1962 (10) TMI 1 - SC - Central Excise

Excise is a tax on manufacture of goods and not on their sale - Dutiability - Goods - Classification of goods - Vegetable non-essential oil, all sorts - Refined oil

Issues Involved:

1. Legality of the imposition of excise duty on the manufacture of "refined oil" from raw oil.
2. Definition and interpretation of "refined oil" and "manufacture" under the Central Excises and Salt Act, 1944.
3. Whether the intermediate product in the manufacturing process qualifies as "refined oil" as known to the market.

Detailed Analysis:

1. Legality of the Imposition of Excise Duty on the Manufacture of "Refined Oil" from Raw Oil:

The core issue in these appeals is the legality of the imposition of excise duty on the manufacture of "refined oil" from raw oil by companies producing Vanaspati. The companies contend that they only produce Vanaspati, which is liable to excise duty as a vegetable product, and at no stage do they manufacture any new product that falls under the category of "vegetable non-essential oils" as described in Item 23 of the Schedule to the Central Excises and Salt Act, 1944. The Punjab High Court had accepted this contention, leading to the withdrawal of the excise duty demands.

2. Definition and Interpretation of "Refined Oil" and "Manufacture" under the Central Excises and Salt Act, 1944:

The Union of India argued that during the manufacture of Vanaspati, the companies produce "refined oil" at an intermediate stage, which falls under the description of "vegetable non-essential oil" and is thus liable to excise duty. The process described involves refining raw oil by removing impurities through neutralisation, bleaching, and sometimes deodorisation. The key question was whether the oil, after undergoing these processes but before deodorisation, qualifies as "refined oil" as known in the market.

The court examined affidavits from experts on both sides. Mr. Krishnan, representing the appellant, asserted that the oil becomes "refined oil" after neutralisation and bleaching, even without deodorisation. Dr. Nanji, supporting the respondents, contended that "refined oil" must also undergo deodorisation to be considered as such in the market. The court found strong support for Dr. Nanji's view in the specifications by the Indian Standard Institution, which defined "refined oil" as oil that has been neutralised, bleached, and deodorised.

3. Whether the Intermediate Product in the Manufacturing Process Qualifies as "Refined Oil" as Known to the Market:

The court concluded that the raw oil purchased by the respondents does not become "refined oil" at any stage before the completion of the deodorisation process. The court emphasized that excise duty is on the manufacture of goods, meaning the bringing into existence of a new substance known to the market. The court rejected the appellant's argument that the intermediate product, without deodorisation, qualifies as "refined oil."

The court also addressed the broader definition of "manufacture" under the Act, clarifying that it implies the creation of a new substance and not merely a change in the substance. The court rejected the argument that mere processing constitutes manufacture liable to excise duty, emphasizing that the term "manufacture" involves the transformation of raw materials into a new and different article with a distinctive name, character, or use.

Conclusion:

The court upheld the High Court's decision, concluding that the respondents do not manufacture "refined oil" as known to the market at any intermediate stage before the production of Vanaspati. The demands for excise duty on the intermediate product were found to have no legal basis. The appeals were dismissed with costs, affirming the withdrawal of the impugned excise duty demands.

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