Customs, Excise and Gold Tribunal - Bangalore
Synthite Industrial Chemicals Ltd. vs Commissioner Of Central Excise on 7 June, 2002
Equivalent citations: 2002(84)ECC614, 2002ECR818(TRI.-BANGALORE)
ORDER G.A. Brahma Deva, Member (J)
1. This appeal arises out of and is directed against the Order-in-Original No. 2/2001 dated 31.1.2001 passed by the Commissioner of Central Excise and Customs, Cochin.
2. The facts of the case in brief are as follows:
The appellants are engaged in the manufacture of Spice Oils, Oleoresins Sandal Wood Oil etc. falling under Chapter Heading No. 3301 of Central Excise Tariff Act, 1985. The goods manufactured by the assessee are being cleared for export and domestic purpose without demand of duty as being exempted products under Notification No. 115/75 dated 30.4.75. Notification No. 115/75 C.E. dated 30.4.75 inter alia exempts goods manufactured in the solvent extraction industry. The assessee was clearing their products for home consumption on payment of Central Excise duty at the appropriate rate till 31.7.99 despite the above exemption notification. But they discontinued payment of duty from 1.8.99, claimed exemption under Notification 115/75 dt. 30.4.75 as amended based on the judgment of the Supreme Court in the case of M/s. Bombay Oil Industries v. Commissioner of Central Excise, Cochin . The department was of the view in the case of Bombay Oil Industries Ltd., that the exemption would only be available in the case of Oil Milling Industry-also doing the solvent extraction process. This was however, finally resolved by the Supreme Court by it's judgment (supra) holding that the products of the solvent extraction industry are independently exempt.
3. In the instant case, on scrutiny of the declaration filed under 173B with effect from 1.8.99 claiming duty exemption, the department was of the view that the goods shown as item No. II in the declaration i.e. Sandal Wood Oil falling under tariff sub-heading No. 3301.00 manufactured by steam distillation process did not come under the purview of exemption granted under Notification No. 115/75 CE dt. 30.4.75 as amended under which are eligible for duty free clearance was extended to only oils of different spices and oleoresins manufactured in oil mills and solvent extraction plants. The Department was also of the view that the assessee has mis-declared the items Sandal Wood Oil in their 173 B Declaration as one of the exempted products suppressing by reason of fraud and willful mis-statement of facts with intention to evade payment of duty the fact the product in question is steam distilled products and thus manufactured and cleared for home consumption without payment of duty for the period 1.8.99 to 8.7.2000. Accordingly Show-cause notice was issued raising the demand of Rs. 38,35,280 and proposed to take penal action. Show-cause notice was duly answered by the party. The Commissioner who adjudicated the matter held that in the manufacture of sandal wood oil raw-sandal wood is ground to the required size, the powder is led into kettles and subjected to steam distillation to recover the oil. It is, therefore, quite obvious that sandal wood oil cannot be manufactured in oil mill nor can this oil be manufactured in a solvent extraction plant by employing solvent extraction process. He held that sandal wood oil is neither a product of oil mill nor that of solvent extraction industry. He concluded that when a product is manufactured by steam distillation process in a factory, the same cannot be treated as a manufacture in factories covered by oil mill or solvent extraction industry. Accordingly he confirmed a demand of Rs. 38,35.280 under Section 11A(2) of the Central Excise Act read with first proviso to Section 11A(1) of the Act. He also imposed equivalent penalty under Section 11AC of the Central Excise Act in addition to Rs. 2,00,000 under Rule 173(Q) of Central Excise Rules. He also ordered for payment of interest as applicable on the duty confirmed under Section 11AB of the Central Excise Act.
4. Shri Thomas Vellapally learned Senior Advocate appearing for the appellants submitted that short point to be considered in this case is whether Sandal Wood Oil manufactured by employing the steam distillation process at the appellant's solvent extraction plant is eligible to the benefit or not in terms of Exemption Notification 115/75 dated 30.4.75 as amended. He explained the process of manufacture referring to the flow chart to show the different stages in the manufacture of Sandal Wood Oil (essential Oil) and Oleoresin at the appellant's solvent extraction plant. The relevant flow chart is as follows:
RAW MATERIAL STORAGE | GRINDING |
--------Oil------------------ STEAM DISTILLATION | | | | DRYING & GRINDING | | | | Extract DEOILED SPICE | | | | DESOLVENTISATION -------------- SOLVENT EXTRACTION | | | | PRODUCT SPENT APICE | | BLENDING WITH OIL | QUALITY CONTROL | PACKING & FORWARDING Referring to the chart, he said that up to the stage of steam distillation, the manufacturing process is one and the same for both essential oils and oleoresin. In so far as Essential oils including Sandal Wood Oil are concerned the process stops with the steam distillation. The deoiled material is left over in the kettle after steam distillation and, thereafter, used to manufacture oleoresin. He said, therefore, sandal wood oil is manufactured in the first stage of the process for the manufacture of oleoresin in the solvent extraction plant.
Relevant Notification 115/75-CE dt. 30.4.75 as amended is as follows:
Exemption to products of various specified industries: In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules 1944, the Central Government hereby exempts goods (other than fixed vegetable oils of heading No. 15.03 and vegetable fats and oils of heading No. 15.04) falling under the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), and manufactured in factories covered by any of the industries specified in the Schedule hereto annexed from the whole of the duty of excise leviable thereon. THE SCHEDULE
1. Coir Industry
2. Cashew Industry
3. Tanning Industry
4. Oil Mill and Solvent Extraction Industry
5. Rice Milling Industry"
5. Referring to the notification, he said that notification exempts goods other than those mentioned in the notification, provided that the goods are manufactured in factories covered by the Industries specified in the Schedule. He said that notification does not exempt goods as such but it exempts goods manufactured by the specified Industry. In fact the Department itself took the stand that the goods manufactured by the appellant were exempted in terms of Notification 115/75 in view of the decision of the Apex Court in the case of Bombay Oil Industries (supra) and Modvat credit taken on exempted goods should be reversed as per Order dated 31.10.2000 for the period prior to the period covered under this appeal. Following the decision of the Apex Court, the Tribunal held Soap Stock obtained as by-product by treating oil which has been produced by milling or solvent extraction method is eligible for benefit of Notification No. 115/75 . Similarly, it was held in the case of Coir Cushions (P) Ltd., v. Collector of Central Excise, Meerut that latex mix manufactured by Coir Industry is entitled to exemption under Notification 115/75 by virtue of the language of the notification. These views were upheld by the Supreme Court while dismissing the appeal filed by the Department as reported under Court Room High Lights in 115 ELT A 75 and 134 ELT A 242 respectively.
6. Shri Thomas Vellapally further contended that apart from the merits of the case major portion of the demand was barred by time since show cause notice was issued on 19.7.2000 for the period 1.8.99 to 8.7.2000. He said that Declaration was duly filed in respect of sandal wood oil claiming exemption therein in terms of Notification No. 115/75 and irrespective of the merits. Claiming exemption cannot be said to be a suppression of facts with intention to evade payment of duty to invoke longer period and to impose penalty.
7. Smt. Radha Arun learned DR justified the action of the Commissioner in denying the benefit of exemption in terms of Notification 115/75-CE and specifically referred to the finding "where a product is manufactured by steam distillation process in a factory, the same cannot be treated as manufactured in factories covered by oil mill or solvent extraction industry."
8. We have carefully considered the submissions made by both sides and perused the records. The Commissioner has denied the exemption in respect of the goods shown as item No. II in the Declaration i.e. Sandal Wood Oil falling under Tariff sub-heading No. 3301.00. According to him since sandal wood oil was manufactured by steam distillation process it did not come under purview of exemption granted under Notification No. 115/75 CE dated 30.4.75 as amended under which the eligibility for duty free clearance was extended to only oils of different spices and oleoresins manufactured in oil mills and solvent extraction plants. We do not find any such restrictions with reference to the process of manufacture while extending the benefit of exemption notification except goods other than items falling under headings 15.03 and 15.04 provided the goods are manufactured in the factory covered by industries specified in the schedule. Admittedly the appellant is a solvent extraction industry and sandal wood oil was manufactured by them. The Department earlier was of the view that the exemption would only be available in the case of Oil Mill Industry also doing the solvent extraction process. This was however finally resolved by the Supreme Court in the case of Bombay Oil Industries holding that the products of solvent extract industry are independently exempt. It was clearly held therein that the notification exempts goods manufactured in factories of the oil mill and the solvent extraction industry. The appellants goods are goods manufactured in a solvent extraction plant and must on the plain words of the notification receive the benefit of the exemption that it confers. While holding it was observed plain words of the exemption notification not to be given narrower meaning than that to which they plainly lend themselves. In view of this observation and in the facts and circumstances it is difficult to hold when a product is manufactured by steam distillation process in a factory, the same cannot be treated as manufactured in factory covered by Solvent extraction Industry. In this context the observation made by the Tribunal in the case of Godrej Foods Ltd. (supra) is also relevant and the same is as under:
However, appellant's factory was not so licensed. It was licensed as a single unit. This line in the subsequent trade notice does not, in our view, have the effect of negating the clear and unambiguous view given in the trade notice to soap stock. The question as to whether the notification would be available only to refiner is difficult to answer in the manner in which the first Trade Notice of 21/79 has been worded, it could be argued that it is not available. However, we need not enter into this controversy. The wording of this trade notice clearly extends the benefit to soap stocks obtained as a result of the treatment of oil which has been produced by milling or solvent extraction method. Even apart from the contents of the trade notice, it is difficult to hold that merely because a factory undertakes processes downstream to the extraction of oil and its refining, it ceases to be one in the oil mill or solvent extraction industry. That argument may perhaps be valid for such factory which only undertakes such downstream processes. If in the premises of he same factory oil is extracted and refined and the refined oil is hydrogenated, it would be unreasonable to seek to divide a portion of the factory into one which form part of the solvent extracting industry and another which does not. Such a factory would very much be within the oil mill or solvent extraction industry as the case may be and the benefit of the notification available.
9. In view of the foregoing conclusion, we do not find any justification in denying the benefit of exemption in terms of Notification 115/75 to the Sandalwood oil manufactured by employing the steam distillation process at the appellant's solvent extraction plant. Since the appellants succeed on merits we do not feel it necessary to go in to other issues including time bar issue raised by the appellant's counsel during the course of hearing the appeal. In the result appeal is allowed with consequential relief, if any.