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PETITIONER: TATA OIL MILLS CO. LTD.

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE

DATE OF JUDGMENT14/08/1989

BENCH: RANGNATHAN, S. BENCH: RANGNATHAN, S. THOMMEN, T.K. (J)

CITATION:  1990 AIR   27            1989 SCR  (3) 839  1989 SCC  (4) 541        JT 1989 (3)   382  1989 SCALE  (2)313  CITATOR INFO :  R          1991 SC 754  (13)  RF         1991 SC2049  (6)

ACT:     Central Excises and Salt Act, 1944: Central Excise Rules 1944  Sections 3, 4 and 35L/Rule 8(1) and  Notification  No. 46/72,  153,  73  and 25/75--Rice Bran  Oil  converted  into hydrogenated  oil used in manufacture of soap-Whether  enti- tled to rebate scheme in respect of excise duty.

HEADNOTE:     The  petitioner-appellant is engaged in the  manufacture of  various varieties of soaps. The dispute arose as to  the eligibility  of the appellants to the concession under  rule 8(1)  of the Central Excise Rule 1944  through  Notification No. 46 of 1972 subsequently amended by Notification Nos. 153 of 1973 dated 24.7.73 of 25 of 1975 dated 1.3.75.     Resolving the dispute as to the interpretation of  rules whether rice bran fatty acid is different from the rice Bran Oil as held by the Tribunal the Court came to the conclusion that the view taken by the Excise authorities as well as  by the Tribunal proceeded upon too narrow an interpretation  of the notification and erred in not granting the exemption  to the assessee. While allowing the appeals, this Court,     HELD: Rice bran oil contains glycerol and other  impuri- ties which have to be removed by a process of hydrolysis  or hydrogenation  and  it is only the resultant  purified  rice bran  oil that is actually used in the manufacture of  soap. [843G]     A  factory which consumes rice bran oil in the  manufac- ture  of  soap in its factory first converts  the  oil  into hydrogenated  oil or fatty acid and then  manufactures  soap out of the latter. [844A]     In  trying to understand the language used by an  exemp- tion  notification  one should keep in  mind  two  important aspects; (a) the object and purpose of the exemption and (b) the nature of the actual process involved in the manufacture of the commodity in relation to which exemption is  granted. [843F] Construing the notifications literally but reasonably in the light of

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840 the process of manufacture as explained by the Tribunal, the soap manufactured by the assessee is "soap made from indige- nous  rice bran oil" and is entitled to the exemption  under the  notifications  to the  extent  permissible  thereunder. [844H-845A]     The terms of the notification do not have the effect  of excluding cases where the manufacture of soap is done out of rice  bran oil but the entire process is not carried out  by the assessee itself. [849A]     Tungabhadra  Industries Ltd. v. C.T.O., [1961] 2 SCR  14 and Collector of Central Excise v. Jayant Oil Mills etc., CA 729  of  1983  and 2479 of 1987) decided by  this  Court  on 31.3.89, referred to.

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal No.  13041305 of 1987.     From  the Judgment and Order dated 7.1.1987 of the  Cus- toms Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal No. 1120/83-C and 1806 of 1983-C.     Soli J. Sorabjee, Ravinder Narain, A.N. Haksar, P.K. Ram and D.N. Misra for the Appellant.     A.K.  Ganguli,  P. Parmeshwaran, A. Subba  Rao  and  Ms. Sushma Suri for the Respondent. The Judgment of the Court was delivered by     RANGANATHAN,  J. These are appeals under section 35L  of the Central Excises and Salt Act, 1944 (hereinafter referred to  as  ’the Act’). The appellant, Tata  Oil  Mills  Company Limited, is engaged in the manufacture of various  varieties of soaps. The present dispute has arisen in relation to  its factory at Ghaziabad in the State of Uttar Pradesh.     The dispute pertains to the eligibility of the appellant to  the concession granted by the Central  Government  under Rule 8(1) of the Central Excise Rules, 1944 through  notifi- cation No. 46 of 1972, subsequently amended by the notifica- tion  nos.  153 of 1973 dated 24.7.73 and 25 of  1975  dated 1.3.75. Even though there are three notifications, the point is common and both the appeals involve the same question. 841     The question arises this way. Ad Valorem excise duty  at 20% is levied on soap which falls under item 15 of the first schedule  to  the Act. Notification No. 46 of  1972  exempts "such  soap as is made from indigenous rice bran oil  or  or from a mixture of such oil with any other oils from so  much of  the duty of excise leviable thereon as is equivalent  to the  amount of duty calculated at the rate of one rupee  and fifty paise per metric tonne of such soap for each addition- al  percentage point increase in the use of such  rice  bran oil which is in excess of fifteen per cent of the total oils used in the manufacture of such soap." To put it in  simpler words, the notification intends to grant a concession  where the percentage of the rice bran oil used in the  manufacture of  soap exceeds fifteen per cent of the total oil  consump- tion  in the manufacture. The extent of exemption is  graded according  to the percentage of rice bran oil in  excess  of fifteen  per  cent.  For example, if the rice  bran  oil  is twenty  per cent of the total oils used in the  manufacture, the duty exemption will be Rs.7.50 per metric tonne of  soap manufactured.  The  1973 notification is on the  same  lines with the only difference that the duty exemption per  metric tonne  is Rs.7.50 instead of Rs. 1.50. The  notification  of 1975  raised the percentage of rice bran oil referred to  in

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the  1972 notification from fifteen per cent to twenty  five per cent but reduced the duty rebate from Rs.7.50 to Rs.3.50 per  metric tonne. Another notification No. 118/75 has  been referred to in the papers before us but it has no  relevance to  the question that falls to be decided here and  is  left out of account.     The difficulty in the interpretation has arisen  because the process of manufacture of soap in the assessee’s factory at  Ghaziabad  did not involve the use of rice bran  oil  as such.  This factory manufactured soap from rice  bran  fatty acid. The rice bran fatty acid was extracted from rice  bran oil  in the assessee’s factory elsewhere.  Incidentally,  it may  be  mentioned that the other factory is  also  licensed under the Excise Act for the manufacture of rice bran  fatty acid.  The excise authorities rejected the appellant’s  plea for  exemption  under the first three notifications  on  the ground  that  rice  bran fatty acid and rice  bran  oil  are technically  and commercially two separate  commodities.  It was pointed out that the concession under the  notifications is  available only where soap is made from  indigenous  rice bran oil and other oils. This meant that rice bran oil  must form  part  of  the process of manufacture of  soap  in  the factory  which  is manufacturing the soap and  claiming  the exemption.  The notification will not apply  merely  because the  soap is manufactured out of rice bran fatty acid  which in turn has been obtained by hydrolysis of rice bran oil  in a different factory (may be one belonging to the same asses- see which is a separate 842 unit of manufacture for purpose of excise duty).     The  Tribunal  confirmed this view.  It  considered  the terms of notification No. 25/75 and held:               "We  observe that the concession  given  under               notification  No. 25/75 is apparently  with  a               view to encourage the use of rice bran oil  in               the soap industry. The point for consideration               is  whether the rice bran oil for the  purpose               of  benefit of notification should be  brought               into  the factory of manufacturer as such  and               then  subjected to various  pretreatments  re-               quired  for  its use in the soap  industry  or               whether the same could be treated outside  the               factory and the necessary fraction of the rice               bran oil namely rice bran fatty acid  required               for  the  manufacture of soap alone  could  be               brought  into the factory as raw material  and               concession availed. It is not denied that  for               the use of rice bran oil, the same has  neces-               sarily  to be pre-treated first and rice  bran               fatty  acid is required to be  separated  from               glycerine. The appellants in the instant  case               have only brought in the rice bran fatty  acid               which has been obtained from rice bran oil  by               a  process  of pre-treatment in one  of  their               other  factories. It is seen that the  Govern-               ment of India have clarified vide their letter               No. P/92/2/72-CH. III dated 18.7.74 that  rice               bran  oil  as such sometimes  cannot  be  used               directly and has to be subjected to pre-treat-               ment before use in the manufacture of soap and               that  the  exemption  will  be  admissible  in               respect of rice bran oil even after  pretreat-               ment for use in the manufacture of soap.  Thus               we  find that the pre-treatment of  rice  bran               oil  is  required to be done as  a  matter  of

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             necessity  for its use in the  manufacture  of               soap.  The  short point therefore  is  whether               such  treatment should be done in the  factory               of the manufacturer or could be arranged to be               done outside. In the scheme of Central Excise,               the  various concessions, levies etc., are  in               respect of products manufactured by a particu-               lar  licencee  in the  manufacturing  unit  so               licensed  and the necessary mechanism of  con-               trols and accountability is with reference  to               a  particular licensee and  the  manufacturer.               The eligibility to or the concessional assess-               ment of a product manufactured by the manufac-               turer  has to be determined with reference  to               the  particular  manufacturer subject  to  the               fulfilment of the conditions as may be set out               in the rele-               843               vant concessional notification. In the instant               case,  a verification will be required  to  be               done in respect of the following:               (1)  The nature of the oil used--whether  rice               bran oil or otherwise;               (2) The quantum used;               (3) the processes of pre-treatment carried out               on ,the rice bran oil and the fraction thereof               used for the soap making.               Now, if the rice bran oil has been pre-treated               outside  the  appellant’s factory, it  is  not               possible for (the) jurisdictional authority to               verify the facts in regard to above." The Tribunal observed that concessional rates are allowed as incentives for use of certain raw materials and these  rates are determined after taking into consideration the economics of  operation involving the use of the said material in  the manufacturing process in the manufacturer’s factory. Holding that the notification did not envisage the use of rice  bran fatty acid and it is the rice bran oil which is required  to be used in the manufacture of soap for concessional  assess- ment  purposes,  the Tribunal dismissed the appeals  of  the assessee. Hence these appeals.     We  are  of opinion that the view taken  by  the  Excise Authorities  as  well as by the Tribunal proceeds  upon  too narrow an interpretation of the notification. It is true, as Mr.  Ganguli  contended, that an  assessee  claiming  relief under an exemption provision in a taxing statute has to show that he comes within the language of the exemption. But,  in trying  to  understand  the language used  by  an  exemption notification, one should keep in mind two important aspects: (a)  the  object and purpose of the exemption  and  (b)  the nature of the actual process involved in the manufacture  of the commodity in relation to which exemption is granted.  So far as (b) is concerned, it is common ground before us  that rice  bran oil as such is not directly used in the  manufac- ture  of  soap. Rice bran oil contains  glycerol  and  other impurities which have to be removed by a process of hydroly- sis  or hydrogenation and it is only the resultant  purified rice  bran oil that is actually used in the  manufacture  of soap. In fact, the Tribunal has given a clear finding that a pre-treatment  to rice bran oil is required to be done as  a matter of necessity for its use in the manufacture of soap. 844 Thus  even  a factory which consumes rice bran  oil  in  the manufacture  of soap in its factory first converts  the  oil into  hydrogenated oil or fatty acid and  then  manufactures

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soap  out  of the latter. So far as (a)  is  concerned,  the object of the notification--as even the Tribunal finds-is to grant  a concession to a manufacturer of soap  who  manufac- tures  soap from rice bran oil to a substantial  extent  and thus  discourage the use of edible oils in the  manufacture. If  these two aspects are considered together, it  is  clear that the emphasis in the notification is not that rice  bran oil should be used as raw material in the very factory which produces the soap. The requirement is that the soap manufac- ture  should, to a prescribed extent, be from rice bran  oil as  contrasted with other types of oil. The contrast is  not between  the  use of rice bran oil as opposed to  rice  bran fatty  acid or hydrogenated rice bran oil; the  contrast  is between  the use of rice bran oil as opposed to other  oils. That is the ordinary meaning of the words used. These  words may be construed literally but should be given their fullest amptitude  and interpreted in the context of the process  of soap manufacture. There are no words in the notification  to restrict it to only to cases where rice bran oil is directly used in the factory claiming exemption and to exclude  cases where  soap  is made by using rice bran fatty  acid  derived from  rice  bran oil. The whole purpose and  object  of  the notification  is to encourage the utilisation of  rice  bran oil  in the process of manufacture of soap in preference  to various other kinds of oil (mainly edible oils) used in such manufacture  and  this should not be defeated by  an  unduly narrow  interpretation of the language of  the  notification even  when  it is clear that rice bran oil can be  used  for manufacture  of  soap only after its conversion  into  fatty acid or hydrogenated oil.     The position will perhaps become clearer if we  consider a  case where an assessee manufactures soap out of  hydroge- nated rice bran oil (which process of hydrogenation,  again, is akin to the process of hydrolysis which yields rice  bran fatty  acid). The assessee will then be clearly entitled  to the exemption under the notification inasmuch as the hydrog- enated rice bran oil does not cease to be rice bran oil. See in  this connection: Tungabhadra Industries Ltd. v.  C.T.O., [1961] 2 S.C.R. 14 and Collector of Central Excise v. Jayant Oil Mills etc.,(CA 729 of 1983 and 2479 of 1987, decided  by this Court on 31.3.89). The answer cannot be different where rice  bran  oil  is treated to yield rice  bran  fatty  acid before  soap  is manufactured even if it  be  assumed  that, unlike  hydrogenated  oil the fatty  acid  is,  commercially speaking,  a  different  commodity. We  are,  therefore,  of opinion  that,  construing the notifications  literally  but reasonably  in  the light of the process of  manufacture  is explained by the Tribunal, the soap manufactured by 845 the  assessee is "soap made from indigenous rice  bran  oil" and is entitled to the exemption under the notifications  to the extent permissible thereunder.     Reference  was  made,  in the course  of  the  arguments before us, to a tariff advice issued as early as July,  1974 by  the Ministry of Finance in relation to the  notification of 1972. It reads as under:               "I  am directed to invite a reference to  this               Ministry’s  notification No. 46/72 C.E.  dated               the  17th March, 1972, which grants  exemption               from duty on soap which is produced from  rice               bran  oil or from a mixture of rice  bran  oil               and  other  oils. It has been brought  to  the               notice  of this Ministry that the  benefit  of               exemption is not being allowed by the  Central               Excise  Officers  where rice bran oil  or

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             oil  mixture  is hydrogenated  or  pre-treated               before  the soap is produced. The  matter  has               been  considered in detail with the  concerned               authorities and keeping in view the  technical               opinion tendered by them that rice bran oil as               such sometimes cannot be used directly and has               to  be pre-treated before use in the  manufac-               ture of soap, it is hereby clarified that  the               exemption  will  be admissible when  the  rice               bran  oil is, after processing  or  pre-treat-               ment, used in the manufacture of soap. In this               connection it may be stated that the exemption               Notification does not preclude any  processing               or  pre-treatment including  hydrogenation  in               the manufacture of soap if such processes  are               incidental and ancillary to the  manufacturing               operating."                                                     (Underlining               ours) This circular clarifies that the exemption will be  admissi- ble  when the rice bran oil after processing  or  pre-treat- ment--that  is  to say, when hydrogenated rice bran  oil  or rice  bran fatty acid--is used in the manufacture  of  soap. But  the counsel for the Union of India would have  it  that the  circular postulates such exemption only where the  pre- treatment  or  processing is done is the  same  factory.  He invites  attention  to the last sentence  of  the  circular, underlined by us above. We do not think this is the  correct interpretation of the circular. In the first place, it  will be noticed that the circular does not specifically say  that the pre-treatment or processing should be in the same facto- ry of the assessee. Secondly, no clarification by a circular or  tariff advice is at all necessary to cover  cases  where the conversion from rice bran oil into rice bran fatty  acid is done in the same factory for, to such a case, 846 the  notification  will clearly apply. If it  had  been  the intention  to  pin down the concession to  cases  where  the pre-treatment  or  processing is part of  the  manufacturing process within the same factory, the last sentence would not have  stated the obvious but would have read something  like this:               "In this connection it is emphasised that  the               exemption notification precludes any  process-               ing or pre-treatment, including  hydrogenation               in the manufacture of soap, except where  such               processes are incidental and ancilliary to the               manufacturing operations."     The  Tribunal  has  pointed out  that  the  notification refers  to the percentage of rice bran oil  consumption  and that,  unless such oil is directly used in the  factory,  it will not be possible to work back, from the weight of  fatty acid used by the assessee, the weight of rice bran’ oil  out of which such acid had been obtained. There are two  answers to  this objection. One is that, if what we have  stated  is the  correct  interpretation of the notification,  the  mere fact  that there may be some difficulty in ascertaining  the weight  of oil, cannot be a justification to refuse to  give effect to that interpretation. The second is that a  practi- cal solution to this difficulty has in fact been evolved and that,  too, in the case of the same assessee. Our  attention has  been  invited  to a circular issued  by  the  Assistant Collector, Ernakulam II dated 23.6.77. This circular  states that the matter had been considered pursuant to an appellate order passed in one of the cases relating to the same asses-

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see and it had been decided to fix the formula for  arriving at the correlation between rice bran oil on the one hand and hydrogenated  rice bran oil or rice bran fatty acid  on  the other as below: (a)  100 M.T. of hydrogenated   =  100 MT of rice bran oil      rice bran oil (b)  100 M.T. of Fatty acid   =  115 MT of raw rice bran oil The  circular refers to the fact that the  present  assessee (in relation to its Cochin factory) had accepted the  above- said formula and that the formula as given above was, there- fore,  "finally fixed in arriving at the rice bran oil  con- tents  of hydrogenated rice bran oil and of rice bran  fatty paid for ascertaining the amount of exemption as per notifi- cation nos. 45 and 46 of 1972". It is true that this is only a local instruction issued by certain assessing  authorities in  Cochin. It is being referred to only show that there  is no insuperable difficulty in ascertaining the weight of rice bran  oil that that has been converted into fatty  acid  and thus 847 entered the process of manufacture in the assessee’s factory particularly  in view of the fact that even the  process  of conversion of rice bran oil into fatty acid or  hydrogenated oil is carried but in a factory subject to excise  jurisdic- tion.     The  appellant  has drawn our attention to  certain  ex- tracts  from  a  letter of the  Ministry  of  Finance  dated 6.4.76. It poses the problem thus:               "A  doubt  has been raised whether  rebate  of               Central Excise duty would be admissible  under               Notification No. 24 and 25/75 CE, dated 1-3-75               (predecessor  Notification Nos. 45 and  46  of               1972) where rice bran oil and other minor oils               are  hydrogenated in one factory and  sent  to               another factory for manufacture of soap."               The answer furnished is this:               "The matter has been considered in the  Minis-               try and it is felt that the purpose of  rebate               scheme of rice bran oil as well as other minor               oils envisaged in the Notifications Nos. 24/75               and 25/75 (including their predecessor notifi-               cations)  is to encourage the use of  inedible               oils  in  the  manufacture of soap  so  as  to               relieve  the  pressure  on  edible  oils.   In               Board’s  letter  F. No.  92/2/72-CX.  3  dated               18-7-74  and  F.  No.  92/6/74-CX.  3,   dated               27-12-74, it was clarified that in respect  of               rice  bran  oil as well as  other  minor  oils               where  such  oils  are  subjected  to  various               treatments,   including  hydrogenation,   such               treatment would not debar them from the rebate               scheme in as much as such processing is essen-               tial in the process of manufacture of soap.               As  the notifications in question  permit  the               rebate subject to identification of the oil as               such,  had the manufacturer placed the  matter               before  the concerned Collector  pointing  out               his  practical  difficulties,  the   Collector               would have advised for suitable  documentation               (if   the  existing  documentations  are   not               enough) for the receipt, processing,  movement               and accounting of the oils for the  concession               in question. In the circumstances, it is  felt               that the benefit of rebate cannot be denied to               the  manufacturers for want of  prescribing  a

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             satisfactory procedure, especially, when it is               contended by the manufacturers that they  have               opted for               848               the  rebate scheme, their factories are  under               excise control, they have sufficient  documen-               tary  evidence about the receipt,  processing,               movement, incorporation/use in the manufacture               of  soap. If, as contended by the  manufactur-               ers, there is sufficient record maintained  by               them  for excise purposes and  the  reasonable               correlation is possible about the identity and               use  of such oils it would not be  correct  to               deny the concession. In this connection, it is               of  relevance  to mention that  a  problem  of               similar  nature had arisen with  reference  to               some  other  excisable  product  and  the  Law               Ministry  was  also consulted. An  extract  of               their  opinion is appended. It is,  therefore,               requested  that taking into account the  local               practical situations existing in his jurisdic-               tion,  the  Collector may  prescribe  suitable               procedures for identification of such oils for               a  meaningful  implementation  of  the  Rebate               Scheme.  A copy of the Trade Notice issued  in               this  regard by the Collector may be  sent  to               DICCE under intimation to this Ministry."               Following  this, trade notices were issued  on               25.8.76  and 8.2.77 in certain central  excise               jurisdiction,  the relevant portion  of  which               reads thus:               "A doubt has been raised whether the rebate on               Central Excise Duty would be admissible  under               Notification  No.  40/72-CE  &  46/72-CE  both               dated 17.3.72 as amended, where the Rice  Bran               Oil  and other Minor Oils are hydrogenated  in               one  factory and sent to another  factory  for               use in the manufacture of soap.               It has been clarified that in respect of  Rice               bran oil and other Minor oils where such  oils               are  subject to various  treatment,  including               hydrogenation, such treatment would not  debar               them  from the rebate scheme as  envisaged  in               the above said Notifications." The  trade notice proceeds to set out the  procedural  safe- guards  to  be followed in granting this  relief  which  are unnecessary  for our purpose. We endorse this  as  embodying the correct approach to the issue in this case. "This  related to a claim of exemption in respect of  ferti- lisers  (super-phosphates) manufactured from sulphuric  acid in a case where sulphuric acid was converted elsewhere  into phosphoric  acid  and then used for the manufacture  of  the chemicals. 849     We  are,  therefore, of the view that the terms  of  the notification do not have the effect of excluding cases where the manufacture of soap is done out of rice bran oil but the entire  process is not carried out by the  assessee  itself. The  question  which one has to ask is:  does  the  assessee manufacture  soap  partly or wholly out of  indigenous  rice bran  oil?  and  the answer, we think, can only  be  in  the affirmative.  We  therefore hold that that the  assessee  is entitled  to the exemption under the notifications  referred to  above  and  that the departmental  authorities  and  the Tribunal  erred  in not granting the said exemption  to  the

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assessee.  The appeals are, therefore, allowed. However,  in the circumstances of the case, we make no order as to costs. R.N.J.                                Appeals allowed. 850