ORDER
Jyoti Balasundaram, Member (J)
1. These 11 appeals arise out of a common order involving common issues and are hence heard together and disposed of by a common order. The first 2 appeals relate to classification and the remaining ones relate to refund of Central Excise duty.
E/A/4151/89-C – M/s. IOC Ltd. Lube Blending Plant, filed classification lists seeking approval with effect from 1-3-1986 for the product ‘Process Oil’ consequent on introduction of Harmonised System of Nomenclature for various excisable goods. They received 5 varieties of Inter Neutral and Heavy Neutral extracts from M/s. Madras Refineries Ltd., on payment of duty. These extracts are mixed proportionately and put into reactor fitted with steam coils and an agitator and heated upto 50° to 60°C to provide better blending and to remove traces of moisture and then cleared in bulk in lorry tanks and in drums. All these process oils being exclusively used by the tyre industry (for strengthening and flexibility of tyres), the Dept. was of the view that the oils did not merit classification under Chapter Heading 2710.50 of the CET. Based upon a report of the Chemical Examiner (in some other context) that process oil is ruled out of Heading 2710.50 due to the predominance of aromatic constituents over non-aromatic constituents, a show cause notice was issued to the appellants on 4-7-1988 for claiming differential duty for the quantity cleared during the period 1-12-1987 to 31-5-1988. The show cause notice stated that since process oils are solely intended for processing in tyre industry and not ordinarily used as furnace oil i.e. to say any ‘hydrocarbon oil which is ordinarily used as furnace fuel and not suitable for use in spark Ignition Engines and which satisfies the following requirements.
(i) has a smoke point of less than 10 mm (ii) leaves certain residue of not less than 1/4% by weight when tested by Ramsbottom carbon residue apparatus. (iii) is as dark as, or darker than, 0.04 normal iodine solution when tested by colour comparision test and (iv) processes a viscosity of 100 seconds or more by Red wood I viscometer at 37.8°C."
Classification is proposed under Heading 2710.99. Subsequently, a corrigendum was issued on 28-7-1988, shifting proposed classification to. Heading 2713.39 from 1-12-1987 to 29-2-1988 and Heading 2713.30 from 1-3-1988 to 31-5-1988. After adjudication, the Asstt. Collector confirmed the classification proposed in the show cause notice and raised a demand of differential duty of Rs. 9,59,049.31 on process oils at the rate of Rs. 250/- per MT and at the rate of Rs. 155/- per MT plus 5% SED on Basic Excise Duty. The Collector (Appeals) classified the products under Heading 2707.90 and directed the lower authority to raise demands for duty accordingly.
E/A 4152/89-C – In this case a show cause notice was issued on 10-12-1987 for claiming differential duty for the quantity cleared between 1-6-1987 to 30-11-1987, alleging misdeclaration and suppression of end use of the products with intent to evade duty. The corrigendum dated 4-8-1988 mentioned the proposed classification under Heading 2713.39. This classification was confirmed by the adjudicating authority who raised a demand of differential duty of Rs. 13,59,304.62. The lower appellate authority upheld classification under Heading 2707.90 and directed raising of demands.
E/4153 to 4161/89-C – These appeals pertain to refund claims filed by the appellants on the ground that furfural extracts received by them from M/s. Madras Refineries Ltd., on payment of Excise duty, remained the same after processing and fell under same Chapter Heading 2710.50. The claims were rejected in view of the fact that the furfural extracts have undergone a process of manufacture, resulting in a new excisable commodity and classification of both commodities under the same heading is immaterial for the purpose. The lower appellate authority while upholding the rejection, directed re-determination of duty due under Heading 2707.90 and issue of demand in the event of short levy or sanction of refund in case of excess levy.
3. Aggrieved by the order of the Collector (Appeals) dated 7-8-1979, the appellants have preferred the above appeals.
4. We have heard Shri N.V. Raghavan Iyer, learned counsel and Shri S. Chak-raborty, learned DR.
5. Taking up the two appeals relating to demand of duty, we find that in the show cause notice dated 4-7-1988, there is no allegation of suppression. However, since the demand is for a period beyond 6 months (1-12-1987 to 31-5-1988), the Assistant Collector could not have issued the show cause notice because Section 11A was amended on- 27-12-1985 providing for issue of show cause notice by the Collector of Central Excise while invoking the extended period of limitation of 5 years. The corrigendum dated 26-7-1988 also becomes barred by limitation and is without jurisdiction. In E/A/4152/89-C, the show cause notice of 10-12-1987 alleges suppression and duty has been demanded for the period from 1-6-1987 to 30-11-1987. Part of period is beyond 6 months. On both counts, the Assistant Collector could not have issued the notice for want of jurisdiction. The corrigendum also falls for the same reasons.
6. The argument of the learned DR that show cause notice is valid as it has been issued under Rule 9 wherein the provisions of Section 11A is imported only for the purpose of time-limit and not for the purpose of jurisdiction, is no longer sustainable in view of order of this Tribunal in the case of Meghmani Dyes & Intermediates v. CCE Vadodara (Order No. 926/90-C dated 16-8-1990), the relevant paras of which are reproduced below :-
“35. One more aspect requires to be looked into. In the case of Piya Pharmaceuticals Works (supra), the Tribunal was concerned with the powers of Collector to adjudicate under provisions of Rule 9(2). It was contended by the appellants therein that he was not empowered to do it and the Assistant Collector should have done it. Because, as per contentions of the appellants therein, the Assistant Collector and not the Collector was the proper officer to adjudicate under the provisions of Rule 9(2), as the powers of Rule 9(2) have to be exercised with reference to Section 11A of the Act. The Bench over-ruled that contention and held as excerpted above.
36. The Bench in that case took the view that reference to Section 11A in Rule 9(2) is only for the purpose of time-limit and with that view the Bench stated in para 22 as under :
“It is that the demand should be made within time-limit prescribed by 11A – not the process developed in Section 11A that should be followed.”
So, in the opinion of the Bench the process prescribed under Rule 9(2) is also a process of adjudication and that could be followed independently of Section 11A. If this is so, then carrying it further it could mean that even in a case wherein duty is not paid etc. by reasons of fraud, collusion or any wilful mistake or suppression of facts or contravention of any of the provisions of the Act or the Rules made thereunder with intent to evade payment of duty, then also, if longer period of limitation is not to be invoked then the Assistant Collector can exercise the powers of adjudication under Rule 9(2) instead of Collector of Central Excise as required under Section 11A of the Act. It is apparent that this would create an anomalous situation because there cannot be two parallel processes of adjudication contrary to each other as far as level of authority and circumstances in which the powers are to be exercised are concerned. Legislature could never have meant it and so it is to be understood and interpreted in a manner which would permit reading and interpreting the provisions of the Rule 9(2) and Section 11A in an harmonious manner. So in our view what Rule 9(2) provides for is a summary remedy of demanding duty in the circumstances mentioned therein. But it has been held by the Hon’ble Supreme Court that demand cannot be enforced without issue of show cause notice and due opportunity of representation. So show cause notice has to be issued before enforcing demand which can be raised under provisions of Rule 9(2). In that case it has to be followed with proper adjudication procedure. When the occasion of adjudication arises obviously provisions of Section 11A will come into play. So the authority named therein would be entitled to exercise powers in the given set of circumstances stated therein. So when the question of invoking larger period of limitation arises or situation is that the non payment or short payment etc. arises out of suppression, fraud etc., then, only the Collector can exercise powers and not the Assistant Collector even under Rule 9(2). So in our view not only the aspect of period of limitation provided in Section 11A should be read to have been incorporated in Rule 9(2) vide MF(DR) Notification No. 19/CE dated 14-1-1981, (though by reading it, it appears to be so) but the whole concept of level of authority as demarcated in Section 11A should also be understood to have been imported in Original Rule 9(2). Otherwise as discussed above it is likely to create an anomalous situation. Rules of interpretation also say that the provision of any Rule vis-a-vis Statute should be read and construed in a harmonious manner and not in a manner in which it would create any anomalous or absurd situation.
37. Assuming that the amendment in Rule 9(2) does not warrant such an interpretation, then, as discussed above, Rule 9(2) provides only for raising of demand and should not be read to have provided for independent process of adjudication also. Otherwise as discussed above it would result into parallel processes of adjudication under Rule 9(2) and Section 11A. So as and when occasion arises for adjudication under Rule 9(2); the provisions of Section 11A should also be invoked and followed.
38. It should also be kept in mind that when there is any conflict between rules and statute, provisions of statute must prevail.
39. It appears to us that these aspects were not brought into the notice of the Bench which was considering the case of Piya Pharmaceuticals Works (supra) and that is why the Bench has not considered these aspects. But in view of the position of law as discussed by us, in our humble opinion, even when the demand notice is issued under Rule 9(2), when the question comes of invoking larger period of limitation or demand arises as a result of suppression etc. only the Col-lector should exercise powers and in all other circumstances only the Assistant Collector should exercise powers.”
6.1. In the light of the above discussion, we set aside the impugned order in so far as it relates to demand of duty and allow E/4151/89-C and E/4152/89-C.
7. E/4153 to 4161/89-C – The appellants claim for classification of the process oils under Heading 2710.50 was rejected on the ground that the predominance of aromatic over non-aromatic constituents (established by chemical examination) would preclude the products from the coverage of 2710.50. The materials placed before us are not sufficient, in our view, to determine proper classification which is essential for adjudicating the claims for refund.
7.1. The classification dispute has not been gone into in depth by the lower authorities.
7.2. The Assistant Collector, by his corrigendum, has classified the goods under 2713.39 (from 1-12-1987 to 29-2-1988) and 2713.30 (from 1-3-1988 to 31-5-1988). To be classified under this heading, the product should be shown to be residues of petroleum oils or of oil obtained from bituminous minerals. Residue is defined at page 115 of the “Glossary of Terms used in Petroleum Industry” published by the Statistics Division of Petroleum Information Service, New Delhi, as :-
“Heavy oil or residuum left in the still after gasoline and other distillates have been distilled off, or residues from crude oil after distilling off all but the heaviest component.”
It has to be shown that the products in question fulfil these characteristics. The appellants have contended that when they are mixing two products obtained from the refinery, namely IN extracts and HN extracts, the question of calling the resultant mixed product as a ‘residue’ would not arise. In this context, the appellants selied on the meaning of the term ‘residue’ as set out in the “Glossary of Terms used in Petroleum Industry” in India referred to earlier. In this context, our attention was also drawn to the explanatory notes under Heading 27.13 of the “Harmonized Commodity Description and Coding System” wherein at page 222 of Volume 1, it is stated :-
“(C) Other residues of petroleum oils include :-
(1) Extracts derived from the treatment of lubricating oils with certain selective solvents. (2) Petroleum gum and other resinous substances obtained from petroleum. (3) Acid residues and spent bleaching earths, containing a proportion of oil. Bitumen, coke and other residues fall in this heading if they result from the treatment of shale oils or of other oils obtained from bituminous minerals." It was further contended that if the subject product is to be called residue then the products obtained from MRL had also to be termed as residue because the subject product was only a blend or mix of two products obtained from MRL but these two products were classified as furnace oil under Heading 2710.50.
8. The Collector (Appeals) has classified the goods under 2707.90. Apart from the fact that he could not have classified the goods under this heading unilaterally without notice to the appellants and, in any event, he could not have directed the Assistant Collector to raise demands on the basis of such classification, for a product to fall under this head it has to be shown that it falls within the following description :-
“27.07 Oil and other products of the distillation of high temperature coal tar; similar products in which the weight of the aromatic constituents exceeds that of the non-aromatic constituents.”
8.1 It is the appellants’ contention that the only change brought about by the processing of IN and HN extracts in their plant is change in viscosity. Otherwise, it conforms to the description of Furnace Oil as given in Heading 2710.50. It has been further stated that, given an opportunity, by the appellants will be able to establish that the product conforms to all the specifications laid down for Furnace Oil. It was also contended that no opportunity was given to the appellants to put forth their case on the question whether the product is ordinarily used as furnace oil and, even if it is not, whether it would still fall under the heading ‘Furnace Oil’, though it may be used in the tyre industry. That it is used in the tyre industry, according to the appellants, would not mean that the ordinary use is not or cannot be furnace oil.
8.2. These and several other aspects of the dispute which were discussed before us by both sides have not been gone into by the Collector (Appeals).
9. We, therefore, set aside the impugned order and remand the matter to the Assistant Collector for de novo adjudication on classification after affording an opportunity of personal hearing to the appellants. We make it clear that in the event of classification being upheld under Heading 2710.50, there can be no question of charging duty on the disputed products. The direction of the lower appellate authority to re-determine duty due under Heading 2707.90 and issue demand in case of short-levy cannot be sustained in view of our order in the case of Collector of Central Excise, Bombay v. Bright Brothers (Order No. 1093/90-C dt. 4-10-1990) wherein we have held that duty paid under a particular tariff heading cannot be adjusted towards duty payable under a different tariff heading for which proper assessment proceedings sanctioned by law had not been initiated by the Department. This finding has been arrived at, upon consideration of the Delhi High Court’s judgment in Bharat Commerce & Industries Ltd. v. Union of India [1979 (4) ELT J527], the Punjab High Court’s judgment in Hazarimal Kuthiala v. I.T.O. Special Circle, Ambala Cantt. (AIR 1957 Punjab) and the Tribunal’s order in Indian Plywood Mfg. Co. Ltd. v. Collector of Central Excise, Bangalore [1985 (22) ELT 144]. We, therefore, set aside the Collector’s order on this point.
10. In the result, E/4151 & 4152/89-C are allowed. E/4153 to 4161/89-C are remanded to the Assistant Collector for de novo adjudication in the terms set out in para 9 above.