INDIAN PETROCHEMICALS Vs. COLLECTOR OF CENTRAL EXCISE

JUDGEMENT

(1.) THIS appeal arises from the Order -in -original No. 27/MP/91 dt. 22.3.1991, passed by the Collector of Central Excise, Baroda.

(2.) IN the impugned order, the Collector has confirmed the demands raised in the show cause notice dt. 14.12.1990 for clearances of Hepton i.e. S.B.P. Spirit on payment of duty at the rate of Rs. 1995 per KL at 15oC instead of payment of duty at the rate of Rs. 2750 per KL at 15oC and at the rate of duty of Rs. 2255 from 1.3.88 during the period from November, 1985 to June, 1990. He has also imposed a penalty of Rs. 25,00,000 Under Rule 173Q (i) of Central Excise Rules, 1944.

(3.) THE allegations made in the show cause notice is that the appellants are procuring Raw Naphtha from IPCL and Gujarat Refinery on demand of concessional rate of duty as provided under Notification No. 75/84 dt. 1.3.84 (as amended) following the procedure laid down in Chapter X of Central Excise Rules for manufacture of Xylene. On receipt of information by Preventive Staff of Baroda, on 20th August, 1987 visited the assessees' unit to check the information that out of Raw Naphtha so procured is also used by the assessee for other products other than specified in the Notification No. 75/84 -CE and part of rest of the raw Naphtha were cleared as Hepton i.e. Special Boiling Point Spirit on payment of duty at Rs. 1995 per MT instead of payment at the rate of Rs. 2750 per MT if it is cleared as such as provided in Notification No. 75/84 -CE and thereby they are misusing the concession extended to raw naphtha by the said Notification. After necessary inquiries, they issued a show cause notice after a lapse of time of 4.10.90 calling upon the assessees to pay the differential duty and also explain as to why they should not be penalised. The assessee filed a detailed reply supported by technical material to who that there was no suppression of facts, misclassification or removal of raw naphtha in the case of Hepton. A plea of time bar was also raised. It was also pointed out that the classification list had been filed from time to time from 1984 -85 to 1988 -89 and they had claimed the classification of the product 'Hepton' as SBP Spirit for payment of duty of Rs. 1995 per KL under the said Notification and prior to this period it had been classified as SBP Spirit and claimed the rate of duty applicable to SBP Spirit in the Classification Lists filed by them. It was contended that the department was aware of the emergence of the product Hepton while processing raw naphtha for manufacture of Xylenes and that the department had approved the classification lists and the clearances of the product had been effected on the basis of rate of duty approved in respect of classification lists and assessments had also been finalised accordingly. They denied the allegation that raw naphtha are part of rest of the raw naphtha cleared as 'Hepton' i.e. SBP Spirit on payment of lower duty. It had been contended that the investigation had not found anything new by recording that Xylenes are manufactured out of Raw Naphtha through a catalytic reforming process where the main reactions are conversion of Nepthenes into Aromatics, Paraffins into Aromatics Hydrocraking etc; that after the above reactions the mixture is condensed and the off Gases are obtained and removed and the remaining liquid called as "C.5 Reformate" containing all Hydrocarbons above C.5 Ranges is fed to the Deheptanizer Distilliation Column whereas a result of Distilliation at the required temperature, the light stream is separated from the top of the Deheptanizer of Xylenes as it mainly contains Paraffins. This stream is called as light reformate stream, a mixture of C.5, C.6, C.7 Hydrocarbons along with small percentage of C.8 Hydrocarbons etc. It was also contended that what is recorded in this paragraphs is a systematic summary of the process of manufacture of Xylenes submitted by them from time to time as and when called for by the department; that, however, what emerges from the contents of para 3 of the show cause notice is that the entire quantities of Raw Naphtha obtained for the manufacture of Xylenes are entirely fed to the plant; that the light of reformate stream (later terms as LR -5012 or Hepton) emerges as an inevitable consequence of processing of Naphtha; and that this stream joins other streams like BT Rich Stream before return as Return Stream of Raw Naphatha to Gujarat Refinery and/or its sale as Hepton. It was also contended by the assessees before the Collector that the emergence, sale and/or return of Hepton (LR -5012) in no way affects the production. Xylenes either in quantity or in quality that can be manufactured out of Naphtha received from Gujarat Refinery as no quantities of Xylenes are possible to be produced out of the stream termed as Hepton (LR -5012) otherwise, it would have been their pleasure to use it so; that after removal of the off Gases with same Hexanes and formation of C.5 Reformate containing all Hydrocarbons above C.5 Ranges, that too, consequent upon catalytic reforming process, the original Raw Naphtha has been subjected to the manufacturing process relatable to the 'intended use' and it thus loses its identity, and therefore, the question of removal of Raw Naphtha as Hepton doe snot arise. Therefore, it was contended that the allegation contained in the show cause notice is incorrect and misleading. It was further contended that 'Heavy Ends' emerges as an inevitable during the course of manufacture of Xylenes out of Raw Naphtha and this fact had been confirmed by the order of the Assistant Collector dt. 18.2.82 which had not been challenged by the department. He also relied on the letter dt. 4.6.76 of the Superintendent, by which he had informed that when Raw Naphtha is intended for use in the manufacture of any one of more of the products specified, the production of goods which are incidental/inevitable/involuntary in such production would not disturb the scheme of exemption. They also submitted that they require Raw Naphtha of having distilliation range 110oC to 140oC and same is btained from IOC. This distilliation range and distilliation range of Hepton differs from each other in addition to difference in physical/chemical properties as also constituents and hence the allegation that Hepton is a Raw Naphtha, is not correct. They also submitted that the test result of Hepton was furnished to them on 9.11.90 after a lapse of 4 years of drawing the sample on 22.9.86. They challenged the correctness of the test result inasmuch as that the product was required to have been tested for flash point, flame height, chemical composition, chemical properties, physical properties, general end use, PONA (Paraffins, Olefins, Nepthelenes, Aromatic): initial boiling point and final boiling point and whether it satisfied the characteristics shown against Chapter 27 or otherwise. It was pleaded that the Chemists had carried out only two test results in respect of flash point and boiling point range and hence any test result being incomplete cannot be against them. It was contended that the sample was drawn from one lot and test results cannot be applied to other lots. In this regard, they relied on several judgments also. They also submitted that the demand were time barred.