ORDER
S.K. Bhatnagar, Vice President
1. This is an appeal filed by the department against the order of Collector of Central Excise (Appeals), Bombay, dated 4-12-1990.
2. Ld. DR stated that the appellants are manufacturers of Soaps and Cosmetics. They filed a classification list for the product Rice Bran Oil and residues classifying under sub-heading 1507.00.
3. While approving the classification list, A.C. had denied the benefit of Notification No. 217/86 vide order-in-original No. FII/45/88, dated 22-8-1988. Hence, the respondents filed an appeal before Collector (A) and the Collector (A) held that the physical presence of the input in the final product is not necessary. Further he pointed out that “the real difficulty would however arise for the reason that the steam so produced and electricity so generated would not be 100% consumed in the production of end products. Certain diversion of electricity so generated is generally seen in every, manufacturing unit. If it is so, it would not be possible to quantify the exemption and this difficulty would render the notification clearly impractical to administer”. Consequentially, the ld. Collector directed the A.C. for de novo adjudication along the guidelines spelt out in the order-in-appeal.
4. Based on the said order-in-appeal the A.C. passed a fresh Order-in-Original No. FII/73/90, wherein he allowed benefit of Notification No. 217/86 where the residue were directly used as input for the manufacture of soap after, bleaching, deodanising etc. but denied the benefit of Notification No. 217/86 on residues used for co-generation of energy. Consequently, A.C. confirmed the revised demand, but at the same time indirectly kept the matter in abeyance with the remark that M/s. Hindustan Lever Ltd. may file an application for post-facto permission from Collector of Central Excise, Bombay-I, for remission of duty on Rice Bran Residue burnt in boiler.
5. Again the respondents filed an appeal with Collector (A). Ld. Collector (A) vide order-in-appeal No. 966/90-B-I directed the A.C. to carry out a detailed verification of the figures furnished by the respondents showing the residue used and attributable to power generation used in production of goods holding that there is no reason for the A.C. to deny the exemption to the appellants.
6. It was the department’s contention that the Rice Bran Residue is not an input for manufacture of soap but an input for production of electricity. Therefore, the benefit of Notification No. 217/86 is not applicable for such residues, which are not directly used in or in relation to manufacture of soap in question.
Burning of Rice Bran Residue, as claimed by the respondents, cannot be said to be a mode of destruction making the company entitled for remission of duty.
7. Ld. Representative of the appellants stated the appeal filed by the department against the order of Collector (A) is misconceived. The background facts of the case are:
(i) The respondents had filed a classification list dated 12-11-1987 classifying Rice Bran Residue under sub-heading No. 1507.00 and claiming exemption under Notification No. 217/86, dated 2-4-1986 (as amended).
(ii) The classification list was, inter alia, approved vide AC’s order-in- original dated 22-8-1988 in which it was held that the respondents are not eligible for exemption on Rice Bran Residue used in Boiler and co-generation plant under Notification No. 217/86, dated 2-4-1986.
(iii) On appeal, it was held vide order-in-appeal dated 3-11-1989 that the respondents are eligible to take benefit of Notification No. 217/86. However, practical difficulty was envisaged for the reason that steam so produced and electricity so generated would not be 100% consumed in the production of end products and therefore the A.C. was directed to re-examine the issue in the light of this observation.
(iv) The only question before the A.C. was with regard to formulating a method to enable the respondents to avail the benefit of exemption. The respondents had given details of power generation and residue usage for the relevant period.
(v) The A.C. in his Order No. FII/73/90, dated 11-5-1990 however, held that the residue when used in boilers /(regeneration plant is not eligible for the benefit of Notification No. 217/86, dated 2-4-1986.
(vi) Aggrieved by the order of the A.C. by which he had readjudicated an issue already decided by the Collector (A), the respondents again filed an appeal before the Collector (A).
(vii) Collector (A) vide his Order No. ADN/966/90/B-I, dated 4-12-1990 directed the Asstt. Collector, in strict compliance of the guidelines spelt out in earlier order-in-appeal dated 3-11-1989 to carry out detailed verification of figures furnished by the respondents and if the detailed verification of the statistics w.r.t. primary records maintained confirm the position, there is no reason for the A.C. to deny the exemption.
A perusal of the above facts show that the department has chosen to file instant appeal on second thoughts. The issue whether exemption of 217/86 is available to the respondents ought to have been agitated by filing an appeal against the order-in-appeal No. SKM/2207/89/B-II, dated 3-11-1989. Not having done so, the department cannot take liberty to file an appeal against order-in-appeal No. ADN/966/90/B-I, dated 4-12-1990 which merely directed the A.C. to carry out verification in strict compliance of the earlier order-in-appeal.
The appeal of the department is therefore not maintainable.
8. Notification No. 217/86 exempts goods manufactured in a factory and used within the factory of production in any other factory of the same manufacturer, in or in relation to the manufacturer of final product. The scope of the expression “in relation to the manufacture of final product” came up for decision before the Larger Bench of the Tribunal in Shri Ramakrishna Steel Ind. Ltd. v. CCE -1996 (82) E.L.T. 575.
9. Rice Bran Residue is used as fuel in boiler and cogeneration plant to generate steam and electricity. The usage of steam in the manufacture of soaps is an integral and inextricable part of the entire process resulting in the emergence of final product, Soap. The steam is used for processing of oils, during saponification of oils and for spray drying of liquid soap. The two important functions that steam performs during saponification are :
(i) heating of oil fatty acid blend into molten form; and
(ii) through mixing of oils/fats mixture.
The use of steam is, therefore, an integral part of the process of manufacture of soap. That being so, the usage of rice bran residue in generating steam is commercially expedient. Therefore, the rice bran residue falling under Chapter 1507 which is specified input is eligible for benefit of Notification No. 16/943 10. Burning of rice bran residue cannot be said to be a mode of destruction making the company entitled for remission of duty. The question of remission does not arise as rice bran residue is not burnt and destroyed, but is used as a fuel substitute in boiler and cogeneration plant to generate steam and electricity for being used in the manufacture of final product, soap. The respondents are therefore not seeking any remission of duty but benefit of Notification No. 217/86.
11. We have considered the above submissions. We observe that the appeal filed by the department against the impugned order passed by Collector (A) is evidently misconceived inasmuch as in effect it merely directs the A.C. to comply with the earlier order-in-appeal as evident from the operative portion of the impugned order-in-appeal which reads as follows :
“I observe that the order of the Asstt. Collector virtually amounts to flouting of the order-in-appeal dated 1-3-1989 passed by the Collector (A). The question of admissibility of Notification No. 217/86, dated 2-4-1986 (as amended) has been conclusively decided by the Asstt, Collector in the aforesaid order. Since electricity so generated would not be used 100% in the production of the end-products, practical difficulties were anticipated and that is the reason why the Collector (A) directed the A.C. to re-examine the issue in the light of his observations. The only question before the A.C. for consideration was, with regard to formulating a method to enable the appellants to .avail the benefit of exemption. The appellants have submitted that they had given full details of power generation and residue oiusage for the relevant period which was attributable to power used in non-productive areas. In this view of the matter, the finding of the A.C. that the residue when used in boilers/cogeneration plants is not eligible for the benefit of Notification No. 217/86, dated 2-4-1986, is without jurisdiction and bad in law. The A.C. is again directed, in strict compliance of the guidelines spelt out in the earlier order-in-appeal, dated 3-11-1989, to carry out a detailed verification of the figures furnished by the appellants showing the residue used and attributable to power generation used in production of goods and the residue used in non-productive areas, and if the detailed verification of the statistics w.r.t. the primary records maintained confirms the position, there is no reason for the A.C. to deny the exemption to the appellants as such on the rice bran residue which is proved to have been used, to the satisfaction of the A.C., for power generation used in the production of the specified goods.”
12. It is evident from the above observations and findings that the basic issue whether the appellants were entitled to the benefit of Notification No. 217/86 in respect of the items in question had already been decided by the Collector (A) by his earlier order and if the department was aggrieved with the ld. Collector’s findings it was required to file an appeal against the said order within the prescribed time. At this stage, the Collector (A) has merely taken note of non-compliance with the directions contained in the earlier order and therefore he has reiterated the same and directed the A.C. to act accordingly. In view of this position, without going into the merits of the case, we dismiss the appeal as already announced in the open court.