Case Law Details
Awn Agro P Ltd Vs C.C.E. & S.T. (CESTAT Ahmedabad)
Introduction: In a significant judgment, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Ahmedabad has ruled that spent earth, a by-product in the process of oil refining, is not subject to Central Excise Duty. The case in question is Awn Agro P Ltd Vs C.C.E. & S.T., and the ruling has relied on multiple precedents to arrive at this decision.
The Core Issue and Legal Questions: The primary issue in the case revolved around the classification of spent earth arising from the oil refining and bleaching process under the Central Excise Tariff Act 1985. The question was whether spent earth should be considered a ‘manufactured good’ and therefore subject to Central Excise Duty.
The Appellant’s Arguments: Represented by Shri S.J. Vyas, the appellant argued that the issue was already resolved (“res-Integra”) as per various past judgments like Nk Proteins Limited, Maheshwari Solvent Extraction Ltd., and others. These previous decisions clarified that spent earth should not be subject to excise duty.
The Revenue’s Counter Argument: Shri Ashok Thanvi, appearing on behalf of the revenue, reiterated the findings of the impugned order, arguing that spent earth should be liable for excise duty.
The Tribunal’s Observation and Ruling: After considering arguments from both sides, the Tribunal held that spent earth, as per various precedents, is not liable for excise duty. The decision cited previous judgments, including one by CESTAT New Delhi, which examined the chemical processes involved in oil refining and determined that the by-products could not be considered as manufactured goods liable for excise duty.
Implications of the Judgment: The ruling provides substantial relief for businesses in the oil refining sector. It implies that they are not liable to pay excise duty on spent earth, aligning with earlier judgments that took a similar stand.
Conclusion: The CESTAT Ahmedabad’s ruling in Awn Agro P Ltd Vs C.C.E. & S.T. is pivotal for companies in the oil refining industry. It reaffirms that spent earth arising from oil refining processes is not subject to excise duty, thus settling a significant point of contention in excise law. The judgment is not only a win for Awn Agro P Ltd but also sets a precedent that could benefit other companies in similar situations.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
1. The issue involved in the present case is that whether the spent earth arising in the process of oil refining, bleaching process is classifiable under 15220090 of the Central Excise Tariff Act 1985 and consequently liable for Central Excise Duty.
2. Shri S.J. Vyas, Learned Counsel, appearing on behalf of appellant at the outset submits that issue is no longer res-Integra as per the following Judgments:
- Nk Proteins Limited Versus C.C.E. & S.T. – Ahmedabad-III 2023 (5) TMI 512 – CESTAT Ahmedabad
- M/S Ricela Health Foods Ltd., M/S J.V.L. Agro Industrial Ltd., M/S Kissan Fats Limited Versus CCE, Chandigarh, Allahabad 2018 (2) TMI 1395 CESTAT New Delhi
- Maheshwari Solvent Extraction Ltd. Versus Commissioner Of Central Excise, Nagpur, Maharashtra 2023 (5) TMI 1149 CESTAT Mumbai
- Adani Wilmar Ltd – Order Dated 7-2-23
3. Shri Ashok Thanvi, Learned Superintendent (AR), appearing on behalf of the revenue reiterates the findings of the impugned order.
4. On careful consideration of submissions made by both the sides and perusal of record, we find that the issue is that whether the spent earth is liable to Excise duty or otherwise has now been settled in various judgments cited by the Learned Counsel. The judgment in case of Adani Wilmar Ltd is reproduced below:
“04. We have carefully considered the submissions made by both the sides and perused the records. We find that the issue to be decided is that during the course of manufacture of vegetable refined oil which is exempted, the emergence of spent earth is liable to excise duty or otherwise. We find that the very same issue has been considered by this tribunal in the case of M!s. PRIYANKA REFINERIES PVT LTD UNIT II (supra) wherein, the tribunal has passed the following order:-
8. We have considered the arguments on both sides and find that the issue in hand is identical to the issue before the Larger Bench of the Tribunal in the case of Ricela Health Foods Ltd (supra). The short point to be decided is whether the fatty acids/ wax/ gums, etc., which arise while crude vegetable oil is refined should be considered as waste or as by- product. If these are considered as waste, they are covered by exemption notification 89!1995-CE. If, on the other hand, these are considered as by-products, as asserted by the department, they are not entitled to the benefit of this notification. The matter has been decided by the Larger Bench of the Tribunal in Ricela Health Foods (supra) and it has been held that these products are not intentionally manufactured but only arise during the process of refining of crude vegetable oil and therefore should be considered as waste and they are entitled to the benefit of exemption notification 89/1995-CE. Respectfully following the decision of the Larger Bench, we hold that the impugned order is unsustainable and liable to be set aside and we do so.
9. The appeal is allowed and the impugned order is set aside.
The same issue has been considered by CESTAT- New Delhi in the case of M/S. RICELA HEALTH FOODS LTD., M/S. J.V.L. AGRO INDUSTRIAL LTD., M/S. KISSAN FATS LIMITED (supra) wherein, the tribunal has observed as under:-
5. We have heard the learned counsels for the appellants. The learned counsels submitted on the process undertaken by the appellants starting from the receipt of crude rice bran oil. The following flow chart was presented to explain the process:-
The learned Counsel mainly submitted on the following lines:-
(a) the products, in question, are essentially inevitable waste, which the appellant never intended to manufacture and, as such, cannotbe considered as a result of manufacturing process;
(b) without prejudice to the above, the products, in question, are clearly exempted under Notification 89/95- CE. The Revenue itself contends that wax, fatty acid and gums are waste arising during the course of refining of vegetable oil;
(c) no reliance can be placed on the order of the Tribunal in A.G. Fats (supra) as the same is devoid of legal basis and is incorrect in law. The said decision departed from many rulings of the Tribunal earlier. The reference made by the Tribunal in A.G. Fats (supra) to the decision of CCE, Hyderabad vs. Priyanka Refineries Ltd. – 2010 (249) E.L. T. 70 (Tri. Bang.) is factually incorrect. The said decision of the Tribunal in Priyanka Refineries (supra) has been affirmed by the Apex court by dismissing the civil appeal Nos. 219-220 of 2010 filed by the Revenue reported in 2011 (274) E.L.T. A16 (S.C.). This was wrongly referred to as dismissal of SLP. The Tribunal noted the dismissal of civil appeal by the Apex court incorrectly as dismissal of SLP;
(d) the order of the Hon ‘ble Supreme Court affirming the decision of the Tribunal in A.G. Fats (supra) by dismissing the civil appeal will not form a binding precedent in view of similar dismissal of civil appeal against a contrary decision in Priyanka Refineries (supra). Thus, there exist two decisions of coequal Benches on the same Issue. The Larger Bench of the Tribunal, now seized of the matter, should take a view which correctly reflects the legal position. Reliance was placed on the decision of Hon ‘ble Calcutta High Court In New India Assurance Co. Ltd. – AIR 2004 CAL 1.
7. The learned Counsel reiterated that the Larger Bench is deciding only on the reference made by the Excise Division Bench and, as such, the other connected disputes with reference to classification, valuation, Cenvat credit, penalty etc. would have to be decided by the appropriate Division Bench after the decision of the Larger Bench on the referred dispute.
8. The learned AR submitted that waste and by-product have different scope and meaning. There is a clear distinction between these two. By- products emerge as unavoidable outcome of a manufacturing process and do have significant commercial value. Waste on the other hand is such type of byproduct which is generally in the nature of rejects or refuse, fit to be discarded. They have little or no commercial importance. All products emerging during the course of main final products cannot be considered as waste, eligible for exemption under the said notification.
9. We have heard both the sides and perused the appeal record to examine the reference made by the Division Bench. Since the appellants submitted on the excisabiity itself the first point for decision is the excisability of the products, in question. The appellants strongly contended that even before examining the admissibility of exemption under Notification 89/1995-CE, the point to be decided is the excisabiity of the product, in question. It is the case of the appellant that if it can be established that these goods are not manufactured goods then the question of levy itself will not arise. It is contended that the product, in question, are unwanted/inevitable waste. The value realized by the appellants on such unintended waste by sale, itself is not a criteria to decide the excisabiity. The Hon ‘ble Supreme Court in CCE vs. Indian Aluminium Company 2006 (203) E.L.T. 3 (S.C.) held zinc dross and flux skimming are not eligible to central excise duty. Relying on the earlier decisions in Union of India vs. Indian Aluminium Company Ltd. 1995 (77) E.L.T. 268 (S.C.) and CCE, Patna vs. Tata Iron & Steel Company Ltd.. – 2004 (165) E.L.T. 386 (S.C.), the Apex court held that the dross and skimming arising during the course of manufacture of metal cannot be subjected to excise levy only because it may have some saleable value, observing that the term “manufacture implies a change; every change, however, is not a manufacture”. Every change of an article may be the result of treatment, labour and manipulation. The manufacture would Imply something more. There must be a transformation; a new and different article must emerge having a descriptive name, character or use (Delhi Cloth and General Mills Company Ltd. – AIR 63 SC 791). The Apex court categorically held that dross do not answers the description of “waste and scrap”.
10. In view of the ratio adopted by the Apex court while arriving at the above decisions, the point for consideration in the present dispute is the gums, waxes and fatty acid that emerge as a by-product can be considered as a products arising out of a manufacturing process. The appellants are engaged in converting crude rice bran oil into refined rice bran oil. In effect the processes undertaken by them are towards this intended final product. For producing refined rice bran oll, the gums and waxes available in the crude rice bran oil are to be removed by deguming and de-waxing. Thereafter by a process of deacidification/ de- odourisation, by distillation the refined oil is obtained. In this final process fatty acid distillate (fatty acid with odour) is obtained as a As can be seen the gums, waxes and fatty acid distillate are emerging due to removal/refining process of crude rice bran oil. As already noted the process is to obtain refined rice bran oil by removing these unwanted products alongwith spent earth, which when present makes the oil as crude refined oil.
11. The thrust of the arguments by the Revenue is that when a product is capable of being sold for a significant consideration the same cannot be considered as waste. We are unable to accept such summary presumption. Admittedly, in chemical and metallurgical industry when the raw materials are processed with an intended purpose of manufacturing certain final products by a chemical reaction, refining, melting etc. multiple products will result. These products either emerged in the final stage or any of the intermediating stages The point for consideration is whether these are to be considered as manufactured goods for excise levy based on the statutory definition for manufacture or should be considered as manufactured goods based on the likely value they may command while selling. We are clear that the value that a product may or may not fetch cannot be a determinative factor to decide whether the same is a manufactured final product/by product or a waste/refuse arising during the course of manufacture of final products. This much is clear from the ratio of the Apex court decision in Indian Aluminium Co. (supra). While no general guidelines can be laid down to decide when a product will be treated as a waste or a by product, in the present set of facts the products under consideration are clearly not in the nature of by products emerging during the course of manufacture. The process of manufacturing refined vegetable oil is essentially by removing the unwanted materials that were present in the crude vegetable oil so that a refined vegetable oil can be obtained. In this process of refining, the unwanted materials are removed. Hence, we are of the considered view that the removal of unwanted materials resulting in products like gums, waxes and fatty acid with odour cannot be called as a process of manufacture of these gums, waxes and fatty acid with odour. The process of manufacture is for refined rice bran oil. As such, we note that these Incidental products are nothing but waste arising during course of refining of rice bran oil and applying the ratio of Apex court, as discussed above, these cannot be considered as manufactured excisable goods. Noting that the reference is to decide whether these are to be treated as waste for the purpose of exemption Notification 89/95-CE we note though the excisabiity of the product itself is seriously in dispute as per the opinion expressed by us, as above, these cannot be considered as anything other than waste and as such will be covered by the exemption Notification No. 89/95-CE. This has been pleaded as a alternate argument by the appellant/assessee also.
12. As such in view of the above discussion and finding, we note that the appellant/assessee are eligible for exemption under the said notification.
13. The appeal files are returned, with the above findings, to the regular Division Bench for decision on the points raised in the respective appeals.
05. In view of the above judgment which are on the identical issue and on the same product, the issue is no longer res-integra accordingly, the impugned order is set aside. Appeal is allowed. “
From the above decision, which is based on the other Tribunal’s decisions, the issue is no longer res-Integra as has been held that the spent earth arising out of processing of oil is not liable to duty in terms of Notification No. 89/95-C.E. dated 18-05-2019. Following the above decisions and the decision cited by the Learned Counsel, we are of the view that the demand is not sustainable.
5. Hence, the same is set aside, appeals are allowed.
(Pronounced in the open court on 25.08.2023)
