable product. Consequently, it is not leviable to Central Excise duty. 21. It needs to be remembered that the Tribunal in Gas Authority of India, which is a case pertaining to the respondent, did not accept the contention advanced on behalf of the Department that the product namely NGL, was marketable. The Tribunal also held that the product would be classifiable under Heading 2709 of the Tariff Act. The relevant portion of the decision of the Tribunal is reproduced: 1. In these two appeals, filed by M/s. Gas Authority of India Ltd., against the Orders-in-Original, the common issue involved is whether Natural Gas Liquid (NGL) is ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t NGL also does not satisfy the conditions of Note 2 to Chapter 27 of the Tariff as it is neither petroleum oil or oil obtained from bituminous minerals; that it is also not a mixed unsaturated hydrocarbon. 4. Countering the arguments, Sh. M. Chandersekharan, learned Senior Advocate, submitted that the impugned product is marketable as M/s. O.N.G.C. is regularly selling NGL. 5.1. We have considered the submissions of both the sides. The issue regarding classification of impugned product has been decided by the Appellate Tribunal in the case of Oil India Ltd. , [2002 (148) E.L.T. 802 (T) = 2002 (51) R.L.T. 1030 (CEGAT)]. The Tribunal has relied upon Board's Tariff Advice No. 121, dated 17-11-1981 which reads as under: The Ministry of Petroleum, Chemicals Fertilizers, (Department of Petroleum) who were consulted, have examined the matter in detail in consultation with the Oil Natural Gas Commission and Oil India Ltd., who are the producers of crude oil in the country. Based on their opinion, the Ministry have advised the Condensate is a petroleum in natural state and is crude oil. Having regard to the advice tendered by the Ministry of Petroleum based on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt on merits, al beit in limine. 2. We, thus, are of the opinion that the order of the CESTAT does not call for any interference. These appeals are accordingly dismissed. (emphasis supplied) 24. In Oil India Ltd. vs. Commissioner of Central Excise, Shillong [ 2002 (148) ELT 802 (Tri-Delhi) ], which has been referred to in the aforesaid decision of the Supreme Court and the decision of the Tribunal, the Tribunal found as a fact that condensate has to be classified as crude mineral oil and if that be so, it would be classifiable under Heading 2709 which refers to petroleum oils and oils, obtained from bituminous materials, crude. The relevant portion of the decision of the Tribunal is reproduced below:- 8. In view of the Board s clarification dated 17-11-81 the Revenue cannot take up a contention that condensate will not come under Item 68 of the old Tariff. The above clarification further makes it clear that condensate is a petroleum in natural state and is crude oil. It is to be classified as crude mineral oil. If that be so, it would directly come under sub-heading 2709.00 which takes in petroleum oils and oils obtained from bituminous materials and crude. When w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd at higher concentration it would start crystallizing out within two or three days. This is evidence indicating propensity of its not being marketed. It is good evidence to come to this conclusion that it would be unlikely to be marketable as it was highly unstable. There was evidence as noted by the Tribunal that it has not been marketed by anyone. There is also an admission of the Superintendent of the appellant that no enquiry whatsoever was conducted by the Department as to whether starch hydrolysate was ever marketed by anybody. It was pointed out by the revenue that even according to the respondent, it stored starch hydrolysate in tanks before transporting it through pipes but according to the appellant, the storage of starch hydrolysate was only for a period of a few hours only as a step in the process of transfer thereof to sorbitol. It, therefore, appears to us that there was substantial evidence that having regard to the nature of the goods that this was unlikely that the goods in question were marketable. This should be judged in the background of the evidence that the goods have not been marketed in a pragmatic manner . All this again would have to be judged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known in the market as goods. 7. The onus was on the Revenue . The only piece of evidence which has been produced by the Revenue was a test report which merely stated that the sample showed that the items were organic chemicals. It does not in any way establish marketability. Nor can marketability be established on the basis of mere stability. Something more would have to be shown to establish that DECA AND CMBE were known in the market as commercial products. (emphasis supplied) 31. In the present case, the Department has not placed any evidence to show that the product was marketed or is marketable. In fact, the contention of the respondent is that the condensate that emerges is captively consumed for the manufacture of Naphtha and the process of manufacture is a continuous and integrated one, which breaks only at the stage of emergence of Naphtha. The respondent also contends that no extraction of the condensate emerges from the bottom of LPG column, since this mixture, upon its emergence, passes to the next column immediately for extraction of Naphtha. The respondent further claims that gas condensate is not manufactured or cleared by the respondent and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct involved in the earlier Excise Appeal, whereas pentane is removed subsequently from the product involved in the present Excise Appeal. The two Excise Appeals, therefore, need to be discussed. Earlier Excise Appeal No. 55666 of 2014 filed by the Department 37. The respondent had classified the product under Tariff Item No. 2710 11 90 of Tariff Act and claimed the benefit of concessional rate of duty under a Notification dated 01.03.2006 upto 06.07.2009 and thereafter under Tariff Item No. 2710 12 90. For the subsequent period also the respondent claimed benefit of concessional rate of duty under a Notification dated 07.07.2009. In terms of the above Notifications, the product falling under Chapter Heading 2710 was exempt from duty of excise in excess of 14% / 16%. 38. The show cause notices proposed a demand of differential duty of excise on the product on the ground that the goods were NGL, classifiable under Tariff Item No. 2710 11 20 / 2710 12 20 and were not classifiable under Tariff Item No. 2710 11 90 / 2710 12 90, as claimed by the respondent. Consequently, the show cause notices proposed a demand of duty @ 16% / 14% + ₹ 15 per litre with imposition of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court and the order passed by the Tribunal has been stayed. Thus, the classification of the product that was under consideration in the earlier Excise Appeal has to be decided by the Supreme Court. 44. In the present case, as noticed above, the product described in the show cause notices is heavier hydrocarbons which is an intermediate product in the production of Naphtha. The Department has classified it under Heading 2709, which classification has not been disputed by the respondent in this Excise Appeal filed by the Department. 45. It is, therefore, clear that a contrary stand has been taken by the Department in the show cause notices, which were the subject matter of the earlier Excise Appeal and the show cause notices which are the subject matter of the present Excise Appeal. The Department had previously issued multiple show cause notices to the respondent alleging that the product was classifiable as NGL under Tariff Item No. 2710 12 20 of the Tariff Act. However, the present show cause notices have been issued by the Department claiming classification of NGL under Chapter Heading No. 2709 of the Tariff Act. 46. It is, therefore, not possible to accept t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... normal period of limitation in view of doctrine of election . In support of this connection, reliance has been placed on the decisions rendered in Alcobex Metals, Infinity Infotech Parks Ltd, and Turret Industrial Security. 50. Though learned Authorised Representative appearing for the Department contended that the extended period of limitation was correctly invoked and that even if the extended period of limitation is held to be not invokable, then too the demand for the normal period of limitation would be sustainable, but it would not be necessary to examine the submission advanced by learned counsel for the respondent in this appeal. 51. This is for the reason that even from the reply filed by the respondent in response to the show cause notices it is seen that the contention that is now being raised in regard to the extended period of limitation was not raised by the respondent, though the show cause notices had invoked the extended period of limitation. This is clear from the submissions of the respondent recorded by the Commissioner in the impugned order. It would, therefore, not be appropriate to examine the contentions now sought to be raised in this appeal, more p ..... 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