Judgment:
1. This appeal arises from the order-in-original passed by the Addl.
Collector of Central Excise & Customs, Vadodara. By this impugned order, the ld. Additional Collector has held that 'Glycerine' produced out of castor oil, falling under Chapter No. 15.06 is not entitled to the benefit of the exemption Notification No. 115/75-C.E., dated 30-4-1975 as amended by Notification No. 80/86, dated 10-2-1986.
2. The charge against the appellant assessee is that they were manufacturing glycerine and clearing the same without the payment of duty. They claimed clearance without payment of duty in terms of the above-noted notification and had filed classification list 141/86 w.e.f. 24-4-1986, which had been duly approved by the Asstt. Collector of Central Excise, on 27-10-1986. However, the Preventive Officers of the department paid a surprise visit on 12-11-1986 for checks. It was found that the assessee were manufacturing Castor Oil and its various derivatives viz. : all falling under sub-headings of Chapter 15 of Central Excise Tariff Act, 1985. The officers noticed that the assessee was manufacturing Castor Oil by crushing castor seeds. The Castor Oil was subsequently used in the manufacture of Glycerine falling under Chapter 15.06 of the Central Excise Tariff in the same factory. They were obtaining the Castor Oil duly manufactured by them in their glycerine plant through pipe line. Then the castor oil was taken for splitting process. This splitting process consists of addition of water to oil, wherein, higher pressure steam is injected. Thus, bringing out separation of glycerine from oil. After splitting, the mass is allowed to separate. The upper layer is decanted as fatty acid, while the lower layer is further evaporated to obtain crude glycerine. The crude glycerine is further evaporated and then distilled to obtain different varieties of glycerine depending upon the specific gravity, odour and colour. It is then graded as per specification achieved after purification of glycerine. To obtain one tonne of glycerine, a quantity of about 10 tonnes of Castor Oil is being used. The visiting officers on examining the process of the [sponification], felt that the main raw-material used in the manufacture of glycerine is Castor Oil which is falling under the Heading No. 15.05 of the tariff, and therefore, the product viz. glycerine produced out of Castor oil falling under Chapter No.15.06, does not fulfil the conditions laid down in the said notification for exemption from payment of CED. The visiting officers, therefore, seized the records and also recorded the statements of Shri S.J. Gandhi, Manager of the factory. Hence, a show cause notice dated 20-4-1987 was issued demanding a duty of Rs 1,24,774.50 for the period 1-3-1986 to 12-11-1986, for the clearances of 17.010 M.T. of glycerine valued at Rs. 8,31,830.00 cleared at nil rate of duty during this period, on the ground of wrongful availment of notification. Inter alia, the assessee had contended that glycerine is a product of oil mill and solvent extraction industry, as appearing in the schedule annexed to the notification and hence [they] were entitled to the benefit of the notification. Reliance was also placed on the ratio of the following citations :Jay Engineering Works v. C.C.E.3. The ld. Addl. Collector after examining the manufacture process, as delineated above, has held that glycerine cannot be said to be a product of oil mills or solvent extraction industry. He has held that the product can be manufactured anywhere by any unit and not necessarily by an oil mill. He has further held that the machinery required to manufacture this product has no relevance, with the machinery required to manufacture oil products and hence has concluded that the glycerine is not a product of oil mill and of solvent extraction industry. The ld. Addl. Collector however, held that the longer period cannot be extended as there is no suppression or mis-declaration in the case and hence he refrained himself from imposing penalty. "" 4. We have heard Shri V. Lakshmikumaran, ld. Advocate for the appellant and Shri Somesh Arora, d. JDR for the Revenue. Reiterating the grounds of appeal, ld. Advocate relied on the following rulings : ii. C.C.E., Jaipur v. Jaipur Oil Products - Order No. 445/90-C, dated 30-4-1990C.C.E., Jaipur v. Mehta Vegetable Products (P) Ltd. - Order Nos. 481 & 482/89-C, dated 18-9-1989 5. Reiterating the findings of the Addl. Collector, ld. JDR submitted that the expression of the term "Solvent Extraction Industry" has some commercial understanding. From this understanding alone the situation is required to be approached. The glycerol is an alcohol and it arises in soap industry and being in a nature of alcohol, it is also of soap industry and -therefore, the product cannot be said to have arisen in oil industry or of solvent extraction industry. He submitted that merely because the assessee had installed extraction plant or an oil mill plant, would by itself not satisfy the terms of the notification, but the process of extraction of glycerine from castor oil is not understood in the trade as of oil mill or of solvenf extraction plant.
He submitted that the product is a by-product of soap industry and not is a by-product of oil industry and thus it falls within the exclusion clause of the S. No. 4 of the Schedule of the notification namely "other than vegetable oils of Heading No. 15.03 and vegetable fats and oils of Heading 15.04". The ld. JDR relied on the following rulings :Rajadhiraj Industries v. Collector of Central Excise, Indore - 1994 (69) E.L.T. 148 Ld. JDR also referred to the definition of 'glycerol' as appearing at page 132 of "Glossary of Chemical Terms - End Edition by Clifford A.Hampel and Gessner G. Hawley".
6. We have carefully considered the submissions made by both the sides and have perused the literature and citations produced before us.
7. The relevant notification in question exempts goods falling under the Schedule to the CET Act, 1985 from levy of whole of excise duty and manufactured in factories covered by any of the industries specified in the Schedule of the notification. S. No. 4 which is- relevant for our purpose reads : "Oil Mill & Solvent Extraction Industry (other than vegetable oils of heading No. 15.03 and vegetable fats and oils of heading No. 15.04)." Glycerine in this case falls under Chapter 15.06, and thus, it does not fall within the above exclusion clause. The exclusion clause refers to the vegetable oils of Heading 15.03 and vegetable fats and oils of 15.04. The ld. Additional Collector has held that glycerine is not a product of oil mill and of solvent industry by referring to the manufacturing process. This is seriously disputed by the asses-see, who contend that the glycerine is obtained after the extraction of castor oil in glycerine plant by taking the same through pipe line for splitting process.
After splitting process, the mass is allowed to separate. The upper layer is decanted as fatty acid, while the lower layer is further evaporated to obtain crude glycerine. The crude glycerine is further evaporated and then distilled to obtain different varieties of glycerine depending upon the specific gravity, odour and colour. It is then graded as per specification achieved after purification of glycerine. The question before us, is as to whether this process of obtaining glycerine in a separate glycerine plant from Castor Oil, pumped through a pipe line, can be considered as one of "Oil Mill & Solvent Extraction Industry" as stipulated in the notification. The Addl. Collector has held that the product can be manufactured anywhere by any unit and not necessarily by an oil mill and that merely setting up machinery required to manufacture this product has no relevance. The ld. JDR has contended that glycerine is an alcohol and it is obtained out of saponification process, as a by-product in a soap industry and hence cannot be considered as a product of "Oil Mill and by Solvent Extraction Industry". He also submitted that commercial parlance is a factor, which requires to be looked into. However, this point raised by ld. JDR that the product being a by-product of soap industry and in trade, it is not known to have arisen in "Oil Mill and by Solvent Extraction Industry", is a new ground. As can be seen from the controversy before us, the Revenue has not proceeded in this case, on this basis of reasoning. The basis of the Revenue's case, as noted above, is mainly on the basis of manufacturing process and the inference drawn therefrom, that 'glycerine' is not a product of "Oil Mill or of Solvent Extraction Industry". The ld. JDR refers to the definition of 'Glycerol' appearing at page 132 of 'Glossary of Chemical Terms'. The same is reproduced hereinbelow: "Glycerol: A trihydric (or polyhydric) alcohol, also called glycerin; it has the formula CH2CHCHOHCH2OH (three hydroxyl groups).
It is a rather thick, syrupy liquid which is hygroscopic and has a sweetish taste. It occurs widely in esterified form in the fatty acids present in animal and vegetable fats and oils; these esters are called glycerides. When a fatty acid is treated with a metal hydroxide to form a soap, glycerol is the by-product; this reaction is a major source of the commercial product. It is also made by hydrolysis of fats with steam. A completely synthetic process involves chlorination of propylene followed by hydrolysis and treatment with hypochlorous acid.
Glycerol has no toxic or flammable hazards and is widely used in industry in the manufacture of alkyd resins and nitroglycerin, as a plasticizer for cellophane and many composite materials, and as a humectant for tobacco. More limited uses are as an antifreeze, a solvent in cosmetics, and in the manufacture of ink rollers for printing presses." It refers to its presence in fatty acids present in animal and vegetable fats and oils. It also refers to its occurrence as a by-product, during the manufacture of soap, when fatty acid is treated with metal hydroxide. We are not concerned with this process of obtaining glycerol, as a by-product, during the manufacture of soap and also the present case is not in the context of 'glycerine', obtained as a by-product, in soap manufacture, for grant of the exemption.
Therefore, it is not necessary for us to examine the issue from this angle. We have to proceed to examine the issue from the context of the case before the lower authorities, inasmuch as, the manufacture of glycerine through castor oil, can be considered to be of an 'Oil Mill or by Solvent Extraction Industry'. In this case, the department admits the assessee to be an oil mill and also being a solvent extraction industry. But, it is their contention that merely having the machinery is not the criteria, as glycerine can be obtained anywhere else also by any other unit. We are not examining a case of a unit other than a oil mill or solvent extraction industry. Hence, the reasoning adopted by the Revenue requires to be negatived. The sole question is as to whether this product has arisen in an 'oil mill or solvent extraction industry'. The answer is admittedly yes and hence there is no need to go beyond the terms of the notification and issue before us and hence on the basis of the facts of this case, the benefit of the notification cannot be denied to the appellants.Fertilizers Ltd. v. Collector of Central Excise (supra), the Tribunal has examined the question of grant of exemption of the notification in question to 'low fatty free acid oil'. In this case, the rice bran oil is manufactured by solvent extraction method.
When rice bran oil is split, 85% crude rice bran fatty oil and some quantity of sweet water is obtained. The sweet water is used for making glycerine. The crude fatty acid is distilled to obtain distilled fatty acid and low FFA oil. Thus, during the manufacture of distilled fatty acid Low FFA oil is obtained as a by-product different from the starting raw-material, its composition, is held by the Tribunal to be different from rice bran oil, as it is known by a different name and hence held to be classifiable under Item 68. The Tribunal also held the Notification No. 115/75, to be applicable. Therefore, as can be seen from the definition of 'Glycerol' extracted above, it can be obtained both from animal vegetable fats and oils. In Fertilizers Ltd. case, glycerine was obtained [from] rice bran oil and the claim for the benefit of the notification in question has been granted. In the present case Glycerine is obtained through Castor Oil. Hence, the ratio of Fertilizers Ltd. case is fully applicable to the facts of the present case.
9. In the case of C.C.E. v. Jaipur Oil Products, the Tribunal granted the benefit of the notification in question to the manufacture and clearance of refined VNE Oil falling under erstwhile T.I. 12 of the Central Excise Tariff. The Revenue had rejected the refund claim on the ground that the factory is not covered under Oil Mill and Solvent Extraction Industry/The Tribunal upheld the assessee's contention that the Notification No. 115/75 relates to factories and not with manufacture per se, by applying the ratio of the ruling rendered in the earlier case decided by the Tribunal i.e. in the case of C.C.E., Jaipur v. Mehta Vegetable Products (P) Ltd. vide Order Nos. 481 & 482/89-C, dated 18-9-1989. This ratio is also applicable to the facts of the present case.
10. The ld. JDR relied on the case of Rajadhiraj Industries (supra).
The Tribunal on examining the facts of the case held that the assessee were not engaged in the production of oil through 'Solvent Extraction' process. This is not the dispute before us and hence this case is clearly distinguishable . The rulings of M/s. Mehta Vegetable Products and Jaipur Oil Products had been distinguished by the Tribunal. We have already stated that the rulings of M/s. Mehta Vegetable Products and M/s. Jaipur Oil Products are applicable to the facts of the present case.
11. The other ruling relied by ld. JDR of Garden Silk Mills Ltd. is on the point of interpretation of notification, is also clearly distinguishable.
12. In the result, following the ratio of the cases noted above and on the findings given by us, the appeal is allowed.
Sd/- 13. With due respects to Hon'ble Member 0), my views and orders are as follows :- I observe that R. Norris Shreve and Joseph A. Brink Jr. in their book called 'Chemical Process Industries' have classified or categorised oils, fats (including the Products of Solvent Extraction) separately from 'soaps and detergents' and under the soap industry they have included glycerin and mentioned as follows :- "2 Glycerin may be produced by a number of different methods, of which the following are important: (i) the saponification of glycerides (Oils and fats) to produce soap, (ii) the recovery of glycerin from the hydrolysis, or splitting of fats and oils to produce fatty acids, and (iii) the chlorination and hydrolysis of propylene and other reactions from petrochemical hydrocarbons." "In recovering glycerin from soap plants, the energy requirements are mostly concerned with heat consumption involved in the unit operations of evaporation and distillation." "Particularly, all natural glycerin is now produced as a co-product of the direct hydrolysis of triglycerides from natural fats and oils." "The growing market for glycerin, and the fact that it was a co-product of soap and dependent upon the latter's production, had been the incentives for research into methods for producing this trihydroxy alcohol." 14. However, this is a technical book and such categorisations of contents is often from the point of view of the convenience of authors (as for example Bailey's Book on 'Industrial Oil and Fat Products' deals with soap itself under oils and fats products). In other words these types of technical books by themselves may not be sufficient and in our case do not help us in clinching the issue.
15. Both the sides have singularly failed in submitting any commercial material in support of their respective points and view. In my opinion it is necessary to know as to how glycerin is treated by those in the field of trade and industry. However, neither the lower authorities have examined the matter from this angle nor sufficient material has been placed before us. It was necessary first and foremost on the part of the Additional Collector to have examined this aspect and then only pronounce this order. Hence, the impugned order is liable to be set aside.
16. (I may mention before parting, the citations from both the sides do not help us in clinching the issue at this stage because the case law could be considered only in the light of factual information which is wanted.) 17. In view of the above position, the impugned order is set aside and the case is remanded for de novo consideration in accordance with the law and the above observations. The Ld. Additional Collector should give the appellants an opportunity to make their submissions and file new evidence, if necessary in support of their contention and give the same liberty to Department to show as to whether it is treated as a product of soap industry or oil mill & solvent extraction industry or otherwise and then pass an appropriate order.
18. In view of the difference of opinion between Hon'ble Member (J) and the Vice President, the matter is submitted to the Hon'ble President for reference to a third Member on the following point :- In the facts and circumstances of the case whether the appeal should be allowed as proposed by Hon'ble Member (J) or the matter should be remanded as proposed by the Vice President.
19. The point of difference referred to me is whether in the facts and circumstances of the case, the appeal filed by M/s. Jayant Oil Mills Baroda should be allowed as proposed by the Learned Member (Judicial) or the matter should be remanded as proposed by the Learned Vice President.
20. The matter relates to the eligibility of the product 'glycerine' to the exemption under Notification No. 115/75-C.E., dated 30-4-1975, as amended.
21. The matter was heard by me on 23-3-1995 when Shri R. Nambirajan, advocate appeared for the appellant. Shri S.P. Singh, JDR represented the respondent 22. Shri.R. Nambirajan, the learned advocate stated that the appellants were engaged in the manufacture of castor oil and other products classifiable under Chapter 15 of the Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as Tariff). Glycerine, classifiable under Heading No. 15.06 of the Tariff was produced from the castor oil which was a fixed vegetable Oil and was classifiable under Heading No. 15.03 of the Tariff. The castor oil was not eligible for exemption under Notification No. 115/75-C.E. The glycerine produced from the castor oil was a different product. The ld. advocate submitted that the refined glycerine manufactured by them was the product of the Oil and Solvent Extraction Industry, and was eligible for exemption under Notification No. 115/75-C.E. The reliance was placed on the Tribunal decision in the case of Fertilizers Ltd. v. Collector of Central Excise, 1990 (50) E.L.T. 468 (Tribunal). A reference was also made to the Supreme Court decision in the case of Rollatainers Ltd. v.Union of India, 23. Shri S.P. Singh, the learned JDR replied that the product glycerine was a different product manufactured in separate premises and was not a product of Mill and Solvent Extraction Industry. He referred to its process of manufacture and to the commercial understanding of the product, and submitted that no process of milling or extraction was involved in the processing of castor oil to recover glycerine as a by-product in the manufacture of fatty acids.
24. In rejoinder, the learned advocate stated that the commercial understanding of the product was not relevant and that as held by the Hon. Supreme Court in the case of Hemraj Gordhandas v. Assistant Collector of Central Excise, Surat, 1978 (2) E.L.T. (J 350), in a taxing statute, there is no room for any intendment. He clarified that the glycerine was recovered by them from hydrolysis of castor oil to producte fatty acids.
25. I have carefully considered the matter. The facts of the case and the case law cited by the learned advocate for the appellants had been discussed in the respective orders proposed by the learned Member (Judicial) and the learned Vice President, and I do not consider it necessary to repeat them.
26. Glycerine (glycerol), according to the dictionary meaning (Webster's 9th new Collegiate Private Library edition page 523), is of sweet syrupy hygroscopic trihydroxy alcohol (C3 Hs O3) usually obtained by the saponification of fats. In the Customs Cooperation Council Nomenclature (CCCN) Explanatory Notes under Heading No. 15.11 it is described as under : Glycerol is not a fat, but a cleavage product of fats and oils; chemically, it is an alcohol. It is classified here, whether crude or refined.
Crude glycerol is of varying quality according to the method of production, e.g.: (1) Obtained by saponification with water, acids or alkalis, it is a sweetish liquid with a not unpleasant odour; it ranges in colour from yellowish to brown.
(2) Obtained from glycerol lyes, it is a pale yellow liquid with an astringent taste and a disagreeable odour.
(3) Derived from the residues of soap-making, it is a blackish-yellow liquid with a sweetish flavour (sometimes tasting of garlic, if very impure) and a more or less disagreeable odour.
(4) Obtained by catalytic and enzymic saponification, it is generally a liquid of disagreeable taste and odour, containing large quantities of organic substances and mineral matter.
Purified glycerol is odourless, sweet-tasting and is colourless (except that it may be yellowish when the purification by filtration and decolourisa-tion is not complete.) The heading includes synthetic and chemically pure glycerol, but it excludes glycerol put up as a medicament or with added pharmaceutical substances (Heading 30.03), and perfumed glycerol and glycerol with added cosmetics (Heading 33.06).
This heading also covers glycerol lyes, residues from the preparation of fatty acids and soaps; in the latter case, they are alkaline solutions.
The appellants were producing glycerine from the castor oil which was a fixed vegetable oil falling under Heading No. 15.03 of the Tariff. The castor oil was specifically excluded from the purview of the exemption Notification No. 115/75-CE. According to the appellants, the process of manufacture adopted by them was the hydrolysis process. Hydrolysis, according to the Condensed Chemical Dictionary, 10th Edition, edited by Gessner G. Hawley page 546, is a chemical reaction in which water reacts with another substance to form two or more new substances. This involves ionisation of the water molecule as well as splitting of the compound hydrolysed. The glycerine has many uses in different industries for different purposes - chemicals, plastics, pharmaceuticals, paints, paper, tobacco, ice-cream, tooth paste, cosmetics etc.
27. The expression 'Oil Mill and Solvent Extraction Industry' had come up for discussion in a number of cases by the Tribunal. In the case of Collector of Central Excise v. Bush Boake Allen (India) Ltd., 1991 (56) E.L.T. 793 (Tri.), it has been held by the Tribunal that the products of the oil mill as commonly understood refers to vegetable non-essential oils, and that oleoresin and essential oils were not included as the product oil mill and solvent extraction industry. In the case of Rajadhiraj Industries v. Collector of Central Excise, Indore reported in 1994 (69) E.L.T. 148 (Tri.) it was held by the Tribunal that acid oil was not eligible for exemption from the duty under Notification No. 115/75-C.E. In that case, vegetable oil was procured from other parties, and the acid oil was generated during the production of the vegetable product. In the matter before us, the premises wherein the castor oil, non-exempted fixed vegetable oil was produced were separate from the premises wherein the refined glycerine was recovered/produced by a separate process of hydrolysis to produce fatty acids classifiable under separate heading of the Tariff i.e.
Heading No. 15.05. It had been stated that both the premises were however connected through a pipeline.Rollatainers Ltd. v. Union of India, 1994 (72) E.L.T. 793 (SC), the question for consideration before the Hon. Supreme Court was whether the printed cartons were the products of the printing industry, The Hon, Supreme Court held that the printing industry by itself cannot bring the carton into existence, and that the printed carton was not the product of printing industry but that of packaging industry.
29. In the circumstances, I agree with the Ld. Vice President who in para 4 [Refer to para 15] of his proposed order has stated as under : "4. Both the sides have singularly failed in submitting any commercial material in support of their respective points and view.
In my opinion it is necessary to know as to how glycerin is treated by those in the field of trade and industry. However, neither the lower authorities have examined the matter from this angle nor sufficient material has been placed before us. It was necessary first and foremost on the part of the Additional Collector to have examined this aspect and then only pronounce this order. Hence, the impugned order is liable to be set aside".Plasmac Machine Manufacturing Company Pvt. Ltd. v.Collector of Central Excise,(SC), and of Novopan India Ltd. v. Collector of Central Excise, Hyderabad, 1994 (73) E.L.T.769 (SC), the Hon. Supreme Court had held that commercial understanding is the true test for classification of the goods in Central Excise Tariff. Para 13 of the decision in the case of Plasmac Machine Manufacturing Company Pvt. Ltd. and para 7 of the case of the Novopan India Ltd., are relevant.
30. Taking all the relevant factors into account, I agree with the learned Vice President that the case be remanded for de novo consideration.
31. In view of the majority opinion, the impugned order is set aside and the case is remanded for de novo consideration in accordance with the law and the observations contained in the order of the Vice President.