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Commissioner of Central Excise Versus M/s Gujarat Ambuja Exports Limited

2016 (8) TMI 397 - SUPREME COURT

Period of limitation - violation of actual user condition - Import of crude palm oil (non-edible grade) - not used in the manufacture of Industrial Fatty Acid but for manufacturing the refined edible oil - entitlement to avail benefit - Notification No. 21/2002-Cus dated 01.03.2002 read with Notification No. 66/2004-Cus dated 09.07.2004 - Held that:- crude palm oil which was imported was used for making edible products like refined oil/Vanaspati. In the process of said manufacture, 25% of fatty .....

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ification in question. - Fatty Acid Distillate is characterised by high free fatty acid which cannot be 25%. So the by-product is rightly discarded by the Commissioner as not coming within the nomenclature of PFAD. Contrary reasons which are given by the Tribunal, thus, do not appeal to this Court. In this view of the matter, reliance on subsequent notification of 2006 is of no relevance. - Period of limitation - impugned notification time barred - Held that:- the question has to be deci .....

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ter only gives declaration. It is the actual use, which event takes place much after the import, from where it can be gathered as to where the import is made for the purpose for which it was done. As soon as the aforesaid information was gathered by DRI, show cause notice was issued. Therefore, the show cause notice had been issued within a reasonable period and it cannot be treated as time barred. - Decided in favour of Revenue - Civil Appeal No. 3302 of 2008 - Dated:- 8-8-2016 - A. K. Sikri An .....

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ackground: The assessee is the manufacturer of refined edible oil, Vanaspati, cotton yarn, starch, cattle feed, wheat floor etc. It is registered with Kadi Division of the Central Excise. From April, 2002, the assessee engaged itself in refining of various edible oils. During the course of refining, it used to get Palm Fatty Acid Distillate as a by-product which was classified under Chapter Heading No. 38231900 and cleared it duty free claiming the benefit of Notification No. 1175/75-CE dated 30 .....

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otification No. 20/2004-Cus dated 16.01.2004 wherein the words for the manufacture of soap were inserted in the original notification. 4) The assessee imported 8435.816 metric tons of crude palm oil (industrial grade) valued at ₹ 17,15,88,508/- and cleared the same on payment of customs duty of ₹ 3,47,95,453/- (@20% basic + 2% education cess) under Notification No. 21/2002-Cus dated 01.03.2002 read with Notification No. 66/2004-Cus dated 09.07.2004 during the period 12.09.2004 to 12. .....

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alm Fatty Acid Distillate emerges. The assessee after the processing of the imported 8435.816 metric tons of crude oil (non-edible grade) has manufactured 2219.895 metric tons of palm fatty acid distillate (industrial grade) i.e. approximately 25% and approximately 70% as refined palm oil. 5) Having regard to the aforesaid facts, the appellant/Revenue was of the view that the assessee was not entitled to the benefit of Notification No. 21/2002 read with Notification No. 66/2004. The Department, .....

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e case set up by the Department in the said show cause notice was two fold, i.e. (i) the Palm Fatty Acid Distillate (PFAD) manufactured by the assessee was not Industrial Fatty Acid; and (ii) even if Palm Fatty Acid was to be taken as Industrial Fatty Acid, the benefit of the aforesaid two notifications was not available to such a product as the assessee is using the same for the manufacture of refined edible oil and Vanaspati. 7) In order to support the contention that PFAD was not Industrial F .....

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e test conducted on the said product. (ii) A sample was also sent to Shri Narendra Kumar, Chemical Examiner, Customs House Laboratory, Kandla who has given his test report as under: The sample is in the form of pale cream soft mass. It has the characteristics of palm fatty acid having FFA (as palmitic acid) = 87.1% by wt & Acid value 190.87 (iii) The Department also collected the evidence in the form of statements from various customers of the assessee including M/s Godrej Industries Ltd. an .....

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ess involved in converting Palm Fatty Acid Distillate (PFAD) to stearic acid, he stated that firstly the Palm Fatty Acid Distillate (PFAD) was fed to oil pre-treatment plant for improvement on clarity and for removal of sediments and particles if any; the treated PFAD was then fed to fat splitting plant; in fat splitting plant, unconverted glycerides present in PFAD were converted into free fatty acids (crude fatty acid) and glycerine at a designed pressure; in the second step, crude fatty acid .....

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flaked as un-distilled stearic acid; in case of distilled stearic acid, hydrogenated fatty acid was distilled in distillation plant and distillate produced was homogenized and flaked as distilled stearic acid; PFAD could be used for the manufacturing of different types of fatty acid (stearic acid and fatty alcohol); PFAD could also be used for the manufacture of soaps. To the same effect was the statement of Shri Mallikarjun G. Rane, Production Manager of M/s Aquagel Chemicals Pvt. Ltd. 8) The a .....

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eading 28.23 of the HSN which lists Industrial Fatty Acids and, therefore, PFAD had to be considered as Industrial Fatty Acids. 9) The Adjudicating Authority considered the aforesaid respective contentions of the Revenue as well as the assessee. He, however, brushed aside the contention of the assessee based on HSN Explanatory Notes with the observations that though it was a settled principle that in the matter of tariff classification, HSN is a reliable guide and is generally to be followed but .....

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he term and not necessarily what is laid down in the HSN. Thereafter, the Adjudicating Authority discussed the statements of the representatives of the two customers as mentioned above, on the basis of which it was concluded that in technical and trade parlance, it cannot be said that PFAD is the same as Palm Fatty Acid and, therefore, it could not be called as an Industrial Fatty Acid. The Adjudicating Authority further held that this was supported even by HSN Explanatory Notes 28.23 wherein it .....

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rocess of the assessee, approximately 75% of the product is refined edible oil and only 25% is PFAD (by quantity). View taken by the Adjudicating Authority was that when the notification lays down the condition that the crude palm oil must be used by Industrial Fatty Acid, it means that its use must be substantive and not nominal. In other words, at least the crude palm oil should be primarily used for the manufacture of Industrial Fatty Acid, which was admittedly not the case. 11) In nutshell, .....

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ect that it has gone by the HSN Explanatory Notes which stipulates that Industrial monocarboxylic fatty acids are 'generally' manufactured by the saponification or hydrolysis of natural fats or oils. Picking up the word 'generally' from the said language in HSN, the Tribunal came to the conclusion that process of saponification or hydrolysis of natural fats or oils may be a process generally employed but that was not the 'only' process to obtain Industrial Fatty Acid as t .....

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that when the notification stipulates that imported crude palm oil must be used for Industrial Fatty Acid it does not mean that yield of Industrial Fatty Acid should be to the extent of 100% and even when it was to the extent of 25% that would suffice as the notification nowhere mentions any percentage yield of Industrial Fatty Acid. On the basis of the aforesaid reasoning, the Tribunal has allowed the appeal of the assessee and set aside the order passed by the Commissioner. 13) Feeling aggrie .....

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xemption of a notification and in order to qualify for exemption from payment of the import duty under the said notification, the focus of the Tribunal should have been as to whether the assessee has fulfilled the conditions of the said notification. He submitted that exemption notifications were to be construed very strictly and in the instant case, the assessee has failed to fulfill the conditions laid down in the notifications. 14) Mr. Lakshmikumaran, learned counsel appearing for the respond .....

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of Notification No. 21/2002-Cus. The description for Sr. No. 30 during the relevant period did not specify any specific process to be followed by the importers, which implies that the importers were free to choose any of the different processes available. In this regard, amendment made to Notification No. 21/2002-Cus vide Notification No. 11/2006-Cus dated 01.03.2006 is important. For the first time, an entry (S. No. 30(A)) was introduced which also mentioned that the importer must have the faci .....

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amendment clause (a) of Sr. No. 30 covered all the process that are possible for manufacture of Industrial Fatty Acids. On the second issue, Mr. Lakshmikumaran again maintained the stand of the assessee which was taken before the Authorities below, namely, it is not possible to obtain 100% PFAD by distilling the crude palm oil (non-edible grade) and, therefore, due to technological necessity, the assessee could not be denied the benefit of exemption. It was also submitted that merely because the .....

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mention any specific time within which a show cause notice must be issued. However, his submission was that this Court in the case of State of Punjab v. Bhatinda District Co-op Milk P. Union Ltd. 2007 (217) ELT 325 (SC) has held that where no period of limitation has been prescribed, statutory authority must exercise its jurisdiction within a reasonable period. Referring to Section 28 of the Act, he submitted that since that Section prescribes 6 months for cases where there is no collusion or w .....

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t case is not a case for classification of goods but relates to the admissibility of exemption notification. When the question arises as to whether exemption from tax/duty of a particular notification is available to assessee or not, the same has to be examined in terms of the said notification i.e. whether the stipulations and conditions mentioned in the said notification are fulfilled by an assessee to claim the benefit of the notification. Notification No. 21/2002 dated 01.03.2002, as amended .....

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nt of custom duty is as under: (A) [All goods], other than edible grade, having Free Fatty Acid (FFA) 20 per cent or more and falling under heading 1507, 1508, 1509, 1510, 1511, 1512, 1513, 1514 or 1515, for the manufacture of [soaps, industrial fatty acids and fatty alcohol]. (B) [All goods], other than edible grade, having Free Fatty Acid (FFA) 20 per cent or more and falling under heading 1507, 1508, 1509, 1510, 1511, 1512, 1513, 1514 or 1515. 18) In order to qualify for exemption, the goods .....

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ed in Annexure to the said notification. Condition No. 5 reads as under: 5. If the importer follows the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. 19) In the instant case, crude palm oil which was imported was used for making edible products like refined oil/Vanaspati. In the process of said manufacture, 25% of fatty (palm) was produced and 75% was oil which was edible. Thus, when the main manufacturing activity .....

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the Commissioner that HSN Explanatory Notes, in case where exemption notification was to be construed, would only serve as guide and is not used to interpret the same. Even here, we find that the HSN in question categorically mentions the product which are included by the said heading and specifically mentions 'fatty acid distillate' as under: Fatty acid distillate, obtained from fats and oils which have been subjected to vacuum distillation in the presence of steam as part of a refinin .....

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