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Collector of Central Excise Vs. Jayalakshmi Cotton and Oil - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1984)(18)ELT331TriDel
AppellantCollector of Central Excise
RespondentJayalakshmi Cotton and Oil
.....are prescribed. it has been the practice to understand item 13 as covering only vegetable oils hardened just enough that they do not cease to be edible. this line is by no means a clear one. margarine vegetable butter is hardened to about 37c or 38c melting points but shortening, are hardened somewhat higher than this.the hydrogenation merely raises the melting point of the oil : as long as the melting point is within manageable limits, the human system can handle the oil. to assess under item 13, only such oil which have been hardened but not hardened too high to be consumed by human beings is a well-known practice and is based on the tariff definitions.13. it does not follow, however, that item 12 will take in only liquid oils. we have discussed that oils can be liquid or.....
1. A notice F. No. 198/11/100/ 80-CX.5, dated 22nd September, 1980 was issued by the Govt. of India telling M/s. Jayalakshmi Cotton & Oil Products Pvt. Ltd, Macherla Road, Guntur District, Andhra Pradesh, that it was tentatively of the view that order-in-appeal No. 176/80, dated 16-5-80, passed by the Appellate Collector of Central Excise, Hyderabad was not proper, legal etc. etc. It, therefore, wanted, by exercising its power under Section 36(2) of the Central Excises and Salt Act, 1944, to set aside the order-in-appeal and restore the Assistant Collector, Central Excise, Guntur's order.

2. The dispute was whether hydrogenated rice bran oil with melting point 52C and unfit for human consumption was assessable under item 12 or under item 68, CET. The Asstt. Collector held item 68 was correct but the Appellate Collector over-ruled him saying item 12 was correct, The Govt. of India thought item 68 was correct and so it gave the notice under Section 36(2).

3. The matter was argued before this Tribunal on 1-6-1984. The learned Counsel for the Government argued that the Gujarat High Court had ruled in the case reported in 1980 ELT 435 that superhardened palm oil(44C) was not classifiable under item 13 but would be covered under the residuary item 68. She argued that by hydrogenation beyond a point, the oil is not any longer fit for human use and cannot be assessed under item 13. It has to be assessed under item 68 as it is no longer hos any other specific item.

4. She referred to the judgment of the Supreme Court in Tungbhadra Oil-AIR 1961 SC 413. In this judgment, the Supreme Court said that the groundnut oil hardened into a fat for human consumption was still a groundnut oil and had the same use as the unhardened groundnut oil, and should, therefore, be assessed as groundnut oil. She said, however, that that judgment went largely by the fact that the hardened vegetable product was still used for human consumption just as the unhardend oil was. The ruling will not apply to a situation where the hardening resulted in a product where melting point was 52C and, for that reason, unfit for human consumption. She said that in the famous DCM judgment, the Supreme Court ruled that when a product with a new name, character or use, emerged, it attracted duty. She emphasized the "or"; when a product newly acquires any one of the three attributes, it becomes dutiable. The hardened rice bran oil had become a new product, had acquired a new character and had found a new use : it would, therfore, become newly dutiable, and for this, item 68 was the only heading that would take it in.

5. The factory's counsel argued that the Gujarat High Court decision was given when only items 13 and 68 were presented before it. The choice was only between these two : and there can be no two opinions that 68 was preferable to 13 for an oil hardened beyond 40C. Here we have item 12, the place of origin of the oil. Till the oil leaves its rightful home because of reasons that compel it to do so, it must remain there. We have to remember that item 68 is only a residuary item, a heading that specifies nothing.

6. There is much persuasive logic in the learned counsel's arguments.

But we are chiefly led to the conclusion that item 12 is preferable to item 68 by the fact that a fat, like the hardened rice bran oil, like all fats whether obtained by hydrogenation or not, are indistinguishable chemically in character, behaviour, from oils, except that fats are solid at room temperature while oils are liquid. But it is useful to remind ourselves that a lipid, say, coconut oil, is liquid at room temperature in summer, but solid at room temperature in winter.

The same goes for another lipid ghee. The hardened vegetable product, vanaspati, can become liquid in summer heat, but its constituents, use, taste, odour, behaviour are, in all ways, the same. When the solid fat is used for cooking, it is heated after which it becomes a liquid. If the heat is, removed, it again hardens and solidifies. But no one speaks or thinks of one being different from the other and, of course, they are right. The learned counsel for the department says that a liquid oil hardened as to make it unsuitable for human consumption is a new product, with a new identity etc. This is a doubtful proposition.

The hardened oil may become unsuitable for human consumption, but this is only one of the many uses an oil has. There are oils, like castor oil, which are unfit for human consumption in the way groundunt oil is consumed, whelher they are hardened or not. But the hardened oil, though unfit for human consumption, is still the same substance in all material aspects and will exhibit the same characteristics as the oil from which it is made. The only difference that hardening with hydrogenation will impart is better odour, keeping qualities, ease of handling and so on. Chemically, the two are identical.

7. We think that item 12 can cover hardened oil except the kind that is attracted into the orbit of item 13. The item 12 covers "all sorts" of vegetable non-essential oils. We think that whatever the sort i.e.

whether solid or liquid, among other things, a vegetable non-essential oil must be assessed under item 12. It is not for nothing that the solidified tallow is also known as hardened technical oil, which in truth it is. The tallow is nothing but hardened oil, just as the solid ghee is nothing but the liquid ghee. One can look at it from the other end : there will be no difference, because one would be looking at the same thing, but in different states. Water is no less water because it is frozen into a block of ice. The pedantic might say that no one takes water when one wants ice. Maybe so, but we are not speaking of the temperatures, but of the substance. And the substance is, as everyone knows, water and nothing more.

8. Of course, if the tariff differentiated between oil and hardened oil, it would be a different matter. It does not. The item covers "all sorts" of vegetable non-essential oils. If the solidified oil is not one of the sorts, we are not clear what those "sorts" might be. There will then be only vegetable non-essential oils of the same liquid sort, and no other sort. We then would ask : Why specify "all sorts" We can see no satisfactory answer.

9. An anachronism presents itself before us if we say that a hard/hardened oil is a different substance from the oil from which it comes. Vanaspati is assessable under item 13 because it is oil hardened just enough as to remain edible. That same vanaspati will be liquid in New Delhi's 44C summer heat. Should it be assessed as VNE oil under item 12 (considering its physical state) If so, will the assessment change to item 13 when the plunge of the thermometre solidifies it If the proposition is that only a liquid can be called an oil, and so fit for assessment under item 12, and that a solid cannot be accommodated there, there will be real difficulty about the summer months. But there is no departmental objection to assessing coconut oil under item 12, regardless that in winter, even in the South, it can be solid. And the people who deal inoils of this kind will, if a consumer asks for coconut oil, give the solid substance as readily as the liquid one.

Nobody will say "this is solid, and hence cannot be oil". Both the oil and the fat (solid) are accepted as coconut oil without any distinction by people in trade, who sell it and by the common people who consume it.

10. Item 13 defines a vegetable product as a vegetable oil or fat which, by itself or in admixture with any other substance, has by hydrogenation or by any other process been hardened for human consumption. There is a fallacy in this definition. The words hardened for human consumption suggest that but for such hardening, the oil or fat was not fit for human consumption. Hardening never makes an inedible oil or fat edible. Hardening has the very limited purpose of, among other things, improving the colour, taste, to preserve and to raise the melting point. That hardening cannot render edible an inedible oil is proved by the fact that it is employed to render many oils more suitable for industries like soap making and other industrial uses. All the oils "hardened for human consumption" are themselves edible, and do not require ardening, by hydrogenation or by any other process, to make them edible.

11. Notice carefully also the words "oil or fat". A vegetable product is an oil, which had been hardened for human consumption. First it is an oil; then it is processed to harden it. Theoretically, therefore, if an edible oil is chilled enough to harden/solidify it, it should be classed under item 13. [Sperm oil is chilled to produce spermaceti, a solid wax (a product of the same general structure, and composition as oils and fats; there are both vegetable and animal waxes); of course, sperm oil is not a vegetable oil].

12. In our opinion there can be no valid objection to a categorization of oils and facts together under the same class, except when specific assessment qualifications are prescribed. It has been the practice to understand item 13 as covering only vegetable oils hardened just enough that they do not cease to be edible. This line is by no means a clear one. Margarine vegetable butter is hardened to about 37C or 38C melting points but shortening, are hardened somewhat higher than this.

The hydrogenation merely raises the melting point of the oil : as long as the melting point is within manageable limits, the human system can handle the oil. To assess under item 13, only such oil which have been hardened but not hardened too high to be consumed by human beings is a well-known practice and is based on the tariff definitions.

13. It does not follow, however, that item 12 will take in only liquid oils. We have discussed that oils can be liquid or solid for different reasons such as hydrogenation, chilling; they can be made semi solid by concentration. If item 13 can cover an oil which has been hardened, there can be no strong reason why item 12 cannot cover a fat obtained from a given oil, when we know that the fat is nothing but an oil. In our opinion item 12 can take in all sorts of VNE oils except those for which item 13 is more specific. But both cover vegetable oils; both oils are non-essential oils. The C.E., Madras, who tested the sample called it hydrogenated vegetable non-essential oil.

14. The Tungbhadra judgment of the Supreme Court does not completely apply here. In that matter the Court said that the vegetable product was still a groundnut oil. We are in agreement with this. But our problem is a product that was not fit for human consumption e.g. in cooking.

15. The learned counsel for the department said that in the DCM judgment the Supreme Court laid down guiding principles for deciding whether a product should pay duty. Wherever a material or substance acquires a new name, character or use, it should bear duty. This indeed has been our ground Rule by which all questions of excisability are answered. At first sight, it would look as if the hardened technical oil has acquired not one, but all the new attributes: viz. (1) a new name, hardened technical oil, (2) new character, solidity and (3) use, as a raw material for soap.

16. But a close look will dispel all these doubts. The new name, hardened technical oil. refers to an oil. It was an oil before this new name. So, there is no change. The new character, solidity is not a different character, because the same solid oil will easily become liquid on heat being applied. The hydrogenation, we have seen, does not change its character any more than the cold of winter which solidifies the coconut oil, changes its character. And the new use is not really a new one, because the oil and the fat being the same, it is not as if the fat that emerged from the oil is so radically different that it can never have anything in common with its source, the oil. Their uses are the same. The vegetable product (hardened oil) is used for cooking just as the unhardened oil. Superhardened oil may not be used for cooking but the oil and the superhardened fat can be used in various industrial processes like manufacture of lubricants, medicines, plastic and paints industry, soap making. And it is useful not to forget that degree of hardening is hardly a satisfactory basis for classification because while some oils can be hardened and still be edible, others are never edible whether hardened or not. It is, therefore, not a clear case of a new use that has emerged : a new use may emerge in the case of some oils but not all : not the kind of foundation for us to build upon 17. We, therefore, think the DCM judgment cannot apply. Further-more, the problem before the Supreme Court was a commodity whose excisability was in dispute, not a product whose proper heading was uncertain. We are not to decide whether the rice bran oil (hydrogenated) was excisable but how to excise it.

18. We think that assessment under Item 12 is appropriate, while assessment under item 68 not so. We order assessment accordingly. We also set aside the notice dated 22-9-1980 issued by the Govt. of India.

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