1989 (8) TMI 79 - SC - Central Excise

Supreme Court grants exemption for soap manufacturing with rice bran oil, location not a disqualifier

TATA OIL MILLS CO. LTD. Versus COLLECTOR OF C. EX.

TATA OIL MILLS CO. LTD. Versus COLLECTOR OF C. EX. - 1989 (43) E.L.T. 183 (SC), [1991] 82 STC 225 (SC), 1990 AIR 27, 1989 (3) SCR 839, 1989 (4) SCC 541, ... Issues Involved:1. Eligibility for concession under Rule 8(1) of the Central Excise Rules, 1944.2. Interpretation of the term 'rice bran oil' in the context of soap manufacturing.3. Applicability of exemption notifications when rice bran oil is pre-treated outside the soap manufacturing factory.4. Verification and procedural aspects related to the use of rice bran oil.Detailed Analysis:1. Eligibility for Concession under Rule 8(1) of the Central Excise Rules, 1944:The appellant, engaged in soap manufacturing, sought concession under Rule 8(1) of the Central Excise Rules, 1944, through notifications No. 46 of 1972, 153 of 1973, and 25 of 1975. These notifications provided duty exemptions for soap made from indigenous rice bran oil or a mixture of such oil with other oils. The dispute arose regarding whether the appellant's use of rice bran fatty acid, derived from rice bran oil, qualified for the concession.2. Interpretation of the Term 'Rice Bran Oil' in the Context of Soap Manufacturing:The core issue was whether rice bran fatty acid, obtained from rice bran oil, could be considered as rice bran oil for the purposes of the exemption. The Tribunal held that the concession was intended to encourage the use of rice bran oil in soap manufacturing and that rice bran oil must be used directly in the manufacturing process within the same factory. The Tribunal's interpretation was that rice bran fatty acid and rice bran oil are technically and commercially distinct commodities, thus disqualifying the appellant from the exemption.3. Applicability of Exemption Notifications When Rice Bran Oil is Pre-Treated Outside the Soap Manufacturing Factory:The Tribunal's view was that the pre-treatment of rice bran oil should occur within the same factory claiming the exemption. However, the Supreme Court disagreed, stating that the Tribunal's interpretation was too narrow. The Court emphasized that the objective of the notifications was to encourage the use of rice bran oil in soap manufacturing, regardless of whether the pre-treatment occurred within the same factory. The Court clarified that the exemption should apply as long as the soap manufacturing process involved rice bran oil, even if it was converted into fatty acid or hydrogenated oil before use.4. Verification and Procedural Aspects Related to the Use of Rice Bran Oil:The Tribunal raised concerns about the difficulty in verifying the use of rice bran oil if it was pre-treated outside the factory. The Supreme Court addressed this by referring to existing procedures and circulars that provided methods to correlate the use of rice bran oil with its derivatives like fatty acid or hydrogenated oil. The Court highlighted that practical solutions, such as the formula established by the Assistant Collector, Ernakulam II, could be used to determine the rice bran oil content in fatty acid or hydrogenated oil, ensuring compliance with the exemption conditions.Conclusion:The Supreme Court held that the appellant was entitled to the exemption under the relevant notifications. The Court ruled that the terms of the notifications did not exclude cases where rice bran oil was pre-treated outside the soap manufacturing factory. The emphasis was on the use of rice bran oil in the manufacturing process, not the location of its pre-treatment. The appeals were allowed, and the Tribunal's decision was overturned, granting the appellant the sought concession. No order as to costs was made.