Sikkim Organics Vs Commissioner of CGST (CESTAT Kolkata)
CESTAT Kolkata held that Sikko Sol no used in Automobile and hence not classifiable under tariff item 2710 12 13 of CETA 1985 hence duty demand thereon unsustainable.
Facts- The appellant is engaged in the manufacturing of “Sikko Sol” classified under tariff item No. 38140010 of the First Schedule to the Central Excise Tariff Act, 1985 and cleared the goods on payment of Central Excise duty.
By the impugned order, the Commissioner of Central Excise & Service Tax, Siliguri, confirmed the demand of Central Excise duty of Rs. 33.77,95,151.00 along with interest and imposed a penalty on the clearance of Sikko Sol classifying under tariff item 27101213 of CETA, 1985. It has also confiscated the seized goods and imposed a redemption fine of Rs. 1,57,592.00 and directed recovery of re-credit of Rs. 42,088.00 and inadmissible Cenvat Credit of Rs. 44,100.00 and also imposed a penalty thereon.
Conclusion- Held that Sikko Sol was not used in Automobile. We do not find any evidence that Sikko Sol is used as Light Oil and/or motor spirit suitable for use in Spark Ignition Engine as mentioned in the supplementary note. So, there is no merit to classify Sikko Sol under tariff Item 27101213 of CETA 1985. The demand of duty along with interest and penalty by the impugned Orders classifying the product under Tariff No. 27101213 cannot be sustained.
FULL TEXT OF THE CESTAT KOLKATA ORDER
Since common issue is involved in these appeals and therefore, both the Appeals are taken up together for disposal.
2. The Appellant filed Appeal No. E/75881/2017 with application for condonation of delay of filing appeal against Order-in-Original No. 48/Comm./CE/SLG/2016-17 dated 06.02.2017 passed by the Commissioner of Customs, Central Excise and Service Tax, Siliguri Commissionerate, Siliguri. By Order No. M.A./75297/FO76679/2017 dated 21.08.2017, the Tribunal dismissed the appeal and COD Application on the ground that the Appellant had not made pre-deposit as required under Section 35F of the erstwhile Central Excise Act, 1944. The Appellant filed Writ petition under Article 226 of the Constitution of India before the Hon’ble High Court of Sikkim at Gangtok against the Order of the Tribunal, which was also dismissed. The Appellant filed appeal before the Hon’ble Supreme Court against the Order of the Hon’ble High Court. By Order dated 01.06.2021 in Special Leave to Appeal ( C ) No.(s) 551-553/2021, the Hon’ble Supreme Court restored the Appeal before the Tribunal and directed that the same shall be decided on its own merit. It appears from the said Order that the Appellant deposited an amount of Rs. 2.54 Crores. Hence, this appeal is taken up for hearing as per the direction of Hon’ble Supreme Court.
3. The Appellant also filed Appeal No. E/76500/2019 with application for condonation of delay of filing appeal, against Order-in-Original No. 09/Comm./CE/SLG/18-19 dated 30.11.2018 passed by the Commissioner of CGST & CX, Siliguri Commissionerate. It appears that the Appellant filed a Writ Petition against the impugned adjudication order before the Hon’ble High Court of Sikkim. By Order dated 09.05.2019 in W.P. (C) No. 15/2019, the Hon’ble High Court dismissed the Writ Petition with the observation that the mandate of the statute of pre-deposit is to be complied with in the first instance thereafter the petitioner is free to invoke the jurisdiction of the Court, if so advised. The Appellant complied with the pre-deposit under Section 35F of the Act, 1944 and filed this appeal. We find that on the similar issue the Hon’ble Supreme Court directed the Tribunal to hear the appeal on merits for the earlier period. So, the delay of filing of present appeal for the subsequent period should be condoned. Hence both the appeals are taken up for hearing.
4. The relevant facts of the case, in brief, as per record are that the appellant is engaged in the manufacturing of “Sikko Sol” classified under tariff item No. 38140010 of the First Schedule to the Central Excise Tariff Act, 1985 (in short CETA 1985) and cleared the goods on payment of Central Excise duty. On 16.04.2015 and 27.04.2015, the Central Excise Officers of Anti evasion wing, Siliguri visited the appellant’s factory and conducted a stock verification and found shortage and excess of raw materials and finished goods. The excess quantities of finished goods and raw materials were seized. The said Officers also drew the samples of finished goods Sikko Sol and Raw Materials on 17.04.2015. The partner, authorised Representative and other employees of the appellant firm were summoned and the statements were recorded in respect of shortage/excess of goods on different dates.
5. A Show Cause Notice dated 08.04.2016 was issued by the Commissioner of Central Excise & Service Tax, Siliguri, proposing demand of Central Excise duty along with interest and to impose penalty on the basis of Chemical Test Report dated 13.01.2016 classifying Sikko Sol under tariff item 27101213 of the Central Excise Tariff Act, 1985. It has also proposed to confiscate the seized goods and recovery of inadmissible Cenvat Credit. By the impugned Order in Original dated 06.02.2017, the Commissioner of Central Excise & Service Tax, Siliguri, confirmed the demand of Central Excise duty of Rs. 33.77,95,151.00 along with interest and imposed penalty on the clearance of Sikko Sol classifying under tariff item 27101213 of CETA, 1985. for the period from April 2011 to December 2015. It has also confiscated the seized goods and imposed redemption fine of Rs. 1,57,592.00 and directed recovery of re-credit of Rs. 42,088.00 and inadmissible Cenvat Credit of Rs. 44,100.00 and also imposed penalty thereon, against which the appellant filed Appeal filed Appeal No. E/75881/2017.
6. Thereafter, another Show Cause Notice dated 29.09.2017 was issued by the Commissioner, CGST, Central Excise, Siliguri proposing demand of Central Excise duty of Rs. 13,71,26,014.00 along with interest and to impose penalty on the clearance of “Sikko Sol” classifying under tariff item 27101213 of CETA, 1985 for the period from January 2016 to December 2016 on the basis of Chemical Test Report dated 13.01.2016.
7. By Order-in-Original dated 30.11.2018, the Commissioner of CGST & CX, Siliguri, confirmed the demand of Central Excise duty of Rs.39,96,769.00 along with interest and imposed penalty on clearance of Sikko Sol classifying under tariff item 27101213 of CETA, 1985 for the period from January 2016 to December 2016. By Corrigendum dated 04.03.2019 of the Order-in-Original dated 30.11.2018, the Commissioner dropped the erroneous demand of duty of Rs. 13,31,29,245.00 after re-calculation of demand in so far as the effective rate of duty was fixed @ 14% Ad velorem only as per Notification No. 12/12-CE dated 17.03.2012 as amended by Notification No. 24/2012-CE dated 08.05.2012. and there was no additional duty to be paid @ Rs. 15/Litre. The Appellant filed appeal being Excise Appeal No.75881/2017 against Order-in-Original dated 06.02.2017 and Excise Appeal No.76500/2019 against Order-in-Original dated 30.11.2018 to the extent of demand of duty along with interest and imposition of penalty.
8. The Learned Advocate appearing on behalf of the Appellant submitted that Sikko Sol, a brand name, is one type of Thinner mainly used by the paint industries. The main raw material Condensate is procured from Oil India Limited, a Public Sector Undertaking. As it is a regulated item, they submitted End User Certificate to Oil India Limited as well as District Magistrate as per Order dated 05.06.2000 issued by the Ministry of Petroleum and Natural Gas. It is further submitted that tariff item No. 38140010 specifically mentioned the goods “Solvent and Thinner” and therefore their product is clearly covered under the said tariff item as per Rule 3(a) of the First Schedule of Excise Tariff General Rules for the interpretation of this schedule (hereinafter referred to as Rules for the Interpretation of Tariff). The Learned Advocate further submitted that the Adjudicating authority had not looked into the Chemical Test Report in proper manner in so far as it is mentioned in the Test Report that Sikko Sol is Special Boiling Spirit.But, the Adjudicating authority erroneously observed that the Chemical Examiner opined that it is Special Boiling Point Spirit. Therefore, the finding of the Adjudicating authority is beyond the Chemical Examiner’s opinion. It is further submitted that the Chemical Examiner has to analyse the product and he cannot classify and/or define the product in any manner.
9. Regarding the classification of the Sikko Sol under tariff item No.27101213 as confirmed by the adjudicating authority, the Learned Advocate submitted that the Adjudicating authority had totally ignored Note 4 of Sub heading Notes of Chapter 72, which says that for the purpose of sub heading 271012 “light oils and preparations” are those of which 90% or more by volume (including losses) distil at 210°c. He drew the attention of the Bench to the Test Report No.01 dated 13.01.2016, where it is mentioned 90% by volume is distilled at 106°c. Thus, the product Sikko Sol would not come within the purview of Note 4 of Sub-heading Notes, then, it cannot be covered under sub-classification under tariff item 27101213 of CETA, 1985. It is further submitted that the Adjudicating authority strongly relied on the Supplementary Note (a) of Chapter 27 of CETA where it is mentioned that Special Boiling Point Spirits. (tariff Items 27101211, 27101212 and 27101213) means “Light Oils” as defined in Sub heading Note 4. It is submitted that Sub Heading Note 4 would not apply as per Test Report and therefore Supplementary Notes (a) would also not apply. He further submitted that the words “the difference of not less than 60°c between the temperatures at which 5% and 90% by volume (including losses) distill” in Supplementary Note (a) of Chapter 27 would be linked with Sub heading Note 4 which says 90% or more by volume distilled at 210°c and which is the basis for ascertaining difference of not more than 60°c between the temperatures 5% and 90% by volume distil. It is submitted that in the present case Test Report indicates 5% by volume is distilled at 54°c. The Learned Advocate also drew the attention of the Bench to the Rules of Interpretation of Tariff in detail. It is submitted that Sikko Sol is not light oil and preparation and the department had not adduced any evidence thereof. On the other hand, the Appellant produced the evidence in so far as End User Certificate and other documents would show that it is a Thinner/Solvent and accepted by the District Magistrate, Oil India Limited and in the market.
10. The Learned Advocate also submitted that the demand is barred by limitation and no penal provision can be invoked. It is a case of interpretation of classification of the goods. The Learned Advocate submitted Written Submission, Additional Written Submission along with list of dates, case laws, where it has dealt with shortage/excess of goods.
11. The following Case Laws are relied upon by the Ld Advocate:-
i) 2006 (197) E.L.T. 324 (S.C.) H.P.L. Chemicals Ltd. -Vs-Commissioner of C. Ex., Chandigarh
ii) 2016 (336) E.L.T. 42 (Cal.) Sanwar Agarwal -Vs-Commissioner of Customs (Port).
iii) 2020 (372) E.L.T. 686 (Cal.) Commissioner of Customs (Port) -Vs- Sanwar Agarwal
iv) 2020 (372) E.L.T. 465 (S.C.) Commissioner of Central Excise, Delhi-III – Vs- UNI Products India Ltd.
v) 2001 (134) E.L.T. 285 (Tri.-Kolkata) Shalimar Paints Ltd. – Vs- Commissioner of Central Excise, Calcutta.
vi) 2002 (145) E.L.T. A242 Commissioner -Vs- Shalimar Paints Ltd.
vii) 1994 (70) E.L.T. 141 (Tribunal) UNITEC Industries -Vs-Collector of Central Excise, Belgaum
viii) 2007 (207) E.L.T. 161 (S.C.) Commissioner of C. Ex. & Customs, Surat-II -Vs- Nirmala Dyechem
ix) 2021 (375) E.L.T. 263 (Tri.-Hyd.) Biomax Life Science Ltd. – Vs- Commr. of Cus., C.Ex. & S.T., Hyderabad.
x) 2015 (324) E.L.T. 594 (Tri.-Mumbai) Aarti Drugs Ltd. -Vs-Commissioner of Central Excise, Thane-II
xi) (31) G.S.T.L. 487 (Tri.-Kolkata) Calcutta Industrial Supply Corpn. -VS Commissioner of S.T., Kolkata.
xii) 2019 (31) G.S.T.L. J147 (S.C.) Commissioner -Vs- Calcutta Industrial Supply Corporation.
12. The Learned Authorised Representative on behalf of the Revenue reiterated the findings of the adjudicating authority. He submitted that the Ld. Advocate on behalf of the Appellant only drew the attention of the Bench on Light Oil and Preparation. It is submitted that sub-heading No. 271012 would also cover Motor Spirit. It is mentioned in Supplementary Note (a), Motor Spirit Flash Point below 25°c, which would be in conformity with the Test Report. It is contended that “Sikko Sol” may be treated as Motor Spirit covered under tariff item 27101213. The Learned Authorised Representative drew the attention of the Bench to the relevant portion of Rules of Interpretation of Tariff. It is further contended that there is no mention in End User Certificate that “Sikko Sol” is Solvent or Thinner. The case laws as referred by the Learned Advocate would not apply in the facts and circumstances of the case. The Learned Authorised Representatives had read the relevant portion of the impugned Order in respect of time bar issue. It is further submitted that there is a shortage/excess of goods as found during the stock verification, would establish clandestine removal of goods.
13. After hearing both the sides through video conferencing and on perusal of records, we find that the Appellant is manufacturing “Sikko Sol”, which is their brand name, out of raw materials Condensate and Benzene. In both the appeals, the finished goods “Sikko Sol” was classified under tariff item. 38140010 as thinner and cleared by the Appellant on payment of Central Excise duty as applicable. On 17.04.2015 the Central Excise Officers drew the sample of finished goods and raw materials. By letter dated 21.01.2016 the Assistant Commissioner (HAEU) of Siliguri Commissionerate forwarded the Chemical Test Reports dated 13.01.2016 to the Appellant. The Show Cause Notices were issued proposing demand of duty along with interest by classifying Sikko Sol under tariff item 27101213 as Special boiling spirit, on the basis of Test Report No. 01A and 01B dated 13.01.2016.
14. The relevant portions of Rules of Interpretation of Tariff as referred by parties are reproduced below :-
The First Schedule – Excise Tariff
(See Section 2)
GENERAL RULES FOR THE INTERPRETATION OF THIS SCHEDULE
Classification of goods in this Schedule shall be governed by the following principles:
1. The titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions.
2. (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished,
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(b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances.
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3. When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:
(a) the heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.
(b) mixtures, composite goods consisting of different materials or made up of different components,
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( c) when goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.
GENERAL EXPLANATORY NOTES
Where in column (2) of this Schedule, the description of an article or group of articles under a heading is preceded by “-“, the said article or group of articles shall be taken to be a subclassification of the article or group of articles covered by the said heading. Where, however, the description of an article or group of articles is preceded by “–“, the said article or group of articles shall be taken to be a sub-classification of the immediately preceding description of the article or group of articles which has “-” Where the description of an article or group of articles is preceded by “—” or “—-“, the said article or group of articles shall be taken to be a sub-classification of the immediately preceding description of the article or group of articles which has “-” or “–“.
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ADDITIONAL NOTES
In this schedule, –
1.(a) “heading” in respect of goods, means a description in list of tariff provisions accompanied by a four-digit number and includes all sub-headings of tariff items the first four digits of which correspond to that number;
(b) “sub heading”, in respect of goods, means a description in the list of tariff provisions accompanied by a six-digit number and includes all tariff items the first six digit of which correspondent to that number;
(c ) “tariff item” means a description of goods in the list of tariff provisions accompanying either eight-digit number and the rate of the duty of excise or eight-digit number with blank in the column of the rate of duty;
(2) the list of tariff provisions is divided into Sections, Chapters and Sub-Chapters;
(3) in column (3), the standard unit of quantity is specified for each tariff item to facilitate the collection, comparison and analysis of trade statistics.
15. Note 1 of “General Explanatory Notes” of Rules for the Interpretation of this Tafiff, may be divided into three parts:-
(a) Where in column (2) of the Schedule, the description of an article or group of articles under a heading is preceded by “ – “, the said article or group of articles shall be taken to be a sub-classification of the article or group of articles covered by the said heading;
(b) Where, however, the description of an article or group of articles is preceded by “ — “, the said article or group of articles shall be taken to be a sub-classification of the immediately preceding description of the article or group of articles which has “ – “
(c) Where the description of an article or group of articles is preceded by “ — “ or “ —- “, the said article or group of articles shall be taken to be a sub-classification of the immediately preceding description of the article or group of articles which has “ – “ “ or “ — “
16. “Additional Notes” of Rules for Interpretation of Tariff defined the words “heading”, “sub-heading” and “tariff item”of Tariff. Precisely, a description in the list of tariff is accompanied by a 4-digit number “heading”, 6 – digit number “sub heading” and 8- digit number “tariff item”
17. The issue involved in the present appeals is as to whether Sikko Sol would be classified under tariff item 27101213 of Central Excise Tariff Act, 1985 as held by the Adjudicating authority. Both the sides referred Chapter Notes of Chapter 27 of CETA, 1985 as reproduced below :-
CHAPTER 27
Mineral Fuels, Mineral Oils and Products of their distillation; Bituminous Substances, Mineral Waxes
Notes : Chapter does not cover :
