1.(a) The appellants are, inter alia, engaged in the manufacture of Polyisobutylene on job work basis out of C4 Reffinate supplied by M/s.
Indian Petro-chemicals Corporation Ltd. (for short, IPCL). C4 Raffinate received by the appellants from IPCL is a mixture of several hydro carbons such as Iso-butylene (Isobutene), Butene-1, Cis-Butene-2, Trans Butene-2, N-Butane and Iso-Butane and not a specific petroleum gas, but it is a mixture with proportion of each such hydro carbon is varying.
(b) C4 Raffinate, remaining unreacted, in the process of extraction of Polyisobutylene, from C4 Raffinate received from IPCL is returned to IPCL by the appellants. The C4 Raffinate which is returned by the appellants to IPCL is termed C4 Raffinate (Return Stream).
(c) The appellants take Modvat credit of the duty paid on C4 Raffinate received from IPCL. When the C4 Raffinate (Return Stream) is sent back by the appellants paid duty on C4 Raffinate (Return Stream) at the rate specified in respect of goods falling under sub-heading 2711.19.
(d) By a show cause notice dated 9.1.2002, the appellants were directed to show cause as to why the differential duty of Rs. 94,87,425/- should not be demanded on the C4 Raffinate (Return Stream) on the ground that the same would be classifiable under sub-heading No. 2711.12 attracting higher rate of duty than the goods falling under sub heading 2711.19.
(e) The appellants filed a detailed reply to the show cause notice, inter alia contending: (i) C4 Raffinate (Return Stream) cannot be classified under heading 2711.12 since sub-heading 2711.12 covers specific petroleum gases like 'Ethylene', 'Propylene', 'Butylene' and 'Butadine' and the C4 Raffinate is the mixture of hydro-carbons that cannot be classified as specified petroleum gas.
(ii) The extended period of limitation under Section 11A cannot invoked since there was no suppression of facts on the part of the appellants with an intent to evade payment of duty.
(f) The Commissioner in the impugned order rejected the appellants contention and confirmed the demand of duty by holding that C4 Raffinate (Return Stream) pre-dominantly contained butylenes and therefore, classifiable under heading 2711.12 only. He also held that C4 Raffinate (Return Stream) emerging at the end of Polymerization process cannot be treated as C4 Raffinate as supplied by IPCL. The Commissioner relied upon the amendment made to Section 11A(1) by Section 110 of the Finance Act, 2000 to hold that the Department can invoke the extended period of time even when the classification has been approved and the department was aware of the facts. Hence this appeal.
2. After hearing both sides and considering the material same and material on records, it is found:- (a) According to para 36 of the impugned order, the product in question, namely, C4 Raffinate Return Stream, comprises of butylenes in the following proportions: Therefore, according to the impugned order, C4 Raffinate Return Stream is butylenes and as per Sl. No. 24 of Notification No. 6/2000, inter alia, it is specifically excluded, as it is butylenes.
Thus C4 Raffinate, in question, will attract tariff rate of duty at 16%.
(c) Sr. No. 24 of Notification No. 6/2000-CE dated 01/03/2000 reads as under:- Liquefied Petroleum Gases and other gaseous hydrocarbons other than natural gas, ethylene, propylene, butylenes and butadiene.
(d) As per the S.CN, the C4 Raffinate (Return Stream) is cleared to M/s. IPCL or its agent, on advise from M/s. IPCL under Rule 57 F(2)/57 AB(1) under Chapter heading 2711.19 on payment of C.Ex duty @ 8% and in fact, C4 Raffinate is put to a process of polymerization and Polyisobutylenes of different grades are manufactured. Hence, clearance of C4 Raffinate (Return Stream) cannot be treated as input clearance as such. Further, C4 Raffinate (Return Stream) contains predominantly Butene/Butylene i.e. approx 61% to 83%. From July, 2001 onwards, the assessee has stopped putting the remark of "removal of inputs under Rule 57F(2)/57AB(1)" on the C.Ex. Invoices and in the RT-12s/E.R.1s which clearly indicates that they were with malafide 57F(2)/57AB(1). The Explanatory notes of Harmonized Commodity Description & Coding System states that chapter heading 27.11 cover crude gaseous hydrocarbons obtained as natural gas or from petroleum or produced chemically. Further, it states that Chapter sub heading 27.11 include in particular Butenes (butylenes) less than 90% (Butenes not less than 90% pure fall in heading 29.01). The chapter sub heading 2711.12 has a mention of butylenes whereas chapter sub heading is for other liquefied Hydrocarbon gas.
From this, it appears that liquefied Hydrocarbon gas having less than 90% content of butylenes/butene is classifiable under chapter sub heading 2711.12 instead of chapter sub heading 2711.19. From the above discussion and as well from the G.C. analysis reports of the assessee, it appears that C4 Raffinate (Return Stream) will merit classification under chapter sub heading 2711.12 attracting C.Ex.
duty @ 16% adv. The assessee has started clearing C4 Raffinate (Return Stream) from November, 99 onwards. However, the differential C.Ex. duty is payable from March, 2000 onwards since the concessional rate of duty is applicable from 01.03.2000 in terms of Notification No. 6/2000 dated 01.03.2000 & 3/2001. Therefore, the differential duty payable by the assessee works out to Rs. 94,87,425/- for the period March, 2000 to June, 2001.
"30. However from the Statements of Shri Sabulal M. Vasu, Quality Control in-charge of the assessee; Shri M.N. Athanikar, working in production department of the assessee; Shri Ashish Khatu, working in the Accounts departments of the assessee; Shri R.N. Sangle, Works Manager and Authorised signatory of the assessee; Shri V.C. Varghese, Joint Financial Controller of M/s. IPCL, Regional office Mumbai; Shri Ramesh R. Mirchandani, Manager (Excise and Customs) of M/s IPCL, Vadodara, recorded under Section 14 of the Central Excise Act, 1944 it is revealed that: a. Initially C4 Raffinate (Input) was washed with water to remove CAN. Sometimes hydrogenation was done and then it was dried in feed drier. It was then taken for production and polymerization of Isobutylene (Isobutene) was done to obtain polyisobutylenes (polyisobutenes) and after polymerization, it was taken to caustic wash section for neutralization and then it went to water wash.
Subsequently, it went to De-butaniser where unreacted Butylene (Butenes) were separated from the product polyisobutylenes. It was then filtered and stored in tanks for further clearances.
b. During the course of polymerization around 88% of Isobutene and some small percentage of t-Butene and C-Butene were converted into polyisobutenes and the rest was sent as return stream to storage tank V-302A. The C4 Raffinate (Return Stream) was mainly a combination of butylenes (butanes). 88% of Isobutylene (Isobutene) present in the C4 Raffinate (Input) was consumed in the polymerization reaction. The contents of C4 Raffinate (Return Stream) among others were as follows: Before sending C4 Raffinate (Return Stream) samples were drawn and the contents and the percentage of the contents were analyzed. This analysis of Raffinate (Return Stream) was done on a daily basis and a report was prepared which was known as G C analysis report.
Approximately 83% of C4 Raffinate (Return Stream) had butylenes (butanes).
31. I find that the ratio of the judgment Cochin Refinery Ltd. v. CCE, Cochin 2001 (132) ELT 0619-trib. Dated 25.04.2001 cited by the assessee is not applicable in the present case for the following reasons: a) In the Cochin Refinery case LPG was the carrier stream for carriage of Iso-butylene (iso-butene) whereas in the instant case there is no carrier stream as such.
b) The condition as prescribed by HSN Notes to classify Iso-butylene under Chapter 29 is 90% purity, whereas in the case cited (supra) the percentage of isobutylene (isobutene) in incoming input is in the range of 24% to 26% and the percentage of isobutylene (isobutene) in outgoing return stream is in the rate of 4% to 6%. In the instant case the percentage of isobutylene (isobutene) in outgoing return stream is 12.16% and the percentage of butylenes (butanes) taken together was 83% in C4 Raffinate (Return Stream).
c) In the case cited (supra), the classification dispute is for Chapter sub-heading Number 2910.90 and Chapter Sub-heading Number 2711.19; whereas in the instant case it is alleged that on the criterion of predominance and as per the HSN Notes also the product C4 Raffinate (Return Stream) is liable to be classified under Chapter Sub-heading Number 2711.12 instead of Chapter Sub-heading Number 2711.19.
d) In the case cited (supra), it is held that a "mixture of compounds, that is required to be classified and not the compound which would be stripped off by the buyer from such a mixture". In the instant case, the dispute is regarding classification of C4 Raffinate (Return Stream) cleared as input under Rule 57F(2)/57AB(1) of the Central Excise Rules, 1944 from a manufacturing unit of M/s.
Maharashtra Polybutene Ltd. here the clearance cannot be treated as input clearance since the predominance of butylenes (butanes) in the C4 Raffinate (Return Stream) is upto 83% which is quite high and the same is covered by the Chapter sub-heading Number 2711.12 and not Chapter Sub-heading Number 2711.19.
e) In the case cited (supra), the classification dispute arose at the Refinery who had sent the input; whereas in the instant case the dispute arose at the other end where the input undergoes certain changes and does not remain the same at the time of clearance from the utilizer's end and hence cannot be treated as input clearance as such.
32. In the instant case we are concerned about the classification of C4 Raffinate (Return Stream) which contains among others the butylenes (butanes) described as: All the above four butanes (butylenes) are isomers (i.e. having same molecular formula but different orientation in the space) of butanes (butylenes) having same molecular formula C4H8. The impugned show cause notice is restricted to the interpretation of the composition of the above mentioned compounds only and the characteristics of the C4 Raffinate (Return Stream) after the polymerization of Iso-butene (Iso-butylene) and the percentage of the composition of the above mentioned compounds in C4 Raffinate (Return Stream) at the time of clearance. It is apparent that the composition after polymerization of C4 Raffinate (Input), generally in an acid, does not remain the same. Butenes (butylenes) are principal compound which participates in the polymerization reaction. From the G.C. Analysis report and the report prepared by the Quality Control Department of the assessee it was apparent that C4 Raffinate (Return Stream) contained predominantly Butenes (butylenes) upto 83%. The Harmonised Commodity Description and Coding System states that the Chapter sub-Heading Number 27.11 includes in particular Butenes (butylenes) less than 90%. The Chapter sub-heading Number 2711.12 had a specific mention of Butenes (butylenes) whereas Chapter Sub-heading Number 2711.19 was for other liquefied hydrocarbons such as Methane, Ethane, Propane, Butane, etc. Classification is based on the constituent which provide the material its essential character and use. The other constituents in C4 Raffinate (Input) like Propane, Ethylene etc. had no relevancy in the polymerization process and formation of Polyisobutene (polyisobutylene) of different grades. Here the Butenes (butylenes) are the only constituents consumed in the reaction. Even after participating in the process of polymerization for production of Polyisobutene (polyisobutylene) the C4 Raffinate (Return Stream) is having a predominance of Butenes (butylenes) upto 83%. C4 Raffinate (Return Stream) is a mixture of various hydrocarbons and its classification needs to be decided keeping in mind the Rules of interpretation viz. predominance and essential character, use, etc.
33. In Rule 57F(4) and 57AB(1) of the Central Excise Rule, 1944 it is stated that the inputs can be removed as such or after being partially processed. When the inputs are removed from the factory, the manufacturer of the final products shall pay the appropriate duty of excise leviable thereon as if such inputs have been manufactured in the said factory. In the instant case, neither the input C4 Raffinate is removed as such nor it is removed after being partially processed. The main input in the instant case undergoes a change and is utilized for production of final product Polyisobutene (polyisobutylene) of different grades. It is not partially processed. It is used in entirety as required in the process of polymerization of polyisobutylene (polyisobutene). Hence the removal of C4 Raffinate (Return Stream) cannot be previewed in the context of Rule 57F(4)/57AB(1) of the Central Excise Rules, 1944".
(f) Considering the finding of the Commissioner and the submission of Revenue that the C4 Raffinate (Return Stream) emerging at the end of polymerization process cannot be treated as inputs and therefore, cannot be treated as 'inputs cleared as such or cleared as partially inputs'; it is found that this Tribunal vide its Order No. 4637/97/WZB dt. 7.10.97; in very same set of manufacturing process of polymerization essentially, of Isobutylene from the C4 Raffinate supplied by M/s. IPCL, the same supplier, as in this case and thereafter return to M/s. IPCL the unusable and untreated C4 Raffinate (called C4 Raffinate Return Stream), came to conclude as - "7. .....This would clearly indicate a recognition by the Government that what was received is considered as C4 Raffinate falling underP1 heading 27.11 CETA and what was returned also is considered as the same".
Revenue did not show any decision contrary to this case of M/s.
Gujarat Petrosynthetic Ltd. When C4 Raffinate retained, is also to be considered as the same i.e. C4 Raffinate, as per this finding of the Tribunal and Government's (read Revenues) acceptance of the position, it has to be held that 'Inputs are being returned as Inputs' under the MODVAT/CENVAT rules, if inputs are being returned as inputs, they cannot be classified as new elsewhere. The classification can, however, be altered, if the input classification is changed i.e. Incoming C4 Raffinate Stream is Reclassified.
(g) The C4 Raffinate Stream being cleared by M/s. IPCL and classification thereof is under Re-consideration of the department, as submitted by the learned Advocate for appellants. If the stream being returned is also to be considered as the same which came to the appellants, and the two are not held to be different exigible goods in M/s. Gujarat Petrosynthetic Ltd., then the classification of the return stream has to be as per the classification of the incoming stream, in the case of M/s. Maharashtra Polybutene Ltd. Therefore, it would be in the interest of justice that this order is set aside and remitted back to the original authority with directions that the final classification of Incoming stream be awaited and only thereafter resort to any Adjustments of credit/duty, if required, by following the provisions of Rule 57E. The attempt to alter and Reclassify C4 Raffinate (Return Stream) differently and then recovery duty cannot be upheld at this stage.
(h) In view of the fact that M/s. IPCL are not before us, proceedings against them having been dropped by the adjudicator, we would, therefore, not like to arrive at our conclusion, on the aspect of classification, therefore, we keep that issue, including the other issue of limitation, open and would remit this matter to await the classification of Incoming Stream and thereafter decide all the issues afresh after hearing the noticee.