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PETITIONER: COLLECTOR OF CENTRAL EXCISE, HYDERABAD

       Vs.

RESPONDENT: JAYANT OIL MILLS PVT. LTD.

DATE OF JUDGMENT31/03/1989

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) PANDIAN, S.R. (J)

CITATION:  1989 AIR 1316            1989 SCR  (2) 291  1989 SCC  (3) 343        JT 1989 (2)     8  1989 SCALE  (1)764  CITATOR INFO :  F          1990 SC  27  (7)

ACT:     Central Excises and Salt Act, 1944 -- Sections 36(2) and 35L  and Notification No. 9/60 dated February 20,  1960  hy- drogenated  rice bran oil used in manufacture  of  soap--As- sessibility to excise duty Tariff Item No. 12 or Item No. 68 of Central Excise Tariff.

HEADNOTE:     The  question that arises for determination in  the  ap- peals is whether the hydrogenated rice bran oil manufactured by the Respondents, could, as claimed by them, be classified under Tariff Item No. 12.     Respondent  herein  manufacture hydrogenated  rice  bran oil, which is used as raw material in the soap-making and in other industries. The Respondent flied a classification list classifying  the said product under Tariff Item No.  12  and claimed exemption from payment of excise duty.     The  Asstt. Collector of Central Excise, who dealt  with the matter held that the said Roods was a new product  after manufacture, having a distinct name, Character and use and u such it fell under Tariff Item 68--CET and not Item 12.  The Respondent preferred an appeal before the Appellate  Collec- tor  of  Central  Excise, Madras.  The  Appellate  Collector reversed  the  order of the Asstt. Collector and  held  that hydrogenated rice bran oil is classifiable under Tariff Item 12-CET  and granted the consequential relief. The  order  of the Collector was confirmed by the Customs, Excise and  Gold (Control) Appellate Tribunal. Hence the appeal under Section 35 L of the Central Excises & Salt Act by the Department. Dismissing the appeals, the Court,     HELD:  Indubitably hydrogenation of rice bran 011  Is  a process. But all processes need not be manufacture. It  must be  such  a process which transforms the old  articles  Into goods  and changes the identity, use and the purpose of  use in the goods undergone by the process. By 292 the process of manufacture a new identifiable goods, in  the market as such must come into being. [295E-F]     The  melting point of the hydrogenated rice bran oil  is

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45degree C and it is in the nature of extra-hardened vegeta- ble  process  which is unfit for human consumption.  It  was taken to be classifiable under Tariff Item 68-CET. [295F]     Rice  bran oil is extracted out of rice bran by  solvent extraction  method.  After  such extraction  rice  bran  oil obtained  is in liquid form. The parties purchase rice  bran oil  from the market and process it. The process is as  fol- lows. The oil is heated to above 80degree C and the  impuri- ties are removed by adding oxalic acid and caustic lye.  The purified oil is then bleached by heating it to 85xC to 100xC and  thereby treating with fullers earth. The processed  oil is then hardened by passing it through hydrogen gas. During, hydrogenation, the oil absorbs two atoms of hydrogen and the unsaturated ferry acid present in the oil becomes saturated. The  oil is then in a semi-solid condition and  its  melting point is raised to 45xC or more. In the hardened state,  the oil  looks like Vanaspati (or vegetable product, to use  the Central Excise terminology) but there is a difference in the degree of hydrogenation of the two. [295H; 296A-C]     In order to differentiate between the edible hydrogenat- ed  oils (Vanaspati) and super hydrogenated vegetable  oils, the  latter are referred to as extra hardened oil  or  super hardened oil. [296C-D]     This  hardening  of oil is  necessary  for  soap-making, otherwise,  the soap, on coming into contract with water  is likely to become soggy. The Respondents use the hardened oil for soap making in their factories. Besides its use in  soap making, the extra-hardened oil is also put to various  other industrial uses, such as for application as greases.  [296D- E]     It  is  obvious  that hydrogenated oil  is  nothing  but hardened  vegetable oil which would fail within Item 12  CET for the purpose of Central Excise duty. [300A]     Item 12 is more specific than Item 68, for all  hardened technical  oil  not fit for human consumption and  as  such, would be covered under this category. [300G ] Tungabhadara Industries Ltd. v. The Commercial Tax Officer, 293 Kurnool, [1961] 2 S.C.R. 14, followed. Champaklal  v. State of Gujarat, AIR 1980 SC 1889; IVP  Ltd. and  Anr. v. Union of India & Ors., [1986] 25 ELT 615  (Bom) and  Vital  & Vital Oil Pvt. Ltd. v.  Collector  of  Central Excise, Bombay, [1985] 21 ELT 166, referred to.

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No.  729  of 1983.     From  the  Judgment and order dated  20.11.1987  of  the Customs  Excise and Gold (Control) Appellate  Tribunal,  New Delhi in Appeal No. F/A No. 1325/83-D (Order No. 920/87-D). WITH Civil Appeal No. 2479 of 1987.     From  the  Judgment  and Order dated  28.2.1986  of  the Customs  Excise and Gold (Control) Appellate  Tribunal,  New Delhi  in  Appeal  No. ED(SB) (T) 155/7 I-C  (Order  No.  18 1/1986-C).     A.K. Ganguli, Hemant Sharma and Mrs. Sushma Suri for the Appellant in C.A. No. 729188. Soli J. Sorabjee for the Appellant in C.A. No. 2479 of 1987.     Harish  N. Salve, Ravinder Narain, P.K. Ram, D.N.  Misra and S. Ganesh for the Respondents. The Judgment of the Court was delivered by:     SABYASACHI MUKHARJI, J. This is an appeal under  section

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35-L  of the Central Excises & Salt Act,  1944  (hereinafter referred  to  as ’the Act’) from the order of  the  Customs, Excise  and Gold (Control) Appellate  Tribunal  (hereinafter referred to as ’CEGAT’). The respondent M/s Jayant Oil Mills Pvt.  Ltd.; Hyderabad, manufactures hydrogenated  rice  bran oil which was sold to industrial consumers. The said hydrog- enated rice bran oil is used as raw material in the manufac- ture  of  soap. The respondents, M/s Jayant Oil  Mills  Pvt. Ltd.  filed  a classification list dated 20th May,  1981  in respect of the said goods classifying the same under  Tariff Item  12 for approval and claimed exemption under  notifica- tion No. 9/60 dated 20th February, 294 1960.  The Assistant Collector of Central Excise,  Hyderabad III  Division by an order dated 16th June, 1981  (held  that the hydrogenated rice bran oil was classifiable under Tariff Item  68 of the Central Excise Tariff (hereinafter  referred to as ’CET’), because hydrogenated rice bran oil is solid at the ordinary-temperature and therefore should be  considered as fat and not as oil. The Assistant Collector observed that there  was  one opinion that the said goods could  not  fall under Tariff Item 12 as it was unfit for human  consumption. The Assistant Collector observed that the said goods was new product after manufacture, having a distinct name, character and  .use and as such it fell under Tariff Item 68-CET.  The respondent on the other hand maintained before the Assistant Collector  that  the  said goods was  semi-solid  and  still vegetable  non-essential oil failing under Tariff  Item  12- CET.     Being dissatisfied with the order dated 16th June, 1981, the  respondent appealed before the Appellate  Collector  of Central  Excise,  Madras. By an order dated  30th  November, 1981,  the Appellate Collector held that  hydrogenated  rice bran oil is classifiable under Tariff Item 12-CET and there- fore ordered for consequential relief to the respondent.     The  order of the Appellate Collector holding  that  the said  products  are classifiable under Item 12-CET  had  not been reviewed by the Central Government under section  36(2) of  the  Act. The appellate Collector was therefore  of  the view  that  even after the superhardening  or  hydrogenation vegetable oil did not cease to be oil even it became solid-.     The Central Government, Ministry of Finance,  Department of  Revenue, being of the view that the order of the  Appel- late  Collector was not proper, legal and correct, issued  a show  cause notice dated 12th May, 1982 to  the  respondent. The Central Government informed the respondents in the  show cause  notice  that it appeared to the Government  that  the hydrogenation  of rice bran oil is a process of  manufacture which brings into existence a new product known as  hydroge- nated rice bran oil in commercial parlance having a distinct name, character and use and this end product would have been classified under Item 13 had it been fit for human  consump- tion  It was further observed in the said show cause  notice by the Government that as the melting point of the  hydroge- nated  rice bran oil is more than 45degree C it was  of  the nature of extra-hardened, vegetable product which was  unfit for human consumption and since it was distinct from vegeta- ble 295 non-essential oil it would prima facie be classifiable under the residuary item 68-CET.     The  respondents  were, therefore, called upon  to  show cause as to why the order of the Appellate Collector  should not  be  set aside and that of the Assistant  Collector  re- stored.

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   The matter came up before the CEGAT. The CEGAT noted  in its  impugned  order that the appeal was  concluded  by  the judgment  of  the five member Bench of the Tribunal  in  the case  of M/s Tata Oil Mills Co. Ltd. (1986 Vol. 24 ELT  290) and  held  that the order dated 30th November, 1981  of  the Appellate Collector was correct and dismissed the appeal  of the appellant.     It is necessary, therefore, to refer to the order of the CEGAT. The CEGAT noted that vide order dated 16th June, 1981 the  Assistant  Collector classified the  hydrogenated  rice bran  oil  manufactured by the respondents, M/s  Jayant  Oil Mills Ltd. under Item 68-CET. The question, therefore,  that was  urged  before this Court was whether the CEGAT  was  in error  in holding that the hydrogenated rice bran oil was  a process  of manufacture which brought into existence  a  new product, i.e., hydrogenated rice bran oil.     Indubitably hydrogenation of rice bran oil is a process. But all processes need not be manufacture. It must be such a process  which transforms the old articles into a goods  and changes  the  identity, use and the purpose of  use  of  the goods undergone by the process. By the process which can  be considered to be manufacture a new identifiable good, in the sense known in the market as such must come into being.  But that is one part of the view. It appears, however, that  the melting point of the hydrogenated rice bran oil is  45degree C and it is in the nature of extra-hardened vegetable  proc- ess which is unfit for human consumption. It was taken to be classifiable under Tariff Item 68-CET.     Similar  are the facts in Civil Appeal No. 2479 of  1987 before  us  in the matter of Collector  of  Central  Excise, Madras v. M/s Tara Oil Mills Co. Ltd. There also, the  CEGAT allowed  the  appeal of the respondents and  held  that  the extra  hardened  rice bran oil continued to  remain  as  oil classifiable under Item 12-CET. It is necessary to decide in both these matters the nature of the product.     Rice  bran oil is extracted out of rice bran by  solvent extraction  method.  After such extraction,  rice  bran  oil obtained is in liquid form. 296 The  parties  purchase  rice bran oil from  the  market  and process  it. The process is reported to be as  follows.  The oil  is  heated to above 80degree C and the  impurities  are removed by adding exalic acid and caustic lye. The  purified oil  is  then  bleached  by heating  it  to  85degree  C  to 100degree  C  and thereby treating with fullers  earth.  The processed oil is then hardened by passing it through  hydro- gen gas. During hydrogenation, the oil absorbs two atoms  of hydrogen  and the unsaturated fatty acid present in the  oil becomes saturated. The oil is then in a semi solid condition and  its melting point is raised to 45degree C or  more.  In the hardened state, the oil looks like vanaspati (or vegeta- ble  product,  to use the Central  Excise  terminology)  but there is a difference in the degree of hydrogenation of  the two. The melting point of vanaspati, which is commonly  used as  cooking  medium, does not exceed 37degree  C  while  the melting point of hardened rice bran oil in dispute before us is  between  45 degree C-52 degreeC. At  such  high  melting point,  the  oils are no longer edible by  human-beings.  In order  to  differentiate between  edible  hydrogenated  oils (vanaspati)  and  super  hydrogenated  vegetable  oils,  the latter are referred to as extra hardened oil or super  hard- ened  oil.  The record before us shows that  they  are  also known  as  ’vegetable tallow’ or ’hard  lump’  or  ’hardened technical  oil  of industrial hard oil’  or  just  ’hardened oil’.  This hardening of oil is necessary for  soap  making;

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otherwise,  the soap, on coming into contact with water,  is likely to become soggy. The respondent use the hardened  oil for  soap making within their factories. Besides its use  in soap  making, the extra hardened oil is also put to  various other industrial uses, such as for application as grease.     The  dispute  started when the  appellants  filed  their classification list containing the following entry at S. No. 3:               "3.      Rice     Bran      Oil--processed--In               barrels--exempted-*33/63-CE dated 1.3.1963  as               amended               (*Rule  56A procedure to be followed for  out-               side despatches)."     The  Assistant  Collector  approved  the  classification under item 12 CET (Vegetable non-essential oils, all  sorts) with benefit of full exemption from duty under  notification No. 33/63-CE dated 1st March, 1963 as claimed by the  appel- lants  for soap making. The Collector, however,  was  tenta- tively  of the opinion that the Assistant Collector’s  order was not correct. In exercise of his power of revision  under the  then section 35A of the Act, the Collector called  upon the  appellant  to  show cause as to why  the  hardened  oil should not be subjected to two-stage duty. After hearing the appellants, the 297 Collector  passed the orders by which he confirmed the  two- stage  duty. Being aggrieved by the Collector’s  order,  the appellants  filed a revision application before the  Central Government  which,  on transfer of the  proceedings  to  the Tribunal, was transferred to the Tribunal.     The matter was heard by a three-member Special Bench. It was resolved that a larger bench should be constituted and a larger bench had been constituted. It was noted by the Bench that  irrespective of the fact whether extra  hardened  rice bran  oil produced by the parties was classified under  Item 12  CET  of Item 68 CET, it would remain  fully  exempt.  On behalf of the parties, the respondents herein, it was argued before  the Tribunal that hydrogenation or hardening  was  a process  in the course of manufacture of a soap.  The  extra hardened oil came into existence during soap manufacture  at an intermediary stage and such oil was not a new product  by itself. Secondly, it was urged that even if the extra  hard- ened  oil  was considered as a new  product,  its  character still remained that of oil. It was the same oil though in  a hardened or semi-solid form. The form was not material as it only  meant  that by application of heat at  45degree  C  or more, it would again turn into liquid oil. As such, the oil, even in its hardened form, continued to remain under Item 12 CET  as  it still was essentially oil only. The  process  of hydrogenation  was  intended to make the oil  fit  for  soap making.  Only that part of hydrogenated oil as was  fit  for human  consumption fell under item 13  (vegetable  product); the  rest remained under item  12--"vegetable  non-essential oils, all sorts  .....  "     Reference  may be made to the decision of this Court  in Tungabhadara  Industries Ltd.  v.  The Commercial Tax  Offi- cer, Kurnool, [1961] 2 SCR 14. There the appellant purchased groundnuts out of which it had manufactured groundnuts  oil. It  also refined the oil and hydrogenated it  converting  it into  Venaspati. It sold the oil in the three states.  Under the Madras General Sales Tax Act, 1939, and the Turnover and Assessment  Rules, for determining the taxable turnover  the appellant  was entitled to deduct the purchase price of  the groundnuts  from the proceeds of the sale of  all  groundnut oil.  The High Court, in that case, held that the  appellant

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was  entitled  to the deduction in respect of the  sales  of unrefined  and refined groundnut oil but not in  respect  of the sales of hydrogenated oil on the ground that the  vanas- pati was not "groundnut oil" but a product of groundnut oil. This Court, however, held that appellant was entitled to the deduction in respect of the sales of hydrogenated  groundnut oil  also.  The hydrogenated groundnut oil continued  to  be "groundnut  oil", notwithstanding the processing  which  was merely for the purpose of rendering the 298 oil  more stable. To be groundnut oil two conditions had  to be  satisfied:  it  must be from groundnut and  it  must  be "oil".  The hydrogenated oil was from groundnut and  in  its essential nature it remained an oil. It continued to be used for the same purposes as groundnut oil which had not  under- gone the process. A liquid state was not an essential  char- acteristic of a vegetable oil; the mere fact that hydrogena- tion  made it semi-solid did not alter its character  as  an oil. In our opinion, the same principle would be  applicable to the facts and the problem herein.      In this connection, reference may be made to the obser- vations  of this Court in Charapaklal v. State  of  Gujarat, AIR  1980 SC 1889 though it was a criminal case, this  Court observed  therein  that  vanaspati was  essentially  an  oil although it was a different kind of oil than that oil (be it rapeseed  oil, cotton-seed oil, groundnut oil, soyabean  oil or  any  other oil) which forms its  basic  ingredient.  Oil would remain oil if it retained its essential properties and merely  because it had been subjected to  certain  processes would  not convert it into a different substance.  In  other words,  although  certain  additions had been  made  to  and operations carried out on oil, it would still be  classified as oil unless its essential characteristics had undergone  a change so that it would be misnomer to call it oil as under- stood in ordinary parlance. Such change was not supported by the evidence in that law. The Tribunal found so and it is  a question  of fact that the hydrogenated rice bran oil  still remained oil.      On behalf of the interveners, it was further  submitted before the Tribunal that Item 12 CET which dealt with  vege- table non-essential oils, all sorts, was a specific, exhaus- tive  and all pervasive entry and it continued to cover  the extra hardened oil. Our attention was drawn to the different degree of hydrogenation.      It may be appropriate to refer to the relevant Items in the  First  Schedule to the Central Excise Tariff.  Item  12 provides as follows:                         "12.  Vegetable non-essential  oils,               all  sorts, in or in relation to the  manufac-               ture  of which any process is ordinarily  car-               ried on with the aid of power."               Item 13 provides as follows:                           "13. Vegetable Product:               299               ’Vegetable  Products’ means any vegetable  oil               or fat which, whether by itself .or in  admix-               ture with any other substances, has by hydrog-               enation or by any other process been  hardened               for human consumption. "     The Tribunal, therefore, in our opinion, was right on  a conspectus of the relevant factors in coming to the  conclu- sion that edible rice bran oil falling under Tariff Item  12 CET would even after extra hardening continue to fall  under Tariff Item 12 and not fall under Tariff Item 68 because  it would  be vegetable non-essential oils, all sorts, in or  in

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relation  to the manufacture of which any process  is  ordi- narily carried on with the aid of power. In that view of the matter, it would not come within Tariff Item 68. The  Tribu- nal, it appears, to us, has considered the technical side of it, the manner of its production, and in view of the princi- ple laid down by Tungbhadara Industries Ltd. ’s case (supra) which in our opinion was essentially applicable to the facts of  this  case. The Tribunal, in our opinion,  came  to  the correct conclusion.     Justice  Pendse of the Bombay High Court in IVP Ltd. and Anr.  v. Union of India & Ors., [1986] 25 ELT 615 (Bom)  had occasion  to consider some aspects of this problem.  It  was held by the learned Judge that the plain reading of Item  13 CET indicated that the vegetable products which fell  ’under that  item must be one for human consumption. It was not  in dispute  in that case that the product manufactured  by  the petitioners  was used only for the industrial  purposes  and not  for  human consumption and, therefore, Tariff  Item  13 could  not be attracted. Whether Tariff Item 12 or  Item  68 would  be  applicable to the products  manufactured  by  the petitioners, it is well settled that resort could not be had to the residuary item if the product comes within the  ambit of  any  other tariff item. It is, therefore,  necessary  to ascertain  whether Item 12 is applicable for levy of  excise duty  in respect of hardened vegetable oil. Tariff Item  No. 12 brings in its sweep "vegetable non-essential oils of  all sorts"  and  the expression "all sorts" would bring  in  its ambit  hydrogenated  oil. There is  hardly  any  distinction between  vegetable oil in liquid form and  the  hydrogenated oil which is hardened with a melting point higher than 41 C. Apart from the distinction in the physical appearance, there is no distinction between oil and hydrogenated oil which  is well supported by the decision of this Court in Tungbhadra’s case  (supra)  where this Court held that several  oils  are viscous  fluids but those do harden and . assume  semi-solid condition on the lowering of the temperature. 300 Therefore,  it is obvious that hydrogenated oil  is  nothing but  hardened vegetable oil which would fall within Item  12 CET for the purpose of central excise duty.     Our  attention  was drawn to  Encyclopaedia  Britannica, 1968, Vol. 19 p. 302 where preparation of rice is indicated. It states as follows:               "The Kernel of rice as it leaves the  thresher               is enclosed by the hull, or husk and is  known               as paddy or rough rice. Rough rice is used for               seed and feed for livestock, but most of it is               milled  for human consumption by removing  the               hulls.  Rice  is a good energy  food,  and  is               consumed in vast quantities in the Orient.  In               the  Western Hemisphere, however, rice is  not               the  staple  cereal food,  except  in  certain               Caribbean islands."     Our attention was also drawn to certain obserVations  of the Tribunal in Vital & Vital Oil Pvt. Ltd. v. Collector  of Central Excise, Bombay, [1985] 21 ELT 166 where the Tribunal observed  that the department advocates assessment of  hard- ened  technical  oil under item 68. This item  is  only  for goods not specified anywhere else. According to  Department, "all  other goods not specified elsewhere" is more  specific than  "vegetable non-essential oils, all sorts". But it  has to  be borne in mind that the basic rule of construction  is that  a more specific item should be preferred to  one  less so.  It does not take much to see whether "goods not  speci- fied elsewhere" is more specific than "vegetable  non-essen-

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tial  oils" for a product that has an oily nature,  is  pro- duced  from an oil has the uses of an oil, and indeed  looks like an oil, and is quite commonly accepted and spoken of as an oil and is so related to oil, that it has a little or  no chemical.  If hydrogenated oil can harden, so can many  oils if  subjected  to heat loss (in winter or by  chilling).  It appears to us, therefore, that Item 12 is more specific than Item  68, for all hardened technical oil not fit  for  human consumption and such would cover under this category.     In  the  aforesaid  view of the matter, we  are  of  the opinion  that the Tribunal particularly emphasised that  the hardened  technical  oil is the same thing as the  oil  from which  it  is made. It is clearly akin to the oil  in  homo- logue, a product of scientific modification but unaltered in its  essential  character. Therefore, in  our  opinion,  the Tribunal was right in the conclusion it arrived at. 301     The Tribunal in both the appeals had taken into  consid- eration  all relevant and material factors, and market  par- lance  and borne in mind the correct legal  principles.  The decision of the Tribunal, therefore, cannot be assailed.     In the premises, as both the appeals deal with the  same facts,  these.  are dismissed. There will,  however,  be  no order as to costs. Y.   Lal                                      Appeals   dis- missed. 302