Court rules supplier not liable for excise duty on oils produced by mills

The court held that the petitioner, a vegetable oil manufacturer supplying oil seeds to independent mills, was not liable to pay excise duty on oils produced by those mills. The court clarified that the owner of the factory where oils were manufactured was considered the manufacturer, not the supplier of raw materials. As the petitioner did not possess a license for manufacturing the oils produced by other mills, it did not qualify as the manufacturer under the law. The court allowed the writ petition, quashed the demand notices, and directed authorities not to recover excise duty from the petitioner, awarding costs to the petitioner.

---

---

Issues:
Interpretation of excise duty liability for vegetable non-essential oils manufactured by other mills using oil seeds supplied by the petitioner.

Analysis:
The petitioner, a firm manufacturing vegetable oils, supplied oil seeds to independent oil mills for processing. The mills manufactured oils within the exemption limit, but later, authorities demanded excise duty on oils supplied by the petitioner. The petitioner contended it was not the manufacturer of oils produced by other mills and challenged the demand notices. The primary issue was whether the petitioner was liable to pay excise duty on oils manufactured by other mills using its oil seeds.

The court addressed the preliminary objection of alternative remedies, emphasizing that a genuine infringement of fundamental rights cannot be dismissed based on alternative remedies. The duty of excise is levied on manufacturers, and the taxable event is the production or manufacture of goods. The duty is initially payable by the manufacturer, even if passed on to the consumer. The key question was whether the petitioner qualified as the manufacturer of oils produced by other mills using its oil seeds.

Examining the relevant provisions of the Act and rules, the court determined that the petitioner did not fall under the definition of a manufacturer. The Act required obtaining a license for manufacturing excisable goods, which the petitioner did not possess for the oils produced by other mills. The court highlighted that the owner or occupier of the factory where oils were manufactured was considered the manufacturer, not the supplier of raw materials. Central Excise Standing Order No. 26/56 clarified that oil mills processing oil seeds for others were not considered manufacturers.

The court emphasized that all vegetable oils produced in a factory, regardless of seed ownership, were excisable. It concluded that the owner of the factory where oils were manufactured should be treated as the manufacturer, not the supplier of oil seeds. Therefore, the petitioner was not liable to pay excise duty on oils produced by other mills using its oil seeds. The court allowed the writ petition, quashed the demand notices, and directed authorities not to recover excise duty from the petitioner. The petitioner was awarded costs.

---