M/s Ricela Health Foods Ltd. Vs CCE (CESTAT Delhi)
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 excisability 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.
FULL TEXT OF THE CESTAT ORDER IS AS FOLLOWS:-
The Central Excise Division Bench of the Tribunal while considering the appeals Nos. 653/2012 and 3585/2012 filed by M/s Ricela Health Foods Ltd. and M/s J.V.L. Agro Industrial Ltd., noticing conflicting judgments of two coordinate benches on the same dispute, framed the following reference to be considered and decided by a Larger Bench of this Tribunal :-
“Whether fatty acids, wax and gum arising in course of manufacture of refined vegetable oil are to be treated as “waste” for the purpose of exemption Notification No. 89/95-CE and would be exempt from duty under this notification and whether in this regard, the Apex Court’s order affirming the Tribunal’s judgment in the case of CCE, Jalandhar vs. A.G. Fats Ltd. (supra) by dismissing the civil appeal filed against the Tribunal’s judgment, would be a binding precedent ”.
2. The brief facts of the case are the appellants were engaged in the manufacture of refined vegetable oil by processing of crude oil. During the course of such refining, fatty acids, wax and gums emerged as by-products. During the material period, refined vegetable oil was either exempted or subjected to nil rate of duty. Notification 89/1995-CE dated 18/05/1995 exempted “waste, parings and scrap arising in the course of manufacture of exempted goods and falling within the schedule to the Central Excise Tariff Act, 1985”. The expression “exempted goods” means excisable goods which are chargeable to nil rate of duty or are exempted from the whole of the duty of excise leviable thereon by any other notification. The dispute in the present case is on the central excise duty liability of such fatty acids, wax and gums that arose during the course of refining of vegetable oil. The Tribunal in CCE, Jalandhar vs. A.G. Fats Ltd. – 2012 (277) E.L.T. 96 (Tri. – Del.) held that such products are not to be considered as waste and are as such not exempted by Notification 89/95-CE. The order of the Tribunal was challenged by the assessee in Civil appeal No. D-34641/2011 before the Hon’ble Supreme Court. The civil appeals were dismissed by the Apex court – 2014 (300) E.L.T. A74 (S.C.).
3. A similar dispute came before Bombay Bench of the Tribunal in Maheshwari Solvent Extraction Ltd. vs. CCE, Nagpur – 2014 (299) E.L.T. 116 (Tri. – Mumbai). The Tribunal observed as below :-
“16. The learned Counsel fairly submitted that there are two conflicting decisions by the Tribunal’s Division Benches on the same issue one by the Bangalore Bench in the case of CCE, Hyderabad v. Priyanka Refineries Ltd. – 2010 (249) E.L.T. 70 (Tri.-Bang.) and another by the Delhi Bench in the case of CCE, Jalandhar v. A.G. Flats Ltd. – 2012 (277) E.L.T. 96 (Tri.-Del.). The statutory civil appeals against these decisions were dismissed by the Division Benches of the Apex Court. It appears that even review petition was also dismissed in A.G. Flats. In the case of A.G. Flats, the main argument of learned counsel for the appellant that the waste fetched some price, the same cannot be treated as excisable goods. The Tribunal observed that the waste is a by-product which is of no value or very low value. But the notification clearly says excisable waste which means the waste is having the value.
17. However, in view of the authoritative pronouncement in Raipur Manufacturing Co. Ltd. (supra), this difference in view is not of substantial significance.
18. It is a well-settled law that in case of conflicting judgments of the co-equal benches/co-ordinate benches, the judgment which states the law accurately has to be followed and mere incidence of time whether the judgments of co-equal benches are earlier or later is hardly relevant. Same view was taken by the Hon’ble Delhi High Court in the case of Smt. Gopa Manish Vora v. Union of India and Anr. reported in WP (Crl) 2444/2006. Thus, the merits of each judgment of the co-ordinate benches of Hon’ble Tribunal need to be examined before following any of the judgments. In view of the wordings of the Notification, read with the law laid down in Raipur Manufacturing Co. Ltd. (supra), it is clear that the view in A.G. Flats (supra), to the effect that “waste”, under the Notification, has to refer to goods of no value or of little value, cannot be preferred, as goods of no value would not command any duty at all in the first place. Besides, this would amount to adding words to the Notification where they do not exist”.
4. The referral Central Excise Bench noting the different views taken in the above two decisions on a similar dispute, observed that Notification 89/1995-CE would apply only to those byproducts which are in the nature of refuse, are of no or little commercial value and which are generally discarded. It was further recorded that none of the products now in dispute, fatty acids, wax and gums, satisfy the above criteria. The Tribunal noted that these are known commercial products with considerable value. With this observation, the referral bench referred the matter for a decision by a Larger Bench.
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 :-
6. 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, cannot be 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 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 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 co-equal 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 by-product 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 excisability 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 excisability 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 excisability. 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 exigible 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 oil, the gums and waxes available in the crude rice bran oil are to be removed by de-guming and de-waxing. Thereafter by a process of de-acidification/de-odourisation, by distillation the refined oil is obtained. In this final process fatty acid distillate (fatty acid with odour) is obtained as a waste. 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 also. 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 excisability 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.
(Order pronounced in open court on 30/01/2018.)