Customs, Excise and Gold Tribunal - Delhi
Prag Vanaspati Products vs Collector Of Central Excise on 4 May, 1998
Equivalent citations: 1998(59)ECC181, 1999(114)ELT225(TRI-DEL)
ORDER
S.K. Bhatnagar, Vice President
1. These are two appeals against the Orders of the Collector (Appeals) Nos. 131-132-C.E./KNP/88, dated 8-8-1988.
2. The learned Counsel stated that the issue involved in this case relates to classification of 'Acid Oil'.
3. The basic issue is squarely covered by the Tribunal's decision in the case of Kusum Products, Calcutta v. Collector of Central Excise, Calcutta, in which it has been held that Acid Oil was classifiable under T.I. 12 and not under T.I. 68. It was also his submission that this decision in the case of Kusum Products (sic), reported in 1993 (68) E.L.T. 636 (sic) has been followed in other cases also including those reported in 1985 (19) E.L.T. 479 and 1987 (30) E.L.T. 955. In response to a query from the Bench the learned Counsel further stated that in authoritative book "Bailey's Industrial Oil and Fat Products" also Acid Oil is recognised as Oil and the Tribunal has also taken note of the manufacturing process and recorded in its order in the case of Kusum Products and on that basis held it to be a V.N.E. Oil classifiable under T.I. 12.
4. Learned DR drew attention to the Order-in-Appeal and stated that V.N.E. Oil is basically obtained by crushing oil seeds, whereas acid oil is obtained during the process of manufacture of vanaspati as a by-product due to reaction of V.N.E. Oil with the Caustic Soda, etc. Hence, even if it retains some characters of V.N.E. Oil, as it emerges on account of chemical reaction between Caustic Soda and V.N.E. Oil. Hence, it is rightly classifiable under T.I. 68.
5. Learned D.R. submitted that the learned Collector's finding is correct as would be evident from the Flow Diagram for Oil Mill and Vegetable Product Factory filed by him. This Flow Diagram has been taken from a departmental publication. It shows that after extraction, V.N.E. Oil is treated with Pre-hardening Neutralisers like Caustic Lye, Hot Water and Bleaching Earth, etc. and as a result on one hand Soap Stock is obtained and on the other hand the 'wash' is left out; when this 'wash' is treated with Sulphuric Acid it results in formation of 'Acid Oil'.
6. Learned DR further stated that he would also like to refer to the High Court judgments reported in 1990 (47) E.L.T. 305 (Bom.) and 1989 (39) E.L.T. 18 (All.) in support of his contention that Acid Oil cannot be considered as Vegetable Oil.
7. We have considered the above submissions. We observe that the learned DR's contentions have strong force. The process of manufacture of Acid Oil shows that it is not produced from a plant or plant organ or a plant part. It is generated as a result of chemical reaction between V.N.E. Oil and some chemicals like Neutralisers and Sulphuric Acid. It is actually nothing but acidified wash and is loosely called Acid Oil due to presence of unreacted Acid and oil otherwise chemically it is neither acid nor oil by itself.
8. Technically also "Fats and Oils are water insoluble Hydrophobic substances of vegetable, land animals, or marine animal origin which consist predominantly of glyceryle-esters of fatty acids, so-called Triglycerides" as per Bailey's ' Indus trial Oil & Fat Products'.
9. It has also been held by the Hon'ble High Court of Bombay in the case of Bhasir Oil Mills, reported in 1990 (47) E.L.T. 305 (Bom.) that the expression "Vegetable Oil" covers natural oil produced directly from the plants such as limbs, flower, seeds, barks, etc. This was stated by them in the context of Vegetable Oil Cess Act, 1983 and National Oil Seeds and Vegetable Oils Development Board Act, 1983.
10. Hon'ble High Court of Allahabad had also occasion to observe in the case of U.P. Solvent Extractors' Association, reported in 1989 (39) E.L.T. 18 (All.) in the context of the same provisions that "Vegetable Oil" has been defined in Webster Dictionary as "Oils obtained from plant specially fatty oils obtained usually from seeds and nuts". The definition of Vegetable Oil in Section 3H of the National Oil Seeds and Vegetable Oil Development Act, 1983 appears to be used in the same sense. According to it oil, produced from oil seeds or oil bearing material and containing glycerides is vegetable oil. Hon'ble Court has also reproduced the definition of vegetable oil Under Section 3H to say that Vegetable Oil means any oil produced from oil seed or oil bearing material containing glyceride but does not include any such vegetable oil which has been subjected to any processing subsequent to recovery of oil.
11. The emphasis laid down by the above Courts on production of such oil directly from plant or plant organ is significant. Equally important is the emphasis on the nature and composition and the fact that if it is not obtained directly or it is subjected to other processing after extraction, it ceases to be V.N.E. oil for the purpose of these enactments.
12. Although these observations have been made by the Hon'ble High Courts in the context of the provisions mentioned above, they serve as a useful guide even for our purpose.
13. As can be clearly seen from the flow diagram filed by the learned DR, the Acid Oil is not produced directly from plant or plant organ. On the contrary, it is the result of further processing of extracted oil with the help of neutraliser and acid. Thus, acid oil is far removed from plant/plant organ, the latter being the parent source of V.N.E. Oil and not of the so-called "acid oil'. In fact, acid oil is nothing but a chemical mixture which is a step or two removed even from V.N.E. Oil. Hence, looking at it from any point of view the so-called acid oil cannot be considered as V.N.E. Oil - (actually it is not even oil chemically although loosely so called.) This is evident from the Bailey's book on Industrial Oil and Fat Products also. The Bailey's book, of course, refers to certain types of Acid Oils such as Laurie Acid Oils Group (coconut oil, palm kernel oil), Erucic Acid Group, (mustard and rapeseed oil), Linolenic Acid Group (linseed oil, soyabean oil, hemp seed oil) and Conjugated Acid oils such as Tung oil; but these are oils first and foremost (i.e. they satisfy the definition of oil) and are merely called acid oil because they are acidic in character due to the presence of some acids but such is not the case before us and it has not been shown that acid oil in question before us contains mainly Triglycerides of fatty acids. On the contrary, the learned DR has been able to show that the chemical mixture in question was not V.N.E. Oil as already seen above.
14. In the case of Kusum Products, the Tribunal has accepted that V.N.E. Oils are Triglycerides of fatty acids and also quoted extensively from the book called "Oils, Fats and Fatty Foods by A.A. William" and it is significant that it is mentioned there that "when neutralisation is done by addition of caustic soda the free fatty acids contained in the V.N.E. Oil is removed and it becomes what is known as Soap Stock....The Soap stock is converted into acid oil by addition of Sulphuric acid. The Soap Stock is thus decomposed to what is known as acid oil. After addition of Sulphuric acid the resultant product is acid oil and water (in which some sodium sulphate is mixed) is let out.
15. This itself shows that the learned DR's submission on the chemical composition and stage of production and manner of production of acid oil is correct and the acid oil is not produced from plant or plant organ but from Soap stock.
16. The Tribunal in the case of Kusum Products has, however, erred in its appreciation of the technical as well as legal aspect of the matter as would be evident from what follows : (17) The definition of oil as given in Bailey's book (Vol. 1, page 1) shows that "Fats and oils (1) are water-insoluble, hydro-phobic substances of vegetable, land animal, or marine animal origin which consist predominantly of glyceryl esters of fatty acids, so-called triglycerides," And "a triglyceride is the reaction product of one molecule of glycerol with three molecules of fatty acids to yield three molecules of water and one molecule of a triglyceride :
H H
| |
H-C-OH HOOC-R1 H-C-OOR1
| |
H-C-OH HOOC-R2 ____3HOH+H-C-OOR2
H-C-OH HOOC-R3 ____3HOH+H-C-OOR3
| |
H H
Glycerol Fatty acids Water Triglyceride
17. Thus we are concerned with the presence of and the percentage of Triglyceride(s) in the liquid chemical (and not that of unused or unreacted raw materials such as glycerol or fatty acids).
18. Even according to Collector in Kusum Products case, the acid oil contains free fatty acids and some neutral oil; And such acid oils may contain 50 to 80 per cent of free fatty acid depending upon the extent of separation of neutral oil.
19. The Tribunal while quoting the observations of the Collector has, however, taken the view that a high free acid content cannot take the "oil' out of the category of V.N.E. Oil. V.N.E. Oils have different fatty contents. While it is true that different V.N.E. Oils will have presence of some free fatty acid (unreacted fatty acid) and their percentage will vary from oil to oil and process to process, the Tribunal has, in that case, erred in over-looking the fact that the oils (V.N.E. Oils) are primarily and principally Triglycerides (although they may contain some unreacted raw materials or some non-glyceride materials as impurities), and, therefore, it is the amount or percentage of Triglycerides which is material for treating a liquid as an oil (and not unreacted fatty acid etc. which can only be considered as impurity).
20. The 'acid oil' on the other hand is a liquid containing a mixture of unreacted or unused materials including unused or unreacted fatty acid, present as remanant in the "wash' generated during the act of neutralisation of V.N.E. Oil and acid treatment of the waste called wash.
21. The so-called Acid Oil is thus not even oil farless V.N.E. Oil as mentioned above.
22. Legally also as we have seen that Bombay and Allahabad High Courts judgments are a good guide to hold that only the oil directly extracted or recovered from a plant or plant organ could be called V.N.E. Oil and this is also the common understanding about V.N.E. Oil, whereas acid oil is the result of further treatment of V.N.E. Oil and cannot be equated with or considered to be a vegetable oil.
23. In view of this position, in my opinion, the Tribunal's order(s) in the case of Kusum Product (and others which have followed the ratio thereof) is based on an incorrect appreciation of the relevant aspects of the matter. The error goes to the root of the case and is required to be rectified.
24. Hence, the matter is referred to the Larger Bench for resolution of the issue.
25. It is ordered accordingly, and the matter is submitted to the Hon'ble President (Vice President I/C) for constituting a Larger Bench and refer the case to it.