By TIOL News Service

NEW DELHI, AUG 19, 2015: THE appellants manufacture refined vegetable oil. In course of refining of crude vegetable oil, fatty acids, wax and gum emerge as by-products. The refined vegetable oil did not attract any duty as it was fully exempt from duty under Notification No. 3/06-CE dated 01/3/06 or the tariff rate itself was nil.

In respect of fatty acids, wax and gum the appellants claimed the benefit of exemption Notification No. 89/95-CE dated 18/5/95 which exempts "waste, parings and scrap" arising in course of manufacture of exempted goods from the whole of the duty of excise leviable thereon.

According to the Department, Fatty Acids [heading 38237090], wax and gum [heading 15159099] are by-products and cannot be treated as “waste” and hence the same would not be exempt from duty.

Demand notices came to be issued and confirmed by the original authority which lead to the appellants knocking the doors of CESTAT. The demands are in excess of Rs.13.22 crores and Rs.1.54 crores respectively and bring along with them equivalent penalty and interest.

The appellant informed the Bench that although the Tribunal in the case of A.G. Fats Ltd. 2012 (277) E.L.T. 96 (Tri. - Del.) [decision affirmed by apex court by dismissal of civil appeal] had held that Fatty Acids oil, wax and gum emerging as by-product in course of manufacture of refined vegetable oil from crude vegetable oil are not ‘waste' and not exempted, the Mumbai Bench of the Tribunal in the case of Maheshwari Solvent Extraction Ltd. - 2013-TIOL-978-CESTAT-MUM had taken a contrary view even after considering the aforesaid ratio of A.G.Fats Ltd. and that prior to the decision in A.G.Fats Ltd. another Bench had in case of Priyanka Refineries - 2009-TIOL-2576-CESTAT-BANG extended the benefit of the notification 89/95-CE. Inasmuch as it was pleaded that t he appellant had no objection if on account of conflicting decisions, the matter is referred to a Larger Bench.

The AR submitted that the Tribunal had in A.G.Fats Ltd. considered the decision in Priyanka Refineries and concluded that the benefit of exemption notification 89/95-CE is not available and since this decision in A.G.Fats Ltd. has been affirmed by the apex court, it becomes a binding precedent and, therefore, the Tribunal was not correct in taking a different view in the case of Maheshwari Solvent Extraction Ltd. vs. CCE, Nagpur (supra) . However, he had no objection if the matter was referred to Larger Bench.

The Bench considered the submissions made by both sides and observed that when the Tribunal's judgment in the case of CCE, Jalandhar vs. A.G. Fats Ltd. (supra) which had considered the earlier contrary judgment in the case of CCE, Hyderabad vs. Priyanka Refineries Ltd. (supra) has been affirmed by the Apex court by dismissal of civil appeal, even if the civil appeal has been dismissed without giving any reasons, the Apex Court's order in view of its judgments in the cases of Kunhyammed vs. State of Kerala - 2002-TIOL-50-SC-LMT-LB and Waman Rao vs. Union of India (1981) 2 SCC - 362 becomes a binding precedent and it is highly doubtful as to whether another bench of the Tribunal in the case of Maheshwari Solvent Extraction Ltd. vs. CCE, Nagpur (supra) could re-open this issue and take a different view.

On the subject matter, the Bench gave the following view -

A by-product is an unintended product emerging in the course of a product which the manufacturer intends to manufacture. The by-product may be in the nature of refuge, of no or little value and fit to be discarded or may be a commercially known product, which has same commercial value, which is worthwhile to be marketed and hence is a marketable product. In the former case, when the by-product being of no or little commercial value is fit to be discarded, would be waste, but in the latter case, when the by-product, even though an unintended product, is of commercial value and is a marketable product, it would be absolutely incorrect to categorize it as a waste just because it is an unintended product emerging in the courses of a product which the manufacturer intended to manufacture. In the former case, when the by-product is waste fit to be discarded and for which there is no regular market, the same would be non-excisable, while in the latter case, where the by-product is marketable, the same would be excisable if it is covered by same heading/sub-heading of Central Excise Tariff for levy of excise duty. Just because the Government, as per its understanding of the word 'waste' has issued the exemption Notification No. 89/95-CE exempting the waste arising as by-product from excise duty, the courts and Tribunals are not bound to construe the word 'waste' as including even marketable by-products also, as the Government by issuing an exemption Notification under Section 5A(1) of the Central Excise Act, 1944 in respect of some waste, cannot make the non-excisable product into an excisable product. While construing such exemption notification the principle of avoiding redundancy while interpreting a statutory provision would not apply. Therefore, in the Notification No. 89/95-CE, the word 'waste' would mean only those by-products which are in the nature of refuse, are of no or little commercial value and which are generally discarded. In the present case, none of the by-products - Fatty Acids, wax and gum satisfy the above for criteria. In fact, Fatty Acids obtained the course of refining of crude oil also called Acid Oils, are a raw material for soap industry and are a well-known commercial product with considerable value.

Nonetheless, noting there are two conflicting judgments of two coordinate benches, the Bench opined that the matter would merit reference to Larger Bench.

Accordingly, the Registry was directed to place the matter before the President for considering constituting a Larger Bench.

The point to be decided is -

(See 2015-TIOL-1730-CESTAT-DEL)