ORDER
Jyoti Balasundaram, Member (J)
1. Before taking up the appeals for hearing, miscellaneous application for raising additional ground was taken up. The applicants/appellants seek to raise the following additional grounds in E/2694/87-C:
The appellants submit that the demand amounting to Rs. 1,38,929.85 raised in the Revised show cause notice OC No. 252/86 dated 31.1.1986 for the period from 1.3.1984 to 31.8.1984 and confirmed and upheld respectively in the order-in-original No. 8/86 dated 10.4.1986 and order-in-ap-peal 85 to 88/87(G) dated 30.6.1987 should be set aside inter alia for the reasons:
(a) Firstly that the adjudication without jurisdiction, inasmuch as the provisions of Section 8 of the Central Excises and Salt (Amendment) Act of 1985 made effective from 27.12.1985 required that all proceedings immediately before that date under proviso to Sub-section (i) of Section 11(A) of the Principal Act which is pending before the Assistant Collector and any matter arising out of or connected with such proceedings which is so pending stood transfer to the Collector of Central Excise. Therefore, the de novo adjudication proceedings could have been initiated only by the Collector of Central Excise. Guntur, and only the said Collector had jurisdiction to issue the purported “Review show cause notice” dated 31.1.1986, in the de novo adjudication proceedings. The issue of the Revised show cause notice by the Superintendent of Central Excise, Guntur and the adjudication thereon by the Assistant Collector of Central Excise, Guntur are, therefore, illegal and the demand made pursuant to the illegal proceedings should be set aside.
(b) Furthermore, even otherwise the demand proceedings is bared by limitation under Section 11A(1) of the Central Excises and Salt Act 1944. The appellants submit that the longer period of limitation as in proviso to the aforesaid sub-section has no application to the facts of the case inasmuch as it has not been established that there was any wilful mis-statement or suppression of fact, or contravention of any of the provisions of the Act or of the rules made thereunder with intent to evade payment of duty by the appellants.
2. The learned DR has no objection to the application being allowed as the grounds are purely legal in nature.
3. We agree. We, therefore, allow the miscellaneous application.
4. The appellants herein have challenged the levy of cess on cotton seed oils produced by them by the solvent extraction and expeller methods. As all the appeals involve a common issue they were heard together and are being disposed of by this common order. The dispute regarding levy of cess on oil extracted by solvent extraction process is no longer alive in view of the judgment of the High Court of Bombay in the case of Bhasir Oil Mills v. Union of India wherein the Court has held that oil extracted from oil cakes only by solvent extraction process is not “vegetable oil” but a distinct commercial commodity and, therefore, no cess can be levied upon the same under Section 3 of the Cess Act as it is not covered by the definition of the expression “Vegetable Oil” given in Section 3(h) of the Board Act. Therefore, the main issue which survives for determination is whether cotton-seed oils extracted by expeller method is a “vegetable oil”.
5. The appellants company is a cottonseed processing complex having an oil mill, solvent extraction plant and refinery which produces cotton-seed oils by expeller method and solvent extraction method. The Vegetable Oils/Cess Act 1983 (Act No. 30/83) was brought into force from 1.1.1984. It provided for the levy and collection of cess on vegetable oils for the development of the oil seeds industries and vegetable oil industries and matters connected therewith. Section 3 which is the charging section reads as follows:
There shall be levied and collected by way of cess for the purposes of the National Oilseeds and Vegetable Oils Development Board Act, 1983 a duty of excise on vegetable oils produced in any mill in India at such rate not exceeding five rupees per quintal of vegetable oil, as the Central Government may from time to time, specify by notification in the Official Gazette.
6. Section 2 of the Act which defines certain terms used in the Act does not define Vegetable Oil. Sub-section 2 of the Section 2 provides that the words and expressions used but not defined in the Act and defined in the National Oilseeds and Vegetable Oils Development Board Act, 1983 (Act 29 of 1983) shall have the meanings respectively assigned to them in that Act. The expression “Vegetable Oil” has been defined in Section 3(h) of Act 29 of 1983 which is as follows:
Vegetable oil means any oil produced from oilseeds, or any other oil bearing material of plant origin, and containing glycerides but does not include any such vegetable oil which has been subjected to any processing subsequent to the recovery of oil.
7. The contention of the appellants is that according to the definition of the expression “vegetable oil”, oil produced shall be from (i) oil seeds (ii) any other oil bearing material of plant origin. The words “but does not include any such vegetable oil which has been subjected to any processing subsequent to the recovery of oil” are conjunctive to the main part of the definition and, therefore, the definition of vegetable oil expressly provides for statutory exclusion or exemption of vegetable oil recovered but subjected to any processing subsequent to recovery and thus finally produced, from the liability to cess. The earned Counsel seeks to make a distinction between oils recovered and oils produced and, therefore, contends that cess is not payable on cottonseed crude oil which is not edible in crude form, as Section 3 of the Vegetable Oil Cess Act levies cess only on vegetable oils produced and not vegetable oils recovered. This contention cannot be accepted as the National Oil Seeds and Vegetable Oils Development Board Act, 1983 covers all vegetable oils produced from oil seeds or any other oil bearing material of plant origin and is not restricted to edible vegetable oil. There is no scope for interpretation of the words “produced” and “recovered” so as to exclude from the purview of the Act, oil which is not ready for human consumption. Refined oil is excluded and, therefore, whenever any processing is required to be carried out by reason of which the oil can be extracted, the intention seems to be that such oil (processed oil) should not be covered by the definition of the word “vegetable oil” under Section 3(h) of the Board Act. The conjunction “but” used in the definition is not to exclude all oils which require further processing but only excludes those oils which have been processed further. If the interpretation sought to be given by the appellants is accepted, it would amount to excluding both raw oil and processed oil which is contrary to the definitions under Section 3(h) of the Board Act.
8. The proviso to Rule 9 of Central Excise Rules regarding exemption for captive consumption is also not applicable to the facts of this case in view of the condition laid down therein that the final product should not be exempt from payment of duty.
9. The decision of the Tribunal in the case of Jayalakshmi Cotton and Oil Products (P) Ltd. v. Collector of Central Excise applies on all fours to this case. We see no reason to differ from the same. We, therefore, uphold the impugned order in so far as it relates to the levy of cess on cotton-seed oil extracted by expeller method.
10. The additional issue to be decided in E/2694/87-C is the validity of the demand of Rs. 1,38,929.85 paise raised in the revised show cause notice dated 31.1.1986 (which arose as a result of the remand directions by the Collector of Central Excise (Appeals), Madras contained in his order of 27.12.1985) for the period 1.3.1984 to 31.8.1984 and confirmed in the order in original dated 9.4.1986 and order-in-appeal dated 30.6.1987. The learned Counsel’s contention is that the show cause notice of 31.1.1986 is without jurisdiction as it has been issued by the Superintendent of Central Excise (adjudicated upon by the Assistant Collector) when the Central Excises and Salt Act had been amended and in terms of the provisions of Section 8 of the Central Excises and Salt Amendment Act of 1985 made effective from 27.12.1985, all proceedings before that date under proviso to Sub-section 1 of Section 11A which is pending before the Assistant Collector and any matter arising out of or connected with such proceedings which are so pending stood transferred to the Collector of Central Excise (emphasis supplied). He, therefore, contends that de navo adjudication proceedings which originated by the issue of show cause notice dated 31.1.1986 could have been initiated by the Collector of Central Excise who alone had the jurisdiction to issue the revised show cause notice dated 31.1.1986. In support of his contention the earned Counsel cited the decisions of the Punjab and Haryana High Court in the case of Ravi Engineering Works v. Union of India reported wherein the High Court held that the demand is to be governed by law as it existed at the time of issue of demand notice. He also relied upon the decision of the Tribunal in Woodcrafts v. Collector of Central Excise wherein it was held that for a show cause notice for recovery of duty credit irregularly taken issued after six months, after 27.12.1985, it is the Collector and not the Assistant Collector who is competent to adjudicate cases involving extended period of limitation. The learned Jt. CDR submits that on 27.12.1985 which is the crucial date for the purpose of determination of this issue, there were no proceedings pending before the Assistant Collector and, therefore, nothing remained to be transferred under Section 8 of the Central Excises and Salt Amendment Act of 1985 and therefore, the show cause notice was validly issued by the Superintendent who was merely carrying out the remand directions of the Collector’s order dated 27.12.1985. He cited the decision of the Allahabad High Court in the case of Jeep Industrial Syndicate Ltd. v. Assistant Collector of Central Excise to the effect that the Assistant Collector is required to comply with the directions of the Appellate Collector as an authority subordinate to the Appellate Collector it was not competent to him to take a different view and so long as the order of the Appellate Collector is not set aside by any Court or Superior authority the Assistant Collector had no option but to follow the directions issued by the Appellate Collector even if contrary to the law declared by the Supreme Court.
11. The decision of the Allahabad High Court in our opinion does not help the Department. The Court therein was dealing with a situation where the Appellate Collector had granted the benefit in respect of a period of 3 years from the date of finalisation of respective assessments and the Court held that it was not competent for the Assistant Collector to take a different view and hold that in view of the Supreme Court’s decision in the Bombay Tyre International case, the refund claim of the petitioner on account of post manufacturing elements was not admissible in law. In the appeal before us the situation is entirely different. There is a change in the Statute by which the authority to issue the show cause notice in respect of recovery extending beyond the normal period of limitation has been vested in the Collector who alone is the competent officer to issue such show cause notices, after 27.12.1985. In a recent decision of the Tribunal in the case of Woodpaper Ltd. v. Collector of Central Excise the view has been taken that the act of issuing show cause notice by the Superintendent after amendment of Section 11A by Act No. 79 of 1985 is a nullity and the proceedings arising from such a notice is void ab initio. The notice in that case was signed by the Superintendent on 26.12.1985 on which date the amendment had not come into effect. The show cause notice had not been despatched on 26.12.1985. On 27.12.1985 the show cause notice could still be withdrawn and reissued by the Collector on who the power had been vested in the amended Section 11A. Admittedly in this case, the show cause notice has been issued only after the amendment has come into effect. As on the date of issue of the show cause notice the Superintendent had no power or jurisdiction to issue the show cause notice. The Tribunal further held that in the case of Section 11A of the Central Excises and Salt Act the requirement is service of notice within the prescribed period of limitation and notice giving authority should be the authority specified by the Section which, in cases of invocation of the extended period of limitation, is the Collector of Central Excise. The ratio of the decision supra applies on all fours to the facts of this case. Following the ratio of the said decision in the above mentioned case, we hold that the demand of Rs. 1,38,929.85 is not sustainable and requires to be set aside.
12. The appeals are disposed of in the above terms.
Dt. 15.11.1991 Sd/- (Jyoti Balasundaram)
Judicial Member
S.K. Bhatnagar, Vice-President--With due respects to learned Member (J) my opinion and orders in the matter are as follows:
1. I observe that Cess was leviable on vegetable oils produced in any mill in India in term of Section 3 of the Vegetable Oils Cess Act, 1983; And a question has arisen as to what constitutes "vegetable oil" for the purpose of this Cess.
2. In this connection our attention has been drawn to the definition of 'Vegetable Oil' incorporated in Section 3(h) of National Oil Seeds and Vegetable Oils Development Board Act, 1983 (in view of Section 2(2) of the Vegetable Oils Cess Act, 1983).
3. It has been argued before us that since as per this definition vegetable oils "does not include any such vegetable oil which has been subjected to any processing subsequent to recovery of oil" therefore, it was required to be adjudged whether the appellant's product was a vegetable oil in terms of this definition.
4. It has been submitted in this connection that the appellant produces cotton seed oil by a continuous process of a close circuit type which is not susceptible to measurement at any stage except the final one i.e. the stage at which the processed oil is obtained.
5. It has also been argued that only oil recovered from the oil seeds or other plant parts could be considered as a vegetable oil and not the cotton seed oil extracted by solvent extraction method from the cotton seed oil cakes. And in this connection reliance has been placed on the Judgment of Hon'ble Bombay High Court in the case of Bhasir Oil Mills .
6. The learned Counsel has basically contended that the appellant's product being processed oil was in any eventuality not a vegetable oil in terms of the prescribed definition and therefore, was not leviable to Cess.
7. The learned Advocate has also sought to distinguish between production, recovery and processing of oil in this context.
8. It was therefore, necessary to go through the technical aspects before arriving at any decision.
9. A perusal of well recognised books on the subject, such as Encyclopaedia of Chemical Technology (3rd Edition) by Kirk and Othmer and Bailey's Industrial Oil and Fat Products (4th Edition) by Daniel Swern shows that manufacture or production of vegetable oil basically includes:
(1) Recovery of Oil from the oil bearing material by extraction of oils and fats; and
(2) further processing of the crude oil so recovered by refining, degumming and bleaching etc.
10. According to Bailey, “the separation of oils and fats (1) from oil-bearing animal and vegetable materials constitutes a distinct and specialized branch of fat technology. The widely differing characteristics of fatty materials from diverse sources have given rise to extraction processes, such as rendering, pressing, and solvent extraction.
11. “Vegetable materials, and in particular some of the oil seeds, contain a large proportion of solid material associated with the oil. Here, careful reduction of the material, followed by heat treatment and the application of heavy pressure, is required to obtain an efficient separation of the oil from the solids.
12. As per Bailey’s ‘Industrial Oil and Fat Products’, the extraction of fats and oils includes (1) Mechanical Pre-treatment (2) Heat Treatment of Oil Bearing Materials (3) Rendering of Animal Fats (4) Cooking of Oil Seeds (5) Mechanical Expression of Oil (6) Centrifugal Expression (7) Solvent Extraction.
13. The Mechanical Pre-treatment includes ‘Preparation of Oil Seeds’ by (a) Cleaning (b) Dehulling and Separation of Hulls (c) Reduction of Oil Seeds’.
14. The ‘Heat treatment of Oil Bearing materials’ falls in three categories (1) “rendering” (2) “cooking” (3) “a combination of rendering and cooking”.
15. “The term ‘Rendering’ is generally applied to treatment designed to remove all or most of the fat from fatty animal tissues or other materials with a high ratio of fat to solid matter” whereas “the Heat treatment applied to oilseeds and similar materials prior to pressing is more commonly termed cooking”. “Some processing methods are a combination of rendering and cooking”.
16. In the case of either rendering or cooking the principal object of heat treatment is the same that is to coagulate the proteins in the walls of the fat-containing cells and make the walls permeable to the flow of oil”.
17. As regards the “Cooking of oil seeds” it “is universally recognised that oil seeds yield their oil more readily to mechanical expression after cooking”.
18. “In addition to its effect upon the yield of oil, the method of cooking also markedly determines the quality of both the oil and the oil cake”.
19. The ‘Centrifugal Expression’ involves removal of oil from an oil bearing material by centrifugation”.
20. The ‘Solvent Extraction’ method i.e. the “extraction with solvent constitutes the most efficient method for the recovery of oil from any oil bearing material, it is relatively the most advantageous in the processing of seeds of other material low in oil”. The substitution of solvent extraction for pressing methods increases the yield of oil from soyabeans by 12.1%; in the processing of cotton seed the increase is 11.5%….”.
21. “Crude fats and oils produced by rendering, expression, or solvent extraction contain variable amounts of nonglyceride impurities. The impurities in high-grade animal fats and certain vegetable oils, such as coconut and palm kernel oils, consists principally of free fatty acids. In most vegetable oils, as well as in animal fats rendered from low-grade materials, however, there are significant amounts of other substances.” “The object of refining and bleaching is to remove the objectionable impurities in the oil with the least possible damage to either the glycerides or the tocopherols or other desirable impurities and with the least possible loss of oil.” “As used here, the term “refining” refers to any purifying treatment designed to remove free fatty acids phosphatides, or mucilaginous material, or other gross impurities in the oil; it excludes “bleaching” and also “deodorization.” “The term “bleaching” is reserved for treatment designed solely to reduce the colour of the oil. Very little material is removed from the oil by bleaching, and bleaching treatment is commonly applied to oils after purification has been largely accomplished by refining.” “Deodorization” is the term used for treatment intended primarily for the removal of traces of constituents that give rise to flavours and odors. Deodorization usually follows refining and bleaching” “In Europe the most common method of refining–which involves the use of alkalies to react with free fatty acids in the oil–is ordinarily called neutralization. The term “refining” covers processing through deodorized oil”.
22. As regards Refining and Bleaching methods: These include Alkali refining, Hydration, Steam Refining, Liquid-Liquid extraction, Acid refining, Degumming or Desliming.
23. The Encyclopaedia of Chemical Technology indicates under the heading “Manufacture and Processing” the following:
(1) Oil seed Processing (2) Recovery of oil from fruit pulps (3) Rendering of animal fats (4) Degumming (5) Refining (6) Bleaching and decolourisation (7) Hydrogenisation.
24. The ‘Oilseed Processing’ under the above heading includes (1) cleaning (2) dehulling or decortication using various mechanical schemes (of cottonseed). (3) Cooking (conditioning of decorticated Kernals)(4) Pre-pressing (5) flaking of the press cakes (6) solvent extraction.
25. Thus it will be observed that decortication, cooking, flaking and solvent extraction are integral part of oilseed processing and result into recovery of oil by one of the known extraction processes (or a suitable combination thereof). The crude oil so recovered is further processed and this further processing of recovered oil includes degumming, refining, bleaching and decolourisation; And it is this refined oil which could be sold as such or after hydrogenation.
26. It is evident from the above aspects well known to the trade and industry that manufacture and production of vegetable oil includes its recovery from the seed etc. by any one of the extraction or expression processes including the solvent extraction process; (The raw oil so obtained could of course be subjected to further processing in a continuous process or otherwise in order to obtain refined oil.)
27. Turning to the legal aspects in so far as the Bombay High Court Judgment in the case of Bhasir Oil Mills v. Union of India is concerned, I find that this Judgment does not really help the cause of the appellant as would be evident from what follows.
28. The Show Cause Notice in the instant case refers to the vegetable oil produced from the cotton seeds.
29. In reply to the Show Cause Notice dated 3.5.1986, the appellants have admitted this fact and merely emphasised that in their case the oil was subjected to processing subsequent to its recovery in a continuous process and was therefore, not liable to Cess.
30. It has been argued that cotton seeds are necessarily required to be decorticated and delinted as a precondition and the ‘meat’ obtained from their crushing has got its own separate identity name specification, characteristics etc. Hence the oil extracted from this ‘meat’ cannot be termed as that of plant origin and was not liable to Cess under Vegetable Oil Cess Act, 1983.
31. However, as we have noted above the decortication, cooking, crushing, flaking and expression, extraction etc. are a part of the process of recovery of oil from the oilseeds and therefore, if at a particular stage in this processing the crushed seed is called as ‘meat’ that does not in my opinion make any difference to the basic fact that this was a case of recovery of oil from the oil seeds by one of the known processes; It is noteworthy that in the Judgment of the Hon’ble Bombay High Court cited by the appellants, in case of those writ petitions which were related to oil derived from the oilseeds, the Hon’ble High Court had ordered that “the petitioners shall raise their contentions before the Competent authorities which had issued the Show Cause Notices to them and pursue the statutory remedies in that regard”. (vide para 18); Indeed nowhere in this judgement, the Hon’ble High Court has decided that Cess was not leviable on vegetable oil recovered from oilseeds.
32. In so far as the solvent extraction process is concerned, it is simply one of the more modern separation processes which could be utilised either at the extraction stage for recovery of oil and/or for refining of crude oil so obtained at a later stage. Therefore, a mere use or non-use thereof (alone and/or in combination with other processes) does not make any difference once it is established that the raw materials used were oils seeds.
33. Turning to the plea that in the appellant’s mill the final product is refined oil produced by a continuous process; I observe that the very purpose of levy of Cess on vegetable oil recovered from seeds (or other plant parts) would be defeated if it was not levied on the oil so produced merely because it was subjected to further refining as most of the modern mills are known to have a provision for refining of oil.
Not only that the Vegetable Oil Cess Act does not bar levy of Cess in the case of manufacture or production of oil by a method in which it is the refined oil which finally comes out whether as a result of a continuous process or otherwise.
34. It is also required to be noted in this respect that the Cess is a levy in the nature of excises and for the purposes of collection of this tax, the Central Excise Procedure is required to be applied to the extent specifically provided in the relevant Acts;
Under the Central Excises and Salt Act, 1944 Rule 9 (as amended) relates to time and manner of payment of duty and provides that no excisable goods material could be removed from the place of production or manufacture until duty thereon has been paid.
Explanation to, this Rule states that
For the purpose of this Rule, excisable goods produced, cured or manufactured in any place and consumed or utilised
(i) as such or after subjection to any process or processes; or
(ii) for the manufacture of any other commodity;
whether in a continuous process or otherwise, in such place or any premises appurtenant thereto, specified by the Collector under Sub-rule (1), shall be deemed to have been removed from such place or premises immediately before such consumption or utilisation.
35. Accordingly if an excisable product is manufactured but captively consumed or utilised within the factory for production of another item as a final product (whether as a result of continuous process or otherwise) it is still required to bear the incidence of duty unless specifically exempted. In the instant case, appellants have not shown any notification which exempts the vegetable oil produced in the factory for captive consumption (whether by way of utilisation for further processing or refining) to be exempted from the levy of Cess. Further in so far as the third proviso to Rule 9 is concerned, this proviso applies only to specified cases and is not relevant.
36. The Madras High Court Judgment in the case of W.S. Insulators reported in 1984 ECR (392) Madras & the Punjab and Haryana High Court Judgment in the case of Universal Conveyor Beltings Ltd. and M/s. Punjab Rubber and Allied Inds. (1984 ECR 1903) also do not help the cause of the appellants as they are distinguishable. The issue basically involved in these cases was as to whether the material/item in question could be considered as ‘goods’ “known to the market”.
In fact in the later case it has been held that the two explanations to Rules 9 and 49 “make those intermediate articles liable to excise duty, which independently fall within the definition of any of the entries”, whereas the former case relies heavily on the Supreme Court Judgement; the Supreme Court Judgment in the case of UOI v. DCM ECR 216 (SC) 1973) in which emphasis was on marketability as a criterion for considering the materials as goods liable to duty; And it is in this context, that it was considered as to when the product could be called refined oil. There is no such dispute in the matter before us; and marketability of raw oil is not in question although it is made out that what is finally produced in the appellants mill and marketed as such is refined oil.
37. Further the decision of the Tribunal in the case of Jayalakshmi Cotton & Oil Products P. Ltd. states inter alia that (page 271 para 8).
As regards the second contention, it may be stated that the effect of the definition of “Vegetable Oil” in Act No. 29 of 1983 is, inter alia, to exclude any vegetable oil (produced from oilseeds or any other oil bearing material of plant origin and containing glycerides) which had been subjected to any processing subsequent to the recovery of oil. The term was expressly defined to mean any oil produced from oilseeds, or any other oil bearing material of plant origin and containing glycerides. There is no dispute that the appellants did produce oil in their mill from oil seeds. Cess was, therefore, leviable even in terms of this definition on the crude, vegetable oil as extracted or produced from oil seeds. Of course, the definition excluded processed oil and processed oil could not have been levied with cess. In the present case, it is not the processed oil which was subjected to cess but the crude oil as extracted or produced from oilseeds. The second contention of the appellants is also not tenable.
However, it does not discuss the methods of expression or extraction of oil from oilseeds and therefore does not really help us in resolving the main controversy.
38. Having noted as above, it must also be mentioned in all fairness that once the Bombay High Court Judgment (supra) had been cited by the Ld. Advocate and the Ld. DR did not oppose his interpretation of this judgement, the Ld. Advocate proceeded further with the matter apparently on the assumption that the Department was not contesting the relevance of the Bombay High Court Judgment (and my Ld. Colleague also appears to have proceeded on this basis).
However, with due respects, I am not in a position to go with this preposition and the proposed order in view of my observations and findings as above.
This in fact means that in my opinion the quantity of vegetable oil recovered from oilseeds by one or more extraction or expression methods (including the solvent extraction method or a combination thereof) was liable to Cess. (However, if the raw oil so obtained was subjected to processing subsequent to its recovery, then no further Cess shall be chargeable on such refined oil).
In so far as the question of applicability of the Industrial (Development and Regulation) Act, 1951 and the validity or otherwise of the Vegetable Oils Cess Act, 1983 are concerned, although mentioned in Appeal memorandum, the points were not pressed during the hearing.
39. This still leaves the question of validity of the Show Cause Notices and the adjudicating proceedings and the related issue of time bar.
40. Ld. Counsel’s contention is that the Show Cause Notice dated 31.1.1986 is without jurisdiction as it has been issued by the Supdt. of Central Excise and the proceeding is invalid as the case has been adjudicated by Asstt. Collector because the Central Excises and Salt Act had been amended with effect from 27.12.1985. As from this date only Collector could initiate action under proviso to Section 11A and the proceedings which were pending before the AC stood transferred to the Collector of Central Excise. It was therefore, their contention that the Show Cause Notice dated 1.1.1986 could have only been initiated by the Collector of Central Excise and the adjudication could only be done by the Collector of Central Excise.
41. In support of this contention, the Judgment of Punjab and Haryana High Court in the case of Ravi Engineering Works 1990 (50) ELT 56 : 1990 (31) ECR 716 (P&H)) has been cited to show that the governing provision as it exists at the time of issue of notice has the force of law. Further the Tribunal’s order in the case of Wood Crafts has also been cited stating that it has been held that in case of Show Cause Notice issued on or after 27.12.1985 it is the Collector and not the AC who is competent to adjudicate the case if the extended period of limitation is involved.
42. Ld. Jt. CDR has, however, submitted that on 27.12.1985, which is the crucial date for this purpose, no proceeding was pending before Asstt. Collector and therefore nothing remained to be transferred in terms of the amended provision. He has contended that the Supdt. was competent to issue Show Cause Notice and the same was valid as the Supdt. was merely carrying out the remand directions and orders of the Collector (Appeals) given in his order dated 27.12.1985. He has cited the Judgment of the Allahabad High Court in the case of Jeep Industrial Syndicate Ltd. v. Asstt. Collector of Central Excise to show that officers are required to comply with the directions of the Appellant authority. It was just not open to subordinate officers to take a different view; Therefore so long as the order of the Appellate Collector was not set aside by a Superior authority i.e. either by higher Court(s) or Tribunal, the Supdt. and the Asstt. Collector had no option but to follow the directions issued by the Appellate Collector, even if another interpretation of law was possible.
43. In this respect I consider that first and foremost it was necessary to see how the present cases arose and the Show Cause Notices got issued initially. A perusal of the record in this respect shows that the period involved in the Show Cause Notices and the orders could be conveniently indicated as in the table below:
________________________________________________________________________________________
S C Notice Period involved Order in OriginalDate From To No, Date
__________________________________________________________________________________________
31.1.1986 1.3.1984 31.8.1984 8/86 10.4.1986
(Revised)
20.11.1985 1.6.1985 31.10.1985 11/86 5.5.1986
22.1.1986 1.12.1985 31.12.1985 12/86 7.5.1986
9.4.1986 1.1.1986 28.2.1986 25/86 1.9.1986
__________________________________________________________________________________________
44. A perusal of the above statement shows that out of the four Show Cause Notices, the notice dated 20.11.1985 was issued before the amendment of the Act whereas the Show Cause Notices dated 22.1.1986 and 9.4.1986 were issued after the amendment and all the cases were pending before the AC. It is however, observed that in the above three cases the notices were issued within the normal period of six months and therefore they remained unaffected by the amendment. Hence the Supdt. was competent to issue the notices and the AC was competent to adjudicate the cases.
45. It is also noteworthy that in these Show Cause Notices, there was no specific allegation of deliberate suppression or misstatement of fact with intention to evade duty and these was no reference at all to the proviso to Section 11A (But even if for argument’s sake it is presumed that they implied such an allegation, much water has flown since the Tribunal’s order cited by the Ld. Advocate and the latest position is covered by the Judgment of Karnataka High Court at Bangalore in the case of Ralectronics Ltd. as confirmed by Hon’ble Supreme Court order dated 1.2.1993 (dismissing the Special Leave Petition against this order.)
46. We are thus left with the period of 1.3.1984 to 31.8.1984 in respect of which revised Show Cause Notice was issued on 31.1.1986. Even this Show Cause Notice does not allege suppression of facts and misstatement. Hence proviso to Section 11A of Central Excises and Salt Act does not come in a picture. Furthermore, it is not the original Show Cause Notice but a revised Show Cause Notice issued pursuant to the remand order and therefore, time bar was not required to be calculated with reference to it i.e. date of its issue; but was required to be determined with reference to the original Show Cause Notice regarding which it has not been contended that the same was invalid or time barred. In any eventuality its fate could be determined only with reference to the law as it stood of the time of its issue namely 9.10.1984 when the amendment had not come into force.
47. Further it is apparent from revised Show Cause Notice that it has been issued pursuant to the directions given in the order-in-appeal No. 256/85(1) dated 27.12.1985 passed by the CCE (Appeal); And therefore, Ld. Jt. CDR is correct in pointing out that the Supdt. was competent to issue it and AC was competent to adjudicate the case and they were not free to act differently in terms of the ratio of the Judgment of the Allahabad High Court {supra) cited by the Jt. CDR.
48. In view of the above discussions I find no reason to interfere with the impugned order passed by the Ld. Collector (Appeals) except to the extent of benefit of operation of normal time bar with reference to the date of issue of initial Show Cause Notice (9.10.1984) in case of covered by order-in-original No. 8/86. The appeals are otherwise rejected.
Dt. 14.6.1993 Sd/- (S.K. Bhatnagar)
Vice-President
49. In view of difference of opinion between Member (J) and the Vice-President, the matter is submitted to Hon'ble President for reference to a third Member in view of difference of opinion on the following point:
(1) Whether in the facts and circumstances of the case, Cess was leviable on the Vegetable Oil extracted from oilseeds by solvent extraction process?
(2) Whether the Show Cause Notice(s) and the adjudication proceedings were valid?
Sd/-(Jyoti Balasundaram) Sd/- (S.K. Bhatnagar)
Member (J) Vice-President
50. Per Shri K.S. Venkataramani.–The earned Counsel Shri K. Narasimhan appearing for the appellants submitted arguments on the points of difference. He submitted that it would appear that the point of difference at Serial No. 1, the word ‘Oilseeds’ may have to be read as Oilseed Cake. Secondly, in regard to the Karnataka High Court Judgment in the case of Raletronics Ltd. v. Assistant Collector of Central Excise , it was submitted that this Judgment itself became available long after the hearing in this case which was concluded on 15.10.1991 and according to the learned Counsel, no report so far appeared in ELT and ECR of the Divisional Bench Judgment in this case, although the rejection of the SLP by the Supreme Court is reported in ELT Vol. 64 Page A-194 Issue of 15th April, 1990. The earned Counsel submitted that so far as levy of oil extracted from oil cake by solvent extraction process is concerned, the matter is settled by the Bombay High Court decision in the case of Bhasir Oil Mills v. Union of India, wherein the Court has held that oil derived from oil cakes by solvent attraction method subsequent to the mechanical extraction of vegetable oil from oil seeds, is not vegetable oil within the scope of definition of Section 3(h) of the National Oilseeds and Vegetable Oils Development Board Act, 1983. The earned Counsel contended that the decision of the Bombay High Court is binding on the Tribunal as no contrary decision of any other High Court has been cited for which proposition he relied upon the case of Collector of Customs v. Mansikgka Brothers . The earned Counsel submitted that throughout adjudication and appeal proceedings, the appellants has pleaded that levy of cess has to be considered separately in respect of mechanical expressed oil produced out of cotton seed and subjected to further process of refining in a continuous process and the other category solvent extracted oil from cotton seed cake coming out as a byproduct of the mechanical crushing. The earned Counsel fairly submitted that in so far as the first category of the oil is concerned, both the Member (J) and the Vice-President have upheld the levy following the decision of the Tribunal in the case of Jayalakshmi Cotton and Oil Products (P) Ltd. v. Collector of Central Excise . The earned Counsel urged that in respect of the oil extracted from Cotton seed cake by the solvent attraction method, the matter stands settled by the Bombay High Court decision Supra. The earned Counsel urged that in Para-31 of the Vice-President’s order, there is only a partial quotation of the Para-18 of the Bombay High Court Judgment and it was pleaded that a reading of the para in full of the High Court judgement, would show that oil, produced by the solvent attraction method from oil cake is not leviable to cess. As regards the validity of the show cause notice in the de novo proceeding, the earned Counsel relied upon the Supreme Court decision in to say that the changes in the statute of a procedural nature will have retrospective effect. He also referred to the principles of statutory interpretation by Justice G.P. Singh to say that matter of procedure are retrospective and statute which only alter procedure has retrospective effect. The Allahabad High Court, in the case of Geep Industrial Syndicate Ltd. v. Assistant Collector of Central Excise, has no relevance according to the earned Counsel because in that case, there was no amendment to the law in the intervening period as in the present case. The earned Counsel submitted that after the amendment of the Section 11A Central Excises and Salt Act, the de novo proceedings could have only been initiated by the Collector who only was competent after the amendment to demand duty for the longer period under that Section. In this case, the original show cause notice of 9.10.1984 had alleged suppression also. The learned Counsel, therefore, pleaded that the order as proposed by the Hon’ble Member (J) would be a proper disposal of the appeal. The learned Senior Department Representative Ms. Parveen Mahajan contended that the validity of the show cause notice dated 31.1.1981 cannot be questioned because it was issued in compliance with the terms of the remand order which the Assistant Collector was bound to do in law as has been held by the Allahabad High Court in the case of Jeep Industrial Syndicate Ltd. v. Assistant Collector of Central Excise, supra. The learned Senior Departmental Representative cited the Tribunal decision in the case of Acme Batteries (P) Ltd. v. Collector of Central Excise saying that show cause notice issued consequent upon an order of revision is a continuation of a proceeding and will not be barred by limitation. The learned Senior Departmental Representative also referred to the various Technical authorities cited and extracted in the order of the Hon’ble Vice-President to hold that oil extracted by the solvent extraction method from oil cakes is also liable to cess. The Technical authorities referred to clearly indicate that solvent extraction is also one of the recognised process of produce vegetable oil. A reference was made to para-31 of the Hon’ble Vice-President order. In this context, it was urged that the order proposed by the Vice-President would be the one correct in law.
51. The submissions made by both the sides have been carefully considered. There appears to be no error in the points of difference as set out by the referring Bench because a reading of the two orders as a whole would make the point of view of the Member (J) and the Vice-President clear enough. A reading of two orders brings out clearly that both Vice-President and Member (J) are agreed that mechanically expressed oil produced out of cotton seeds and subjected to further process of refining in a continuous process is leviable to cess for which reliance been placed on the Tribunal decision in Jayalakshmi Cotton and Oil Products (P) Ltd. case. The difference of opinion is with respect of solvent extracted from cotton oil seeds cake which emerges as a by product of mechanical crushing. On this, the Hon’ble Member (J) has held that the dispute is no longer alive, in view of the Judgment of the Bombay High Court in the case of Bhasir Oil Mills v. Union of India Supra wherein the Court has held that oil extracted from oil cake by solvent extraction process is not vegetable oil but a distinct commercial commodity and, therefore, no cess can be levied thereupon under Section 3 of the Cess Act as it is not covered by the definition of expression vegetable oil given in Section 3(h) of the Board Act. The learned Member (J) has further held that the decision of the Tribunal in the case of Jayalakshmi Cotton and Oil Products (P) Ltd. fully applies to this case and on this basis, the learned Member (J) has upheld the impugned order in so far as it relates to the levy of cess on cotton seed oil extracted by the expeller method. On the other hand, the learned Vice-President has made a detailed study of the Technical Authorities on the subject such as Encyclopaedia of Chemical Technology (3rd Edition) by Kirk and Othmer and Bailey’s Industrial Oil and Fat Products (4th Edition) by Daniel Swern. Thereafter the learned Vice-President has held in para-32 that in respect of solvent attraction process is concerned, it is simply one of the more modern separation processes which could be utilised either at the extraction stage for recovery of oil and/or for refining of crude oil so obtained at a later stage. Therefore, he has held that a mere use or non-use thereof does not make any difference once it is established that the raw materials used were oil seeds. However, one finds that the Bombay High Court Division Bench in the Bhasir Oil Mills case supra has given, a detailed consideration to this very issue with reference to the definition of vegetable oil given in Section 3(h) of the National Oilseeds and Vegetable Oils Development Board Act, 1983. Para-16 of the High Court’s order is reproduced below:
It is thus clear that the oil cake from which the oil is extracted by the skilled technical process of a solvent extraction plant is a distinct commercial commodity. It is further clear that the oil cakes are not directly derived from the plant as such but they are by-products of the oil seeds after the oil is extracted from them. The origin of the oil cakes in the popular sense is thus the oil seeds. In our view in the context of the provisions of the Taxing Statute, the word ‘origin’ should be given the meaning which would be consistent with its popular sense. The said word as used in the definition clause in question would mean “the source or derivation” and not the first existence and the beginning, which meaning sought to be given on behalf of the Department to the word is farfetched and is not consistent with the ordinary use of the said word in commercial parlance. As rightly urged on behalf of the petitioners there must be direct and not remote nexus between the oil bearing material and the plant so that it can be said in such cases, for instance as in the case of oil derived from the limbs, flowers, barks etc. that their origin is the plant. It is, therefore, difficult for us to accept the contention raised on behalf of the Department, that the oil derived from oil cakes is from the oil bearing material of plant origin within the meaning of Section 3(h) of the Board Act. We thus accept the contention raised on behalf of the petitioners that as regards the oil derived from the oil cakes by the process of solvent extraction plant no cess can be levied upon the same under Section 3 of the Cess Act as it is not covered by the definition of the expression ‘vegetable oil’ given in Section 3(h) of the Board Act. The show cause notices given by the Department in regard to the oil derived from the oil cakes therefore need to be quashed.
It is, therefore, that the High Court has concluded in Para-18 of its order (which has been partially quoted by the Hon’ble Vice-President) as follows:
In the result, the instant writ petitions are partly allowed. As regards the question of oil derived from the oilseeds and rice bran the petitioners in these writ petitions shall raise their contentions before the competent authorities which had issued the show cause notices to them and pursue their statutory remedies in that regard. However, as regards the question of levy of oil derived from oil-cakes the show cause notices issued to them in that regard are quashed in both these writ petitions and it is declared that the petitioners are not liable to pay any cess under Section 3 of the Cess Act upon the oil derived by them from the oil cakes through the technical process of solvent extraction plant. Rule in the above terms. No order as to costs in these writ petitions.
It is clear from the above exposition of the issue by the Hon’ble High Court that oil produced by the solvent extraction method from oil cake will not fall within the ambit of Vegetable Oil Section 3(h) of the Board Act. Therefore, when a judicial interpretation is thus available on the scope of the statutory definition of vegetable oil as above, wherein such a definition has been gone into and construed by a High Court, it may be more appropriate and judicious to follow the ratio of the High Court decision, although Technical Authorities can reasonably be referred to where such judicial interpretation construing statutory provisions may not be available. Therefore, it has to be held that solvent extracted oil from oil cake is not vegetable oil falling within the definition of the Section 3(h) of the Board Act and, therefore, not leviable to cess. The views expressed in this regard by Hon’ble Member (J) are, therefore, concurred with.
52. As regards the validity of the show cause notice, it is seen that the Collector (Appeals) by his order dated 27.12.1985 has remanded the matter. This remand was on the ground that in the figures given in the show cause notice and in the order of the Assistant Collector dated 3.7.1985 thereon, there were discrepancies which had to be corrected including discrepancies in the amount of cess demanded which instead of Rs. 1,38,929/- as in the demand may work out only to Rs. 13,888/-. The Collector (Appeals) remanded the matter in the following terms:
In view of the above infirmities both in regard to the show cause notice and the impugned order I set aside the impugned order of the lower authority and remit the matter to him for de novo adjudication, after furnishing to appellants the correct figures and after granting the personal hearing. The present appeal is disposed of accordingly.
Therefore, order of the Assistant Collector has been set aside leaving the ground for adjudication afresh. In the de novo provisions the starting point is the original show cause notice of 9.10.1984. This show cause notice demands cess for a period 1.3.1984 to 31.3.1984 which is clearly referring to a period beyond six months and the show cause notice has also cited Section 11A for such recovery. It has also mentioned
They have failed to furnish the particulars of extraction of such oil in time to the Central Excise Department and they suppressed the fact of production from the knowledge of the Department.
With the amendment of Section 11A from 27.12.1985 in such a situation where suppression of fact is alleged only Collector can issue the show cause notice. This position has been affirmed by the Division Bench of the Karnataka High Court in the case of Ralectronics Ltd. v. Assistant Collector of Central Excise, reported in 1992 40 ECC 399 (Kar.), on an appeal against an order dated 26.3.1992 passed by the Single Judge in Writ Petition No. 2280 of 1989, reported in 1992 39 ECC 69 (Kar.). The Division Bench held that on a reading of Section 11A with the proviso makes it clear that the proviso can be enforced independent of the provisions contained in the first portion of Sub-section 1 and the Court also observed that similarly the operation of the first portion of Sub-section 1 does not depend upon the provisions contained in the proviso thereto. The Court concluded
therefore an action for no payment or short levy or short payment or erroneous fund of excise duty on the grounds of fraud, collusion or any wilful mis-statement or suppression of facts,….can be initiated only by the Collector within a period of five years from the date of assessment.
In paragraph 10 of the judgement, the Court held that consequently, the Superintendent of Central Excise could not have issued a show cause notice on the ground that there was short levy and short payment of Central Excise duty due to suppression, as it was the Collector alone who was competent to issue show cause notice for such purposes. It is this decision which is reportedly confirmed by the Supreme Court. Therefore, in January, 1986, when the revised show cause notice was issued for the same period, it could not have been issued by the Superintendent under the amended provisions of Section 11A because the notice for demanding such recovery on grounds of suppression of facts has to be issued and determined only by the Collector as provisions of the Section stood at the material time. It is also not possible to hold in such a situation that the Assistant Collector is bound by the terms of the remand order by the Collector (Appeals) and, that therefore, the matter has to be decided by him with notice issued by Superintendent. This is because, by the time the remand order was to be implemented the law itself had changed by the amendment to Section HA divesting the Assistant Collector of jurisdiction for demanding recovery beyond six months period on grounds of suppression of facts under Section 11 A. In such a situation, the terms of the remand order of the Collector (Appeals) cannot have the effect of clothing the Assistant Collector with jurisdiction where, in fact, he had none. In this respect of the facts of this case are not wholly pari materia with the decision of the Allahabad High Court in the Jeep Industrial Syndicate Ltd. case . In this view of the matter, the points of difference are answered as follows:
1. In the fact of circumstances of the case, Cess is not leviable on solvent extracted oil from cotton oil seed cakes. But Cess is leviable on mechanically expressed oil produced out of cotton seeds and subjected to further processes of refining in a continuous process.
2. The show cause notice issued by the Superintendent dated 31.1.1986 demanding cess for the period 1.3.1984 to 31.8.1984 is without jurisdiction.
Dt. 9.9.1993 Sd/- (K.S. Venkataramani)
Member (Technical)
Final Order
53. In view of the majority opinion, the appeals are accepted.