H.R. Syiem, Member (T)

1. This is an appeal dated 26-12-79 against Order-in-Appeal No. 122/ASM-1979 dated 3rd September, 1979 passed by the Appellate Collector of Central Excise, Calcutta, and sent with letter dated 8th January, 1980.

2. The dispute is about the use of casing head condensate (CHC) by the Assam Oil Company, Digboi which led to a demand of duty for the period February, 1975 to May, 1977 as the Central Excise authorities said that the condensate was used as a motor spirit and, therefore, should pay Central Excise duty under item 6 of the Central Excise Tariff. The Appellate Collector held that considering all the characteristics of the condensate, its source and its behaviour, it satisfies the definition of motor spirit in all respects and, therefore, the assessment and demand of duty was correct.

3. It is necessary to state briefly the manner in which the condensate is obtained. The crude oil which is lifted from the well goes into a separator which separates the crude oil from the associated gas. In the separator the crude oil is separated from the lighter hydrocarbon, in this case the natural gas. The crude oil drops to the bottom and the lighter gas ascends to the top. The gas is taken from the separator into a compressor in which a part of the gas gets liquefied. The compressed gas is then passed through the condensate trap where the liquid portion drops to the bottom while the gas goes out from the top. The liquid portion is collected in a condensate tank and then moves out to the crude oil tank from which both are taken for refining. Part of the liquid condensate, however, is taken and used in tractors of the Company at well heads to drive winches for cleaning the pipes through which the oil is pumped out of the well.

4. During the hearing, the learned counsel for the appellant-Assam Oil Co., said that the gas was mainly a compound of propane/butane/methane. It was argued by the appellant that the condensate was not goods and there had been no manufacture of a product conforming to the definition of more spirit, the product is neither sold nor is capable of being sold in the market. It does not meet Indian Standards specifications relating to motor spirit. The excise duty was sought to be levied under tariff item 6(1) but in reality it does not fall within that item as it is not suitable for use as a fuel in internal combustion engines. The use of the goods in the tractor winches has had corrosive effect. The condensate is not a mineral oil. It is not a liquid hydrocarbon but a gaseous hydrocarbon and becomes a gas at normal temperature and pressure. But if it is to be called a mineral oil then it is a crude oil and in fact comes out of the well together with the crude oil. The CHC obtained from the condensed gas cannot be regarded as a mineral oil; on the other hand since it is more easily identified as a crude mineral oil, it is not excisable at all.

5. Simply because the oil has a flashing point below 76°F it is not classifiable under tariff item 6. It should also be by itself or in admixture with any other substances, be suitable for use as a fuel for internal combustion engines. There has been no finding that it is so suitable. The condensate either by itself or in admixture with any other substance is not suitable for use as a fuel for internal combustion engine. It does not fulfil Indian Standards specifications of motor spirit and as its Reid Vapour Pressure is very high it will give rise to 'vapour lock'. The research octane number of the CHC is only 73 which is too low a number because motor spirit requires at least a value of 83. Such a low octane number would produce continuous knocking in the engine. The CHC has high corrosive effect and this will immediately damage the engine. Elemental sulphur content in motor spirit has to be removed whereas the CHC contains high amounts of sulphur. In motor spirit, tetra ethyl of lead is added to modify the octane number to a favourable value. The CHC has