Custom, Excise & Service Tax Tribunal
Jugal Kishore Vanaspati Products Pvt ... vs Udaipur on 30 January, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. 3
Excise Appeal No. 54042 of 2018
(Arising out of Order-in-Appeal No. 103-108 (CKJ)CE/UDR/2018 dated 26.02.2018 /
20.03.2018 passed by the Commissioner (Appeals), Udaipur)
M/s JUGAL KISHORE VANASPATI
PRODUCTS PVT LTD Appellant
E-10, Bichawal Industrial Area,
Bikaner, Rajasthan.
Versus
COMMISSIONER Of CENTRAL
GOODS AND SERVICE TAX EXCISE
CUSTOMS,UDAIPUR Respondent
142-B, Sector 11, Hiran Magri Udaipur WITH EXCISE APPEAL NO. 52886/2018 EXCISE APPEAL NO. 52887/2018 EXCISE APPEAL NO. 52888/2018 EXCISE APPEAL NO. 52889/2018 EXCISE APPEAL NO. 52890/2018 APPEARANCE:
Shri M Mahipal, Chartered Accountant for the Appellant Shri Umesh Kumar, Authorized Representative for the Respondent CORAM :
HON'BLE MS. BINU TAMTA, MEMBER (JUDICIAL) HON'BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL) Date of Hearing: 09. 11.2023 Date of Decision: 30.1.2024 FINAL ORDER NO 50132-50137/2024 HEMAMBIKA R. PRIYA The present appeals have been filed by M/s Jugal Kishore Vanaspati Products (P) Ltd. (hereinafter referred to as appellant) to
2 E/54042/2018 assail the order in appeal no. 103-108(CKJ)/CE/UDR/2018 dated 26.2.2018 wherein the demand of excise duty amounting to Rs.28,33,318/- on Soap Stock arising during the manufacture of groundnut refined oil was confirmed for the period April 2006 to February 2015 along with interest and penalty.
2. The brief facts are that the party were engaged in oil refining falling under tariff item 15211090 of the First Schedule of the Central Excise tariff Act, 1985, and clearing gnad /soap stock without payment of Central Excise duty. The exemption available on these products vide Notification No. 115/75-CE dated 30.04.1975 was withdrawn by notification no. 21/2006 CE dated 1.3.2006. Consequent to the withdrawal of the exemption, the appellant was required to obtain Central Excise registration and pay Central Excise duty on clearances of these products during the impugned period. Accordingly, 6 show cause notices were issued to the appellant. The original Adjudicating Authority confirmed the demand of Central Excise duties along with interest denying the exemption under notification no. 89/95 CE dated 18.05.1995 as claimed by the appellant; penalty was also imposed under section 11 AC of the Central Excise Act, and under Rules 25 and 27 of the Central Excise Rules, 2002. Being aggrieved, the appellant filed an appeal before the Commissioner (Appeals). Vide the impugned order, the Commissioner extended the benefit of the Notification No. 89/95 CE dated 18.05.1995 by holding that the waste, paring and scrap i.e., spent earth, sludge as generated in the factory of the appellant during the manufacture of refined oil and sold in the 3 E/54042/2018 market are exempt from central excise duty. As regards Soap Stock, the Commissioner (Appeals) held that even after the withdrawal of the Notification no. 115/75-CE dated 30.04.1975, the appellant did not approach the Department for any clarification regarding the payment of duty on such excisable product and neither did he obtain any registration. Consequently, he held that the intent to evade duty on Soap Stock was established and confirmed the demand and the penalties.
3. The learned counsel for the appellant submitted that Soap Stock was not manufactured and for any product to be leviable to Central Excise duty, the same has to be manufactured. In order to constitute 'manufacture', the process of manufacture should be intentionally initiated with an object to produce specific goods. In present case, the appellant manufactured refined ground nut oil. The intention of the appellant was to initiate a manufacturing process which results into the production of refined edible oil. Residues arising during of the process of the intended product for which the manufacturing process was initiated was not covered. He relied on the chapter note 6 of Chapter 15 which elucidated as to what amounts to manufacture in relation to refined edible vegetable oils. He also referred to the chapter note 4 wherein the classification of Soap Stock, oil foots and dregs etc was indicated. He contended that as per chapter note 6, the process of refining, treatment, bleaching, deodorizing would amount to manufacture in relation to refined edible vegetable oils. He contended that the chapter note is not applicable to the goods of heading 1522 4 E/54042/2018 wherein Soap Stock was liable to be classified. Consequently, the process undertaken by the appellant in respect of manufacture of refined edible oil, as per the specific chapter note 6 would not amount to manufacture under section 2(f) of the Central Excise Act for the waste products as specified in CETH 1522 i.e., Soap Stock. The counsel relied on the decision of the Bombay High Court in the case of Indian Aluminium vs A.K. Bandyopadhyay [1980(6) ELT 146(Bom)] and affirmed by the Supreme Court wherein it was held has follows:
"24. The question that one must ask oneself is whether therefore dross and skimmings are "goods". lt may well be that dross and skimmings may be capable of fetching some sale price. For that matter any rubbish can be sold. But that is not the criterion. It cannot be said that dross and skimmings are the result of treatment, labour or manipulation whereby the end-product is dross and skimmings. They are merely the scum thrown out in the process of manufacture of aluminium sheets. Therefore,it cannot be said that dross and skimmings are transformation resulting in a new and different article with a distinctive name, character or use or that they ordinarily come to the market to be bought and sold and are known to the market. The article or goods manufactured from the aluminium ingots was not dross and skimmings but the aluminium sheets. It was the aluminium sheets therefore that were the end-product or the finished product and not the dross and skimmings which were merely the refuse or scum or rubbish thrown out in the course of the manufacture of the finished product, namely, the aluminium sheets. As stated earlier, in the affidavit-in-reply, there has throughout been a repeated emphasis that the dross and skimmings are a by-product and that the aluminium ingots were used by the Company in the manufacture of dross and skimmings........................................................................................
Refuse or scum thrown off during the process of manufacture cannot by any stretch of imagination be considered as a by-product and merely because such refuse or scum may fetch some price in the market does not justify it being clothed with the dignity of being called a by-product, much less an end-product or a finished product. The aluminium ingots were utilised by the Company for the manufacture o£ the end-product, namely,
5 E/54042/2018 aluminium sheets and certainly not for the manufacture of scum and refuse like dross and skimmings. Dross and skimmings cannot be called a finished by-product nor can it be said that out of the aluminium ingots it was dross and skimmings, in other words "ashes", that the Company manufactured. Furthermore, the fact that dross and skimmings are not excisable is borne out by the admissions contained in the affidavit-in-reply itself. What also cannot be lost sight of is that the third limb of the proviso refers to the use of the material received in the manufacture of the end-product, namely "the finished excisable goods." Hence the thrust of the manufacturing process must be the production of the finished product, namely, the aluminium sheets from the ingots. Aluminium ingots could by no stretch of imagination be considered to have been used by the Company for the manufacture of dross and skimmings but necessarily for the manufacture of aluminium sheets. Dross and skimmings cannot be said to be "finished excisable goods". Further, dross and skimmings were not exempted from the whole of the duty of excise nor were they chargeable to "nil" rate of duty."
4. The learned counsel also relied on the decision of Union of India vs Ahmedabad Electricity Co. Ltd [2003(158) ELT 3(SC)], Commissioner of Central Excise Vs [Indian Aluminium Co. Ltd [2006(203)ELT 3(SC)] and Union of India Vs DSCL Sugar Ltd [2015(322)ELT 769(SC)] to support his contention that Soap Stock emerging during the manufacturing of refined edible oil is not manufactured goods on which any manufacturing process has been carried out and therefore not leviable to Excise duty.
5. Learned counsel further contended that it is important to consider the classification of the product viz., Soap Stock before considering the issue of its excisability. The heading under which 'Soap Stock' was classified read as '1522: Degras Residues resulting from the treatment of Fatty Substances or Animal or 6 E/54042/2018 Vegetable Waxes'. He contended that the main product manufactured by the process of refining is refined edible oil. While processing, various residues such as soap stock, spent earth and sludge comes into existence. The dictionary meaning of Degras is the 'worst and the most useless part of something; the last drops in a container of liquid, containing small pieces of solid waste'. The meaning of the words used in the chapter note are of the same category of residue which are not of substantial use manufacturer, being the leftover goods having impurities and are intended to be discarded. Considering the principle of a ejusdem generis, the soap stock is in the nature of Degras and, therefore, covered under the notification no. 89/95 CE. He relied on the decision of the Larger Bench of the Tribunal in the case of Ricela Health Foods Ltd. Vs Commissioner [2018 (361) ELT 1049(LB-Tri)] held that unintended products arising during the course of refining edible oils are nothing but waste. This view, contended was affirmed by the Supreme Court in the case of Commissioner of Central Excise, Chandigarh vs Marico Ltd [2022(382) ELT 436(SC)].
6. The learned Authorised Representative for the Department submitted that products such as soap stock/Fatty Acids, waxes and gums are the products which are obtained in the course of manufacture of refined vegetable oil. Each of these byproducts has a name, characteristic and use, distinct from the raw material which is crude vegetable oil. Consequently, the argument of the appellant that by virtue of Chapter note 6 to Chapter 15 Refined Oil is to be treated manufactured product and not the byproducts 7 E/54042/2018 obtained in the course of refining edible oil. When a particular process of manufacture under section 2(f) is by virtue of a chapter note, not only the main product, but the byproducts obtained by that process would also have to be treated as manufactured product. Further, if such byproduct is covered by an entry in the Central Excise tariff and is marketable, the same would be chargeable to Central Excise duty. In support relied on the larger bench decision of the Tribunal in the case of Markfed Vanaspati & Allied Industry vs Commissioner of Central Excise, Chandigarh [2000(116)ELT 204(Tri)] held that by-product means something of value produced in the main product of a substance obtained, include specific process not a primary object, has held that spent earth arising in the course of refining oil, being of no value is not a new product/ byproduct. The learned AR distinguished some of the decisions relied upon by the learned counsel.
7. We have heard the learned Counsel and learned Authorised Representative. We note that the Larger Bench of this Tribunal in the case of M/s Ricela Health Foods Ltd vs Commissioner of Central Excise, Chandigarh [2018(361) ELT 1049(Tri.LB)] had considered the issue as to whether the fatty acids, Waxes and gum arising in the manufacture of refined vegetable oil are to be treated as 'WASTE' for the purpose of exemption under Notification No. 89/95 CE or otherwise. The Larger Bench held that it is clear that the value that the product may or may not fetch cannot be a determinative factor to decide whether the same as manufactured 8 E/54042/2018 final product/byproduct or a waste/refuse arising during the course of manufacture of final products. Relying on the judgement of the Apex Court in Commissioner of Central Excise vs Indian Aluminium Company [2006 (203) ELT 3(SC)], the larger bench held that removal of unwanted material resulting in products like gum, wax, and fatty acid cannot be called as process of manufacture of such items. As such, incidental products are nothing but waste arising during the course of refining of rice bran oil and on applying the ratio of the Apex Court, this cannot be considered as manufactured excisable goods. The relevant para is reproduced:-
"9. We have heard both the sides and perused the appeal record to examine the reference made by the Division Bench. Since the appellants submitted on the excisability itself the first point for decision is the excisability of the products, in question. The appellants strongly contended that even before examining the admissibility of exemption under Notification No. 89/95-C.E. the point to be decided is the excisability of the product, in question. It is the case of the appellant that if it can be established that these goods are not manufactured goods then the question of levy itself will not arise. It is contended that the product, in question, are unwanted/inevitable waste. The value realized by the appellants on such unintended waste by sale, itself is not a criteria to decide the excisability. The Hon'ble Supreme Court in CCE v. Indian Aluminium Company - 2006 (203) E.L.T. 3 (S.C.) held zinc dross and flux skimming are not exigible to central excise duty. Relying on the earlier decisions in Union of India v. Indian Aluminium Company Ltd. - 1995 (77) E.L.T. 268 (S.C.) and CCE, Patna v. Tata Iron & Steel Company Ltd. - 2004 (165) E.L.T. 386 (S.C.), the Apex Court held that the dross and skimming arising during the course of manufacture of metal cannot be subjected to excise levy only because it may have some saleable value, observing that the term "manufacture implies a change; every change, however, is not a manufacture". Every change of an article may be the result of treatment, labour and manipulation. The manufacture would imply something more. There must be a transformation; a new and different article must emerge 9 E/54042/2018 having a descriptive name, character or use (Delhi Cloth and General Mills Company Ltd. - AIR 1963 SC 791 = 1977 (1) E.L.T. (J199) (S.C.). The Apex Court categorically held that dross do not answers the description of "waste and scrap".
10. In view of the ratio adopted by the Apex Court while arriving at the above decisions, the point for consideration in the present dispute is the gums, waxes and fatty acid that emerge as a by-product can be considered as a product arising out of a manufacturing process. The appellants are engaged in converting crude rice bran oil into refined rice bran oil. In effect the processes undertaken by them are towards this intended final product. For producing refined rice bran oil, the gums and waxes available in the crude rice bran oil are to be removed by de-guming and de-waxing. Thereafter by a process of de-acidification/de-odourisation, by distillation the refined oil is obtained. In this final process fatty acid distillate (fatty acid with odour) is obtained as a waste. As can be seen the gums, waxes and fatty acid distillate are emerging due to removal/refining process of crude rice bran oil. As already noted the process is to obtain refined rice bran oil by removing these unwanted products along with spent earth, which when present makes the oil as crude refined oil.
11. The thrust of the arguments by the Revenue is that when a product is capable of being sold for a significant consideration the same cannot be considered as waste. We are unable to accept such summary presumption. Admittedly, in chemical and metallurgical industry when the raw materials are processed with an intended purpose of manufacturing certain final products by a chemical reaction, refining, melting etc. multiple products will result. These products either emerged in the final stage or any of the intermediating stages also. The point for consideration is whether these are to be considered as manufactured goods for excise levy based on the statutory definition for manufacture or should be considered as manufactured goods based on the likely value they may command while selling. We are clear that the value that a product may or may not fetch cannot be a determinative factor to decide whether the same is a manufactured final product/by-product or a waste/refuse arising during the course of manufacture of final products. This much is clear from the ratio of the Apex Court decision in Indian Aluminium Co. (supra). While no general guidelines can be laid down to decide when a product will be treated as a waste or a by-product, in the present set of facts the products under consideration are clearly not in the nature of by-products emerging during the course of manufacture. The process of manufacturing refined vegetable oil is essentially by removing the unwanted materials that were present in the crude vegetable oil so that a refined vegetable oil can be 10 E/54042/2018 obtained. In this process of refining, the unwanted materials are removed. Hence, we are of the considered view that the removal of unwanted materials resulting in products like gums, waxes and fatty acid with odour cannot be called as a process of manufacture of these gums, waxes and fatty acid with odour. The process of manufacture is for refined rice bran oil. As such, we note that these incidental products are nothing but waste arising during course of refining of rice bran oil and applying the ratio of Apex Court, as discussed above, these cannot be considered as manufactured excisable goods. Noting that the reference is to decide whether these are to be treated as waste for the purpose of exemption Notification No. 89/95-C.E. we note though the excisability of the product itself is seriously in dispute as per the opinion expressed by us, as above, these cannot be considered as anything other than waste and as such will be covered by the exemption Notification No. 89/95-C.E. This has been pleaded as an alternate argument by the appellant/assessee also."
8. We note that the ratio of the larger bench decision has been followed in several other decisions of the Tribunal viz., Sri Devi Oil Private Ltd., vs CCE, Salem [2018 (5) TMI 1117-CESTAT- Chennai], Marico Limited vs Commissioner, Chandigarh [2020(37) ELT 916(Tri-Chandigarh)] which has been upheld by the Supreme Court in appeal [2022(382) ELT 436(SC)].
9. In view of the settled position of law, we set aside the impugned order and allow the appeals.
(pronounced in the open court on 30.1.2024 ) (BINU TAMTA) MEMBER (JUDICIAL) (HEMAMBIKA R. PRIYA) MEMBER(TECHNICAL) ss