2025 (6) TMI 427 - AT - Central Excise

Vegetable Oil Manufacturers Win Duty Exemption for Processing By-Products Based on Waste Classification Rule

M/s Raj Agro Mills Ltd Versus Commissioner of Central Excise and Service Tax, Ludhiana

The CESTAT allowed an appeal concerning Central Excise duty exemption for by-products like waxes, gums, and fatty acids arising during vegetable oil ... Exemption under N/N. 89/1995-CE dated 18.05.1995 - axes, gums, and fatty acids arising during the manufacture of refined oil, vanaspati ghee, and fatty acid qualify as waste or are excisable goods - HELD THAT:- This issue is squarely covered by the decision of the Larger Bench of the Tribunal in the case of M/s Ricela Health Foods Ltd M/S RICELA HEALTH FOODS LTD., M/S J.V.L. AGRO INDUSTRIAL LTD., M/S KISSAN FATS LIMITED VERSUS CCE, CHANDIGARH, ALLAHABAD [2018 (2) TMI 1395 - CESTAT NEW DELHI], the Larger Bench of its interim order dated 30.01.2018 decided the matter in favour of the assessee and held that gum, wax and fatty acid are waste and the assessee is eligible for exemption under Notification No. 89/1995-CE. The impugned order denying the exemption to the appellant under Notification No. 89/1995 is not sustainable in law - Appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this appeal are:Whether the products such as waxes, gums, and fatty acids arising during the manufacture of refined oil, vanaspati ghee, and fatty acid qualify as 'waste' under Notification No. 89/1995-CE dated 18.05.1995 and are thus exempt from Central Excise duty.Whether the impugned order denying exemption and imposing Central Excise duty, interest, and penalty on these products was legally sustainable.The applicability of precedents, particularly the Larger Bench decision in M/s Ricela Health Foods Ltd. and subsequent decisions by this Tribunal, in determining the eligibility for exemption under the said Notification.2. ISSUE-WISE DETAILED ANALYSISIssue: Eligibility of exemption under Notification No. 89/1995-CE for waxes, gums, and fatty acids arising during manufactureRelevant legal framework and precedents:The primary legal instrument under consideration is Notification No. 89/1995-CE dated 18.05.1995, which exempts 'waste, parings and scrap arising in the course of manufacture of exempted goods and falling within the schedule to the Central Excise Tariff Act, 1985' from Central Excise duty. The Central Excise Act, 1944 and Central Excise Rules, 2002 provide the procedural framework for imposition and recovery of duty, interest, and penalties.Key precedents include the Larger Bench decision of the Tribunal in M/s Ricela Health Foods Ltd. Vs. CCE, Chandigarh, Allahbad (Interim Order dated 30.01.2018), which examined the nature of wax, gums, and fatty acids arising during vegetable oil refining and held these to be 'waste' eligible for exemption under the Notification. Another relevant decision is the Final Order dated 21.12.2023 by the CESTAT Chandigarh in Dhillon Oil and Fats Pvt. Ltd., which relied on the Ricela Larger Bench ruling to uphold exemption.Court's interpretation and reasoning:The Tribunal, after hearing submissions and perusing records, found that the products in question-wax, gums, and fatty acids-are by-products arising during the extraction and refining process of vegetable oils. Despite having distinct names and market value, these products are considered 'waste' within the meaning of the Notification. The Tribunal emphasized that the Larger Bench in Ricela Health Foods Ltd. had thoroughly examined the issue and concluded that such by-products cannot be treated as separate dutiable goods but fall within the ambit of waste exempted under Notification No. 89/1995-CE.Key evidence and findings:The appellant was engaged in manufacturing refined oil, vanaspati ghee, and fatty acid and cleared by-products like waxes, gums, and soap stocks at Nil rate of duty, claiming them as 'waste'. The revenue disputed this classification, issuing show cause notices demanding duty, interest, and penalties. The adjudicating authority confirmed the demand, but the Commissioner (Appeals) partly allowed the appeal by granting benefit-cum-duty price and setting aside penalties, though confirming demand and interest. The Tribunal relied heavily on the Larger Bench ruling in Ricela and the subsequent consistent decision in Dhillon Oil and Fats Pvt. Ltd., both of which recognized these by-products as exempt waste.Application of law to facts:The Tribunal applied the legal principle established by the Larger Bench that the by-products generated during the manufacture of exempted goods qualify as waste and are thus exempt under Notification No. 89/1995-CE. Despite the products having market value and distinct identity, the Tribunal held that such characteristics do not disqualify them from being treated as waste. Consequently, the demand for Central Excise duty and penalties on these by-products was not sustainable.Treatment of competing arguments:The revenue contended that these by-products are distinct marketable goods and therefore liable to duty. However, this argument was rejected on the basis of authoritative precedents which clarified that the exemption applies to waste arising in the manufacture of exempted goods, regardless of marketability or distinct nomenclature. The Tribunal noted that the issue is no longer res integra and that the Larger Bench decision has settled the question in favor of the appellant.Conclusions:The Tribunal concluded that the impugned order denying exemption under Notification No. 89/1995-CE was unsustainable. The waxes, gums, and fatty acids arising during the manufacture of refined oil and related products are to be treated as waste and exempt from Central Excise duty. Therefore, the appeal was allowed, setting aside the demand and penalties with consequential relief as per law.3. SIGNIFICANT HOLDINGSThe Tribunal held:'...the Larger Bench of the Tribunal in the case of M/s Ricela Health Foods Ltd. has discussed the issue at length and came to the conclusion that the wax, gums and fatty acids emerging in the process of refining of vegetable oils cannot be considered anything other than waste and as such, the exemption contained under the Notification No.89/95-CE is available to the appellants.'Core principles established include:By-products such as wax, gums, and fatty acids arising in the manufacture of exempted goods qualify as 'waste' under Notification No. 89/1995-CE and are exempt from Central Excise duty.The marketability or distinct identity of such by-products does not negate their status as exempt waste.Precedents of the Larger Bench and subsequent Tribunal decisions are binding and conclusively settle the issue.Final determinations on each issue:The products in question are exempt from Central Excise duty under Notification No. 89/1995-CE.The demand for duty, interest, and penalties imposed by the adjudicating authority and Commissioner (Appeals) was not sustainable.The appeal is allowed, and the impugned order is set aside with consequential relief.