JUDGMENT
Sujata V. Manohar
1. The petitioners who are the appellants are a company carrying on business, inter alia, of manufacturing and processing vegetable oils. The petitioners have a factory at Reay Road, Bombay. In this factory the petitioners manufactures and process vegetable non-essential oils. The vegetable oils are refined, and then subjected to the process of hydrogenation in order to make the vegetable oils more solid. The petitioners thus produce hydrogenated vegetable non-essential oils. These are also known in the market as vegetable tallow or Hardened Technical oils. Vegetable tallow so produced by the petitioners is sold by them to third parties who use this product in the manufacture of soap. For the relevant period covered by the show cause notices in the present case, the entire product of the petitioners was used in the manufacture of soap.
2. The petitioners classified vegetable tallow under tariff item 13 of the first Schedule to the Central Excises and Salt Act. They relied upon an exemption notification being Notification No. CER-8 (3)/56 dated 14th March, 1956 under which vegetable product is exempted from the payment of excise duty leviable thereon, provided that the vegetable product is intended for use, inter alia, in the manufacture of soaps. In view of this exemption notification the petitioners were permitted to clear vegetable follow without payment of any excise duty.
3. The petitioners have thereafter received five show cause notices asking the petitioners to show cause why excise duty should not be levied on vegetable non-essential oils manufactured by them. The first show cause notice dated 15/19-6-1972 deals with clearances from 9-10-1972. The next show cause notice dated 3-11-1972 deals with clearances from 1-6-1972 to 30-9-1972. The show cause notice dated 24/27-8-1973 deals with clearances between 1-10-1972 and 30-6-1973. The show cause notice 21-1-1974 deals with clearances between 1-7-1973 and 31-12-1974 while the last show cause notice dated 11-7-1974 deals with clearances between 1-1-1973 and 31-5-1974.
4. Thereafter, proceedings were taken before Respondents 1 to 3 in respect of the said show cause notices. Under orders passed in Appeal before the third respondent in the various proceedings the show cause notices have been confirmed. The petitioners thereupon filed the present Misc. Petition 922 of 1974. A learned single Judge of this court by his judgment and order dated 30-7-1979 dismissed the petition and discharged the rule for reasons which are set out in his judgment. The present appeal has been filed from the judgment of the learned single Judge.
5. The relevant entries in the Central Excise tariff are entries 12, 13 and 15. These entries are as follows :
“12. VEGETABLE NON-ESSENTIAL OILS ALL SORTS, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power.
13. VEGETABLE PRODUCTS – “Vegetable product” means any vegetable oil or fat which, whether by itself or in admixture with any other substance, has by hydrogenation or by any other process been hardened for human consumption.
14. “SOAP” means all varieties of the product known commercially as soap –
1. Soap, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power or of steam for heating –
(1) Soap, household and laundry;
(2) Other sorts.
11. Soap, in or in relation to the manufacture of which no process has been carried on with the aid of power or of steam for heating.”
6. The petitioners in the present case produce vegetable non-essential oils for the manufacture of which process is carried on with the aid of power. Therefore, vegetable non-essential oils produced by the petitioners fall under Tariff item 12. There is, however, Notification No. 33/63 dated 1st March, 1963 which exempts vegetable non-essential oil falling under Tariff item 12 from the payment of the whole of the exercise duty leviable thereon in the circumstances set out in that exemption notification. This exemption notification was amended on 9th October 1971 as a result of which second proviso was added to the exemption notification. The exemption notification as amended on 9th October 1971 is as follows :
“NOTIFICATION NO. 33/63, dated the 1st March, 1963.
(6) Under Government of India, Ministry of Finance (Department of Revenue), Notification No. 33/63-Central Excise, dated the 1st March, 1963, as subsequently amended by Notification No. 50/63-Central Excise dated the 7th March, 1963, No. 14/64-Central Excise, dated the 15th February 1964, No. 110/65-Central Excise dated the 16th July, 1965 and No. 181/71-Central Excise, dated the 9th October, 1971, the following vegetable non-essential oils, falling under this Item are exempt from the payment of the whole of the excise duty leviable thereon;
(a) all sorts of vegetable non-essential oils, other than processed vegetable non-essential oils;
(b) Vegetable non-essential oil, whether produced in the factory of production of the excisable goods specified below or elsewhere, if used after it is processed in the manufacture of
(i) goods falling under Item Nos. 13, 14 and 15 of the First Schedule to the Central Excise and Salt Act, 1944; and
(ii) artificial or synthetic resins falling under Item No. 15A of the said Schedule :
Provided that, in respect of the vegetable non-essential oil produced elsewhere than in the factory of production of the said excisable goods, the procedure set out in rule 56A of the Central Excise Rules, 1944, is followed :
Provided further that no such exemption shall be allowed in respect of vegetable non-essential oils used in the manufacture of finished excisable goods if such finished excisable goods produced by the manufacturer are exempted from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty.
Explanation. – For the purpose of this notification processed vegetable non-essential oil means a vegetable non-essential oil which has undergone subsequent to its extraction any one or more of the following processes, namely :-
(i) Treatment with an alkali or acid;
(ii) Bleaching;
(iii) Deodorization.
7. The petitioners subject the vegetable non-essential oil manufactured by them to hydrogenation and produce a hardened oil. This hardened oil has been sold by the petitioners for the manufacture of soap. The hardened oil, however, has been classified by the petitioners themselves throughout the relevant period as vegetable product falling under Tariff Item 13.
8. Under a notification No. CER-8(3)/56 dated 14th January 1956 it is provided as follows :
“NOTIFICATION NO. CER-8(3)/56 dated 14th January, 1956.
(1) Under Government of India, Ministry of Finance (Revenue Division), Notification No. CER-8(3)/56-Central Excise, dated the 14th January, 1956, Vegetable Product is exempt from the payment of the excise duty leviable thereon, provided that –
(i) The Collector of Central Excise is satisfied that the Vegetable product is intended for use;
(a) in the manufacture of soaps including insoluble soaps;
(b) in the manufacture of fatty acid;
(c) in the manufacture of greases, lubricants and textiles sizing agents;
(d) as a protective agent in the manufacture of tin plate; and
(ii) the procedure set out in Chapter X of Central Excise Rules, 1944, is followed.
9. The petitioners claim exemption from the payment of excise duty in respect of the vegetable product manufactured by them under exemption notification of 14th January 1956 on the ground that this vegetable product was intended for use in the manufacture of soap. This exemption was granted to the petitioners. Although the petitioners tried to contend for the first time in appeal before us that the hardened oil manufactured by them cannot be classification as a vegetable product under Tariff Item 13, they have throughout in the proceedings before the Customs authorities as also before the trial Court proceeded on the basis that the hardened oil manufactured by them is a vegetable product falling under Tariff Item 13. It is, therefore, not now open to them to contend that the hardened oil product by them is not classifiable as vegetable product under Tariff Item 13. We have, therefore, to proceed on the basis that the ultimate product manufactured by the petitioners is a vegetable product falling under Tariff Item 13.
10. It is the contention of the petitioners that the vegetable non-essential oil manufactured by them is ultimately used for the manufacture of soap. Soap falls under Tariff Item 15 of the First Schedule to the Central Excise and Salt Act, 1944. The petitioners, therefore, contend that in view of the exemption Notification No. 33/63 vegetable non-essential oil manufacture by them is exempt from the payment of the whole of the excise duty leviable on it. This contention requires to be examined in the light of the provisions of the exemption Notification No. 33/63. Under clause (b) of the exemption Notification vegetable non-essential oil, if it is used after it is processed, for the manufacture of goods falling under tariff Item 13, 14 and 15, is exempt from payment of the whole of the excise duty leviable on it. This exemption notification is available irrespective of whether goods falling under Items 13, 14 and 15 are manufactured in the factory of the producer of vegetable non-essential oil or not. Had the petitioners, there, directly sold the processed vegetable non-essential oil to a soap manufacturer for the manufacture of soap the petitioners would have been exempt from the payment of the excise duty leviable on vegetable non-essential oil. The petitioners, however, hardened the vegetable non-essential oil produced by them and sold this hardened product to a soap manufacturer. This hardened product itself is considered by the petitioners as covered by Tariff Item No. 13. In other words, the petitioners are first manufacturing vegetable non-essential oil. After this oil is processed the petitioners use it for the manufacture of goods claimed as falling under Tariff Item 13. It is true that thereafter the goods claim as falling under Tariff Item 13 are sold to a soap manufacturer and they are used in the manufacturer of soap (tariff item 15). But when the exemption notification in terms refers to vegetable non-essential oil being used for the manufacture of goods falling under Item No. 13 as well as item No. 15 the petitioners must be considered as manufacturing vegetable non-essential oil for the manufacture of goods falling under Tariff Item 13 for the purpose of this exemption Notification.
11. Now, the second proviso to the exemption notification prescribes that exemption from the payment of the whole of the excise duty which is earlier provided in the notification, shall not be allowed if the “finished excisable goods” produced by the manufacturer are exempted from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty.
12. The short question is whether the term “finished excisable goods” used in the second proviso refers to soap which is ultimately manufactured from the vegetable non-essential oil or whether it refers to hardened oil which is classified as vegetable product under Tariff Item 13. To interpret the second proviso it is necessary to examine the scheme of the exemption notification. The exemption notification in clause (b) clearly sets out that even if vegetable non-essential oil is manufactured in a factory other than the factory where goods falling under Tariff item 13, 14 and 15 are manufactured, the exemption would still be available. In other words, it is open to a manufacturer of vegetable non-essential oil to sell it to somebody else who will use it for the manufacturer of goods falling under Item 13, 14 and 15. The manufacturer of vegetable non-essential oil does not himself have to ultimate this oil for the manufacture of goods falling under Item 13, 14 and 15. It is in this context that the second proviso to the exemption notification refers to the use of vegetable non-essential oil in the manufacture of finished excisable goods. “Finished excisable goods” have a reference to sub-clauses (i) and (ii) of clause (b) of the exemption notification. In other words, the finished excisable goods refer to goods falling under Items 13, 14 and 15 which are ultimately manufactured from vegetable non-essential oil. If this finished product falling under items 13, 14 and 15 is itself exempt from the whole of the duty of excise then vegetable non-essential oil used for its manufacturer will not get the exemption from the payment of the whole of the excise duty under Notification No. 33/63. In other words, vegetable non-essential oil is exempt from excise duty if it is used for manufacturing goods falling under items 13, 14 and 15, if these goods falling under item 13, 14 and 15 are subject to the payment of excise duty. If these goods are exempt from the payment of excise duty then excise duty must be paid on vegetable non-essential oil.
13. In the present case, the petitioner have manufactured goods, falling under Tariff Item No. 13 from vegetable non-essential oil. The goods falling under Tariff Item No. 13, so manufactured by the petitioners must be treated as the “finished excisable goods” for the purpose of the exemption notification. These goods are exempt from payment of the whole of excise duty under exemption Notification No. CER-8(3)/56 of 14th January 1956. Therefore, the petitioners are required to pay excise duty on vegetable non-essential oil in view of the second proviso to the exemption Notification 33/63.
14. It was submitted on behalf of the petitioners that in the present case the finished excisable goods in the second proviso to the said notification refer to soap because that is the final product manufactured from vegetable non-essential oil which is sold to consumers. Accordingly to the petitioners the hardened oil manufactured by them is only an intermediate product. It should not, therefore, be considered as “finished excisable goods.” This interpretation, however, of the term “finished excisable goods” does not appear to be a correct interpretation in the context of the exemption notification. The term “finished goods” is, in normal parlance, often a relative term. The term ‘finished’ may refer to an end product. But this end product itself may be used in the manufacture of another product. But for the purpose of excise, if the goods are such that they are known in the market as a marketable commodity, they would be classified as “finished excisable goods”, although they may be used for the manufacture of something else. They do not cease to be finished excisable goods simply because the goods can be used for the manufacture of another product. In the exemption notification in question, however, the term “finished excisable goods” has reference to an end product which is described as goods falling under Items 13, 14 and 15 of the First Schedule to the Central Excises and Salt Act, 1944. In the context of the exemption notification this is the end product of finished excisable goods for the manufacture of which vegetable non-essential oil should be used. It is, therefore, not necessary to consider whether the hardened oil manufactured by the petitioners is an intermediate product in the manufacture of soap or not. If this product falls under Tariff Item 13 it must be treated as finished excisable goods for the purpose of the second proviso to the exemption notification.
15. In the present case, the petitioners have themselves treated the product manufactured by them as excisable goods falling under Tariff Item No. 13. We cannot, therefore, examine whether the hardened oil manufactured by the petitioners in fact falls under Tariff Item No. 13 or not. In the circumstances, the petitioners are governed by the second proviso to the exemption Notification No. 33/63. Since the hardened oil is exempt from the whole of the duty of excise, the petitioners will have to pay excise duty on vegetable non-essential oil for the period in question.
16. It is also submitted by the petitioners that there are other manufacturers who manufacture vegetable non-essential oil who thereafter convert vegetable non-essential oil into hardened oil and use it for the manufacture of soap in their own factories. The petitioners have contended that in such cases vegetable non-essential oil manufactured by these soap producers is granted exemption from payment of excise duty Notification No. 32/63 by the respondents. We do not have before us any data to show whether the hardened oil manufactured by these manufacturers has been treated by them as falling under Tariff Item 13 or not. It is, therefore, not possible for us to equate the case of the petitioners with the case of these manufacturers. Since the petitioners have themselves considered hardened oil manufactured by them as falling under Tariff Item No. 13 they will not get the benefit of the exemption Notification No. 33/63.
17. In the circumstances, the Appeal is dismissed.
18. We find that throughout the judgment nobody remained present on behalf of the respondents. In the circumstances of the present case and in view of the absence of the respondents, there will be no order as to costs.
