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PETITIONER: NATIONAL ORGANIC CHEMICAL INDUSTRIES LIMITED

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE, BOMBAY

DATE OF JUDGMENT:       06/01/1997

BENCH: S.P. BHARUCHA, K. VENKATASWAMI

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      BHARUCHA, J.      The proper construction of the word "derived from" will determine   this appeal  against a judgment and order of the Customs, Excise & Gold (Control) Appellate Tribunal.      The   appellants are  a refinery, recognised to be such by the  Union of  India. They manufacture ethylene, butylene and propylene (" the said products"). It is their contention that the  said products  fall within item 11AA of the Excise Tariff and  that they  are entitled  to the  benefit  of  an Exemption Notification  issued in  respect of  that item  on 21st December,  1967, as  amended from  time to  time, under Rule &  of the  Central Excise Rules. The  Revenue contends, basing itself  on a  Trade Notice dated 24th November, 1984, that the  said products  are manufactured  from raw  naphtha and, therefore,  are not  classifiable under  Item 11AA  but under the residuary Item 68.      Item  11AA  deals  with  petroleum  gases.  Sun-item  2 thereof, which is relevant, reads thus:      "Other petroleum  gases and gaseous      hydrocarbons derived  from refining      of crude  petroleum  or  shale."  (      Emphases supplied.)      The  said   Exemption  Notification  applies  to  goods falling, inter  alia, under  Item 11AA if they are "produced in any premises (other than the premises wherein refining of crude petroleum  or  shale  or  blending  of  non-duty  paid petroleum or  shale or  blending of  non-duty paid petroleum products is  carried on) declared under sub-rule (2) of rule 140 of the Central excise Rules, 1944, to be a refinery". If the said products are held to fall under Item 11AA, the said Exemption Notification, it is not in dispute, will apply.      The Tribunal  noted  the  argument  on  behalf  of  the Revenue that  the said  products were  "not derived directly from refining  crude petroleum.  Refining of crude petroleum means the  first product  obtained by refining of petroleum. The products  in dispute  in  this  case  are  derived  from cracking raw naphtha" which was Tariff Advice upon which the Revnue sought  to change  the  classification  of  the  said products from  item 11AA(2)  to Item 68 took the ground that

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the said  products were  not "derived  directly" from  crude petroleum. The  Tribunal stated  that the point for decision was whether,  for the  purpose of  classification under Item 11AA(2), a  product should  be  derived  directly  from  the refining of  crude petroleum.  Relying on  a judgment of the Gujarat High  Court, it held that be the immediate result of refining of  crude petroleum".  The said  products but  were obtained from  raw naphtha  purchased from  oil  refineries. Accordingly. the  Tribunal accepted  the contention  of  the Revenue that  the said products were not excitable under the said Item but under the residuary Item 68.      Learned counsel for the appellants placed reliance upon the judgment of the is Court in The Tata oils Mills Co, Ltd. vs. Collector  of  Central  Excise,  1987  (43)  E.L.T.  183 (S.C.).  The  question  before  this  Court  related  to  an Exemption Notification;  it exempted  "soap as  is made from indigenous rice  bran oil or from a mixture of such oil with any other  oils" from  a certain  part of  the  excise  duty laviable thereon.  This Court  held that  the requirement of the notification  was that  the soap  manufacture should  be from rice  bran oil  as contrasted with other types of  oil. That was  the ordinary  meaning of  the words used. The word might be construed literally, but they had to be given their fullest amplitude  and interpreted  in the  context  of  the process of  soap manufacture.  There were  no words  in  the notification to restrict it only to cases were rice bran oil was directly  used in  the factory claiming exemption and to exclude cases  were soap  was made  by using rice bran fatty acid derived  from rice  bran oil.  The  whole  purpose  and object of  the notification was to encourage the utilisation of rice  bran oil  in the  process of manufacture of soap in praforence to  various other  kinds  of  oil  used  in  such manufacture and  this should  not be  defeated by  an unduly narrow interpretat  on of  the language  of the notification even when  it was clear that rice bran oil could be used for manufacture of  soap only  after its  conversion into  fatty acid or hydrogenated oil.      Learned counsel  submitted that  the aforesaid judgment applied to  the Tacts  of this  case. It  made no difference that the  raw naphtha  was procured  by the  appellants from other factories.  The point  was that the said products were derived from  the  refining  of  crude  petroleum,  and  raw naphtha was an inter-mediate product in such refining.      Learned counsel  drew attention  to the judgment of the Gujarat High  Court, upon which the Tribunal had relied (New Bharat Industries (P) Ltd. vs. Collector of Customs. Madras. 1983 E.L.T.  1134). Upon  the assumption contended on behalf of the  Revenue  that  processed  oil  ceased  to  bear  the character of  lubricating oil  and  become  a  new  chemical compound. it  was there  observed that  the product  derived from refining  crude petroleum would be covered by Item 11A, but if  a  different  commodity  was  produced  of  made  by subjecting the  "products derived  from  refining  of  crude petroleum" to  a process, it would not fall within the plain language of  Item 11-A  (now  Item  11AA).  Learned  counsel submitted that the raw naphtha, produced from refining crude petroleum, was  not subjected by the appellants to a process to produce  the said  products. The  said products  were the result of further refining.      Learned counsel  for the Revenue submitted that the raw naphtha was  a separate commercial commodity. It was the raw material from  which the finished product, that is, the said products, was  manufactured by the appellants. It could not, therefore, be said in a commercial sense. that  the   said  products   had  been  derived  from  cruds

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petroleum.      The  dictionaries  state  that  the  word  "derive"  is usually followed  by the  word "from"  and it  means get  or trace from  a source;  arise from,  originate in;  show  the origin or formation of.      The use  of the  words "derived  from" in  Item 11AA(2) suggests that  the original  source of the product has to be found. Thus,  as a  matter of plain English, when it is said that one  word is  derived from  another, often  in  another language, what  is meant  is that the source of that word is another word, often in another language. As an illustration, the word "democracy" is derived from the Greek word "demos", the people, and most dictionaries will so state. That is the ordinary menaing of the words "derived from" and there is no reason to depart from that ordinary meaning here.      Crude petroleum  is refined to produce raw naphtha. Raw naphtha id  further refined, or cracked, to produce the said products. This  is not  controverted. It seems to us to make no difference  that the  appellants buy the raw naphtha from others. The question is to be judged regardless of this, and the question  is whether the intervention of the raw naphtha would justify  the finding  that the  said products  are not "derived from  refining of crude petroleum". The refining of crude  petroleum  produces  various  products  at  different stages. Raw naphtha is one such stage. The further refining, or cracking,  of raw  naphtha results  in the said products. The source of the said products is crude petroleum. The said products must,  therefore, be held to have been derived from crude petroleum.      The judgment  of the Tribunal is erroneous on the basic question before  it, and  it is therefore, not necessary for us to consider the aspect of limitation.      The appeal  is allowed and the judgment and order under appeal in set aside.      No order as to costs.