PETITIONER: NATIONAL ORGANIC CHEMICAL INDUSTRIES LIMITED Vs. RESPONDENT: COLLECTOR OF CENTRAL EXCISE, BOMBAY DATE OF JUDGMENT: 06/01/1997 BENCH: S.P. BHARUCHA, K. VENKATASWAMI ACT: HEADNOTE: JUDGMENT:
J U D G M E N T
BHARUCHA, J.
The proper construction of the word “derived from” will
determine this appeal against a judgment and order of the
Customs, Excise & Gold (Control) Appellate Tribunal.
The appellants are a refinery, recognised to be such
by the Union of India. They manufacture ethylene, butylene
and propylene (” the said products”). It is their contention
that the said products fall within item 11AA of the Excise
Tariff and that they are entitled to the benefit of an
Exemption Notification issued in respect of that item on
21st December, 1967, as amended from time to time, under
Rule & of the Central Excise Rules. The Revenue contends,
basing itself on a Trade Notice dated 24th November, 1984,
that the said products are manufactured from raw naphtha
and, therefore, are not classifiable under Item 11AA but
under the residuary Item 68.
Item 11AA deals with petroleum gases. Sun-item 2
thereof, which is relevant, reads thus:
“Other petroleum gases and gaseous
hydrocarbons derived from refining
of crude petroleum or shale.” (
Emphases supplied.)
The said Exemption Notification applies to goods
falling, inter alia, under Item 11AA if they are “produced
in any premises (other than the premises wherein refining of
crude petroleum or shale or blending of non-duty paid
petroleum or shale or blending of non-duty paid petroleum
products is carried on) declared under sub-rule (2) of rule
140 of the Central excise Rules, 1944, to be a refinery”. If
the said products are held to fall under Item 11AA, the said
Exemption Notification, it is not in dispute, will apply.
The Tribunal noted the argument on behalf of the
Revenue that the said products were “not derived directly
from refining crude petroleum. Refining of crude petroleum
means the first product obtained by refining of petroleum.
The products in dispute in this case are derived from
cracking raw naphtha” which was Tariff Advice upon which the
Revnue sought to change the classification of the said
products from item 11AA(2) to Item 68 took the ground that
the said products were not “derived directly” from crude
petroleum. The Tribunal stated that the point for decision
was whether, for the purpose of classification under Item
11AA(2), a product should be derived directly from the
refining of crude petroleum. Relying on a judgment of the
Gujarat High Court, it held that be the immediate result of
refining of crude petroleum”. The said products but were
obtained from raw naphtha purchased from oil refineries.
Accordingly. the Tribunal accepted the contention of the
Revenue that the said products were not excitable under the
said Item but under the residuary Item 68.
Learned counsel for the appellants placed reliance upon
the judgment of the is Court in The Tata oils Mills Co, Ltd.
vs. Collector of Central Excise, 1987 (43) E.L.T. 183
(S.C.). The question before this Court related to an
Exemption Notification; it exempted “soap as is made from
indigenous rice bran oil or from a mixture of such oil with
any other oils” from a certain part of the excise duty
laviable thereon. This Court held that the requirement of
the notification was that the soap manufacture should be
from rice bran oil as contrasted with other types of oil.
That was the ordinary meaning of the words used. The word
might be construed literally, but they had to be given their
fullest amplitude and interpreted in the context of the
process of soap manufacture. There were no words in the
notification to restrict it only to cases were rice bran oil
was directly used in the factory claiming exemption and to
exclude cases were soap was made by using rice bran fatty
acid derived from rice bran oil. The whole purpose and
object of the notification was to encourage the utilisation
of rice bran oil in the process of manufacture of soap in
praforence to various other kinds of oil used in such
manufacture and this should not be defeated by an unduly
narrow interpretat on of the language of the notification
even when it was clear that rice bran oil could be used for
manufacture of soap only after its conversion into fatty
acid or hydrogenated oil.
Learned counsel submitted that the aforesaid judgment
applied to the Tacts of this case. It made no difference
that the raw naphtha was procured by the appellants from
other factories. The point was that the said products were
derived from the refining of crude petroleum, and raw
naphtha was an inter-mediate product in such refining.
Learned counsel drew attention to the judgment of the
Gujarat High Court, upon which the Tribunal had relied (New
Bharat Industries (P) Ltd. vs. Collector of Customs. Madras.
1983 E.L.T. 1134). Upon the assumption contended on behalf
of the Revenue that processed oil ceased to bear the
character of lubricating oil and become a new chemical
compound. it was there observed that the product derived
from refining crude petroleum would be covered by Item 11A,
but if a different commodity was produced of made by
subjecting the “products derived from refining of crude
petroleum” to a process, it would not fall within the plain
language of Item 11-A (now Item 11AA). Learned counsel
submitted that the raw naphtha, produced from refining crude
petroleum, was not subjected by the appellants to a process
to produce the said products. The said products were the
result of further refining.
Learned counsel for the Revenue submitted that the raw
naphtha was a separate commercial commodity. It was the raw
material from which the finished product, that is, the said
products, was manufactured by the appellants. It could not,
therefore, be said in a commercial sense.
that the said products had been derived from cruds
petroleum.
The dictionaries state that the word “derive” is
usually followed by the word “from” and it means get or
trace from a source; arise from, originate in; show the
origin or formation of.
The use of the words “derived from” in Item 11AA(2)
suggests that the original source of the product has to be
found. Thus, as a matter of plain English, when it is said
that one word is derived from another, often in another
language, what is meant is that the source of that word is
another word, often in another language. As an illustration,
the word “democracy” is derived from the Greek word “demos”,
the people, and most dictionaries will so state. That is the
ordinary menaing of the words “derived from” and there is no
reason to depart from that ordinary meaning here.
Crude petroleum is refined to produce raw naphtha. Raw
naphtha id further refined, or cracked, to produce the said
products. This is not controverted. It seems to us to make
no difference that the appellants buy the raw naphtha from
others. The question is to be judged regardless of this, and
the question is whether the intervention of the raw naphtha
would justify the finding that the said products are not
“derived from refining of crude petroleum”. The refining of
crude petroleum produces various products at different
stages. Raw naphtha is one such stage. The further refining,
or cracking, of raw naphtha results in the said products.
The source of the said products is crude petroleum. The said
products must, therefore, be held to have been derived from
crude petroleum.
The judgment of the Tribunal is erroneous on the basic
question before it, and it is therefore, not necessary for
us to consider the aspect of limitation.
The appeal is allowed and the judgment and order under
appeal in set aside.
No order as to costs.