Exemption for processed vegetable oil used in soap manufacture upheld despite duty-free intermediate clearance under Chapter X.

Processed vegetable non-essential oil used in making hardened technical oil and ultimately soap qualified for exemption under Notification No. 33/63-Central Excise, because the intermediate hardening stage did not defeat relief where the goods were ultimately used in manufacture of the notified final product and movement under Chapter X procedure was accepted. The majority treated the department's objection as making the notification unworkable for soap manufacture and held that duty was not payable on the processed oil; refund followed if duty had been paid. A dissenting view considered the intermediate excisable stage decisive and would have denied the exemption.

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Issues: (i) Whether V.N.E. oil used in the manufacture of hardened technical oil and ultimately soap was entitled to exemption under Notification No. 33/63-Central Excise, notwithstanding removal of the intermediate product under Chapter X procedure without payment of duty.

Issue (i): Whether V.N.E. oil used in the manufacture of hardened technical oil and ultimately soap was entitled to exemption under Notification No. 33/63-Central Excise, notwithstanding removal of the intermediate product under Chapter X procedure without payment of duty.

Analysis: The notification exempted processed vegetable non-essential oil when used in the manufacture of goods falling under the specified tariff items, but the Department denied the benefit on the footing that the intermediate hardened oil was cleared without duty and therefore the proviso was attracted. The majority held that this construction made the notification unworkable in the case of soap manufacture, because hardening of the oil was only an intermediate step and the admitted finished product was soap. Since the goods were used in the manufacture of soap and the movement under Chapter X procedure was accepted, the proviso was not treated as defeating the exemption.

Conclusion: The exemption was available and the V.N.E. oil was not liable to duty; refund was directed if duty had been paid.

Concurring / Dissenting Opinion: The dissenting member held that the intermediate product was admittedly excisable under Item 13, was removed without payment of duty for manufacture of soap under Item 14, and that the notification could not be construed to ignore that intermediate excisable stage. On that view, the appeal lacked merit and should have been dismissed.

Final Conclusion: The majority accepted the assessee's construction of the exemption notification and granted duty relief in respect of the processed oil used in soap manufacture.

Ratio Decidendi: Where an exemption notification is framed to cover a raw material used in the manufacture of specified excisable goods, the benefit cannot be denied merely because an admitted intermediate stage passes through Chapter X procedure without duty, if the goods are ultimately used in the manufacture of the notified final product.

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