Customs, Excise and Gold Tribunal - Mumbai
Wipro Ltd. vs Commissioner Of C. Ex. And Cus. on 12 January, 1999
Equivalent citations: 1999ECR712(TRI.-MUMBAI), 1999(111)ELT357(TRI-MUMBAI)
ORDER G.N. Srinivasan, Member (J)
1. These 2 Appeals No. E/665/94 & E/666/94 have been filed by the appellant against the decisions dated 20-9-1994 passed by the Collector Central Excise and Customs, Pune made in Order-in-Original No. A310/94 which was filed against the decision made in Order-in-Original No. VGN(30) 270 (Tl)/SEN/WL/93 dated 31-3-1996, whereunder the Collector (Appeals) rejected the contentions raised by the appellant though they are entitled to claim the benefit of Notification 46/89'.
2. The appellants are manufacturers inter alia of soap at the factory at Amalner, Jalgaon District. As manufacturers of soap, they are entitled to the benefit of money credit in respect of VNE minor oils used by them in the manufacture of soaps under the money credit scheme prescribed under chapter V.AAA of the Central Excise Rules. Rule 57K enables the Central Government to specify, the final products and the raw materials used in the manufacture of such final products, to which the provisions of this said chapter shall apply and also indicate rates at which such money credit can be given to such inputs in the manufacture of such final products. Notification 46/89 was passed by the Central Government in terms of the Rule 57K of the Central Excise Rules specifying inter alia that the vegetable oils, whether or not subject to one or more of the processes of hydrogenation or hydrolysis of the description in column 2 of the table mentioned in the said notification and such products are used in the manufacture of final products namely soap falling under sub-heading 3401.10 of the Schedule to the CETA. The rates have been provided under the table in the said notification. The notification also provides for certain conditions. A show cause notice dated 2-7-1992 was issued mentioning that the appellants were manufacturers of soap and also in para 4 thereof stated that in terms of Rule 57L of the Rules, the money credit of duty on the input used in the manufacture of final product could not be allowed if the final product is exempted from the whole of duty of excise. He further held that the assessee had taken money credit on Rice Bran Oil and availed for final product i.e. fatty acid which is exempted in terms of Notification 12/89. Assessee was availing money credit on the rice bran oil (RBO) supplied by Hindustan Lever Ltd. (HLL) was not correct. The appellant was contravening the provision of Rule 57A, 57L and 57K.
3. The assessee contended that they were processing rice bran oil obtained from HLL by means of hydrogenation and such RBO i.e. fatty acids are returned to HLL in proportion of RBO received in terms of contract. The appellant also received consideration for such processing. Semi processed oil is again processed further by the appellant and they extract certain fatty acid and split the semi-processed material into glycerine and fatty acid. They pay Central Excise duty on the glycerine as well as the pitch which are residue. They did not pay any tax on the fatty acid extracted by them. In fact, they process the RBO twice, supplied by HLL which have been described above. The Asstt. Collector by his orders dated 31-3-1994 & 2-6-1994 had confirmed the demand. In the order dated 31-3-1994, the AC had held that fatty acid is exempted. While sending the fatty acid processed from RBO, the assessee had debited the amount of credit equivalent to his calculation taken on RBO on the basis of quantity of fatty acid because the partial credit is nowhere provided in the rule. On appeal, the Collector (Appeals) disagreeing with the decision of the Supreme Court cited before him in the case of Tomco -1989 (43) E.L.T. 183 and after interpreting the contract between HLL and appellant, held against the appellant. Hence these two appeals.
4. Shri Ravindran, Ld. counsel for the appellant argued on behalf of the appellant, and Shri V.K. Suman, the Ld. DR appeared for the department.
5. Shri Ravindran arguing for the appellant stated that the scope of Notification 46/89 has been completely mis-construed by the Collector in the appellate order. He stated that the object of the notification is make the soap manufacturers of India to utilize the minor oil obtained from vegetable to be used in the manufacture of soap. The Notification 46/89 envisages existence of a processor of the minor oil into fatty acid i.e. hydrogenation to return back the resultant fatty acid to the supplier of the raw material namely VNE. Such processor can also utilise the resultant produce obtained by twice processing the raw material in the manufacture of final product namely soap. He emphasizes the fact that the raw material should be vegetable non-essential oil and the final product should be the soap. Hydrolysis or hydrogenation can be done either by the manufacturer of final produce or by a job worker. He also invited my attention to the trade notice issued by Aurangabad Collectorate, Trade Notice No. 47/87 for the proposition that the procedure prescribed under the trade notice has been fully complied with. The approach of the Collector (Appeals) according to Shri Ravindran, is absolutely wrong in law. He invited my attention to the decision of the Supreme Court in the case of The Tata Oil Co. Ltd. -1989 (43) E.L.T. 183 especially para 6 thereof.
6. As against this, the ld. DR states that the Collector has rightly rejected the appeals of the appellant. He states that whatever fatty acid the appellant have obtained by processing the raw material twice, is not entitled to claim benefit under the notification. He states that fatty acid has been obtained not from VNE. He also adopts the reasoning by the Collector (Appeals).
7. I have considered the argument of both sides. The fact of the case are, even for repetition, the WIPRO Ltd. are manufacturers of soap. Apart from manufacturers of soap, they also enter into contract with HLL for processing on job work basis for Vegetable non-essential oil supplied by HLL. They first undertake hydrogenation or hydrolysis process. From the raw material supplied by HLL, they obtain 80% of the fatty acid as well as the other materials. They return that fatty acid to the owner HLL. The remaining product is again processed. From this they get glycerine, pitch and fatty acid. The fatty acid which WIPRO get is again used in the manufacture of soap. It is an admitted fact between the parties that fatty acid which is processed by WIPRO and given to HLL and is utilised in the manufacture of soap. Fatty acid which is again obtained by WIPRO by using for the second time, first time they manufacture out of the raw materials given by HLL and twice the second time they manufacture out of the remnant of the raw materials processed by them earlier and such resultant product namely fatty acid, pitch, glycerine, are again used by WIPRO in the manufacture of soap. Shri Ravindran declares that Central Excise duty is paid on the glycerine as well as on the pitch, which is not in dispute before us. He stated that the hydrogenation oil namely fatty acid is used in the manufacture of soap. How could the benefit of money credit be denied to him. In para 4 of the show cause notice, the department has stated its case as follows :-
"Whereas it appears that as per Rule 57L of Central Excise Rules, 1944, money credit of duty on the inputs used in the manufacture of the final product cannot be allowed if the final products are exempted from the whole of duty of excise leviable thereon or is chargeable to NIL rate of duty. Since the final produce manufactured by the assessee for the HLL. i.e. fatty acid is exempt from payment of Central Excise duty under Notification No. 12/89 and as fatty acid is not a final product specified under Rule 57K the assesses availing of money credit on RBO supplied by M/s. HLL is not in order. Thus assessee has contravened the provisions of Rule 57A, Rule 57L and Rule 57K. The assessee has wrongly availed of credit of Rs. 14,09,651/- from December, 1991 to June 1992 is recoverable from them."
The case of the department is that the final product namely fatty acid is exempted. Therefore, WIPRO is not entitled to claim benefit of money credit. It is not so. The first para of the show cause notice admits that WIPRO is a manufacturer of soap. In the reply to the show cause notice in page 13 it has been specifically stated that the appellants were buying and using RBO in the manufacture of its own toilet soap, to which they were entitled to money credit. The Collector in the impugned order at para 6, 7 & 8 had held as under :-
"The appellants are claiming money credit in respect of the process of oil which is neither provided under the Rules nor under the Notification No. 46/89. The notification specifies soap as final product and various vegetable oils as inputs. The notification provides that if all the processes are done in the same factory, the credit shall be taken on the quantity of vegetable oils received. Notification also further provides that in case where the processes of hydrogenation or hydrolysis are done outside the factory manufacturing soap, the credit shall be allowed "on the quantity of processed vegetable oils received into the factory" - and the specified procedure is followed. This condition contained in notification itself answers all the points raised by the appellants in their submissions. They are confusing their activity of manufacturing soap with their activity of processors. These are two different activities and simply because raw oil and processed oil belonging to HLL is stored in same tank does not make them the manufacturer of soap. The contention that there is nothing in the notification which requires that final product should be made in the factory in which oil is hydrolyzed has no value in view of conditions No. (iii)(c) of Notification 46/89 which clearly provides that if the process of hydrogenation is done outside, the credit is allowed on the quantity of processed vegetable oils received into the factory. In fact, there is no provisions in the Rule and in the notification providing for the credit for only processing the oil. They are not eligible to take the credit of money from the beginning itself as they are not manufacturer of soap; they are only doing the process of hydrogenation or hydrolysis on taking processing charges can they call themselves manufacturer of soap in respect of vegetable oil received in HLL? No. As such M/s. WIPRO Ltd. are not eligible for availing of money credit in respect of raw oil received from M/s. HLL.
They have relied upon TOMCO's decision. The issue involved in that case was quite different. The manufacturers were denied the concession as they had not received the RBO in their factory but had received fatty acid. In that context Supreme Court allowed them the benefit of the notification holding that the requirement is that the soap manufactured should, to a prescribed extent, be from RBO and there is nothing to exclude cases where soap is made by using rice bran fatty acid derived from RBO. The Supreme Court in Tata Mill's case, has neither explicitly nor implicitly held that the processor of the oil will also be eligible for the benefit of the notification.
The appellant's contention the oil becomes only processed oil and is not fatty acid is also not correct. They have entered into the contract with HLL for processing oil into distalled, hydrogenated rice bran fatty acid. And if fatty acid is an excisable goods, it will remain excisable goods and chargeable to duty irrespective of the fact that instead of RG 1, a separate account has been prescribed. Further again the contract refers to the excise duty. It is mentioned in para 10 of the Contract that
(a) No excise duty is currently payable on hydrogenated VNE oils (inedible goods) and fatty acids.
(b) Should there be any change in excise tariff or in the effective rate of duty, the same shall have to be discussed and agreed upon with us before filing excise classification or paying duty to the concerned authorities."
The argument of Shri Ravindran is very correct according to me. When we see the Notification 46/89 is says inter alia that the inputs namely vegetable oils whether or not subject to any one or more processes of hydrogenation or hydrolysis of the description in column 2 of the table annexed in the notification and used in the manufacture of final product namely soaps. It is nobody case that WIPRO was not using the product processed by them, which is captively consumed by them for the final product namely soap. The show cause notice has stated that they have utilised it since the fatty acid is exempted from 12/89. Here it is admitted that the final product is soap. The fatty acid obtained by the processing done by WIPRO may be an intermediate product. The emergence of intermediate product cannot be ruled out when we look into Clause (i) of the notification. It does not go against the grant of exemption for process of hydrogenation. Even if we look at the approach of the Collector (Appeals), he had held not rightly according to me. In the condition mentioned in the notification, Clause (ii) provides for the circumstance where the fatty acid namely the intermediate product is used in the same factory, where the soap is manufactured. In respect of condition No. (iii), we envisage the existence of job worker, who from the raw material namely RBO processed such RBO into Hydrogenated/hydrolysed vegetable oil and transfers it to the person who gives the raw material. The job work process is envisaged under condition No. 3. The approach of the lower authorities according to me is wrong. The existence of job worker is envisaged by the instant notification. The approach of the Collector especially in respect of what is contained in para 8 of the order, according to me, is wrong in law.
8. As far as Tomco Oil's case is concerned, no doubt that was in respect of the same notification. That was a case of set off. Set off may be different from money credit. Yet the principle underlying the decision can be equally applicable to the money credit scheme. Para 6 of the judgment clearly mentions the philosophy of issuing of such notifications. In fact in para 6, it has been held as:
"The whole purpose and job of the notification is to encourage the utilisation of the RBO in the manufacture of soap in preference to various other kinds of oil mainly edible oil in such manufacture and this should not be defeated by unduly narrow interpretation of the language of the notification even when it is clear that the RBO can be used for manufacture of soap only after its conversion into fatty acid or hydrogenated oil."
The said principle can be equally applicable to the money credit scheme. There is no word "OR" between (ii) or (iii). I am therefore, of the view that the order passed by the Collector (Appeals) in the instant case is wrong in law.
9. Shri Suman, the ld. DR would argue that the resultant fatty acid when it was manufactured again out of the remnants of the raw materials already processed by WIPRO cannot be eligible for money credit. At the outset, I have to state that the argument is ingenious. Firstly, that is not envisaged under the show cause notice. Secondly, in para (i) it says that vegetable oils whether or subject to any one or more of the process of hydrogenation or hydrolysis. This completely answers the argument of ld. DR. The appeals are allowed with consequential relief if any, permitted by law.