2008 (9) TMI 851 - Commissioner - Central Excise

Waste - Fatty acids ghad/soap stock, gums, spent earth and waxes and other oil residues generated during manufacturing/refining of RB oil

Summary

Issues Involved:
1. Demand and recovery of Central Excise duty under Section 11A of the Central Excise Act, 1944.
2. Imposition of penalty under Rule 25 of the Central Excise Rules, 2002.
3. Classification of fatty acids and vegetable oil residues.
4. Availability of exemption under Notification No. 89/95-C.E., dated 18-5-95.
5. Marketability and manufacturing status of the by-products.

Detailed Analysis:

1. Demand and Recovery of Central Excise Duty:
The appellant, M/s. J.R. Agro Ind. Ltd., was issued show cause notices for the recovery of Central Excise duty amounting to Rs. 13,21,294/- and Rs. 4,99,674/- under Section 11A of the Central Excise Act, 1944. The adjudicating authorities confirmed these demands along with equal penalties. The core issue was whether the by-products (fatty acids and vegetable oil residues) generated during the manufacture of refined vegetable oil should be subject to Central Excise duty.

2. Imposition of Penalty:
Penalties equal to the duty amounts were imposed under Rule 25 of the Central Excise Rules, 2002. The appellant contested these penalties, arguing that the by-products should be classified as waste and thus exempt from duty under Notification No. 89/95-C.E., dated 18-5-95.

3. Classification of Fatty Acids and Vegetable Oil Residues:
The appellant argued that the by-products should be classified under Chapter Heading No. 15159040 as fractions of raw vegetable oil, rather than under Chapter Heading Nos. 38231900 and 15220090. They supported their argument with definitions and judicial precedents, asserting that the by-products are essentially waste and not distinct excisable products.

4. Availability of Exemption under Notification No. 89/95-C.E.:
The appellant claimed exemption under Notification No. 89/95-C.E., which exempts waste, parings, and scrap arising during the manufacture of exempted goods. The adjudicating authorities had denied this exemption, arguing that the by-products were distinct excisable products with marketability and distinct characteristics. However, the appellant maintained that these were impurities removed during the refining process and thus qualified as waste.

5. Marketability and Manufacturing Status:
The appellant contested the adjudicating authorities' findings on the marketability and manufacturing status of the by-products. They argued that the by-products were not manufactured but were impurities separated through physical processes. They also contended that the mere sale of these by-products did not establish their marketability as excisable goods.

Judgment Analysis:

Exemption under Notification No. 89/95-C.E.:
The judgment carefully examined the conditions for exemption under Notification No. 89/95-C.E. The notification exempts waste, parings, and scrap arising during the manufacture of exempted goods. The judgment found that the appellant met all the conditions for this exemption:
- The by-products were classified as waste.
- They arose during the manufacture of exempted goods (refined vegetable oil).
- The appellant's unit did not manufacture any other excisable goods.
- The exemption claim was not against a notification based on the value or quantity of clearances.

Judicial Precedents and Definitions:
The judgment referenced several judicial precedents and definitions to support the classification of the by-products as waste. Cases such as Nahar Industrial Enterprises Ltd. and Bharat Starch Industries were cited, which defined waste as by-products created during the manufacturing process. The judgment also noted that the criteria of marketability were not applicable, referencing the Supreme Court's decision in Tata Iron & Steel Co. Ltd.

Chemical Classification:
The judgment discussed the chemical classification of the by-products, referencing CBEC Circular No. 81/2002 and the opinion of CRCL, New Delhi. It concluded that the by-products were more appropriately classifiable under Heading 15.15 of the Central Excise Tariff Act, 1985, and thus exempt from duty under Notification No. 3/2006-C.E., dated 1-3-2006.

Conclusion:
The judgment concluded that the demands for duty and the penalties imposed were not sustainable. The by-products were classified as waste and were exempt from duty under Notification No. 89/95-C.E. Consequently, both appeals were allowed, and the impugned orders were set aside.

Final Order:
Both appeals were allowed, and the demands for duty and penalties were set aside. The appellant was found entitled to the exemption under Notification No. 89/95-C.E.