ORDER
K.L. Rekhi, Member (T)
1. The short point in dispute in this case is whether extra hardened rice bran oil continues to remain a vegetable oil classifiable under Item 12 of the Central Excise Tariff or it ceases to be so and becomes a different product classifiable under the residuary item 68 of the tariff.
2. Before we start the discussion, a word about the nature of the product would be helpful. Rice bran oil is extracted out of rice bran by solvent extraction method. After such extraction, rice bran oil obtained is in a liquid form. The appellants purchase rice bran oil from the market and process it. The process is reported to be as follows. The oil is heated to above 80C and the impurities are removed by adding oxalic acid and caustic lye. The purified oil is then bleached by heating it to 85C to 100C and then by treating with fullers earth. The processed oil is then hardened by passing it through hydrogen gas. During hydrogenation, the oil absorbs two atoms of hydrogen and the unsaturated Fatty Acid present in the oil becomes saturated. The oil is now in a semi-solid condition and its melting point has been raised to 45C or more. In the hardened state, the oil looks like vanaspati (or vegetable product, to use the Central Excise terminology) but there is a difference in the degree of hydrogenation of the two. The melting point of vanaspati, which is a commonly used cooking medium, does not exceed 37C while the melting point of hardened rice bran oil in dispute before us is between 45C–52C. At such high melting point, the oils are no longer edible by human-beings In order to differentiate between edible hydrogenated oils (vanaspati) and super hydrogenated vegetable oils, the latter are referred to as extra hardened oil or super hardened oil. The record before us shows that they are also known as “vegetable tallow” or ‘hard lump’ or ‘hardened technical oil’ or ‘Industrial hard oil’ or just ‘hardened oil’. This hardening of oil is necessary for soap making; otherwise, the soap, on coming into contact with water, is likely to become soggy. The appellants use the hardened oil for soap making within their factory. Besides its use in soap making, the extra hardened oil is also put to various other industrial uses, such as for application as grease.
3. The dispute started when the appellants filed their classification list No. 1/1979 containing the following entry at S. No. 3:
3. Rice Bran Oil-processed–in barrels–exempted-
*33/63-CE dated 1.3.1963 as amended (* Rule 56A procedure to be followed for outside despatches).
The Assistant Collector approved the classification under item 12 of the Central Excise Tariff (“Vegetable non-essential oils–all sorts…) with benefit of full exemption from duty under notification No. 33/63-CE dated 1.3.1963 as claimed by the appellants for soap making. The Collector, however, was tentatively of the opinion that the Assistant Collector’s order was not correct. In exercise of his power of revision under the then Section 35A of the Central Excises and Salt Act, 1944, the Collector called upon the appellants to show cause as to why the hardened oil should not be subjected to two-stage duty:
(1) On processed oil, just before hydrogenation, under item 12 (exemption for “Rice Bran Oil” being available here under notification No. 9/60-CE dated 20.2.1960); and
(2) On hydrogenated oil under item 68, and “assessable to duty accordingly”.
After hearing the appellants, the Collector passed the impugned order by which he confirmed the aforesaid two-stage levy. Being aggrieved by the Collector’s order, the appellants filed a revision application before the Central Government which, on transfer of the proceedings to this Tribunal, has been taken up as the subject appeal.
4. The matter was heard by a three member Special Bench. The said Bench observed that on the classification issue involved there had earlier been conflicting orders passed by different Benches of the Tribunal. In order to resolve the controversy, the said Bench recommended that a Larger Special Bench may be constitute to hear and dispose of the present appeal. Thereupon, the hon’ble President constituted the present Larger Special Bench. As soon as the proceedings commenced before us, we made it clear for the benefit of all the parties that the Bench would hear and dispose off the entire appeal and the proceedings would hear and dispose off the entire appeal and the proceedings would not be confined to any particular reference point.
5. The appellants as well as the respondent made a preliminary objection saying that there was no provision in the Act to constitute a larger Special Bench. The Bench observed that under the provisions then in force, a classification matter had to be decided by a Bench of not less than three Members and that there was nothing in the Act to prevent the Hon’ble President from constituting a Bench of more than three Members. The Bench also observed that the order of the hon’ble President constituting the present Larger Special Bench had been supplied to both sides. The parties did not press their point further. The appellants, however, desired that their objection may remain on the record because the issue regarding legal validity of Larger Special Benches was sub-judice before the Delhi High Court in another case.
6. The learned representative of the Department objected to the two interveners being heard. The interveners stated that though their appeals had already been decided by the Tribunal in their favour, yet they were vitally interested in the matter as, in the event of the decision of the Larger Special Bench going against the appellants, the departmental authorities were bound to take notice of it and change the assessment practice in the case of the interveners too. The Bench felt that there was force in the point made by the interveners, and in the interest of justice, decided to hear them.
7. Before the arguments started, the Bench observed that irrewpective of the fact whether extra hardened rice bran oil produced by the appellants was classified under item 12 or under item 68, it would remain fully exempt from dutyunder notification No. 33/63-CEdated 1.3.1963 under item 12, and under notification No. 118/75-CE dated 30.4.1975 under item 68. The learned representative of the Department also confirmed that after the impugned classification order by the Collector under item 68. The learned representative of the Department also confirmed that after the impugned classification order by the Collector under item 68, the appellants were given the benefit of exemption notification No. 118/75-CE dt. 30.4.1975 and that no duty was actually being charged on the product. However, the appellants as well as the interveners insisted that since the Larger Special Bench had been constituted, it should go ahead and decide the issue of classification and that the decision on the issue may be of use to those manufacturers of extra hardened oil who sold the product to other industrial users and soap makers etc. in the non-taxable sector since the latter would not be entitled to receive the proforma credit for the duty already paid on not be entitled to receive the proforma credit for the duty already paid on the extra hardened oil. The Bench decided to go ahead with the hearing.
8. The arguments put forth by the appellants were two-fold:
(1) Hydrogenation or hardening was a process in the course of soap manufacture facture of soap. The extra hardend oil came into existence during soap manufacture at an intermediary stage and such oil was not a new product by itself.
(2) Even if the extra hardened oil was considered as a new product, its character still remained that of oil. It was the same oil though in a hardened or semi-solid form. The form was not material as it only meant that by application of heat at 45C or more, it would again turn into liquid oil. As such, the oil, even in its hardened form, continued to remain under item 12 as it still was essentially oil only. The process of hydrogenation was intended to make the oil fit for soap making. Only that part of hydrogenated oil as was fit for human consumption fell under item 13 (vegetable product); the rest remained under item 12–“Vegetable non-essential oils, all sorts….
9. For their second proposition, the appellants relied on the Supreme Court’s judgments in case Tungabhadra Industries Ltd. Kurnool v. Commercial Tax Officer Kurnool and in case Champaklal H. Thakkar and Ors. v. State of Gujarat and Anr. AIR 1980 SC 1889. It had been held in both these cases that hydrogenated oil (Vanaspati) still remained oil. The appellants added that though the Gujarat High Court had held that Vegetable Tallow fell under item 68 of the C.E.T. 1980 ELT 435 (Gujarat)–1980 ECR 70D (Gujarat)-Navasari Oil Products Ltd. v. The Superintendent of Central Excise and Customs Navasari and Ors. this judgment was not binding on the Tribunal because the competing entries before the Gujarat High Court were items 13 and 68 only and item 12 of the tariff was never cited before the said High Court. They stated finally that the Department itself had now come round to the view that item 13 was inapplicable to extra hardened rice bran oil which was non-edible by human beings. They argued that item 13 was in the nature of a proviso to item 12–item 13 covered only those hydrogenated oils which were edible by human beings and all the rest of the Vegetable non-essential oils, whether hydrogenated, refined or otherwise, remained within item 12.
10. The interveners elaborated the second proposition of the appellants further. They argued that item 12 “Vegetable non-essential oils, all sorts,…” was a specific, exhaustive and all-pervasive entry and it continued to cover the extra hardened oil. They stated that the Supreme Court judgment in Tungabhadra Industries case supra, in which it was held that after hydrogenation into vanaspati, groundnut oil remained groundnut oil, was binding on the Tribunal. This judgment was given in the context of the Madras Sales Tax Act and Sales Tax Act was part materia with the Central Excises Act. The degree of hydrogenation or the melting point -37CC in the case of vanaspati and 45C-52C in the case of extra hardened oil, was not material ; it did not change the basic character of oil. It only meant that the extra hardened oil would require a greater amount of heat to turn it into liquid oil. Even going by the trade parlance test, the product would still qualify to be considered as oil. The interveners stressed in this connection that understanding of the persons who traded in extra hardened oil, and not the popular understanding or understanding of the common man, was relevant. The interveners maintained that the Gujarat High Court judgment in the Navasari case supra was non-est as it did not consider the earlier Supreme Court judgment in Tungabhadra case supra. Even otherwise, they argued, the Tribunal should not consider itself bound by the Gujarat High Court judgment as it related to two entries of the tariff–13 and 68 only-and item 12 of the tariff which is the principal issue before the Tribunal was never before the Gujarat High Court Reliance on AIR 1980 SC 1707. They invited our attention to the observation in paragraph 5 of the Gujarat High Court judgment reading “no other specific entry has been pointed out to us….” They stated that this was conclusive of the fact that item 12 of the Tariff was never cited before or considered by the Gujarat High Court.
11. The learned representative of the Department maintained that item 12 of the tariff covered vegetable oils in their natural state; treatment to remove impurities from the oil was permissible but not chemical alteration. He relied on technical literature to show that by the process of hydrogenation, the oil under went an intermolecular change and its iodine value also changed. It became a modified oil and a composite product or synthesised product on account of absorption of hydrogen atoms. Such modified oils (by hydrogenation) fell under item 13 if they were fit for human consumption, otherwise under the residuary item 68 He stated that vegetable tallow or extra hardened oil had been listed separately in the erstwhile Indian Customs Tariff as well as in the Customs Cooperation Council Nomenclature. It had been separately shown in technical books also. (He read from commercial price quotations from the Economic Times to show that prices of oils and vanaspati bad been listed but not that of vegetable tallow which, according to him, showed that the trade circles did not consider vegetable tallow as oil. He also took us to definitions of ‘oil’ in various other Acts and Rules, such as, Prevention of Food Adulteration Act and Rules, National Oil Seeds and Vegetable Oils Development Board Act, Vegetable Oil Product Control Order, the Export Control Policy book and the Indian Trade Classification, to make his point that “oil” as defined or referred to in these rules did not cover vegetable tallow. He maintained that these definitions and usages clearly showed the trade understanding that vegetable tallow or extra hardened oil was not oil. Coming to the Supreme Court judgment in Tungabhadra case supra, he argued that this judgment was under a different law (Sales-tax), it did not take into account entries 12, 13 and 68 of the Central Excise Tariff and it related to a different product–vanaspati–which was an edible product for human beings. The second judgment of the Supreme Court in Champaklal H. Thakker’s case supra was decided on the basis of dictionary meaning of ‘oil’ and the three points he made regarding the Tungabhadra case judgment applied to this judgment also. He urged, therefore, that the Tribunal need not feel bound by these Supreme Court judgments. He relied on the Gujarat High Court judgment in Navasari case supra and the recent judgment of the Bombay High Court reported at Indian Vegetable Products Ltd. v. Union of India and Ors. both of which had held that the exemption under notification No. 33/63-CE dated 1.3.1963 was not available to vegetable tallow.
12. We have given the matter our earnest consideration. All the parties before us admit that extra hardened rice bran oil or vegetable tallow is a commercially known product and is bought and sold. We are, therefore, not impressed by the first proposition of the appellants that it should be considered just an intermediary stage in the process of soap making. It is a marketable product. The question to be considered is its appropriate classification under the Central Excise Tariff.
13. All the parties are again unanimous in their view before us that item 13 which applies to hydrogenated vegetable oil fit for human consumption (vanaspati) is not applicable to extra hardened rice bran oil for the simple reason that the latter is inedible by human beings. The controversy before us is thus narrowed down to two entries in the Central Excise Tariff–12 & 68. There is also no dispute on the point that in case vegetable tallow or extra hardened rice bran oil is still considered an oil, it would continue to remain covered by item 12 as this item covers “Vegetable non-essential oils, all sorts…” while item 68 is a residuary one covering “All other goods, not elsewhere specified….” The material point to be considered, therefore, is whether extra hardened rice bran oil is oil or not. We do find an answer to this question in the Supreme Court’s judgment in Tungabhadra case supra. It was a judgment delivered by a Bench of five Supreme Court judges. It was, no doubt, on hydrogenated groundnut oil (vanaspati) and not on extra hardened groundnut oil. It was also under the Sales Tax Act and not under the Central Excises Act. But in spite of these differences, we feel that this judgment of the Supreme Court provides us guidance in deciding the point in dispute before us. The appellants and the interveners are right in saying that, in general, the Sales Tax Act and the Central Excises Act are part materia in the sense that both are commodity taxation Acts. In this judgment, the Supreme Court laid down the proposition that groundnut oil, on hydrogenation into vanaspati, remained groundnut oil. The Supreme Court, in coming to this conclusion, dealt with the arguments of physical and chemical change occurring in the oil after hydrogenation and held that in spite of these changes the basic character of the hydrogenated oil remained as that of oil. The point made by the learned representative of the Department that items 12, 13 and 68 of the Central Excise Tariff were not before the Supreme Court in this case, loses its relevance when we find that the verdict of the Supreme Court was not in the context of some peculiarity of the Sales Tax Act but was in general terms based on the nature of the product itself. The difference in the degree of hydrogenation and melting point (37C in the case of vanaspati and 45C-S2C in the case of extra hardened rice bran oil) also cannot make the Supreme Court’s conclusion inapplicable to the case before us. As rightly put by the interveners, this difference only means that while vanaspati would turn into liquid oil at 37C temperature, the extra hardened oil would require a little more of heat to become liquid. This difference of 8C does not mark any basic change in the character of vanaspati on the one hand and extra hardened vegetable oil on the other. We, therefore, hold that the ratio of the Supreme Court judgment in the Tungabhadra case supra is applicable to the point before us.
14. Even going by the ground rules for classification of excisable products subsequently enunciated by the Supreme Court in D.C.M. and other cases–trade parlance and name, character and use of the product, we find that the extra hardened rice bran oil continues to merit classification as oil under item 12 only. The question of character and use have been dealt with by the Supreme Court themselves in the Tungabhadra case judgment supra and their conclusion was that hydrogenation made no difference to the character and use of groundnut oil; it still remained oil and it could be put to all the uses to which non-hydrogenated groundnut oil was put. One could say that super-hydrogenation or extra hardening to 45C–52C would turn edible oils into non-edible ones and thus change the use of the oil. But the point is that the product before us–rice bran oil–was inedible (because of solvent extraction process employed) even before hydrogenation and it remains so even after hydrogenation. In other words, rice bran oil, whether hydrogenated or not, could be put only to industrial uses and no change in uses takes place on account of hydrogenation. That leaves the question of name of the product. But we find, as stated in paragraph 2 earlier, that there is nothing conclusive about the name of the product as those who deal in it call it by various names, such as, vegetable tallow, bard lump, hardened technical oil, industrial hard oil etc. The product is bought and sold under these various names. This understanding of the concerned trade shows that the extra hardened rice bran oil is not considered as something different or distinct from oil.
15. There could be various reasons why financial papers like the Economic Times did not quote the prices of extra hardened oil under the category of oils. It could be that extra hardened oil had a very limited market among better quality soap makers etc. and the newspaper did not consider it worthwhile reporting its daily price fluctuations. We do not think that it would be proper to draw any conclusion one way or the other just because a financial newspaper did not report the prices of extra hardened oil.
16. Reliance of the learned representative of the department on the definitions of ‘oil’ in various other Acts and Rules etc. is equally pointless. Those definitions are in a particular context and are designed to serve a (particular purpose. They cannot be, and are not, applicable universally.
17. So far as the High Court judgments are concerned, the question of Classification of extra hardened oil or vegetable tallow came up in the following three cases:
(1) Before the Gujarat High Court in Navasari case supra.
(2) Before the Bombay High Court in Indian Vegetable Product case supra.
(3) Before the Andhra Pradesh High Court in the case of B. Rajendra Oil Mills and Refineries v. Union of India and Ors. .
In the Navasari case, the discussion before the Gujarat High Court remained confined to items 13 and 68. Item 12 does not appear to have been referred to at all. This is evident from the observation made by the High Court in paragraph 5 of their judgment: “No other specific entry, has been pointed out to us to show that duty will be leviable thereunder on super hardened oils produced by the petitioner.” This judgment, therefore, does not help us in deciding on the choice between items 12 & 68. In the Indian Vegetable Product’s case, the petitioners themselves had been pleading throughout that hardened oil was classifiable under item 13. At a late stage before the Bombay High Court, they wanted to switch over to item 12. The High Court did not permit it. This case also, therefore, does not help us. In the third case, relating to M/s. B. Rajindra Oil Mills and Refinery, the Department’s show cause notice proposed to assess hardened oil under item 12. However, the adjudication order passed in the case gave up that ground and instead the order directed assessment of clarified oil (pre-hydrogenation stage) as processed (bleached) oil. The Andhra Pradesh High Court upheld this order. We were told during the hearing that the High Court’s order later got confirmed when the Supreme Court dismissed the Special Leave Petition filed against the High Court’s order. However, it is quite evident that the proceedings before the Andhra Pradesh High Court did not decide the classification of hardened oil as such but of clarified oil which was a stage prior to hardening or hydrogenation. This judgment also cannot, therefore, assist us in resolving the controversy before us.
18. So far as the Tribunal’s orders as concerned, we notice that the following two cases proceeded on the authority of the Supreme Court’s judgment in Tungabhadra case:
(1) 1984 (18) ELT (Tribunal) : 1984 ECR 1975 Cegat Collector of Central Excise, Guntur v. Jayalakshmi Cotton and Oil Product Pvt. Ltd., Andhra Pradesh.
(2) Cegat Vital Oil Pvt. Ltd. v. Collector of Central Excise, Bombay.
We have already said earlier that in our view the ratio of the Supreme Court judgment is binding on us in deciding the matter placed before us. We agree with the aforesaid two orders of the Tribunal which follow the same reasoning.
19. To sun up, we hold that extra hardened rice bran oil continues to remain a vegetable oil classifiable under item 12 of the Central Excise Tariff. Accordingly, we allow this appeal, set aside the impugned order-in-review of the Collector and restore the order-in-original of the Assistant Collector.
Sd/- V.T. Raghavachari Sd/- H.B. Syiem Sd/- S.D. Jha
Member (Judicial) Member (Technical) Vice President (Jud.)
Sd/- G. Sankaran Sd/- K.L. Rekhi
Vice President (Tech.) Member (Technical)
Per Shri S.D. Jha, V.P. (J)
I would like to qualify my concurrence in the decision in the following words.
In Veg Oils Ltd., Bombay v. Collector of Central Excise Bombay-II (1983 ELT 1822) the Tribunal followed the decision of the Gujarat High Court in Navasari Oil Products Ltd.’s case (1980 ELT 435) and approved the decision of Government of India in Hindustan Lever Ltd.’s case 1981 ECR 139D (GOI). The Gujarat High Court decision was sought to be distinguished on the ground that it had not considered item 12 now claimed by the manufacturers as one of the competing items. It might be stated that the Government of India decision which was approved and its findings incorporated in the Tribunal decision held that “in the trade hardened oils with melting point above 45 degree C would be recognised as a commodity distinct from vegetable oil…the impugned goods have a distinct name, character and use”. While the Government of India decision would not be a judicial precedent it could certainly be read as evidence of trade understanding. No attempt was made by the manufacturers to challenge this finding incorporated in the Tribunal’s decision. The broader question, therefore, whether in every case VNE oil which after extra hardening has different name, character and use would merit classification under the same item as VNE oil i.e., Tariff Item 12 should remain open.
I however, agree with the conclusion in the present case that inedible rice bran oil falling under Tariff Item 12 would even after extra hardening continue to fall under Tariff Item 12 and not fall under Tariff Item 68.
Sd/- S.D. Jha
Vice President (J)