Judgment:
1. Shri D.B. Shroff, learned Advocate for the appellants states that the impugned order has been passed holding the "First Cut" and "Second Cut" manufactured from naphtha to be classifiable as special boiling point spirit under sub-heading 2710.13 of the Central Excise Tariff. A duty demand of Rs. 2,47,85,427/- has also been confirmed and an equal amount of penalty has been imposed of Rs. 1,52,370/-worth of goods have also been confiscated and allowed redemption on payment of Rs. 50,000/- in addition to imposition of penalty of Rs. 10 lakhs on Shri Joginder Singh, Director of the appellant-company.
2. Shri Shroff argues at length to state that a product to be classifiable under sub-heading 2710.13 has not only to satisfy the criteria of flash point below 25C but should also be suitable for use as fuel in spark ignition engines. In this connection he cites the decision in the case of Indu Nissan Oxo Chemical Industries Ltd. v.C.C.E. & C., Vadodara - 1998 (101) E.L.T. 201 (Tribunal). It was decided in the said case that Insan-LE, a by-product arising in the course of manufacture of Oxo alcohol was not classifiable under sub-heading 2710.19 as it did not satisfy the criteria of "suitable for use as motor spirit".LO.C. Ltd. v.C.C.E. - 1990 (45) E.L.T. 134 (Tribunal) whereunder it was decided that for classification as motor spirit not only flash point is to be determined but also suitability for use as fuel in internal combustion engines is to be ascertained.
He also pleads that demand up to January, 2000 is time-barred and that there was no suppression as the process of manufacture was declared apart from filing regular declarations for classification and Modvat availment etc. He also states that there is no ground for imposing personal penalty and the appellant-company is running under loss and is not in a position to make any pre-deposit.
4. Shri S.S. Bhagat, learned S.D.R. appearing for the Department supports the impugned order and refers to Chapter Note 2 of Chapter 27 and states that since the product in question conformed to the Chapter Note 2, the classification ordered by the Commissioner is legal and proper.
5. After hearing rival submissions and perusal of case records, we find that there is major flow in the finding recorded by the Adjudicating Commissioner in the impugned order. As has been rightly pointed out by the learned Advocate, to merit classification under sub-heading 2710.13, a product has to satisfy both the criteria for motor spirit in regard to flash point as well as suitability for use as fuel in spark ignition engines. The impugned order proceeds on the basis of test regarding the flash point criteria without testing in regard to the suitability for use as fuel. The learned S.D.R. points out that the product meets the Chapter Note 2 under Chapter 27. Satisfaction of Chapter Note 2 is a necessary condition for classification under Heading 2710. However, the Heading 2710 has been sub-divided under two single dashes, one for motor spirit (further sub-divided into 2710.11-19) and the other against the sub-heading 2710.90. For a product to be classifiable under any of the sub-headings 2710.11, 2710.12, 2710.13, 2710.15 and 2710.19, the product has to satisfy the condition relating to flash point as well as suitability for use as fuel as mentioned under the entry motor spirit against the first single dash.
6. Since the rule of classification has not been correctly applied in this case and no finding has been recorded by the Adjudicating Commissioner regarding suitability for use of the impugned goods as fuel, we are of the view that confirmation of the demand and consequent penal action is not justified. Accordingly, we set aside the order-in-original at the stay stage itself.
7. Having decided the appeal on merits, we do not think it necessary to go into the question of limitation etc. raised by the appellants.