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TMI Blog2021 (12) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... ble under CTH 2710 12 19. Whether the product Reformate merits classification under CTH 2707 50 00? - HELD THAT:- The Notification dated 11.07.2014 was issued and it is the position emerging from the issuance of this Notification that has been clarified by the TRU Circular. Merely because the Circular states that the Annexure only provide a summary of the changes made and should not be used in any quasi- judicial or judicial proceedings would not in any manner dilute the position emerging from the Notification that has been explained in the Circular. Whether the product Reformate would merit classification under CTH 2710? - HELD THAT:- Reformate is a highly rich aromatic product containing 80% or more aromatic content. It cannot, therefore, be covered under category (C) and accordingly, from the purview of CTH 2710 as well. This is for the reason that all the products covered by category (C) must contain, in addition to the substances added, at least 70% of petroleum oils covered by categories (A) and (B). Thus, even if the substances added for making the preparations are considered to be all aromatic in nature, the preparations, by virtue of at least having 70% of catego ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted under three Bills of Entry has been rejected and reclassification under CTH 2710 12 19 has been ordered. The Additional Director has also ordered for confiscation of 41,877.064 mts of imported Reformate under the provisions of section 111(m) of the Customs Act 1962 [ the Customs Act ] but as the goods were not available, redemption fine has not been determined. Customs duty with penalty has also been demanded under section 28(1) of the Customs Act with applicable interest under section 28AA of the Customs Act. 2. The appellant imported Reformate under three Bills of Entry and classified the same under CTH 2707 50 00 as other aromatic hydrocarbon mixtures . The applicable custom duties was 2.5% BCD + 14% CVD + 3% Cess + 4% SAD and the goods were cleared for home consumption on payment of duty at the rates applicable to CTH 2707 50 00. The appellant claimed that the Reformate so cleared was used at the plants of the appellant, either as a feedstock for manufacture of aromatics such as Xylene, Benzene etc. or as a blend stock for blending with Motor Spirit. The details of the Reformates so imported are as follows:- S. No. Bills of Ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2707 20 00 - Toluol (toluene) Kg 10% - 2707 30 00 - Xylol (xylenes) Kg 10% - 2707 40 00 - Naphthelene Kg 10% - 2707 50 00 - Other aromatic hydrocarbon mixtures of which 65% or more by volume (including losses) distills at 250 C by the ASTM D 86 method -Other: Kg 10% - 2707 91 00 -- Cresote oils Kg 10% - 2707 99 00 -- Other Kg 10% - 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 - Petroleu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kg 10% 2710 19 90 --- Other Kg 10% (emphasis supplied) 6. According to the appellant Reformate is classifiable only under CTH 2707, as the Harmonised System of Nomenclature [HSN] Explanatory Notes to CTH 2707 clarify that the said Heading covers, in addition to distillates of coal tar or mineral tar, similar products obtained by processing of petroleum or by any other process. 7. According to the Adjudicating Authority, CTH 2707 50 00 cannot cover products, 65% of which are distilled by volume at 142.5 C, as this temperature is widely different from the 250 C temperature required under the said heading. The Adjudicating Authority, thereafter proceeded to classify the product under CTH 2707 12 19. 8. Earlier, an investigation was commenced by the Directorate of Revenue Intelligence into the correctness of the imports made by the appellant and a show cause notice dated 16.10.2018 was issued to the appellant inter-alia, alleging that the Reformate imported by the appellant and cleared was appropriately classifiable under CTH 2710 12 19 for the following reasons: (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... puted that the weight of its aromatic constituents exceeds that of the non-aromatic constituents; (ii) The requirement in CTH 2707 50 00 that the product should distil 65% or more by volume at 250 C, is fully met as Reformate distils 100% by/at that temperature; (iii) Reformate is not covered under category (C) of the Primary Products, mentioned in Explanatory Notes to CTH 2710, as it is not a preparation of the kind prepared by adding some substance to oils covered by category (A) and (B), which alone are covered by category (C) as per HSN Explanatory Notes; (iv) Assuming without admitting that Reformate is a preparation , still it is not classifiable under CTH 2710 as it is specifically covered under CTH 2707. This is because CTH 2710 specifically excludes preparations which are elsewhere specified or included; and (v) Reformate cannot be classified under the eight-digit CTH 2710 12 19 as a Motor Spirit as it does not meet the twin criteria prescribed in the Supplementary Note (a) to Chapter 27 which defines Motor Spirit . 10. The Adjudicating Authority accepted some of the contentions urged by the appellant but rejected others. The appellant has challen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y accepted this contention of the appellant, which finding has not been assailed by the Revenue, but the Adjudicating Authority committed a mistake is not accepting the submissions made on behalf of the appellant that Reformate would fall under the 8-digit heading of CTH 2707 50 00; (iii) Reformate merits classification only under CTH 2707 50 00 and the finding recorded to the contrary by the Adjudication Authority for the reason that 65% distills at around 142.5 C and not at 250 C is incorrect as what has to be seen is that it distills by 250 C; (iv) The Central Government itself classified Reformate under CTH 2707 50 00 as is clear from the Notification dated 11.07.2014 issued by the Central Government which provides for the effective rate of Basic Customs Duty on products classifiable under CTH 2707 50 00 as 2.5% as also the Budget Speech made on 10.07.2014 by the Finance Minister; (v) The product Reformate does not merit classification under CTH 2710 and the finding to the contrary recorded by the Adjudicating Authority is incorrect. The Adjudicating Authority overlooked the fact that as per the HSN Explanatory Notes to CTH 2710, the preparations of a kind covered b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has not adduced any evidence to prove that the flash point of Reformate is not below 25 C; (v) The definition of motor spirit in Customs Tariff does not require the impugned product to satisfy the conditions of BIS 2796; (vi) Reformate would merit classification under CTH 2710 12 19 as other motor spirit ; (vii) Heading 2707 covers products only emerging from distillation of coal tar and does not cover preparations, while the second part of CTH 2710 covers preparations; (viii) Reformate is obtained by reforming naphtha (a light oil) and is predominantly prepared for specific use as blending stock and hence it is regarded as a preparation under the category light oils and preparations in the HSN based tariffs world over; (ix) Even if distillates of petroleum oils are covered by Heading 2707, they must also satisfy the requirement of being similar to oils and other products obtained on distillation of high temperature coal tar classifiable under CTH 2707. Since Reformate is obtained from catalytic reforming process, it is not a product similar to the products obtained from distillation of high temperature coal tar and is, therefore, not classifiable unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is classifiable under the four digit Heading CTH 2707, it would not be really material to determine as to under which eight digit Sub-Heading it can be classified because the duty rate structure is the same for all the Sub-Heads. The Adjudicating Authority, therefore, committed an error in thereafter holding that the product Reformate would be classifiable under CTH 2710 12 19. 18. The second issue that arises for consideration is whether the product Reformate merits classification under CTH 2707 50 00. 19. The reason assigned by the Adjudicating Authority for not classifying it under this eight digit classification is that the Sub- Heading requires 65% or more by volume of the product to distill at 250 C, but in the present case 65% of the product by volume distills at around 142.5 C. 20. Learned counsel for the appellant submitted that the distillation of a product is not a flash reaction, but is a process where the inputs start distilling slowly as the temperature rises. Thus, if the requirement stipulated is that a certain percentage of the product (by volume) must distill at a certain temperature, it should actually mean that as the product is heated, the distil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - - 126B 2707 50 00 All goods 2.5% - - 126C 2708 Coal tar pitch 5% - - ; (emphasis supplied) 24. This has to be read in the context of the budget speech of 2014- 15 of the Finance Minister, of which the relevant portion is reproduced below: Indirect Taxes 212. I now turn to indirect taxes and shall begin with customs duties. xxxxxxxxxx 214. In order to encourage new investment and capacity addition in the chemicals and petrochemical sector, I propose to reduce the basic customs duty on reformate from 10 to 2.5 percent; on ethane, propane, ethylene, propylene, butadiene and ortho-xylene from 5 percent to 2.5 percent; on methy1 alcohol and denatured ethy1 alcohol from 7.5 percent to 5 percent; and on crude naphthalene from 10 percent to 5 percent. (emphasis supplied) 25. It would be clear from the aforesaid Notification that in order to encourage new investment and capacity addition in the chemicals and petrochemi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (C) of the list of the primary products enumerated in the HSN Explanatory Notes to CTH 2710. According to the show cause notice, for a product to be covered under category (C), processing to an oil mentioned in category (A) or (B) has to be made and since Reformate has been processed out of Naphtha, which is an oil falling under category (A), it is covered by category (C), and thus would be classifiable under CTH 2710 as preparations not elsewhere specified or included, containing by weight of 70% or more of petroleum oils, these oils being the basic constituents of the preparations. 31. According to the appellant, the preparations of a kind covered by category (C) are those which are prepared by adding various substances to oils covered by categories (A) and (B) to render them suitable for a particular use and in this connection, reliance has been placed on the provisions of HSN Explanatory Note. 32. To appreciate the aforesaid submissions advanced on behalf of the parties, it would be appropriate to reproduce the relevant portion of four digit CTH 27.10 to the Explanatory Notes and the same is reproduced below: 27.10 - Petroleum oils and oils obtained from bitumin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic brakes xxxxxxx 33. The HSN Explanatory Notes to CTH 2710 make it clear that the preparations of a kind covered by category (C) are ones which are prepared by adding various substances to oils covered by categories (A) and (B) to render them suitable for a particular use. In fact, the said Notes describe seven different types of preparations, namely, petroleum spirit, lubricants, transformer and circuit breaker, cutting oils, mould release oils and liquids for hydraulic breaks, all of which are physical mixtures of certain substances such as peptizing agents, anti-oxidants, rust preventives, anti-foam agents, emulsifying agents etc., added to the oils covered by categories (A) and (B). Reformate is obtained by a process of chemical transformation i.e. catalytic reforming of Naptha. A third substance, such as anti-rust agents, anti- foam agents etc., is not added for obtaining Reformates. Thus, Reformate is not a preparation of a kind covered by category (C). The distinction between physical addition/mixing and the process of chemical transformation has been completely ignored in the show cause notice or the order of the Adjudicating Authority. 34. It needs to be rememb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of Reformate under CTH 2710 is not correct. The impugned order, thus, deserves to be quashed for this reason also. 37. The doctrine of last antecedent has also been completely mis- interpreted by the Adjudicating Authority. The relevant Chapter Note 2 is reproduced herein below: 2. Reference in heading 2710 to petroleum oils and oils obtained from bituminous minerals include not only petroleum oils and oils obtained from bituminous minerals but also similar oils, as well as those consisting mainly of mixed unsaturated hydrocarbons, obtained by any process, provided that the weight of the non-aromatic constituents exceeds that of the aromatic constituents (emphasis supplied) 38. The aforesaid Chapter Note 2 contains three commas which have been highlighted. Provided is preceded by a comma. What is mentioned therein would, therefore, be applicable to both petroleum oils as well as similar oils. 39. The US Cross Rulings, on which reliance has been placed by the Adjudicating Authority, is not applicable to the facts of the present case as the Customs Tariff of India and the US Customs Tariff are structurally different. The US Customs Tariff does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the phrase suitable of use as motor spirit the product needs to be tested in admixture with anything other than mineral oil . 46. This apart, the expression admixture should refer to a substance which is added in a small quantity or proportion and would not include a product which is added in large proportion. Thus, gasoline to which Reformate is added as a blend stock in a small quantity/proportion cannot be treated to be an admixture so as to justify the finding that Reformate along with gasoline (as an admixture) is suitable for use as a fuel in spark ignition engines. 47. In connection with the second requirement under (b) in the definition of motor spirit , the Adjudicating Authority relied upon BIS 2796: 2017 to hold that since Reformate meets the five parameters namely, RON, MON, AKI, Flash Point and Boiling Point mentioned under BIS 2796, it would satisfy the condition of being suitable for use as fuel in spark ignition engines and accordingly, classifiable under CTH 2710 12 19 as a motor spirit . 48. These five parameters alone are not relevant for the purpose of determining classification of a product under motor spirit because they can be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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