2018 (8) TMI 1167 - AT - Central Excise

Excisable goods or not? - by-products - Soap stock - soap sludge - Acid Oil - whether Acid Oil and Soap Sludge which are obtained by further conversion of such Soap Stock would require to be treated as excisable goods requiring discharge of Central Excise duty liability? Held that - The ratio of the Apex Court in Indian Aluminium Company 2006 (9) TMI 6 - SUPREME COURT OF INDIA and of the various Tribunal s decisions like Ricela Health Foods Ltd. 2018 (2) TMI 1395 - CESTAT NEW DELHI and others would squarely apply with regard to soap stock‛, hence it cannot be held as excisable goods and denied benefit of Notification No.89/95-CE. Soap Stock - Acid Oil - Held that - Soap Stock is consciously again processed by the appellants which results in emergence of Acid Oil and Soap Sludge. It then cannot be said that emergence of acid oil is an unintended by product - the acid oil is an intended final product resulting out of conscious process of soap stock. The said acid oil would then have to be considered as a new product with a different name, character and use, and exigible to excise duty as applicable - duty liability upheld - The manner of calculation of duty liability arrived at in the Annexure to the SCN will then have to be reworked to restrict the assessed liability with interest as applicable, only to clearances of acid oil‛ (during the impugned period). For this limited purpose, the matter is being remanded to the original adjudicating authority. Liability of Interest - Held that - The interest liability as applicable will be payable on such reworked duty liability. Penalty - Held that - As the issue on excisability of the by product / waste arising in such refining of vegetable oil was mired in confusion and also in litigation for quite some time till the Larger Bench decision in the case of Ricela Health Foods Ltd. 2018 (2) TMI 1395 - CESTAT NEW DELHI , the ingredients of Section 11AC cannot be foisted on to the appellants. For such reason, the penalty of ₹ 23,81,941/- imposed on the appellants under that Section will require to be set aside. Appeal allowed in part and part matter on remand.

Summary

Issues:
Classification of soap stock, acid oil, and soap sludge under Central Excise Tariff Heading, application of Notification No. 89/95-CE, period of limitation for demand of Central Excise duty, interpretation of intention to evade duty, excisability of acid oil and soap sludge, reworking of duty liability, imposition of penalty under Section 11AC.

Classification of Soap Stock, Acid Oil, and Soap Sludge:
The case involved the classification of soap stock, acid oil, and soap sludge under Central Excise Tariff Heading. The department contended that excise duty was required to be discharged on acid oil and soap sludge. The tribunal analyzed the issue and differentiated between unintended by-products like soap stock and consciously processed products like acid oil. It held that acid oil, being an intended final product, is exigible to excise duty, while soap sludge is considered waste and not excisable. The duty liability was reworked accordingly.

Application of Notification No. 89/95-CE:
The appellant argued that soap stock, acid oil, and soap sludge are waste and cleared without payment of duty under Notification No. 89/95-CE. The tribunal referred to previous decisions, including Ricela Health Foods Ltd., to establish that unintended products like soap stock are waste and covered by the exemption. It clarified that while soap stock qualifies as waste, acid oil is a new product and subject to excise duty, whereas soap sludge is also considered waste and exempt from duty.

Period of Limitation and Intention to Evade Duty:
The dispute involved the period of demand for Central Excise duty and the allegation of intention to evade duty. The appellant argued that the demand was beyond the normal period of limitation and that confusion regarding duty exemption led to the clearance of goods without payment. The tribunal considered the bonafide belief of the appellant and ruled that the penalty under Section 11AC cannot be imposed due to the confusion and ongoing litigation regarding the excisability of the products.

Imposition of Penalty under Section 11AC:
The tribunal concluded that due to the confusion and litigation surrounding the excisability of the products, the penalty imposed under Section 11AC was not justified. It set aside the penalty and partially allowed the appeal, remanding the matter to the adjudicating authority for reworking the duty liability based on the excisability of acid oil and soap sludge. Interest liability was clarified to be payable on the reworked duty liability.

In conclusion, the tribunal's judgment clarified the excisability of acid oil and soap sludge, reworked the duty liability based on the classification of the products, and set aside the penalty imposed under Section 11AC due to the confusion and ongoing litigation in the matter.