N-Hexane classified under Chapter 29 qualifies for CENVAT credit despite incorrect Chapter 27 invoicing.

The appellant manufactured technical-grade pesticides under Chapter 38 of the Central Excise Tariff and claimed MODVAT credit under erstwhile Rule 57A of the Central Excise Rules, 1944, on N-Hexane purchased from Bharat Petroleum Corporation Ltd. The supplier’s invoices, and the appellant’s Rule 57G declaration, classified N-Hexane under Heading 2710.12. The Department denied credit on the ground that goods under Heading 2710.12 were excluded from the definition of eligible inputs under Notification No. 5/94-C.E. (N.T.), as amended

Three show-cause notices dated 18 March 1999, 4 October 1999 and 4 May 2000 were issued seeking recovery of credit, interest and penalty under Rule 57I

The adjudicating authority confirmed the demand, interest and penalty, and the Commissioner (Appeals) dismissed the appellant’s appeal

The CESTAT held that classification could not be reopened at the input-recipient’s end, confirmed the demands under the first two notices, remanded the proceedings relating to the 4 May 2000 notice, and set aside the penalty on the ground that the credit had been availed pursuant to declarations and regular returns and involved a bona fide interpretation of law

Whether the classification of N-Hexane could be disputed or reopened at the input-recipient’s end when the supplier had classified it under Heading 2710.12?

Whether the appellant was entitled to MODVAT/CENVAT credit on duty paid on N-Hexane, having regard to its proper classification under Chapter 29 rather than Heading 2710.12 of Chapter 27?

Whether the CESTAT was justified in confirming the demands under the show-cause notices dated 18 March 1999 and 4 October 1999, while remanding the proceedings concerning the notice dated 4 May 2000?

The Court applied the MODVAT scheme under erstwhile Rules 57A, 57G and 57I of the Central Excise Rules, 1944, together with Notification No. 5/94-C.E. (N.T.), as amended, which excluded specified goods falling under Heading 2710.12 from eligible inputs

It relied principally on Commissioner of Customs, Kandla, Gujarat v. Reliance Industries Ltd., 2026 SCC OnLine SC 929, which held that N-Hexane is classifiable under Chapter 29 as a separately chemically defined acyclic saturated hydrocarbon, and not under Chapter 27 merely because it has a low flash point or is obtained from petroleum

The Supreme Court further held that classification under the relevant motor-spirit entry requires proof that the product is a hydrocarbon oil, has a flash point below 25°C, and is suitable for use as fuel in spark-ignition engines; satisfaction of the flash-point condition alone is insufficient

The Court also relied on the DGFT Policy Circular dated 14 July 2004 clarifying that imported Hexane is covered under Chapter 29

The High Court held that the classification issue was conclusively governed by the Supreme Court’s decision in Reliance Industries Ltd. N-Hexane possesses the fixed molecular composition C₆H₁₄ and a definitive linear structural diagram, satisfying the requirements of a separately chemically defined compound under Chapter 29

The presence of minor impurities did not alter its essential character, and the Revenue had not established that the product was used as motor spirit or fuel for spark-ignition engines, as required for classification under Chapter 27

Consequently, the exclusion applicable to goods under Heading 2710.12 did not apply. The incorrect tariff heading stated in the supplier’s invoices could not, by itself, determine the appellant’s entitlement to credit when the input was legally classifiable under Chapter 29

In view of this conclusion, the Court considered the questions concerning reopening classification at the recipient’s end and the treatment of the individual show-cause notices to be academic

It declined to answer the first and third questions as having become academic in light of the Supreme Court’s ruling in Reliance Industries Ltd.

The Tax Appeal was accordingly allowed, with no order as to costs