By TIOL News Service

MUMBAI, JUNE 28, 2013: THE Appellant is engaged in the manufacture of Refined Rice Bran Oil, SH 1515 9040 and is liable to nil rate of duty vide Notification No. 3/2006-C.E dated 1.3.2006. Crude Rice Bran Oil contains certain impurities knows as Gums, Waxes and Fatty Acids. To produce Refined Rice Bran Oil meeting the standards as laid down in the Food Regulations, these impurities are compulsorily required to be removed and the same are removed by as residues in the form of Gums / Waxes and Recovered Oil / Fatty Acids. The Appellant had been clearing these residues without payment of excise duty claiming exemption under Notification No. 89/95-C.E. dated 18.5.1995 which exempts ‘waste, parings and scrap' arising in the course of manufacture of exempted goods.

Show-cause notices were issued proposing to deny the benefit of said exemption Notification No. 89/95-C.E and the ground taken was that goods are neither waste nor scrap in as much as the said goods have marketability & the said goods have been sold to the manufacturer of washing soap. It was also alleged that the residues in question are generated as ‘by-products'.

The lower authorities confirmed the demands and hence the appellant is before the CESTAT.

The Bench referred to the notification in question and observed thus -

++ The issue whether the impugned goods are waste for the purposes of Notification 89/95-CE or not, cannot be decided on account of marketability. This is for the simple reason that exemption pre-supposes excisability which, in its turn, pre-supposes marketability. Non-marketability cannot, therefore, be the test for deciding whether the goods in question satisfy of the definition of “waste” for the purposes of Notn 89/95-CE. Else, the exemption itself would become redundant and futile. Therefore, the stand taken by the revenue is erroneous and such interpretation would result in absurdity or redundancy. The waste exempted in public interest vide said notification is necessarily only such waste which is marketable, excisable and dutiable because grant of exemption from duty would only arise if the goods are otherwise dutiable.

Adverting to the decision in Moti Laminates Pvt. Ltd. vs. Collector of Central Ex. Ahmedabad - (2002-TIOL-24-SC-CX) and the definition of ‘excisable goods' given in section 2(d) of the CEA, 1944, the provisions of section 5A of the CEA, 1944, the Bench noted that it is apparent that exemption under Notification issued under Section 5A of the Act can only concern excisable goods which shall otherwise be dutiable and hence necessarily marketable.

The arguments of the Revenue that the ‘waste' for being eligible for exemption shall be of no value was held to be fundamentally erroneous by holding that under Section 3 of the Central Excise Act, 1944, Central Excise duty is always charged with reference to the value of the goods determined under Section 4 of the Act unless the goods are notified under Section 3A of the Act for charging duty on capacity of the production. And the Bench, therefore, concluded that if the ‘waste' referred in the exemption notification is considered to be of no value, it would not command any excise duty and eventually the question of its exemption would not arise and the notification would be rendered redundant and nugatory.

The CESTAT, thereafter observed -

“9. In view of the above statutory provision and binding precedent of the Hon'ble Supreme Court it is clear from the plain reading of the exemption notification that it is exempts only those waste which are not only arising in the course of manufacturing of exempted goods but are also marketable, excisable and otherwise chargeable to Central Excise duty. As the waste has not been defined under the Act, we have rely upon the dictionary meaning and judicial interpretation of the scope of the term ‘waste' in the above context of the exemption notification. The dictionary meaning for ‘waste' are as given below :-

x x x

The said dictionary meaning of term waste includes in its ambit and scope - unwanted, unusable items, remaining by products, refuse or superfluous material remaining after manufacturing or chemical process which is no longer needed for particular process. The expression waste under Notification can be reasonably understood as such unwanted, unusable items, remains, refuse or superfluous material remaining after manufacturing or chemical process which are excisable, marketable and arise in the course of manufacturing of exempted goods but are no longer required for manufacturing process quo the manufacture concerned.”

While summing up, the Bench also observed -

“12. The appellant manufacture exempted goods i.e. Refined Rice Bran Oil from crude rice bran oil by manufacturing process which is aimed at getting rid of the subject goods and thereby to manufacturing the said exempted refined oil and product which is fit for human consumption. Therefore, the impugned goods arising in the course of manufacturing of exempted goods are waste within the scope and ambit of exemption notification despite being marketable, excisable and usable by others. Thus, the only manner in which the said notification can be strictly interpreted without adding anything and without resulting in any absurdity or redundancy.”

In fine, the Bench set aside the orders of the lower authority and allowed the appeal with consequential relief.

In passing: A must read decision which meticulously deliberates on the provisions of s.2(d), s.3 & s.5A of CEA, 1944 vis-à-vis exemption notification in lucid terms and complemented by the judicial decisions on the subject matter!

(See 2013-TIOL-978-CESTAT-MUM)