G. Sankaran, Senior Vice-President

1. This appeal is directed against Order-in-Appeal No. M-1632/BD-735/86 dated 30-1-1987, passed by the Collector of Central Excise (Appeals), Bombay, whereby he set aside the Order-in-Original dated 31-10-1985, passed by the Asstt. Collector of Central Excise, Baroda, and upheld the respondents' claim for classification of their product "Heavy Normal Paraffins" ("HNPs" for short) under Item 7 of the First Schedule to the Central Excises & Salt Act, 1944 ("CET" for short) and not under Item 68 of the Schedule, as ordered by the Assistant Collector. The Collector (Appeals) further directed consequential relief to the respondents.

2. We have heard Shri A.S. Sundar Rajan, JDR, for the appellant-Collector and Shri N.V. Raghavan Iyer, for the respondents.

3. M/s. Indian Petrochemicals Corporation Ltd. (the respondents) filed a classification list on 20-3-1982 for their products including Heavy Normal Paraffins (HNPs). This classification list was filed pursuant to the changes made in the tariff nomenclature by the amendments brought about by the Finance Bill of 1982. On the basis of the respondents' declaration that HNPs were derived from refining of crude petroleum or shale, the classification was approved by the proper officer on 31-3-1982 directing classification of HNPs under Item 11A(4) of the CET. It appears that the excise authorities felt later on that the classification was not correct since HNPs were obtained by processing of kerosene and not by refining of crude petroleum or shale. The Asstt. Collector of Central Excise, Baroda, therefore, issued a show cause notice dated 17-6-1982 to the respondents intimating reclassification of the product from Item 11A(4) to Item 68 of the CET. They were also advised that the reclassification took effect immediately from the date of the show cause notice and that the modification of the approved classification was done under Rule 173B(5) of the Central Excise Rules, 1944 (the "Rules" for short). They were also asked to show cause why reclassification should not be given effect to from 28-2-1982 and why the amount of duty short levied should not be recovered from them under Section 11A of the Central Excises & Salt Act, 1944. The respondents were allowed to avail themselves of the procedure for provisional assessment as laid down in Rule 9B. By their reply dated 14-9-1982, the respondents contended that HNPs had been correctly classified under Item 11 A, CET. In due course, the Asstt. Collector passed an order dated 30-11-1984 holding that the product was classifiable under Item 68, CET with effect from 28-2-1982 and ordered finalisation of the provisional assessments. In appeal, this order was set aside by the Collector (Appeals) by his order dated 31-12-1984 on the ground that it had been passed in violation of the principles of natural justice. Thereafter, the Asstt. Collector, after hearing the respondents, passed another order on 7-11-1985 reclassifying the product under Item 68, CET and ordering finalisation of the provisional assessments taking into consideration the rates of duty applicable to Item 68 from time to time. It is this order which was set aside in appeal by the Collector (Appeals) by the impugned order.

4. A few more relevant facts require to be noticed. The respondents do not produce kerosene themselves but obtain duty paid kerosene from the refineries and subject it to processing within their factory premises, declared under Rule 140(2) as a 'Refinery'. The process of manufacture of HNPs from kerosene, as described by the respondents, is as follows:

"The U.O.P. Molex is a continuous process for the separation of normal paraffins from co-boiling hydrocarbons by means of selective adsorption from the liquid phase. The adsorbent employed is a molecular sieve with a 5 A0 pore diameter. The pore diameter of the sieve is selected so that the n-paraffins molecule can pass through the pores into cavities within the crystal structure, whi