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1. The appellant herein M/s Gujarat Ambuja Exports Ltd. is, inter alia, engaged in the business of solvent extraction of oil seeds, refining and processing of oils including crude palm oil and manufacturing of fatty acids.

For the manufacture of industrial fatty acids, the appellants are entitled to import crude palm oil at concessional rate of duty in terms of import of goods at concessional rate of duty for manufacture of industrial fatty acids read with Notification No. 21/2002-Cus dt. 1.3.2002 and Notification No. 66/2004-Cus dt.9.7.2004. During the period involved in the present appeal, they got themselves registered with the customs and imported crude palm oil at concessional rate.

2. Based upon intelligence that the said imported crude palm oil was not being used by the appellant for manufacture of industrial fatty acid i.e. the declared product but the same was being used for the purposes of edible products like refined oil/vegetable products, their factory was visited by DRI officers, who conducted various checks and verifications and scrutinized the records. Statements of various persons were also recorded.

3. As a result of the investigations made, appellant were issued a show cause notice dt.24.3.03 alleging that 84,35,816 MT of crude palm oil (industrial grade) imported by them at concessional rate of duty in terms of the Notification No. 21/2002-Cus was not entitled to the benefit in as much as the same has been issued for the purposes other than for which exemption was availed by them. In other words, the Revenue alleged that the said imported crude palm oil has been used for manufacture of palm fatty acid distillate (hereinafter referred to as PFAD) which cannot be held to be industrial fatty acid for the manufacture of which they were not having any facility for manufacture of industrial fatty acid. It was also alleged that they have used distillation process on the said imported crude palm oil / vanaspati and which has resulted in emergence of refined palm oil to the extent of 75% and by product, palm fatty acid distillate, to the extent of 25%, which product cannot be considered as industrial fatty acid. As such, the benefit of notification 21/20-02-Cus, which prescribed concessional rate of duty to imported crude palm oil subject to the condition that the same was used for manufacture of industrial fatty acid, was alleged to be wrongly availed by the appellant. Accordingly, notice proposed to recover differential duty of Rs. 7,89,89,868/- (Rupees Seven Crores, Eighty Nine Lakhs, Eighty Nine Thousands, Eight Hundred and Sixty Eight only) along with confirmation of interest and imposition of penalty.

1. Starting material Industrial grade palm oil is not used entirely for non-edible purposes.
2. Refining of non-edible oil (industrial grade palm oil) to produce edible oils is not allowed under PFA Act, 1954.
3. Sample u/r is not produced by industrial/non-edible processing of oil.
4. Sample u/r palm fatty acid distillate is a by-product in refining of non-edible oil.
5. Sample is other than palm fatty acid/fatty acid distilled as it is not obtained by process mentioned in IS 12067:1987, HSN Explanatory Notes, Bailey or other reference.

9. MP As against the above evidences relied upon by the Revenue, to conclude that PFAD cannot be considered as industrial fatty acid, applicant has strongly contended that the PFAD is nothing but fatty acid. It has been explained to us that the expression "palm" has been used because fatty acid is of palm oil and the expression "distillate" has been used because such fatty acid has been obtained by the process of distillation. As such, Shri Nankani submits that the palm fatty acid distillate is nothing but fatty acid. He submits that the HSN explanatory note to Heading 38.23 clearly support the appellant's contention that PFAD is nothing but fatty acid. The said note expressly covers fatty acid distillate obtained from fat and oil and which has been subjected to vacuum distillation in presence of steam as part of the refining process. Shri Nankani also submits that they have been clearing the palm fatty acid distillate on payment of duty of excise under heading 38.23, which covers fatty acid and no objection was ever raised by the Revenue for classification of the said production under Chapter Heading 38.23. As such, he submits that when the duty of Central Excise on PFAD under Heading 38.23 was not disputed by the Revenue for the purposes of payment of Central Excise duty; it is not open to them to contend to the contrary that PFAD is not industrial fatty acid. It has also been contended before us that Notification does not refer to any particular method or manufacture of industrial fatty acid and the Revenue's objection to the use of method of distillation to support their case that industrial fatty acid was not manufactured by them or resultant PFAD is not industrial fatty acid, is neither proper nor important. Reliance has been placed upon the various decisions of the Tribunal.