2007 (10) TMI 92 - AT - Central Excise

In light of HSN explanatory note & the admitted fact, Palm Fatty Acid Distillate (PFAD) has to be held as industrial fatty acid Dept s plea to classify impugned goods u/ch 38 on basis of % & deny exemption is baseless because percentage yield is not mentioned in Exemption Not. 21/02

Summary

Issues Involved:
1. Eligibility for concessional rate of duty under Notification No. 21/2002-Cus.
2. Classification of Palm Fatty Acid Distillate (PFAD) as industrial fatty acid.
3. Compliance with the conditions of the notification.
4. Percentage yield of industrial fatty acid from crude palm oil.
5. Alleged misuse of crude palm oil for manufacturing refined edible oil.

Issue-wise Detailed Analysis:

1. Eligibility for Concessional Rate of Duty:
The appellant, engaged in solvent extraction and refining of oils, imported crude palm oil at a concessional rate under Notification No. 21/2002-Cus, which allowed a reduced duty rate for oils used in manufacturing industrial fatty acids. The Revenue alleged misuse of this concessional rate, claiming the crude palm oil was used to produce refined edible oils instead.

2. Classification of Palm Fatty Acid Distillate (PFAD):
The core dispute was whether PFAD could be classified as an industrial fatty acid. The Revenue relied on test reports and statements from buyers, arguing that PFAD required further processing to become industrial fatty acid. The appellant countered that PFAD, being a product of distillation, is indeed an industrial fatty acid as per HSN explanatory notes and their classification under Chapter 38 for excise duty purposes. The Tribunal agreed with the appellant, noting that the HSN explanatory note recognizes fatty acid distillates as industrial fatty acids, and the notification did not specify any particular manufacturing process.

3. Compliance with Notification Conditions:
The notification required compliance with the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996, which the appellant had adhered to. The Tribunal found no dispute regarding this compliance, thus supporting the appellant's eligibility for the concessional rate.

4. Percentage Yield of Industrial Fatty Acid:
The Revenue objected that only 25% of the crude palm oil resulted in PFAD, arguing this did not fulfill the notification's conditions. The Tribunal clarified that the notification did not mandate a specific yield percentage, only that the oil be used to manufacture industrial fatty acids. Since the crude palm oil was used as stipulated, the appellant's use was deemed compliant.

5. Alleged Misuse for Manufacturing Edible Oil:
The Revenue argued that the appellant's production of refined edible oil from crude palm oil violated the notification. The Tribunal noted that this issue, related to the Prevention of Food Adulteration Act, was outside its jurisdiction. The Tribunal emphasized that compliance with the notification's terms was the primary concern, not adherence to food safety regulations.

Conclusion:
The Tribunal concluded that the appellant was entitled to the concessional rate as PFAD qualified as an industrial fatty acid under the notification. The demand for differential duty, interest, and penalties was set aside. The appeal was allowed with consequential relief, and the issue of limitation was not addressed due to the merit-based decision.