Whether fatty acids, wax and gum arising in course of manufacture is exempted or liable to duty.

Case:- RICELA HEALTH FOODS LTD. Versus C.C.E., CHANDIGARH & ALLAHABAD

Citation:- 2016 (331) E.L.T. 313 (Tri. - Del.)

Issue:- Whether fatty acids, wax and gum arising in course of manufacture is exempted or liable to duty.

Brief facts:- The facts leading to filing of appeals are, in brief, as under.
The appellants in both the cases manufacture refined vegetable oil. In course of refining of crude vegetable oil, fatty acids, wax and gum emerge as by-products. The refined vegetable oil did not attract any duty, as during the period of dispute, either the refined vegetable oils were fully exempt from duty under Notification No. 3/2006-C.E., dated 1-3-2006 or the tariff rate itself was nil. The exemption Notification No. 89/95-C.E., dated 18-5-1995 exempts the “waste, parings and scrap” arising in course of manufacture of exempted goods and falling within the schedule to the Central Excise Tariff Act, from the whole of the duty of excise leviable thereon as is specified in this schedule. This exemption is subject to condition that this exemption would not apply to waste, parings and scraps cleared from a factory in which any excisable goods other than exempted goods are also manufactured. The explanation to Notification No. 89/95-C.E. states that “for the purpose of this notification, the expression ‘exempted goods’ means excisable goods which are chargeable to nil rate of duty or are exempted from whole of the duty of excise leviable thereon by any other notification (not being notification where exemption from whole of duty is granted based on value or quantity of clearances in a financial year) issued under Section 5A(1) of Central Excise Act, 1944 or Rule 8(1) of the Central Excise Rules, 1944. Thus, the refined vegetable oil manufactured by the appellants is “exempted goods” for the purpose of this notification. The point of dispute is as to whether the Fatty Acids, wax and gum which arise as by-products, are to be treated as “waste” for the purpose of this exemption notification. According to the Department, Fatty Acids, wax and gum are by-products and cannot be treated as waste and hence the same would not be exempt from duty. It is on this basis that the Department issued show cause notices for demand of duty on the clearances of fatty acids, wax and gums, as according to the Department while fatty acids are covered by Heading 38237090, the waxes and gums are covered by Heading 15159099.
In the case of M/s. Ricela Health Foods Ltd., seven show cause notices issued for demand of duty on clearances of Fatty Acids, wax and gums for the period from April 2007 to June 2011 were adjudicated by the Commissioner vide order-in-original dated 14-12-2011 by which he confirmed the duty demands totalling Rs. 13,21,83,197/- along with interest on it under Section 11AB/11AA of the Central Excise Act and beside this, imposed penalty of equal amount on them under Section 11AC. In case of M/s. JVL Agro Industrial Ltd., the Commissioner vide order-in-original dated 7-8-2012 confirmed duty demand of Rs. 1,53,63,541/- against them for the period from April 2011 to September 2011 alongwith interest on it under Section 11AB/11AA and beside this, imposed penalty of equal amount on them under Section 11AC. Against these orders of the Commissioner, these appeals have been filed.

Appellant’s contention:- Shri B.L. Narasimhan, Advocate, the learned Counsel for the appellant, pleaded that though the Tribunal in the case of CCE, Jalandhar v. A.G. Fats Ltd. reported in 2012 (277)E.L.T.96 (Tri. - Del.) had held that Fatty Acids oil, wax and gum emerging as by-product in course of manufacture of refined vegetable oil from crude vegetable oil are not waste and not exempted under Notification No. 19/95-C.E. and this judgment of the Tribunal has been affirmed by the Apex Court by the way of dismissal of civil appeal vide order dated 2-1-2012 reported in A.P. Solvex Ltd. v. Commissioner - 2014 (300) E.L.T. A74 (S.C.), the Bombay Bench of the Tribunal in the case of Maheshwari Solvent Extraction Ltd. v. CCE, Nagpur reported in 2014 (299)E.L.T.116 (Tri. - Mumbai) has taken a contrary view holding that the fatty acids, wax and gum emerging in course of refining of crude vegetable oil are in the nature of waste and would be eligible for exemption under Notification No. 89/95-C.E. and in this judgment, the Tribunal has also considered the coordinate Bench’s judgment in the case of CCE, Jalandhar v. A.G. Fats Ltd. (supra) and also the fact that the civil appeal against this judgment has been dismissed by the Apex Court and the review petition filed has also been dismissed, and that in this judgment, the Tribunal has observed that in view of the wordings of the notifications read with the law laid down in the case of Raipur Manufacturing Company Ltd. reported in AIR 1967 SC 1066, it is clear that the view in the case of CCE, Jalandhar v. A.G. Fats Ltd. (supra) that waste under this notification refers to the goods of no value or little value cannot be preferred, as the goods of no value would not command any duty at all in the first place and this would amount to adding words to the notification where they do not exist. Shri Narasimhan also pleaded that prior to the Tribunal's judgment in the case of CCE, Jalandhar v. A.G. Fats Ltd. (supra) the another Bench of the Tribunal in the case of CCE, Hyderabad v. Priyanka Refineries Ltd. reported in 2010 (249)E.L.T.70 (Tri. - Bang.) has also taken the view that the fatty acids, wax and gum emerging as by-product in course of refined vegetable oil by processing of crude oil are in the nature of waste eligible for exemption under Notification No. 89/95-C.E. He, therefore, pleaded that the impugned orders are not correct. However, he stated that he has no objection if on account of conflicting decisions on the issue involved in this case, the matter is referred to a Larger Bench.

Respondent’s contention:- Shri R.K. Gupta, the learned DR, defended the impugned order by reiterating the findings of the Commissioner in it and emphasised that the Tribunal in its decision in the case of CCE, Jaiandhar v. A.G. Fats Ltd. (supra) has considered its earlier decision in the case of CCE, Hyderabad v. Priyanka Refineries Ltd. (supra) and also the fact that civil appeal filed against that judgment had been dismissed by the Apex Court, that when the Apex Court has affirmed the Tribunal’s judgment in the case of CCE, Jaiandhar v. A.G. Fats Ltd. (supra) by dismissing the civil appeal and subsequently has also dismissed the review petition against the order of dismissal of civil appeal, it would imply that the Apex Court while dismissing the civil appeal against the Tribunal’s decision in the case of CCE, Jalandhar v. A.G. Fats Ltd. (supra) has also taken into account the fact that earlier, the civil appeal against the Tribunal's decision in the case of CCE, Hyderabad v. Priyanka Refineries Ltd. (supra) where a contrary view had been taken, had been dismissed. He pleaded that in view of these circumstances, it is the Apex Court’s judgment in the case of CCE, Jalandhar v. A.G. Fats Ltd. (supra) which would be a binding precedent and therefore, the Tribunal was not correct in taking a different view in the case of Maheshwari Solvent Extraction Ltd. v. CCE, Nagpur (supra). He, therefore, pleaded that there is no infirmity in the impugned order. However, he has no objection if the matter referred to Larger Bench.

Reasoning of judgment:- They have considered the submissions from both the sides and perused the records.
The appellant manufacture refined vegetable oil by processing of crude oil and in course of refining of crude vegetable oils, Fatty acids, wax and gums emerge as unavoidable by-products. During the period of dispute, the refined vegetable oil was either fully exempt from duty under same exemption Notification or was chargeable to nil rate of duty in the tariff itself and as such was to be treated as “exempted goods” for the purpose of Notification No. 89/95-C.E., dated 18-5-1995. The only point of dispute is as to whether for the purpose of this exemption notification, which exempt “waste, parings and scrap” arising in course of manufacture of exempted goods falling within the schedule to the Central Excise Tariff Act from the whole of the duty of excise leviable thereon, the fatty acids, wax and gum are to be treated as waste. On this point, while the Tribunal in , the case of CCE, Jalandhar v. A.G. Fats Ltd. (supra) has expressed the view that the fatty acids, wax and gum, arising as by-products in course of refining of vegetable oil cannot be treated as waste and would not be exempt from duty under Notification No. 89/95-C.E. and this decision of the Tribunal has been affirmed by the Apex Court by the way of dismissal of civil appeal and the review petition has also been dismissed, the Tribunal in the case of Maheshwari Solvent Extraction Ltd. v. CCE, Nagpur (supra) has taken a contrary view holding that the fatty acids, wax and gum arising in course of manufacture of refined vegetable oil from crude vegetable oils are waste and would be eligible for the exemption. In our view, the Tribunal's decision in case of Maheshwari Solvent Extraction Ltd. v. CCE, Nagpur (supra) holding that the term ‘waste’ in the exemption notification would include by-product also, even if the same are marketable product covered by Central Excise Tariff, is not correct, as a by-product is an unavoidable product obtained in course of manufacture of a particular product and waste is only that by-product which is in the nature of refuge and is fit to be discarded. Moreover when the Tribunal’s judgment in the case of CCE, Jalandhar v. A.G. Fats Ltd. (supra) which had considered the earlier contrary judgment in the case of CCE, Hyderabad v. Priyanka Refineries Ltd. (supra) has been affirmed by the Apex Court by dismissal of civil appeal, even if the civil appeal has been dismissed without giving any reasons, the Apex Court's order in view of its judgments in the cases of Kunhyammed v. State of Kerala reported in 2001 (129)E.L.T. 11 (S.C.) and Waman Rao v. Union of India reported in (1981) 2 SCC 362 becomes a binding precedent. In view of this it is highly doubtful whether another bench of the Tribunal in the case of Maheshwari Solvent Extraction Ltd. v. CCE, Nagpur (supra) could re-open this issue and take a different view.
A by-product is an unintended product emerging in the course of a product which the manufacturer intends to manufacture. The by-product may be in the nature of refuge, of no or little value and fit to be discarded or may be a commercially known product, which has same commercial value, which is worthwhile to be marketed, and hence is a marketable product. In the former case, when the by-product being of no or little commercial value is fit to be discarded, would be waste, but in the latter case, when the by-product, even though an unintended product, is of commercial value and is a marketable product, it would be absolutely incorrect to categorize it as a waste just because it is an unintended product emerging in the course of a product which the manufacturer intended to manufacture. In the former case, when the by-product is waste fit to be discarded and for which there is no regular market, the same would be non-excisable, while in the latter case, where the by-product is marketable, the same would be excisable if it is covered by same heading/sub-heading of Central Excise Tariff for levy of excise duty. Just because the Government, as per its understanding of the word 'waste' has issued the exemption Notification No. 89/95-C.E. exempting the waste arising as by-product from excise duty, the courts and Tribunals are not bound to construe the word 'waste' as including even marketable by-products also, as the Government by issuing an exemption Notification under Section 5A(1) of the Central Excise Act, 1944 in respect of some waste, cannot make the non-excisable product into an excisable product. While construing such exemption Notification the principle of avoiding redundancy while interpreting a statutory provision would not apply. Therefore, in the Notification No. 89/95-C.E. the word ‘waste’ would mean only those by-products which are in the nature of refuge, are of no or little commercial value and which are generally discarded. In the present case, none of the by-products - Fatty Acids, wax and gum satisfy the above for criteria. In fact. Fatty Acids obtained in the course of refining of crude oil also called Acid Oils, are a raw material for soap industry and are a well known commercial product with considerable value.
In any case, since on the issue involved in this case, there are two conflicting judgments of two coordinate benches, in thier view, this matter would merit reference to Larger Bench. In view of this, the Registry is directed to place this matter before Hon'ble President for considering the constitution of a Larger Bench for deciding the following point :
“Whether fatty acids, wax and gum arising in course of manufacture of refined vegetable oil are to be treated as “waste” for the purpose of exemption Notification No. 89/95-C.E. and would be exempt from duty under this notification and whether in this regard, the Apex Court’s order affirming the Tribunal’s judgment in the case of CCE, Jalandhar v. A.G. Fats Ltd. (supra) by dismissing the civil appeal filed against the Tribunal’s judgment would be a binding precedent.”
The miscellaneous application No. E/M/51861/2014 in appeal No. 653 of 2012 for early hearing also stands disposed.

Decision:- Appeal disposed off.

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PJ/CASE LAW/2016-17/3061

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