Judgment:
1. These four appeals involve the common issue as to whether the commodity "Acid Oil" produced as a result of refining crude vegetable Non-Essential Oil by treatment with caustic soda and then treating the resulting soap stock with sulphuric acid was classifiable as vegetable Non-Essential Oil under Tariff Item 12 or under the residual Item 68 of the erstwhile Central Excise Tariff in force upto 28-2-1986. The appeals came to be heard by this Larger Bench as a result of the following three reference orders :- 2. The reference to the Larger Bench has been made as the Benches which heard these appeals earlier disagreed with the view taken by a three Member Bench of the Tribunal in Kusum Products Ltd. v. Collector of Central Excise, Calcutta -1985 (19) E.L.T. 479 that Acid Oil attracted classification under Tariff Item 12 as Vegetable Non-Essential Oil. The brief factual details in these appeals are as follows.
M/s. Prag Vanaspati Products (for short, PVP), manufacturing Acid Oil was paying Central Excise duty thereon under the erstwhile Tariff Item 68. On 20-5-1985, PVP filed revised classification list No. 47/85 seeking classification under Tariff Item 12. Show cause notice dated 13-1-1986 was issued by the Assistant Collector, Aligarh stating that Acid Oil, not being Vegetable Non-essential Oil (for short, VNE oil) and not being known as such in trade parlance, was required to be classified under Tariff Item 68. PVP took the stand that Acid Oil was nothing but VNE oil classified under Tariff Item 12. The Assistant Collector on 28-2-1986 overruled the contention and approved the price list, classifying Acid Oil under Tariff Item 68. Meanwhile, PVP filed a refund claim for Rs. 1,03,977.66 out of duty paid on Acid Oil under Tariff Item 68 during the period from 13-12-1984 to 29-12-1984 and 2-1-1985 to 30-5-1985 alleging duty was payable only under Tariff Item 12. The Assistant Collector issued show cause notice dated 19-12-1985 proposing rejection of the refund claim on the ground that Acid Oil was classifiable under Tariff Item 68 and duty paid was correct. Though PVP resisted the notice, the Assistant Collector on 28-2-1986 rejected the refund claim. PVP filed two appeals against the two orders passed on 28-2-1986 by the Assistant Collector. The Collector (Appeals) having dismissed the appeals, PVP filed the two appeals E 7.3326-3327/88-C.M/s. Ahmed Oomerbhoy (for short, AOB) was engaged in the manufacture of VNE oil and Acid Oil. Acid Oil was classified under Tariff Item 68. AOB availed benefit of exemption Notification No.115/75. The Superintendent, Bombay issued show cause notice dated 31-10-1985 stating Acid Oil was classifiable under Tariff Item 12 in view of the decision in Kusum Products Limited -1985 (19) E.L.T. 479 (Tribunal) and proposing demand of duty of Rs. 15,090.00 on that basis for the period 1-5-1985 to 31-10-1985. In respect of certain other period, AOB had obtained refund of Rs. 1,64,729.11 on the basis that Acid Oil was classifiable under Tariff Item 68. Show cause notice dated 21-11-1985 was issued stating that Acid Oil being classifiable under Tariff Item 12 and not Tariff Item 68, refund was granted erroneously and proposing demand of the amount refunded earlier. The Assistant Collector confirmed the demands proposed in the two show cause notices holding that Acid Oil was classifiable under Tariff Item 12. The Collector (Appeals) having confirmed the order, AOB has filed this appeal.
The Respondent in this appeal, M/s. Oswal Vanaspati and General Industries submitted classification lists Nos. 15/85-86 for approval of various types of excisable goods, including Acid Oil seeking classification for Acid Oil under Tariff Item 12. Show cause notice dated 11-6-1986 was being issued proposing classification under Tariff Item 68. Though the Respondent resisted the notice, the Assistant Collector classified Acid Oil under Tariff Item 68. The Collector (Appeals), following Kusum Products Limited - 1985 (19) E.L.T. 479 (Tribunal) held Acid Oil classifiable under Tariff Item 12 and allowed the appeal. The Department, being aggrieved, has filed this appeal.
Respondent, in spite of notice has remained absent and has sought decision of the appeal on merits.
4. The appeals came up for consideration before the Benches concerned.
It was felt that the decision in Kusum Products Limited -1985 (19) E.L.T. 479 (Tribunal) was not correct and the following questions were referred to a larger Bench.
"Whether the Acid Oil is required to be treated as VNE oil and classified as such under Tariff Item 12 as held by the Tribunal in the case of Kusum Products or it is required to be considered as a product other than VNE oil and was, therefore, required to be classified under Tariff Item 68 and the appeals were required to be disposed of accordingly." "Whether Acid Oil is a VNE oil classifiable under Tariff Item 12 (old Tariff) or it is not a vegetable oil (but a product made from vegetable oils) classifiable under Tariff Item 68 (old Tariff)".
The President, having constituted the larger Bench and placed the appeals for hearing before the Bench, we have heard the appeals and propose to dispose of the appeals by this order. We have heard Shri J.M. Sharma, Consultant for AOB, Shri Bipin Garg, Advocate for PVP, Shri Lakhinder Singh, JCDR for the Department in Appeal E/3326/88 and E/3327/88 and Shri H.K. Jain appearing for the Department in other appeals. We also record the assistance rendered by Shri V. Lakshmi Kumaran, Advocate who also addressed arguments before us and Shri Shand, Chemical Examiner, Central Revenues Control Laboratory.
5. The lower authorities in these appeals have taken contradictory positions and the stand taken by the Department before us has also been contradictory. Shri J.M. Sharma, Shri Bipin Garg and Shri Lakhinder Singh supported classification under Tariff Item 68. Shri H.K. Jain and Shri Lakshmi Kumaran supported classification under Tariff Item 12. The applicability of Notification No. 15/75 also requires to be considered.
6. The controversy in these appeals is whether the subject excisable goods, known as "Acid Oil" is a vegetable Non-essential Oil covered by erstwhile Tariff Item 12 or by the erstwhile residuary entry Tariff Item 68. Tariff Item 12 reads 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.
There is no dispute that in the manufacture of Acid oil in these cases process has been ordinarily carried on with the aid of power. The controversy is whether Acid oil can be regarded as Vegetable non-essential oil (for short, VNE Oil).
7. A three-Member Bench of the Tribunal in Kusum Products Ltd. -1985 (19) E.L.T. 479 (Tribunal) held Acid Oil to be VNE and classifiable under Tariff Item 12. The Collector in that case had indicated that VNE oil (Tro-Glycerides of fatty acids) is combination of fatty acid and glycerine and also contains free fatty acid and impurities, that when caustic soda is added for purposes of neutralisation, free fatty acid in VNE oil is removed and becomes "soapstock" which contains a small amount of neutral oil absorbed with it and used in the manufacture of soap, that soapstock is converted into Acid Oil (containing Sodium Sulphate in mixture) by treating with Sulphuric Acid and the Acid oil contains 50 to 80% of free fatty acid and some neutral oil. The sample in that case contained 49.1% of free fatty acid. The Collector held that the recovered Acid oil which contains 49.13% of free fatty acid is not VNE oil, that Brussels Nomenclature places Acid Oil in Heading 15.10 while placing VNE Oil in Heading 15.07 which shows that the two are separate products and Acid Oil is a new product different from VNE Oil.
8. The three Members of the Bench were unanimous in holding Acid Oil to be VNE Oil and classifiable under Tariff Item 12. Two Members indicated that Acid Oil has all the characteristics and properties of VNE Oil and put to the same use. The Third Member referred to Chapter 6 of Bailey's "Industrial Oil and Fat Products" by Deniel Steven Vol. I, IV Edition and indicated that acid oil is recognized as oil, that by VNE oil is meant oil of vegetable origin and which is not essential oil, that Acid oil is of vegetable origin is not an essential oil and Tariff Item 12 covers all sorts of VNE oil and not confined to only oils which are the immediate result of extraction from vegetable oil and covers even oils which may be the result of refining or cleavage of oils so long as they are recognized as oils.
9. The Vice President in the reference order sought support from HSN classification of Acid Oil under 15.19 and Explanatory Note B which states that Acid Oil has a relatively high free acid content. It was noticed that Vegetable Oil as known to the market and used as oil by trade and the consumer consists predominantly of glyceryl esters of fatty acids called "Triglycerides" which is the product of the reaction of glycerol with fatty acid and vegetable oil is actually ester having varied uses including use in the manufacture of soap. Soapstock generated during saponification, when treated with Sulphuric Acid, results in production of Acid Oil VNE is parent material of Acid Oil.
It was indicated that confusion appeared to have been caused by reference to Bailey's Book Because in Chemistry various types of fats and oils are known to be a mixture containing Triglycerides and impurities including a small percentage of free fatty acids and are called as Acid Oils. The so-called Acid Oil is not even oil. The Vice President indicated that twenty five different kinds of oil (coconut oil etc.) are listed in Bailey's Book as Acid Oils, such as Laurie Acid Oils, Erneic Acid oils and drew the inference that oils commonly known as such in the market are technically considered as Acid Oils because of the presence of a little acid in them, but these oils are basically esters in which triglycerides predominate and these oils have to be distinguished from the product known in the market as 'Acid Oil' which is produced during saponification and has a high fatty acid content.
The similarity in name and use is not sufficient to put them in the same category. Vegetable oils known in the market are naturally occurring triglyceride esters (known as Acid oil only technically in Chemistry and not in the market) which are obtained from oall-bearings.
Parts of plants (seeds and fruits for example) whereas the product known as Acid Oil in the market is a substance with high fatty acid content and product of saponification and, therefore, not a natural product. It was further indicated that Acid Oil is not a vegetable oil but a product made from Vegetable Oil and hence cannot be classified as VNE Oil under erstwhile Tariff Item 12 and can be classified only under Tariff Item 68 with benefit of Notification No. 115/75. The decision in Kusum Products Ltd. -1985 (19) E.L.T. 479 (Tribunal), it was pointed out, proceeded from an incorrect appreciation of technical material and overlooking the aspects pointed out in the reference orders. Reliance has been placed on Bhasir Oil Mills -1990 (47) E.L.T. 305 (Bom.) and UP Solvent Extractor's Association -1989 (39) E.L.T. 18 (All.) in support of the contention that Acid Oil not being obtained directly from plant or part of plant is not vegetable oil.
10. Shri J.M. Sharma pointed out that AOB, besides purchasing VNE Oils also manufactured VNE oils such as Palm Oil, Groundnut Oil, Neem Oil, etc. by crushing the seeds and the unprocessed VNE Oil is sent to the refining section for purification and refining for the manufacture of Refined Oil and Vanaspati. VNE is treated with Caustic Soda to remove free fatty acid which gets neutralised at this stage and collects separately in the form of soap stock, which is a by-product. Soap stock is treated with Sulphuric Acid and the resulting mixture contains free fatty acid which is then boiled with steam.
11. The oily material rises to the surface and the aqueous layer containing free Sulphuric Acid, Sodium Sulphate and impurities form the lower layer. The aqueous layer is drawn off and the oily layer boiled with fresh water to wash out residual Sulphuric Acid and other soluble impurities. The free fatty acid content of acid oil is seldom below 80%. Shri J.M. Sharma fully supported the observations and conclusions in the reference order. According to him, VNE Oil is only oil obtained directly from plant or parts of plant like seed, nut etc. He referred to Notification No. 69/84 in this connection. Acid Oil is neither essential oil nor Vegetable Oil. He also referred to the description and note in HSN Heading 15.19. According to him, Acid Oil does not contain ester and the predominant part of VNE consists of ESTER. Acid oil involved in these cases, it is said, is Acid Oil referred to in Heading 15.19 of HSN. He also referred to Heading 15.7 to 15.59 of HSN which refer to oils of various varieties of seeds. Reference is also made to letter, dated 12-3-1986 seen at page 307 of CET, 1985-86 published by R.K. Jain. Acid oil can be obtained from Non-vegetable material also or any fatty substance. Reference is made to Hawleys Industrial Oils and Foods Products, VII Edition at Page 1219. He also relied on the decision of High Courts of Allahabad and Bombay referred to in one of the reference orders. It is contended that common parlance understanding must be preferred to technical meaning. Shri J.M. Sharma, however, clarified that he does not agree with the observations in the reference order that Acid oil is not oil at all.
12. Shri Bipin Garg, learned Counsel for appellant PVP rebutted the submissions of Shri J.M. Sharma and supported the decision in Kusum Products Ltd. - 1985 (19) E.L.T. 479 (Tribunal) PVP manufactures vegetable products covered by erstwhile Tariff Item 13 such as Vanaspati from Groundnut Oil or other vegetable oil. Such oil is treated with Caustic Soda and this results in Sodium compound containing soap and neutral oil. Soap is taken out by washing with boiling water. Soap dissolves in water leading to wash and is known as soap stock and contains a small quantity of neutral oil. This is treated with Sulphuric Acid resulting in free fatty Acid, Sodium Sulphate and neutral oil. Thus, according to learned Counsel, Acid oil is obtained. It is VNE oil though it is not Mustard Oil etc. He pointed out that the appeal filed in the Supreme Court against Kusum Products has been dismissed.
13. Shri J.M. Sharma contended that the dismissal was in limine and hence has no precedential force, relying on the decision in Indian Oil Corporation Ltd. -1987 (27) EL.T. 578 (S.C.) where it has been held that order dismissing SLP in limine has no precedential force.
14. Shri Lakshmi Kumaran, Advocate, who assisted us stated that Kusum Products Ltd., 1985 (19) E.L.T. 479 (Tribunal) has been correctly decided. He explained the difference between essential oil and non-essential oil and pointed out that Acid Oil is not essential oil and hence has to be regarded as non-essential oil. He relied on technical literature to contend that the observation in the reference order that Acid Oil is not even oil, is not correct. According to him, considering the composition, characteristics and properties, Acid Oil has to be regarded as VNE Oil as it continues to be oil of Vegetable Oil. There is nothing in the Tariff to support the stand that VNE oil is only that oil which is directly and immediately derived from Vegetable matter. Vegetable oil, though subjected to various processes, remains vegetable oil. Triglycerides are the main contents of VNE and Acid Oils. Triglycerides will have some quantity of free fatty acids.
He pointed out that Fat and Caustic Soda leads to Sodium soap (soap stock) and glycerol and soap stock reacts with Sulphuric Acid to produce Acid Oil, Sodium Sulphate and free fatty acid. Reference was made to Chapter 15 of HSN as also Chapter 33 relating to Essential Oils. Heading 15.19 of HSN refers to three different kinds of goods including Acid oil and this cannot lead to the conclusion that Acid oil is not oil. He also referred to Explanatory Note 7. He stated that in the Kusum Products Ltd. case the Bench correctly appreciated the information provided in Bailey's Book which has been misunderstood in the reference order. The reference to Laurie Acid Oil in Bailey's Book referred not to Acid Oil but to oil containing glycerides of Laurie Acid as free fatty acid. He also commented on the words "VNE oils all sorts" occurring in erstwhile Tariff Item 12 and referred to in the decision in Tata Oil Mills Co. Ltd. -1986 (24) E.L.T. 290 (Tribunal) confirmed by the Supreme Court in 1989 (40) E.L.T. 287 (S.C.), the decision in Delhi Cloth and General Mills Co. Ltd. - 1977 (1) E.L.T. (J 199) (S.C.), Protein Products of India - 1988 (38) E.L.T. 749 (S.C.), Bharat Forge and Press Industries (P) Ltd., 1990 (45) E.L.T. 525 (S.C.). He contended that the decision of the High Court of Allahabad and Bombay relied on by Shri J.M. Sharma interpreted the statutory definition of Vegetable and Vegetable Oil. He also referred to Jayalakshmi Cotton and Oil Products Pvt. Ltd.-1984 (18) E.L.T. 331 (Tribunal) and Tata Oil Mills Co. Ltd. -1986 (24) E.L.T. 290 (Tribunal) in this connection according to him, the dismissal by the Supreme Court of the appeal against Kusum Products Ltd. has precedential force and relied on Sun Export Corporation -1997 (93) E.L.T. 641 (S.C.).
15. Shri H.K. Jain, SDR endorsed the submissions made by Shri Lakshmi Kumaran.
16. Shri Lakhinder Singh, JCDR agreed with the view taken in the reference order and the submissions made by Shri J.M. Sharma. He explained the process of production of Acid Oil from VNE oil and stated that they are wholly different products. This is because the chemical composition of the two products is quite different. While triglycerides constitute the major content of VNE Oils with Free Fatty Acid being present in small quantities as impurities, the position is just the reverse in the case of Acid Oils where Free Fatty Acids form the bulk constituent with oils or triglycerides being present in small quantity.
Acid oils are derived by Chemical reaction of sulphuric acid with soap stock and are a chemical product and not vegetable oil. He supported the proposal in the reference orders.
17. The chemical processes and composition of the goods in question were briefly explained by Shri Shand. He confirmed the position explained by Shri Lakhinder Singh.
18. We have taken note of the submissions made before us. We have perused the record and the judgments. While disposing of the appeal filed by the Collector against the order of the Tribunal in the Kusum Products Ltd. case, their Lordships of the Supreme Court had osberved that no decision taking a contrary view to the one taken by the Tribunal in the judgment under appeal had been brought to their notice.
The matter being a technical one they declined to interfere. The appeal was not admitted. While S/Shri Sharma and Lakhinder Singh contended that this constituted dismissal of the appeal by Supreme Court in limine and as such did not have binding force and that this Bench is free to depart from the said Tribunal decision on merits, S/Shri H.K.Jain, SDR and Bipin Garg and Lakshmi Kumaran, learned Counsels contended that the Supreme Court decision upholding the Tribunal decision was binding. In the case cited by Shri Sharma [Indian Oil Corporation v. State of Bihar -1987 (27) E.L.T. 578] the Supreme Court held that dismissal of a Special Leave Petition in limine by a non-speaking order does not justify an inference that by necessary implication the contentions raised in the Special Leave Petition on the merits of the case have been rejected by the Court. In the decision in Sun Export Corporation case cited by Shri Lakshmi Kumaran, Supreme Court had held that the dismissal of a Civil Appeal at the admission stage in limine cannot be relied upon as a binding precedent.
19. The challenge before the Supreme Court to the Tribunal decision in Kusum Products case was by way of a Civil Appeal and that was not admitted. Going by what the Supreme Court held in the Sun Export Corporation case referred to above, an in limine dismissal of a Civil Appeal by the Supreme Court at the admission stage is not a binding precedent. The question now to be considered is whether the Supreme Court's disposal of the department's appeal in the Kusum Products Ltd. case at the admission stage was a dismissal in limine. The Supreme Court decision is dated 4th May, 1995. The Court observed that no decision taking a contrary view to the one taken by the Tribunal in the judgment under appeal had been brought to their notice. Actually, there was a judgment dated 28-4-1986 of the High Court of Calcutta in Dulichand Shreelal v. Collector of Central Excise -1987 (32) E.L.T. 388 wherein Acid Oil was held to be eligible for the benefit of exemption under Notification 115/75 which was available to goods falling under Item 68 and manufactured in a factory covered by the list of industries mentioned in the Notification which included Oil Mill and Solvent Extraction Industry. The dispute whether Acid Oil is VNE oil falling under Item 12 or goods Not elsewhere specified in the Tariff and falling accordingly under Tariff Item 68 was not there before the Court, it being common ground between the assessee and the department that Item 68 was attracted. To similar effect was the Tribunal decision Collector of Central Excise v. Mehta Vegetable OH Products (P) Ltd. -1994 (71) E.L.T. 366 wherein also the said Notification was held to be admissible for acid oil as the same was produced in a composite unit where crushing of oils to produce oil was also undertaken from which acid oil was obtained subsequently. Here also the classification under Item 68 was not in dispute and the dispute only related to the admissibility of exemption Notification 115/75, dated 30-4-1975 available to goods under Tariff Item 68. But in the decision reported in 1994 (69) E.L.T. 148, (Rajadhiraj Industries v. Collector of Central Excise, Indore) the Tribunal, however, held that the said exemption benefit was not available as the industry was not an Oil Mill or Solvent Extraction Industry. The benefit of exemption which was available to products of such industry falling under Tariff Item 68 was denied only on the above-mentioned ground, there being no controversy about the classification under Item 68. These decisions are dated 28-4-1986, 29-3-1994 and 29-10-1993 respectively. None of these reported decisions was brought to the notice of the Supreme Court while the department's appeal in the Kusum Products Ltd. case was decided much later by the Supreme Court on 4th May, 1995. As the non-admission of the appeal was only on the ground that no contrary decision was brought to the Court's notice and that the matter was a technical one, the disposal of the Civil Appeal by not admitting it, cannot be taken to be on the merits of the question involved and the Supreme Court cannot be said to have declared any law under Article 141 of the Constitution. The matter being admittedly technical and as considerable technical material has been placed before us, the correctness of the decision in the Kusum Products Ltd. case has to be reconsidered in the light of the points raised in the Reference Orders and the submissions and material placed before us.
20. The submissions regarding method of production of the product in question viz. Acid Oils and its chemical composition as well as that of VNE Oils have been mentioned in the previous paragraphs. Relevant technical literature has been produced before us. The Customs Cooperation Council Nomenclature (CCCN) as also the Harmonised System of Nomenclature (HSN) Headings and sub-headings and the Notes thereunder also throw light in the matter.
21. In the Book "Food and Food Production Encyclopaedia" by Douglas M.Considine and Glenn D. Considine, published by Van Nostrand Reinhold Company, the characteristics and properties of major vegetable oils have been listed in a Table at Page 1363. The principal constituents of various oils like coconut oil, cotton seed oil, groundnut oil and Palm oil have been mentioned as the glycerides of appropriate fatty acids.
Thus, the principal constituents of coconut oil have been shown as glycerides of Laurie Acid 45-48%, Myristic Acid 17-20%, the other glycerides being of capric acid, palmitic acid, Caprylic Acid, Oleic Acid, Stearic Acid and Palmitoleic acid. Similarly the composition of other oils in terms of triglycerides of the appropriate fatty acids like linoleic and, oleic acid and Palmitic acid have been furnished in the said Table. The percentages of glycerides shown therein indicate them to be the major and predominant constituents of the oils.
22. There is a reference to Acid oil in the publication "The Manufacture of Soaps, other detergents and Glycerine" by Edgar Wollatt, Consultant, British Executive Service Overseas and formerly Development Manager, Lever Brothers Limited, Chesire published by Ellis Horwood Limited Halsted Press, a Division of John Wiley and Sons. At page 134 of this Book it is mentioned that soap stocks, the by-products from soda refining of fats are an important source of fatty matter for soap making which can be used either directly or after concentration with additional fat or after acidification with sulphuric acid to produce Acid Oils, sometimes known as acidulated soap stock. This term, acidulated soap stock is also used to refer to acid oils in the book "Bailey's Industrial Oil and Fat Products", Volume, Fourth Edition at Pages 290 and 291. It is stated that the free fatty acid content of an acidulated soapstock containing 95% total fatty acids is seldom below 80% and is often 85 to 90% or more. This appellation "acidulated soap stock" to refer to acid oil is a significant one pointing appropriately to its immediate source and the process undergone.
23. The difference in the composition of the two products VNE oil and Acid oil as a factor for their separate classification argued before us is consistent with the fact that Acid oils have been separately provided for in the CCCN and HSN, distinct from vegetable oils. Thus, in the CCCN, the relevant entry is "Acid Oils from refining" classified under Heading 15.10 in the company of Fatty Acids and Fatty Alcohols which have been described in the Explanatory Notes thereunder as being obtained from fats and oils by saponification. This would be a pointer to such Acid oils being different from the Vegetable Oils themselves which were classified under other headings since the need for such specific and separate classification for acid oils would not be necessary if they are vegetable oils only. In the HSN also, Acid oils from refining have been classified under Heading 15.19 along with industrial Mono Carboxylic and industrial alochols. Sub-heading 1519.19 "Others" covers Acid Oils from refining as a residual entry. As per Note 7 this heading includes acid oils from refining with a relatively high free fatty acid content prepared by decomposing with mineral acid the soap stock obtained during the refining of crude oils. This difference was, however, not considered sufficient for treating Acid oil differently from VNE oils in the Kusum Products Ltd. decision. That decision was taken on the ground that a high free fatty acid content cannot take an oil out of the category of VNE oil and that it is not any single constituent that determines whether a substance is a Non Essential Oil or not but its characteristics, nature, properties etc.
The use of Acid oil in the manufacture of soap was also held to be a confirmation that it was VNE Oil. It was also held that it had all the characteristics and properties of VNE oil. The separate classification of Acid oil and VNE oil under Headings 15.10 and 15.07 in the BTN was held to be not a decisive factor both the headings being under the same Chapter 15, Animal and Vegetable Fats and Oils, a far cry from Items 68 and 12 of the Central Excise Tariff. It was also observed that the BTN or CCCN was far more comprehensive unlike the Central Excise Tariff as Chapter 15 of the CCCN was wide in its scope covering animal and vegetable fats and oils and their cleavage products, prepared edible fats and animal and vegetable waxes. It has been pointed out that in "Bailey's Industrial Oil and Fat Products" different types of acid oils are discussed and reference was made to the heading" Laurie Acid Oils under which have been listed coconut oil, Palm Kernel oil and Erucic acid oils covering Rapeseed oil and Crambe oil and Linolenic acid oils covering Linseed Oil, Soyabean oil and Wheat germ oil. The conclusion has, therefore, been drawn that acid oils are recognised as oils. It is then held that there was nothing in the wording of the Tariff item to even remotely suggest that the scope of the item was confined to oils which are the immediate result of extraction from vegetable material and that it could cover even oils which may be the result of refining or cleavage of such oils so long as they are recognised as oils. On such reasoning and on the ground that Tariff Item 12 was far more appropriate than the non-descript residuary Item 68, Acid Oil was classified under the former Item. This finding and the reasons therefor have been examined by us. The difference in composition of Acid Oil and VNE Oils has been referred to in the technical literature which was emphasised during the arguments addressed by Shri J.M. Sharma and Shri Lakhinder Singh which was also confirmed by Shri Shand. It is the stand taken in the Kusum order that the presence of a high free fatty acid content cannot take an oil out of the category of VNE oil. As has come out in the submissions before us which is also borne out by the literature produced, it is not that the only difference between Acid oil and VNE oil is in the free fatty acid content. The very high concentration of free fatty acid in VNE oil coupled with the near absence of triglycerides, the predominance of which is the feature in respect of VNE Oils and the unsuitability for edible purposes and suitability only for soap making set acid oils apart from the VNE oils like coconut oil or groundnut oil. The acid oils made from the soap stock obtained from even such edible oils are not suitable for edible purposes but only to be used for soap making. In chemical literature vegetable oils are described as triglycerides of organic fatty acids.
Acid oils being not such glycerides are different from VNE Oils. The fact that BTN or CCCN provides for separate classification for vegetable oil 15.07 and acid oil 15.10 is also a clear pointer to their being differnent. That both these headings fall under the same Chapter 15 is of no import. That Chapter is not confined to only vegetable oils. It covers besides such oils, other products also. Thus Heading 15.10 itself which covers Acid Oils from refining also covers Fatty acids and Fatty alcohols. These fatty acids and Fatty alcohols are not oils at all though they are obtainable from vegetable oils by chemical processes. So is the case with Acid oil which is obtained by decomposing with mineral acid the soap stock obtained during the refining of crude oils. This is what is stated in Note B under Heading 15.10 in the CCCN. The reasoning in the Kusum order is that the separate classification of acid oil and vegetable oil in the CCCN is not a reliable answer to the question of classification of the said goods in view of the CCCN being far more comprehensive than the Central Excise Tariff. No doubt the BTN or CCCN was more comprehensive than the erstwhile Central Excise Tariff and Chapter 15 of the former covered a host of products not limited to vegetable Non-essential oils, the coverage extending to animal and vegetable fats and oils and their cleavage products, prepared edible fats and Animal and vegetable waxes.
As far as vegetable oils were concerned there were two headings 15.07 covering Fixed Fluid or Solid, crude refined or purified and Heading 15.08 covering Animal and vegetable oils, Boiled oxidised, Dehydrated Sulphurised, Blown or Polymerised by heat in vacuum or in inert gas or otherwise modified. Acid Oils were not classified under either of these headings which were specific, inter alia, for vegetable oils but were classified under Heading 15.10 which specifically included Acid oils from refining. This would go to show that acid oils had to be specifically and separately provided for, they being not covered by the entries covering vegetable oils being not such oils. The position gets further confirmation from the HSN Headings and sub-headings. While Heading for Chapter 15 of HSN is the same as it was for Chapter 15 in CCCN, the Headings and sub-headings are more in number and more detailed. Headings 15.07 to 15.15 cover various oils and their fractions whether or not refined but not chemically modified as shown below :----------------------------------------------------- 15.07 Soyabeanoil 15.10 Other oils obtained from olives 15.11 Palm Oil 15.12 Sunflower seed safflower or cotton seed oil 15.13 Coconut (copra) oil 15.15 Other fixed vegetable Fats and Oils Under this heading 15.15 oils like Linseed oil; After these specific and separate headings and sub-headings have been provided for various vegetable oils, acid oils from refining have been accommodated under Heading 15.19 along with Industrial Mono Carboxylic acids and Industrial Fatty Alcohols. It is clear that this separate provision for Acid Oils from refining would not have been necessary if it was a vegetable oil itself as in that case it would have fallen under the residuary oil Item 1515.90. It is also significant to note that the entry reads "acid oils from refining". It is not acid oil from refining unlike the specific entries coconut oil, palm oil etc. already listed above. This is because unlike these oils which have a clear identity, acid oils do not have a separate or specific identity.
Whichever oil is refined with alkali, the soap stock in the form of sodium salt of the particular free fatty acid will be obtained which on treatment with sulphuric acid will release the free fatty acid to yield the particular acid oil. Acid oil is thus a collective name and there are acid oils of different composition depending upon the particular free fatty acid present which in turn depends upon the parent VNE Oil started with. In view of this position, the entry reads "Acid oils from refining" in the BTN or CCN and HSN. The comprehensiveness of the BTN or CCCN vis-a-vis the Central Excise Tariff is not a factor for ignoring the fact that acid oil has been treated differently from vegetable oils in the said Nomenclatures. As regards the observation in the Kusum decision that Acid oils have been recognised as oils in Bailey's Industrial Oil and Fat Products, the actual position is that it is the vegetable oils that have been referred to as Acid Oils depending upon the particular triglyceride of the fatty acid which is its chief constituent. Thus, at page 282 of Volume 1 of Bailey's Oil and Fat Products (4th Edition) the following have been tabulated :--------------------------------------------------------- Principal Fatty Acid Oil-------------------------------------------------------- Laurie Coconut These oils are discussed in detail later on. Thus, at page 311 under the heading Laurie Acid Oils, Coconut Oil has been discussed followed by Palm Kernel Oil at page 317. This can only mean that these vegetable oils fall under the category "Laurie Acid Oils" which cannot be taken to mean that such vegetable oils are acid oils of the type under dispute. Conversely, acid oils are not VNE Oils. We note that the relevant entry in the Central Excise Tariff covered Vegetable Non Essential oil, all sorts. The finding in the Kusum order was that there was nothing to indicate that the entry was meant to cover only vegetable oils directly extracted from oil seeds or other vegetable material but which may be the result of refining or cleavage of such oils as long as they are recognised as oils. This last condition is important to decide whether acid oils are VNE Oils. No doubt, the test report of the material in the Ahmed Oomerbhoy case indicated that it was oily liquid but the chemical composition shown in the same report was that it contained 79% Free Fatty Acid as oleic acid. The chemical composition of Acid oils, as distinct from VNE Oils, their use restricted to manufacture of soap as distinct from the use of VNE Oils for other purposes also, the separate provision in the CCCN and HSN will not render the Acid Oils recognisable as VNE Oils. Hence the conclusion in the Kusum order that Acid oil was classifiable under Tariff Item 12 as vegetable non-essential oil was not based on a correct appreciation of the issue involved. We accordingly hold that acid oil obtained by treating soap stock with mineral acid was classifiable under Tariff Item 68 of Central Excise Tariff and not under Item 12.
24. In view of our finding as above, on a consideration of all the relevant facts, we do not think it necessary to advert to the arguments advanced by Shri J.M. Sharma and Shri Lakhinder Singh and the suggestion in the reference orders based on the decisions of the High Courts of Bombay and Allahabad on the question whether Rice Bran oil and oils obtained by Solvent extraction from oil cake would be vegetable oils for the purpose of levy of cess on vegetable oils. The judgements that cess was not attracted as these were not vegetable oils were rendered in the light of the provisions of Vegetable Oils Cess Act, 1983 and National Seeds and Vegetable Oils Development Board Act, 1983. These provisions were not in pari materia with Item 12 of Central Excise Tariff covering Vegetable Non-Essential Oils, All Sorts and hence the judgements do not have a bearing on the present issue. On a consideration of relevant facts, however, we have held that Acid Oils are not VNE Oils to fall under Item 12 of the Excise Tariff and that they fell under the residuary Tariff Item 68. The classification of the product having thus been decided under Tariff Item 68, the other question for decision is the admissibility of exemption Notification 115/75. This benefit being admissible for products falling under Tariff 68 and manufactured in a factory which is an oil mill and solvent extraction industry, the benefit would be admissible. In the cases under consideration where classification has been claimed under Tariff Item 68 and the benefit of the Notification, the grant of refund would be subject to the provisions of Section 11B(2) of Central Excise Act, 1944.E/3326-3327/88-C- Prag Vanaspati v. Collector of Central Excise.
The The appeals are allowed. The finalisation of refund claims with reference to Notification 115/75 will be subject to the provisions of Section 11B(2) of Central Excise Act, 1944.
(3) E/3261/91-(Collector of Central Excise v. Oswal Vanaspati & General Industries.
25. I have to differ with the findings arrived at by the ld. Member (T) in his detailed order and have proposed to briefly enumerate my reasons.
26. At the outset, I do not agree with the proposition that the Hon'ble Supreme Court judgment rendered in the case of Kusum Products Ltd. is not binding on the Tribunal. Hon'ble Supreme Court has passed the following order: Collector of Central Excise, Calcutta-II Appellant vs No decision taking a contrary view to the one taken by the Tribunal in the judgment under appeal has been brought to our notice. Since the matter is a technical one, we decline to interfere. Not admitted.
As can be seen from the above judgment, it is not in the nature of dismissal in limine but it has been passed only after a detailed hearing and confirming the view expressed by the Tribunal in the case of Kusum Products Ltd. Therefore, the judgment rendered by the Hon'ble Supreme Court confirming the order of Kusum Products Ltd. cannot be adopted. Furthermore, it is well settled that the judgment of the Hon'ble Supreme Court is binding on all the courts and a view cannot be taken that judgment rendered by Hon'ble Supreme Court is not on merits and not binding on this Tribunal, as there is no detailed order. It is pertinent to note that the Tribunal's judgment in Kusum Products' case was under the erstwhile tariff and the Tribunal judgment has since been followed in all the pending cases and it is only at this stage ld. Vice President thought it fit to refer to the matter to Larger Bench as the Hon'ble Supreme Court judgment had not been brought to the notice of Vice President. It is also pertinent to mention that the Tribunal has disposed of larger number of appeals arising on the same item by following the judgment of Kusum Products Ltd. Presently, the tariff has been changed and there is no likelihood of any such appeals pending. By revising the view expressed by the Tribunal, a uncertainty in the uniformity of law is brought in. Although, two different views may arise and a correct view is required to be adopted by the larger bench, but once the view of the Tribunal has been confirmed by the Supreme Court, therefore, in my humble opinion, the same should not be revised as it would unsettle a settled legal position and thus would bring it uncertainty to the assessee.
27. In the case of Kusum Products, the Tribunal in para 5 to 18 have laid down as follows: "5. This is what the Collector said in his order to arrive at the conclusion that acid oil was not a VNE oil, but was a product assessable under Item 68 :- "VNE oil (Tri-glyceride of fatty acids) is the combination of fatty acid and glycerine and also contains free fatty acid and impurities like colours and gummy matters. When neutralisation is done by addition of caustic soda the free fatty acid contained in the VNE oil is removed and it becomes what is known as soap-stock. This soap-stock is used for making soap. Due to storage and transport difficulty and also limitation of the use of soap-stock in making quality soap, this soap-stock is converted into acid oil by addition of sulphuric acid. This soap-stock is thus decomposed into what is known as acid oil. After the addition of sulphuric acid the resultant product is acid oil and the water (in which sodium sulphate is mixed) is let out. This acid oil contains free fatty acids and some neutral oil. Such acid oil contains 50 to 80% of free fatty acids, according to the success of the separation of neutral oil (page 200 of 'Oils, Fats and Fatty Foods', 4th Edition by K.A. William). In the present case the sample shows that the free fatty acid present was 49.1%. It is clear that this acid oil which is free fatty acid of some other reacted oil is a recovered product and not a VNE oil. It is also found from Brussels Nomenclature that acid oil (prepared by decomposing with mineral acid the soap-stock obtained during refining of some oil) has been placed in heading 15.10 whereas VNE oil has been placed in heading 15.07. This also clearly shows that the acid oil and the VNE oil are clearly two separate products. Acid oil is a recovered product and is not VNE oil. This acid oil is sold, quite often to other soap manufacturers. In this particular case, M/s Kusum Products Ltd. have sold this product to other soap manufacturers namely, Asiatic Soap Co., Lax-mikant Kashiram, etc. It is, therefore, a remarkable commodity. Even in technical books there is reference to the fact that the acid oil which is a recovered oil, is sold with the commercial names as acid oil. It is, therefore, a commercial product. There is no doubt that a new product has come into being. I accordingly hold that acid oil is classifiable under Item 68 of Central Excise Tariff and that the assessment of 'acid oil' under Item 68 is fully justified and there is no reason to classify it under Item 12 i.e. VNE oil." 6. It is not, however, correct to say that because the free fatty acid content was 49.1%, the acid oil was not a VNE oil. A high free fatty acid content cannot take an oil out of the category of a VNE oil. VNE oils have different fatty acid content. It is not any single constituent that determines whether a substance is a non-essential oil or not, but its characteristics, nature properties etc. As a matter of fact, "non-essential oil" is not a widely used term but is accepted for purposes only of distinguishing it from an essential oil. These two oils have properties which sharply divide them into two separately recognised substances. Simply stated, an essential oil is generally an odoriferous distillable oil of plant origin, the principal constituents of which are terpenes, benzenoid and aliphatic compounds; they are also known as ethereal oil. Oils that are not essential oils are not volatile and cannot be distilled readily unless decomposed. They leave a permanent greasy stain on paper. They are readily hydrolised and oxidised when exposed to air.
They are either liquid or solid.
7. It is claimed by the department that the acid oil was sold as acid oil and not as VNE oil. No VNE oil is sold as VNE oil. In fact there is no such thing in commerce. Oils are sold as groundnut oil, coconut oil, castor oil, linseed oil etc.
8. The Board says that the BTN classifies acid oil under a head (15.10) different from the one from VNE oil (15.07). First of all, the BTN does not recognise any such thing as VNE oil. But what the Board did not see was that both 15.07 and 15.10 are under the same Chapter 15: Animal and Vegetable Fats and Oils..., a far cry from Items 12 and 68 of the CET. 9. There is nothing we can see in favour of saying that acid oil is not a VNE oil. The very fact, as we can see from the proceedings, that it was used in the manufacture of soap confirms, if confirmation was needed, that it was a VNE oil. The fact that it had a large free fatty acid content would fit it admirably for soap manufacture. We are not able to understand why the department says it is not a VNE oil. The process of preparing it detailed in the Collector's order does not in any way prove it is not a VNE oil. It is a VNE oil and has all the characteristics and properties a VNE oil should have. It is put to the same use. There is, therefore, everything for saying it is a VNE oil and nothing for saying it is a goods not elsewhere specified.
10. We set aside the order of the Board as it proceeds on the premise that the acid oil is assessable under item 68 of the CET. We hold it is assessable under item 12 of the CET. 11. Other arguments were produced on behalf of M/s. Kusum Products Ltd., but in view of our conclusion above, we need not go into them now.
12. I have perused the order written by Shri Syiem. I would like to add a few lines.
13. Heading No. 15.07 ("Fixed vegetable oils, fluid or solid, crude, refined or purified") of the Customs Co-operation Council Nomenclature (CCCN) does not cover within its purview the by-products of refining of oils. Acid oils from refining fall in heading 15.10 ("Fatty acids; acid oils from refining; fatty alcohols"). These acid oils have a relatively high free acid content and are prepared by decomposing with mineral acid the soap-stock obtained during refining of crude oils.
14. It must be noted, however, that Chapter 15 of the CCCN is wide in its scope covering animal and vegetable fats and oils and their cleavage products, prepared edible fats, and animal and vegetable waxes. The Central Excise Tariff Item No. 12, CET with which we are presently concerned, covers "vegetable non-essential oils, all sorts". We have, therefore, to see whether acid oils are known and recognised as VNE oils. The classification under the CCCN would not, in my view, provide a reliable answer to this question since, CCCN is a far more comprehensive tariff unlike the Central Excise Tariff.
15. The standard book of reference "Bailey's Industrial Oil and Fat Products" edited by Daniel Swern, (Volume 1, 4th Edition) has a Chapter (No. 6) titled "Composition and Characteristics of Individual Fats and Oils". In that Chapter, different types of oils are discussed. For example, under the heading "Laurie Acid Oils" are listed Coconut Oil, Palm Kernel Oil; under the heading "Erucic Acid Oils" are listed Rapeseed Oil, Crambe Oil; under the heading "Linolenic Acid Oils" are listed Linseed Oil, Soyabean Oil, Wheat Germ Oil.
16. It is, therefore, clear that acid oils are recognised as oils.
As stated elsewhere in this order, the expression "vegetable non-essential oils" is not a commercial nomenclature but it only indicates that the oil is of vegetable origin and that it is not an essential oil. An essential oil is a non-fatty oil with a strong, usually pleasant odour and taste obtained from flowers and other parts of plants by solvent extraction or steam distillation.
Terpenes are the chief components of many essential oils, others are mixtures of aldehydes, acids, alcohols and the like. Essential oils are subject to evaporation in contrast to fixed vegetable oils, which are not (See "Glossary of Chemical Terms" by Clifford A. Hampel and Gessner G. Hawley). On the other hand, vegetable oils (or vegetable non-essential oils) are oils extracted from the seeds, fruits or nuts of plants and generally considered to be mixtures of mixed glycerides, (see "Condensed Chemical Dictionary" by Gessner G. Hawley).
17. Thus, acid oils are recognised in literature as oils. If these are of vegetable origin, they would be classifiable as vegetable oils. Item No. 12, CET covers, as we have noted, all sorts of vegetable non-essential oils. There is nothing in the wording of the item to even remotely suggest that the scope of the item is confined to oils which are the immediate result of extraction from vegetable material. It could cover even oils which may be the result of refining or cleavage of such oils so long as they are recognised as oils. And we have seen that the authoritative book "Bailey's Industrial Oil and Fat Products" recognises acid oils as oils. Item 12, in the circumstances, would be far more appropriate then the non-descript residuary Item 68.
As can be noticed from the concurring order of Shri G. Sankaran, he has clearly brought out as to how the CCCN does not cover within its purview products of refining of oils. Acid oils from refining falling under 15.10 ("Fatty acids; acid oils from refining; fatty alcohols").
These acid oils have a relatively high free acid content and are prepared by decomposing with mineral acid of the soap-stock and obtained during refining of crude oils. It has also been noted that the classification under CCCN would not provide a reliable answer to this question since CCCN is far more comprehensive tariff unlike the Central Excise Tariff. I am agreeable with this view and also notice that we cannot rely on the CCCN notes as they are not pari materia during the said period and the erstwhile Central Tariff had not been aligned with the CCCN notes and hence the classification of CCCN note cannot be the sole criteria for re-classification.
27. I have gone through the technical books and I notice that all the vegetable oil have been referred to technically as acid oil also with respective technical nomenclature of an acid oil, as has been noticed in the order of Kusum Products. The point therefore which is required to be considered is as to whether the present acid oil, which is not in a nature of edible oil and which is used for soap making can also be considered with in the ambit of "VNE oil all sorts". So long as the technical literature referred to by both the sides accept the item in question as acid oil and having all the features except that it is not edible, then it would fall within its category. On a particular query to the Chemical examiner who was present before Court, he admitted that on addition of sulphuric acid to this soap stock, acid oil is generated and it has all the qualities of VNE oil except that it cannot be made edible and it is a inferior quality of VNE oil. He also admitted that it has the same chemical formula and all the chemical and physical properties. This fact is undisputed. Therefore, the Kusum Products had taken a view that technically acid oil is required to be considered within the tariff description of 'VNE oil all sorts' and that the item continues to remain under Tariff Item 12. I am not in a position to take a different view as already expressed by the Tribunal in the case of Kusum Products and in that view of the matter, Appeal E/3326-3327 in Prag Vanaspati v. CCE to be allowed. Appeal of Ahmed Oomerbhoy (Appeal No. E/4139/90-C) to be dismissed and E/3261/91-C in CCE, Chandigarh v.Oswal Vanaspati & Gen. India we allow.