1. The petitioners' case is that between 9th October, 1971 to 30th April, 1973 they manufactured vegetable nonessential oil (hereinafter for brevity's sake referred to 'V.N.E.' Oil). That they converted this V.N.E. oil into tallow which is a vegetable product. That this was done at their factory at Hay Bunder. That they had these goods cleared and taken to their loan factory, i.e. Bombay Soap Factory at Ripon Road. That whilst doing this, they had represented to the Excise Authorities that this tallow fell under Item No. 13 of the Central Excise Tariff of India and by reason of Notification No. 8(3)56, dated 14th January, 1956 it was exempt from duty. That after this tallow reached the Bombay Soap Factory, it was used for the manufacture of soaps. That the loan company, i.e. Bombay Soap Factory, cleared the soaps under their licence and paid duty thereon. That the petitioners were and are liable to reimburse the Bombay Soap Factory in respect of this duty on soap.
2. It is the petitioners' case that by a notice dated 23rd May, 1973, issued by the Superintendent of Central Excise, the petitioner were informed that they had become liable to pay the duty on these goods in view of Notification No. 33/63, as amended by Notification No. 181/71, dated 9-10-1971. By the said notice the petitioners were also called upon to show cause why duty should not be recovered from them. Thereupon the petitioners by their statement dated 24th July, 1973 informed the Assistant Collector of Central Excise that they had wrongly classified the goods under Item 13. That as a matter of fact, the tallow was not fit for human consumption. That this being so, the question of application of proviso 2 of the said Notification bearing No. 33/63, as amended by Notification No. 181/71, dated 9-10-1971, to the petitioners' case did not arise and, in any event, the petitioners were not liable to pay duty on these goods. By an order dated 17th December, 1975 the Assistant Collector of Central Excise negatived the petitioners' contentions and went on to hold that in view of the second proviso of the said Notifications, the petitioners were liable to pay excise duty.
3. Being aggrieved by the said order the petitioners preferred an appeal to the Appellate Collector, inter alia, mentioning the said grounds. By an order dated 5th November, 1974 the Appellate Collector rejected the petitioners' contentions and confirmed the order of the Assistant Collector of Central Excise.
4. Being aggrieved by the said order the petitioners filed a Revision Application to the Joint Secretary, Government of India, inter alia, urging the very grounds and maintaining that the Excise was not claimable. By an order dated 30th September, 1975 the petitioners' contentions were rejected. Hence the petitioners have filed this petition, inter alia, challenging the proceedings on the several grounds mentioned in the petition and for quashing the said orders.
5. This petition is resisted by the respondents on the grounds (a) that the duty claimed has been proper, (b) that this vegetable tallow, although an intermediary product, is a finished product and the duty claimed is proper, (c) that, in any event, what is exempted from Excise is the vegetable non-essential oil, when directly used for the manufacture of item Nos. 13, 14 and 15 (that is soap) and not otherwise, and the duty would hence be payable by the petitioners, and (d) the conduct of the petitioners in classifying these goods under Item 13 and claiming exemption on that footing must now preclude them from resiling from the said stand. In other words, they are estopped from contending otherwise. The respondents have urged that in view of this the petitioners would not be entitled to any relief.
6. Now, considering the rival contentions, what seems to me is that the petitioners initially manufactured non-essential oil with the aid of power. This would ordinarily be covered by Item 12 of the Central Excise Tariff of India, 1980, which reads as follows :
' ... ... ... ... ...
(i) goods falling under Item Nos. 13, 14 and 15 of the First Schedule to the Central Excises and Salt Act, 1944 and
... ... ... ... ...
Provided further that no such exemption shall be allowed in respect of vegetable non-essential oils used in the manufacture of finished excisable goods if such finished excisable goods produced by the manufacturer are exempted from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty.
... ... ... ... ...'
7. However, by Notification No. 33/63, dated 1st March, 1963, the petitioner could claim exemption from the payment of duty provided they separately fell within the said Notification. The relevant portion of the said Notification reads as follows :
'(6) Under Government of India, Ministry of Finance (Department of Revenue), Notification No. 33/63-Central Excises, dated the 1st March, 1963, as subsequently amended by Notification No. 50/63-Central Excises, dated the 7th March, 1963, No. 14/64-Central Excises, dated the 15th February, 1964, No. 110/65-Central Excises, dated the 16th July, 1965 and No. 181/71-Central Excises, dated the 9th October, 1971, the following vegetable non-essential oils falling under this Item are exempt from the payment of the whole of the excise duty leviable thereon :
(a) XXX XXX XXX XXX XXX
(b) Vegetable non-essential oil, whether produced in the factory of production of the excisable goods specified below or elsewhere, if used after it is processed in the manufacture of -
(i) goods falling under Item Nos. 13, 14 and 15 of the First Schedule to the Central Excises and Salt Act, 1944; and
XXX XXX XXX XXX
Provided that, in respect of the vegetable non-essential oil produced elsewhere than in the factory of production of the said excisable goods, the procedure set out in rule 56A of the Central Excise Rules, 1944, followed.'
8. Now, goods mentioned in Item 15 described in clause 6(b)(i) is soap. There is no dispute that the V.N.E. oil manufactured by the petitioners was to be used in soap. Hence the petitioners could claim exemption from payment of excise as per the said Notification.
9. But what seems to have happened is that the petitioners had hardened this oil into tallow in their factory at Hay Bunder. That they wanted to carry this tallow to their loan factory - the Bombay Soap Factory - to convert the same into soap. That for this purpose they had to clear their goods from Hay Bunder Factory and in doing so had represented that this tallow was covered by Item No. 13 of the Central Excise Tariff of India, and by reason of the Notification No. C.E.R. 8 sub-clause (3)/56 dated 14th June, 1956 these goods were exempted from payment of excise and Chapter II. This position was accepted by the respondents and the goods came to be cleared from the petitioners' Hay Bunder factory and were carried to their loan licensee Company, Bombay Soap Factory.
10. What appears is that the Notification No. 33/63 came to be amended on the 9th October, 1971, and a further proviso (hereinafter for brevity's sake referred to as 'the second proviso') came to be added. Relevant portion of the said second proviso reads as follows :
'Provided further that no such exemption shall be allowed in respect of vegetable non-essential oils used in the manufacture of finished excisable goods if such finished excisable goods produced by the manufacturer are exempted from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty.
Explanation - For the purpose of this notification processed vegetable non-essential oil means a vegetable non-essential oil which has undergone subsequent to its extraction any one or more of the following processes, namely :
(i) Treatment with an alkali or acid
It is in the light of this that the Department seems to have issued a show cause notice dated the 23rd May, 1973 contending therein that the petitioners fell within the second proviso and were liable to pay duty on the V.N.E. oil. In reply to this show cause notice, the petitioners took up the position that (a) the vegetable tallow was an intermediary product, (b) in any event, it was not a finished product, (c) in any event, it was not fit for human consumption inasmuch as this oil was hardened so that its melting point was 43 degree C., whilst if it was for human consumption, its melting point ought to have been 33 degree to 37 degree C. The petitioners urged that in view of this the tallow did not fall within item No. 13 and that the second proviso has no application and no duty could be levied under the second proviso.
10. In the proceedings that followed the Excise Department maintained otherwise and passed orders to the effect that the excise was payable by the petitioners by reason of the said clause.
11. The short question that needs now to be determined is does this tallow, which is a 'vegetable product', fall under Item 13 of the Central Excise Tariff of India, and as such does it attract the second proviso and, if so, is duty leviable thereon
12. Now, there is no dispute that the tallow which was manufactured has been used for soap and as such it would be an intermediary product. The respondents have argued that if this be so, then in view of the ratio laid down in the case of Indian Vegetable Products Ltd. vs. Union of India & Ors., 1980 E.L.T. 704 (Bom), the product would well be classified under Item 13 and would clearly attract the second proviso and in view of this duty would be leviable.
13. Now, as regards the said decision it may be stated that in that case both parties proceeded on the footing that the tallow in question was fit for human consumption and was covered by Item No. 13. In the present case it is evident that this position was and is being seriously disputed by the petitioners ever since the service upon them of the show cause notice. The petitioners have fairly admitted that they had cleared the tallow from their Hay Bunder Factory and carried it to the Bombay Soap Factory and in doing so had proceeded on the footing that it was covered under Item 13. The petitioners have, however, pointed out that when they received the show cause notice, in their reply to the same, they hastened to point out that the tallow in question was not fit for human consumption and as such could not be classified under Item 13 of the Central Excise Tariff of India. Nowhere in the proceedings either at the stage when the matter was before the Assistant Collector of Central Excise or at the appellate stage or at the revision stage was or has this position been disputed by the Department. If this be so, then in the face of the wording of Item 13, this tallow cannot be classified under Item 13, even if it be an intermediate product or finished product. It is thus clear that only vegetable oil being hardened and fit for human consumption can only fall within item 13. If once it is established that this tallow is not fit for human consumption, the product cannot be classified under Item 13 and there would be no question of the Department invoking the second proviso and claiming duty on the said product. In view of this, the ratio laid down in the said judgment would not be of any application whatsoever.
14. The respondents contended that at one stage the petitioners had classified this tallow as falling under Item 13, and proceeding on this footing had claimed the benefit of Notification No. 8(3)56, dated 14th January, 1956. That it was not open to the petitioners now to turn round and say that this tallow was not covered by Item 13. The petitioners were estopped from doing so. Now, in this context it may be stated that it is well settled law that in the case taxation there can be no question of estoppel and in view of this the contention of the respondents must fail.
15. Mr. Manjrekar, the learned counsel for the respondents, then argued that, in any event, V.N.E. oil fell under Item No. 12 and since they did not convert this oil into soap in their factory but at a place other than where this oil was manufactured, the petitioners were not entitled to an exemption under the Notification No. 33 of 1963 and the duty was clearly payable in respect thereof. In view of this, the petitioners would be entitled to no relief whatsoever.
16. Now, as regards this contention of Mr. Manjrekar, it may be stated that this is not the ground on which the respondents have proceeded in issuing the show cause notice. Reading the show cause notice dated 23rd May, 1973, as a whole, what is evident that the respondents have proceeded on the footing that this tallow came under the classification of Item 13 and that the second proviso of the Notification No. 33/63, as amended by Notification No. 181/71 of 9th October, 1971, clearly applied and that in view of this the petitioners were liable to pay the duty. This is more evident from ground (v) mentioned in the said notice. Then again, the order of the Assistant Collector of Central Excise, dated the 17th December, 1973, has also proceeded on this footing, viz. that tallow came under Item 13 and the second proviso was applicable and that duty was payable. The Appellate Collector has in his order dated 5th November, 1974, inter alia, considered the various grounds canvassed by the petitioners and after having set out the same has gone to observe as follows :
'I have gone through the records of the case and considered all arguments raised by the appellants. Keeping in view the notification No. 33/63 and 110/65 the duty on processed V.N.E. Oil used for making tallow has to be paid. Soap duty is paid by another manufacturer holding L. 4 licence. I therefore, do not see any reason to interfere with order passed by the Assistant Collector. The appeal petition is, therefore, reject.'
This order is neither here nor there and does not carry Mr. Manjrekar's contention any further.
17. In so far as the order passed by the Revisional Authorities is concerned it may be added that Mr. Manjrekar argued that the order of the revisional authority clearly supported his argument and Mr. Manjrekar was at pains to take me through this order. This order has been scrutinised by me closely and I find that the revisional authority has proceeded on the footing that the soap was manufactured in a factory other than where this oil was processed and the manufacture was different, and hence the petitioners were liable to pay excise and, secondly, that the second proviso was applicable liable and hence the petitioners were liable to pay excise. In passing this order, the revisional authority had sought to introduce a new ground by coming to the conclusion that the manufacturers were different. This was never the case of the Department at any stage ever since the enquiry took place. If the petitioners were sought to be made liable on such a ground, then the proper course for the Department would have been either to furnish additional grounds to the petitioners and call upon them to meet the same, or, in any event, afford them an opportunity to meet such a case. It would not be open to the Department to go on changing their grounds from stage to stage with a view to fix the liability on an assessee without giving him an opportunity to meet the ground on which he is sought to be made liable. In view of this, Mr. Manjrekar's contention must now be negatived.
18. As earlier stated, one of the grounds canvassed by the respondents is that
'It is in the direct use of the vegetable non-essential oil in items 13, 14 and 15 that exemption is granted.'
That this being so, the petitioners were not entitled to any exemption. Now, in so far as this point is concerned, Mr. Taraporwala, the learned counsel for the petitioners, pointed out that this point had been taken, for the first time by the respondents only in their reply to this petition, and was not to be found in the impugned orders. In view of this, the respondents were not entitled to raise this plea, more particularly in view of the ratio in the judgment of the Supreme Court in the case of Mohinder Singh Gill vs . Chief Election Commissioner, : 2SCR272 . I uphold Mr. Taraporwala's contention on this point.
19. I may here add that Mr. Taraporwala, the learned counsel for the petitioners, fairly conceded that he is not pressing the point of limitation and that the case would be governed by the old Rule 10A of the Central Excise Rules.
20. In view of this discussion, what comes of the matter is that the petitioners would be entitled to the reliefs in terms of prayers (a) and (b) of the petition.
21. The rule is made absolute with no order as to costs. I make it clear that it would be open to the Department to take any other action in law it would be entitled to do.