TATA
Oil Mills Co. Ltd. Vs. Collector of Central Excise [1989] INSC 243 (14 August 1989)
Rangnathan,
S. Rangnathan, S.
Thommen, T.K.
(J)
CITATION:
1990 AIR 27 1989 SCR (3) 839 1989 SCC (4) 541 JT 1989 (3) 382 1989 SCALE (2)313
CITATOR
INFO : R 1991 SC 754 (13) RF 1991 SC2049 (6)
ACT:
Central
Excises and Salt Act, 1944: Central Excise Rules 1944 Sections 3, 4 and
35L/Rule 8(1) and Notification No. 46/72, 153, 73 and 25/75--Rice Bran Oil
converted into hydrogenated oil used in manufacture of soap-Whether entitled to
rebate scheme in respect of excise duty.
HEAD NOTE:
The
petitioner-appellant is engaged in the manufacture of various varieties of
soaps. The dispute arose as to the eligibility of the appellants to the
concession under rule 8(1) of the Central Excise Rule 1944 through Notification
No. 46 of 1972 subsequently amended by Notification Nos. 153 of 1973 dated
24.7.73 of 25 of 1975 dated 1.3.75.
Resolving
the dispute as to the interpretation of rules whether rice bran fatty acid is
different from the rice Bran Oil as held by the Tribunal the Court came to the
conclusion that the view taken by the Excise authorities as well as by the
Tribunal proceeded upon too narrow an interpretation of the notification and
erred in not granting the exemption to the assessee. While allowing the
appeals, this Court,
HELD:
Rice bran oil contains glycerol and other impurities which have to be removed
by a process of hydrolysis or hydrogenation and it is only the resultant
purified rice bran oil that is actually used in the manufacture of soap.
[843G]
A factory which consumes rice bran oil in the manufacture of soap in its
factory first converts the oil into hydrogenated oil or fatty acid and then
manufactures soap out of the latter. [844A] In trying to understand the
language used by an exemption notification one should keep in mind two
important aspects; (a) the object and purpose of the exemption and (b) the
nature of the actual process involved in the manufacture of the commodity in
relation to which exemption is granted.
[843F]
Construing the notifications literally but reasonably in the light of 840 the
process of manufacture as explained by the Tribunal, the soap manufactured by
the assessee is "soap made from indigenous rice bran oil" and is
entitled to the exemption under the notifications to the extent permissible thereunder.
[844H-845A]
The terms of the notification do not have the effect of excluding cases where
the manufacture of soap is done out of rice bran oil but the entire process is
not carried out by the assessee itself. [849A] Tungabhadra Industries Ltd. v.
C.T.O., [1961] 2 SCR 14 and Collector of Central Excise v. Jayant Oil Mills
etc., CA 729 of 1983 and 2479 of 1987) decided by this Court on 31.3.89,
referred to.
CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 13041305 of 1987.
From
the Judgment and Order dated 7.1.1987 of the Customs Excise and Gold (Control)
Appellate Tribunal, New Delhi in Appeal No. 1120/83-C and 1806 of 1983-C.
Soli
J. Sorabjee, Ravinder Narain, A.N. Haksar, P.K. Ram and D.N. Misra for the
Appellant.
A.K. Ganguli,
P. Parmeshwaran, A. Subba Rao and Ms. Sushma Suri for the Respondent.
The
Judgment of the Court was delivered by RANGANATHAN, J. These are appeals under
section 35L of the Central Excises and Salt Act, 1944 (hereinafter referred to
as 'the Act'). The appellant, Tata Oil Mills Company Limited, is engaged in the
manufacture of various varieties of soaps. The present dispute has arisen in
relation to its factory at Ghaziabad in
the State of Uttar
Pradesh.
The
dispute pertains to the eligibility of the appellant to the concession granted
by the Central Government under Rule 8(1) of the Central Excise Rules, 1944
through notification No. 46 of 1972, subsequently amended by the notification
nos. 153 of 1973 dated 24.7.73 and 25 of 1975 dated 1.3.75. Even though there
are three notifications, the point is common and both the appeals involve the
same question.
841
The question arises this way. Ad Valorem excise duty at 20% is levied on soap
which falls under item 15 of the first schedule to the Act. Notification No. 46
of 1972 exempts "such soap as is made from indigenous rice bran oil or or
from a mixture of such oil with any other oils from so much of the duty of
excise leviable thereon as is equivalent to the amount of duty calculated at
the rate of one rupee and fifty paise per metric tonne of such soap for each
additional percentage point increase in the use of such rice bran oil which is
in excess of fifteen per cent of the total oils used in the manufacture of such
soap." To put it in simpler words, the notification intends to grant a
concession where the percentage of the rice bran oil used in the manufacture of
soap exceeds fifteen per cent of the total oil consumption in the manufacture.
The extent of exemption is graded according to the percentage of rice bran oil
in excess of fifteen per cent. For example, if the rice bran oil is twenty per
cent of the total oils used in the manufacture, the duty exemption will be
Rs.7.50 per metric tonne of soap manufactured. The 1973 notification is on the
same lines with the only difference that the duty exemption per metric tonne is
Rs.7.50 instead of Rs. 1.50. The notification of 1975 raised the percentage of
rice bran oil referred to in the 1972 notification from fifteen per cent to
twenty five per cent but reduced the duty rebate from Rs.7.50 to Rs.3.50 per
metric tonne. Another notification No. 118/75 has been referred to in the
papers before us but it has no relevance to the question that falls to be
decided here and is left out of account.
The
difficulty in the interpretation has arisen because the process of manufacture
of soap in the assessee's factory at Ghaziabad did not involve the use of rice bran oil as such. This factory
manufactured soap from rice bran fatty acid. The rice bran fatty acid was
extracted from rice bran oil in the assessee's factory elsewhere. Incidentally,
it may be mentioned that the other factory is also licensed under the Excise
Act for the manufacture of rice bran fatty acid. The excise authorities
rejected the appellant's plea for exemption under the first three notifications
on the ground that rice bran fatty acid and rice bran oil are technically and
commercially two separate commodities. It was pointed out that the concession
under the notifications is available only where soap is made from indigenous
rice bran oil and other oils. This meant that rice bran oil must form part of
the process of manufacture of soap in the factory which is manufacturing the
soap and claiming the exemption. The notification will not apply merely because
the soap is manufactured out of rice bran fatty acid which in turn has been
obtained by hydrolysis of rice bran oil in a different factory (may be one
belonging to the same assessee which is a separate 842 unit of manufacture for
purpose of excise duty).
The
Tribunal confirmed this view. It considered the terms of notification No. 25/75
and held:
"We
observe that the concession given under notification No. 25/75 is apparently
with a view to encourage the use of rice bran oil in the soap industry. The
point for consideration is whether the rice bran oil for the purpose of benefit
of notification should be brought into the factory of manufacturer as such and
then subjected to various pretreatments required for its use in the soap
industry or whether the same could be treated outside the factory and the
necessary fraction of the rice bran oil namely rice bran fatty acid required
for the manufacture of soap alone could be brought into the factory as raw
material and concession availed. It is not denied that for the use of rice bran
oil, the same has necessarily to be pre-treated first and rice bran fatty acid
is required to be separated from glycerine. The appellants in the instant case
have only brought in the rice bran fatty acid which has been obtained from rice
bran oil by a process of pre-treatment in one of their other factories. It is
seen that the Government of India have
clarified vide their letter No. P/92/2/72-CH. III dated 18.7.74 that rice bran
oil as such sometimes cannot be used directly and has to be subjected to
pre-treatment before use in the manufacture of soap and that the exemption will
be admissible in respect of rice bran oil even after pretreatment for use in
the manufacture of soap. Thus we find that the pre-treatment of rice bran oil
is required to be done as a matter of necessity for its use in the manufacture
of soap. The short point therefore is whether such treatment should be done in
the factory of the manufacturer or could be arranged to be done outside. In the
scheme of Central Excise, the various concessions, levies etc., are in respect
of products manufactured by a particular licencee in the manufacturing unit so
licensed and the necessary mechanism of controls and accountability is with
reference to a particular licensee and the manufacturer.
The
eligibility to or the concessional assessment of a product manufactured by the
manufacturer has to be determined with reference to the particular manufacturer
subject to the fulfilment of the conditions as may be set out in the rele843 vant
concessional notification. In the instant case, a verification will be required
to be done in respect of the following:
(1)
The nature of the oil used--whether rice bran oil or otherwise;
(2)
The quantum used;
(3) the
processes of pre-treatment carried out on ,the rice bran oil and the fraction
thereof used for the soap making.
Now,
if the rice bran oil has been pre-treated outside the appellant's factory, it
is not possible for (the) jurisdictional authority to verify the facts in
regard to above." The Tribunal observed that concessional rates are
allowed as incentives for use of certain raw materials and these rates are
determined after taking into consideration the economics of operation involving
the use of the said material in the manufacturing process in the manufacturer's
factory. Holding that the notification did not envisage the use of rice bran
fatty acid and it is the rice bran oil which is required to be used in the
manufacture of soap for concessional assessment purposes, the Tribunal
dismissed the appeals of the assessee. Hence these appeals.
We are
of opinion that the view taken by the Excise Authorities as well as by the
Tribunal proceeds upon too narrow an interpretation of the notification. It is
true, as Mr. Ganguli contended, that an assessee claiming relief under an
exemption provision in a taxing statute has to show that he comes within the
language of the exemption. But, in trying to understand the language used by an
exemption notification, one should keep in mind two important aspects:
(a) the
object and purpose of the exemption and (b) the nature of the actual process
involved in the manufacture of the commodity in relation to which exemption is
granted. So far as (b) is concerned, it is common ground before us that rice
bran oil as such is not directly used in the manufacture of soap. Rice bran oil
contains glycerol and other impurities which have to be removed by a process of
hydrolysis or hydrogenation and it is only the resultant purified rice bran oil
that is actually used in the manufacture of soap. In fact, the Tribunal has
given a clear finding that a pre-treatment to rice bran oil is required to be
done as a matter of necessity for its use in the manufacture of soap.
844
Thus even a factory which consumes rice bran oil in the manufacture of soap in
its factory first converts the oil into hydrogenated oil or fatty acid and then
manufactures soap out of the latter. So far as (a) is concerned, the object of
the notification--as even the Tribunal finds-is to grant a concession to a
manufacturer of soap who manufactures soap from rice bran oil to a substantial
extent and thus discourage the use of edible oils in the manufacture.
If
these two aspects are considered together, it is clear that the emphasis in the
notification is not that rice bran oil should be used as raw material in the
very factory which produces the soap. The requirement is that the soap
manufacture should, to a prescribed extent, be from rice bran oil as contrasted
with other types of oil. The contrast is not between the use of rice bran oil
as opposed to rice bran fatty acid or hydrogenated rice bran oil; the contrast
is between the use of rice bran oil as opposed to other oils.
That
is the ordinary meaning of the words used. These words may be construed
literally but should be given their fullest amptitude and interpreted in the
context of the process of soap manufacture. There are no words in the
notification to restrict it to only to cases where rice bran oil is directly
used in the factory claiming exemption and to exclude cases where soap is made
by using rice bran fatty acid derived from rice bran oil. The whole purpose and
object of the notification is to encourage the utilisation of rice bran oil in
the process of manufacture of soap in preference to various other kinds of oil
(mainly edible oils) used in such manufacture and this should not be defeated
by an unduly narrow interpretation of the language of the notification even
when it is clear that rice bran oil can be used for manufacture of soap only
after its conversion into fatty acid or hydrogenated oil.
The
position will perhaps become clearer if we consider a case where an assessee
manufactures soap out of hydrogenated rice bran oil (which process of hydrogenation,
again, is akin to the process of hydrolysis which yields rice bran fatty acid).
The assessee will then be clearly entitled to the exemption under the
notification inasmuch as the hydrogenated rice bran oil does not cease to be
rice bran oil. See in this connection: Tungabhadra Industries Ltd. v. C.T.O.,
[1961] 2 S.C.R. 14 and Collector of Central Excise v. Jayant Oil Mills etc.,(CA
729 of 1983 and 2479 of 1987, decided by this Court on 31.3.89). The answer
cannot be different where rice bran oil is treated to yield rice bran fatty
acid before soap is manufactured even if it be assumed that, unlike
hydrogenated oil the fatty acid is, commercially speaking, a different
commodity. We are, therefore, of opinion that, construing the notifications literally
but reasonably in the light of the process of manufacture is explained by the
Tribunal, the soap manufactured by 845 the assessee is "soap made from
indigenous rice bran oil" and is entitled to the exemption under the
notifications to the extent permissible there under.
Reference
was made, in the course of the arguments before us, to a tariff advice issued
as early as July, 1974 by the Ministry of Finance in relation to the
notification of 1972. It reads as under:
"I
am directed to invite a reference to this Ministry's notification No. 46/72
C.E. dated the 17th
March, 1972, which
grants exemption from duty on soap which is produced from rice bran oil or from
a mixture of rice bran oil and other oils. It has been brought to the notice of
this Ministry that the benefit of exemption is not being allowed by the Central
Excise Officers where rice bran oil or oil mixture is hydrogenated or
pre-treated before the soap is produced. The matter has been considered in
detail with the concerned authorities and keeping in view the technical opinion
tendered by them that rice bran oil as such sometimes cannot be used directly
and has to be pre-treated before use in the manufacture of soap, it is hereby
clarified that the exemption will be admissible when the rice bran oil is,
after processing or pre-treatment, used in the manufacture of soap. In this
connection it may be stated that the exemption Notification does not preclude
any processing or pre-treatment including hydrogenation in the manufacture of
soap if such processes are incidental and ancillary to the manufacturing
operating." (Underlining ours) This circular clarifies that the exemption
will be admissible when the rice bran oil after processing or
pre-treatment--that is to say, when hydrogenated rice bran oil or rice bran
fatty acid--is used in the manufacture of soap.
But
the counsel for the Union of India would have it that the circular postulates
such exemption only where the pretreatment or processing is done is the same
factory. He invites attention to the last sentence of the circular, underlined
by us above. We do not think this is the correct interpretation of the
circular. In the first place, it will be noticed that the circular does not
specifically say that the pre-treatment or processing should be in the same
factory of the assessee. Secondly, no clarification by a circular or tariff
advice is at all necessary to cover cases where the conversion from rice bran
oil into rice bran fatty acid is done in the same factory for, to such a case,
846 the notification will clearly apply. If it had been the intention to pin
down the concession to cases where the pre-treatment or processing is part of
the manufacturing process within the same factory, the last sentence would not
have stated the obvious but would have read something like this:
"In
this connection it is emphasised that the exemption notification precludes any
processing or pre-treatment, including hydrogenation in the manufacture of
soap, except where such processes are incidental and ancilliary to the
manufacturing operations." The Tribunal has pointed out that the
notification refers to the percentage of rice bran oil consumption and that,
unless such oil is directly used in the factory, it will not be possible to
work back, from the weight of fatty acid used by the assessee, the weight of
rice bran' oil out of which such acid had been obtained. There are two answers
to this objection. One is that, if what we have stated is the correct
interpretation of the notification, the mere fact that there may be some
difficulty in ascertaining the weight of oil, cannot be a justification to
refuse to give effect to that interpretation. The second is that a practical
solution to this difficulty has in fact been evolved and that, too, in the case
of the same assessee. Our attention has been invited to a circular issued by
the Assistant Collector, Ernakulam II dated 23.6.77. This circular states that
the matter had been considered pursuant to an appellate order passed in one of
the cases relating to the same assessee and it had been decided to fix the
formula for arriving at the correlation between rice bran oil on the one hand
and hydrogenated rice bran oil or rice bran fatty acid on the other as below:
(a)
100 M.T. of hydrogenated = 100 MT of rice bran oil rice bran oil (b) 100 M.T.
of Fatty acid = 115 MT of raw rice bran oil The circular refers to the fact
that the present assessee (in relation to its Cochin factory) had accepted the abovesaid
formula and that the formula as given above was, therefore, "finally fixed
in arriving at the rice bran oil contents of hydrogenated rice bran oil and of
rice bran fatty paid for ascertaining the amount of exemption as per
notification nos. 45 and 46 of 1972". It is true that this is only a local
instruction issued by certain assessing authorities in Cochin. It is being referred to only show
that there is no insuperable difficulty in ascertaining the weight of rice bran
oil that that has been converted into fatty acid and thus 847 entered the
process of manufacture in the assessee's factory particularly in view of the
fact that even the process of conversion of rice bran oil into fatty acid or
hydrogenated oil is carried but in a factory subject to excise jurisdiction.
The
appellant has drawn our attention to certain extracts from a letter of the
Ministry of Finance dated 6.4.76. It poses the problem thus:
"A
doubt has been raised whether rebate of Central Excise duty would be admissible
under Notification No. 24 and 25/75 CE, dated 1-3-75 (predecessor Notification
Nos. 45 and 46 of 1972) where rice bran oil and other minor oils are
hydrogenated in one factory and sent to another factory for manufacture of
soap." The answer furnished is this:
"The
matter has been considered in the Ministry and it is felt that the purpose of
rebate scheme of rice bran oil as well as other minor oils envisaged in the
Notifications Nos. 24/75 and 25/75 (including their predecessor notifications)
is to encourage the use of inedible oils in the manufacture of soap so as to
relieve the pressure on edible oils. In Board's letter F. No. 92/2/72-CX. 3
dated 18-7-74 and F. No. 92/6/74-CX. 3, dated
27-12-74, it was clarified that in respect of rice bran oil as well as other
minor oils where such oils are subjected to various treatments, including hydrogenation,
such treatment would not debar them from the rebate scheme in as much as such
processing is essential in the process of manufacture of soap.
As the
notifications in question permit the rebate subject to identification of the
oil as such, had the manufacturer placed the matter before the concerned
Collector pointing out his practical difficulties, the Collector would have
advised for suitable documentation (if the existing documentations are not
enough) for the receipt, processing, movement and accounting of the oils for
the concession in question. In the circumstances, it is felt that the benefit
of rebate cannot be denied to the manufacturers for want of prescribing a
satisfactory procedure, especially, when it is contended by the manufacturers that
they have opted for 848 the rebate scheme, their factories are under excise
control, they have sufficient documentary evidence about the receipt,
processing, movement, incorporation/use in the manufacture of soap. If, as
contended by the manufacturers, there is sufficient record maintained by them
for excise purposes and the reasonable correlation is possible about the
identity and use of such oils it would not be correct to deny the concession.
In this connection, it is of relevance to mention that a problem of similar
nature had arisen with reference to some other excisable product and the Law
Ministry was also consulted. An extract of their opinion is appended. It is,
therefore, requested that taking into account the local practical situations
existing in his jurisdiction, the Collector may prescribe suitable procedures
for identification of such oils for a meaningful implementation of the Rebate
Scheme. A copy of the Trade Notice issued in this regard by the Collector may
be sent to DICCE under intimation to this Ministry." Following this, trade
notices were issued on 25.8.76 and 8.2.77 in certain central excise
jurisdiction, the relevant portion of which reads thus:
"A
doubt has been raised whether the rebate on Central Excise Duty would be
admissible under Notification No. 40/72-CE & 46/72-CE both dated 17.3.72 as
amended, where the Rice Bran Oil and other Minor Oils are hydrogenated in one
factory and sent to another factory for use in the manufacture of soap.
It has
been clarified that in respect of Rice bran oil and other Minor oils where such
oils are subject to various treatment, including hydrogenation, such treatment
would not debar them from the rebate scheme as envisaged in the above said
Notifications." The trade notice proceeds to set out the procedural
safeguards to be followed in granting this relief which are unnecessary for our
purpose. We endorse this as embodying the correct approach to the issue in this
case.
"This
related to a claim of exemption in respect of fertilisers (super-phosphates)
manufactured from sulphuric acid in a case where sulphuric acid was converted
elsewhere into phosphoric acid and then used for the manufacture of the
chemicals.
849 We
are, therefore, of the view that the terms of the notification do not have the
effect of excluding cases where the manufacture of soap is done out of rice
bran oil but the entire process is not carried out by the assessee itself.
The
question which one has to ask is: does the assessee manufacture soap partly or
wholly out of indigenous rice bran oil? and the answer, we think, can only be
in the affirmative. We therefore hold that that the assessee is entitled to the
exemption under the notifications referred to above and that the departmental
authorities and the Tribunal erred in not granting the said exemption to the assessee.
The appeals are, therefore, allowed. However, in the circumstances of the case,
we make no order as to costs.
R.N.J.
Appeals allowed.
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