1986 (7) TMI 98 - HC - Central Excise

Summary

Issues Involved:
1. Classification of hardened or hydrogenated oils under Tariff Items Nos. 12, 13, or residuary Item No. 68 of the First Schedule to the Central Excises and Salt Act, 1944.
2. Validity of the revisional authority's exercise of power under Section 36(2) of the Act.
3. Applicability of the Supreme Court's decision in Tungabhadra Industries Ltd. v. The Commercial Tax Officer.
4. Consideration of the technical and trade classification of hydrogenated oil.

Detailed Analysis:

1. Classification of Hardened or Hydrogenated Oils:

The primary issue was whether hardened or hydrogenated oils with a melting point of 41^0C should be classified under Tariff Items Nos. 12, 13, or residuary Item No. 68. The petitioner, a company manufacturing vegetable products, argued that their product should fall under Tariff Item No. 12, which covers vegetable non-essential oils. Initially, the Assistant Collector of Central Excise classified the product under Tariff Item No. 13, which pertains to vegetable products meant for human consumption. However, the Appellate Collector of Central Excise later classified it under Tariff Item No. 12, noting that the product was not for human consumption but for industrial purposes. The revisional authority, however, classified the product under the residuary Item No. 68.

2. Validity of the Revisional Authority's Exercise of Power:

The petitioner contended that the revisional authority's action was barred by limitation under Section 36(2) of the Act, which prescribes a one-year period for initiating such proceedings. The argument was based on the third proviso to Section 36(2), which aligns with the six-month time limit specified in Section 11A for cases involving non-levy or short-levy of duty. However, the court clarified that the second proviso to Section 36(2) was applicable, allowing a one-year period for classification issues, thus making the revisional authority's action timely.

3. Applicability of the Supreme Court's Decision in Tungabhadra Industries Ltd. v. The Commercial Tax Officer:

The Appellate Collector relied on the Supreme Court's decision in Tungabhadra Industries Ltd., which held that hardened vegetable oil does not cease to be vegetable oil by the process of hardening. The Supreme Court emphasized that the physical state change does not alter the fundamental nature of the oil. This precedent supported the classification of the product under Tariff Item No. 12. The revisional authority's dismissal of this precedent, citing its context under the Sales Tax Act, was found to be erroneous by the court.

4. Consideration of Technical and Trade Classification:

The revisional authority's decision in the Hindustan Lever case, which classified hydrogenated oil under Item No. 68, was based on the assumption that the trade recognized hardened oils as distinct from vegetable oils. However, this assumption lacked evidentiary support. The court noted that affidavits from experts and the decision of the CEGAT (Central Excise and Gold Appellate Tribunal) supported the classification of hydrogenated oil under Tariff Item No. 12. The CEGAT's Full Bench had concluded that hydrogenated oil remains vegetable oil and should be classified under Item No. 12, aligning with the Supreme Court's ruling.

Conclusion:

The court ruled in favor of the petitioners, setting aside the revisional authority's order and the subsequent show cause notice. The court directed the respondents to classify the product under Tariff Item No. 12 and refund the excess duty paid by the petitioners. The decision underscored the importance of adhering to established legal precedents and the necessity of evidentiary support for classification decisions. The respondents were given three months to complete the refund process, with no order as to costs.