2018 (2) TMI 1395 - AT - Central Excise

Waste - N/N. 89/95-CE - Whether fatty acids, wax and gum arising in course of manufacture of refined vegetable oil are to be treated as waste for the purpose of exemption N/N. 89/95-CE and would be exempt from duty under this notification? Held that - The appellants are engaged in converting crude rice bran oil into refined rice bran oil. In effect the processes undertaken by them are towards this intended final product. For producing refined rice bran oil, the gums and waxes available in the crude rice bran oil are to be removed by deguming and de-waxing. Thereafter by a process of deacidification/ de-odourisation, by distillation the refined oil is obtained. In this final process fatty acid distillate (fatty acid with odour) is obtained as a waste. As can be seen the gums, waxes and fatty acid distillate are emerging due to removal/refining process of crude rice bran oil - the process is to obtain refined rice bran oil by removing these unwanted products alongwith spent earth, which when present makes the oil as crude refined oil. The process of manufacturing refined vegetable oil is essentially by removing the unwanted materials that were present in the crude vegetable oil so that a refined vegetable oil can be obtained. In this process of refining, the unwanted materials are removed. Hence, we are of the considered view that the removal of unwanted materials resulting in products like gums, waxes and fatty acid with odour cannot be called as a process of manufacture of these gums, waxes and fatty acid with odour. The process of manufacture is for refined rice bran oil. Noting that the reference is to decide whether these are to be treated as waste for the purpose of exemption N/N. 89/95-CE we note though the excisability of the product itself is seriously in dispute as per the opinion expressed by us, as above, these cannot be considered as anything other than waste and as such will be covered by the exemption N/N. 89/95-CE. The appellant/assessee are eligible for exemption under the said notification - appeal returned to the regular Division Bench for decision on the points raised in the respective appeals.

Summary

Issues Involved:
1. Whether fatty acids, wax, and gum arising in the course of manufacture of refined vegetable oil are to be treated as "waste" for the purpose of exemption Notification No. 89/95-CE.
2. Whether the Apex Court’s order affirming the Tribunal’s judgment in the case of CCE, Jalandhar vs. A.G. Fats Ltd. (supra) would be a binding precedent.

Detailed Analysis:

1. Treatment of Fatty Acids, Wax, and Gum as "Waste":
The appellants were engaged in the manufacture of refined vegetable oil, during which fatty acids, wax, and gums emerged as by-products. The Tribunal noted conflicting judgments regarding whether these by-products should be considered as "waste" under Notification 89/1995-CE, which exempts "waste, parings, and scrap arising in the course of manufacture of exempted goods." The Tribunal in CCE, Jalandhar vs. A.G. Fats Ltd. held that these by-products are not waste and thus not exempted. However, the Bombay Bench in Maheshwari Solvent Extraction Ltd. vs. CCE, Nagpur observed that the term "waste" should refer to goods of no or little value, which these by-products do not satisfy as they have considerable commercial value.

2. Binding Precedent of Apex Court’s Order:
The Apex Court dismissed the civil appeal against the Tribunal’s judgment in A.G. Fats Ltd., which was interpreted as a binding precedent. However, the appellants argued that the dismissal of the civil appeal does not form a binding precedent, especially since there was a similar dismissal of a civil appeal in Priyanka Refineries Ltd., which had a contrary decision.

Excisability of the By-products:
The appellants contended that the by-products were unintended waste and not the result of a manufacturing process. They cited the Supreme Court’s decision in CCE vs. Indian Aluminium Company, which held that by-products like zinc dross and flux skimming are not exigible to central excise duty. The Tribunal agreed, noting that the process aimed to obtain refined rice bran oil by removing unwanted materials, thus the by-products were incidental and not manufactured goods.

Conclusion:
The Tribunal concluded that the by-products (fatty acids, wax, and gums) arising during the refining process are indeed waste and not manufactured excisable goods. Consequently, they are eligible for exemption under Notification 89/95-CE. The matter was returned to the regular Division Bench for further decision on other connected disputes such as classification, valuation, Cenvat credit, and penalty.

Order Pronounced:
The decision was pronounced in open court on 30/01/2018.