Credit on distilled fatty acid from outside-factory hydrogenation upheld under express excise notification language

Notification No. 46/89-C.E. (N.T.) allowed credit where hydrogenation or hydrolysis was carried out outside the soap-manufacturing factory. On that basis, distilled fatty acid arising from hydrogenation of rice bran oil outside the factory was treated as an eligible input for credit under Rule 57K of the Central Excise Rules, 1944. A narrow construction that would deny credit despite the express notification language was rejected, and the earlier Supreme Court view on similar facts was followed. The reference application was rejected, and the assessee's entitlement to credit remained undisturbed.

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Issues: Whether distilled fatty acid obtained after hydrogenation of rice bran oil outside the soap manufacturing factory was an eligible input for credit under Rule 57K of the Central Excise Rules, 1944 read with Notification No. 46/89-C.E. (N.T.) dated 11-10-1989.

Analysis: The notification specifically provided that where the processes of hydrogenation or hydrolysis were carried out outside the factory manufacturing soap, credit would be admissible. The Tribunal found that rice bran oil was subjected to hydrogenation outside the factory and distilled fatty acids resulted from that process. The restrictive reading suggested by the Revenue would make the express notification provision redundant, because the notification itself contemplated credit in cases where the intermediate product arose from those processes. The issue was also covered by the earlier decision of the Supreme Court on similar facts.

Conclusion: The intermediate product was eligible for credit and no referable question of law arose.

Final Conclusion: The reference application was rejected, leaving the assessee's entitlement to credit undisturbed.

Ratio Decidendi: Where a notification expressly allows credit for products arising from specified processes carried out outside the manufacturing factory, that express allowance prevails over a narrow construction based only on whether the resulting product is a separately specified input.

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