ORDER

H.R. Syiem, Member (T)

1. This appeal dated 28-2-75 was filed by M/s. Hindustan Lever, Bombay, against Order-in-Appeal No. 202/CO/1974 dated 12-7-1974 passed by the Appellate Collector of Central Excise, Calcutta. This order of the Appellate Collector came about as a result of an Order No. 93(O) of 1972 dated 25-10-72 passed by the Assistant Collector of Central Excise, Calcutta-III, Division 4, Brabourne Road, Calcutta. In this order, the Assistant Collector came to a finding that the processed V.N.E. oil used in the manufacture of soap (through the intermediate stage of hardened V.P.) not in the same factory but in another factory, was not entitled to get exemption of duty as it was used in the manufacture of extra hard V.P. which was cleared free of duty from Hindustan Lever's factory at Shamnagar to another factory at Garden Reach for use in the manufacture of soap by following the procedure set out in Chapter X of the Central Excise Rules, 1944 in terms of Notification No. C.E.R. 8(3) 56-C.E. dated 14-1-56. Reconsidered that Notification No. 181/71-C.E. dated 9-10-71 provided that no exemption should be allowed in respect of V.N.E. oil used in the manufacture of finished excisable goods if the finished excisable goods produced by the manufacturer were exempted from the whole of the excise duty leviable thereon or were chargeable to nil rate of duty. Notification No. 181 was itself a notification that amended an earlier Notification No. 33/63, dated 1-3-63. He accordingly ordered that Hindustan Lever should pay duty on the processed vegetable non-essential oils used in the manufacture of the extra hard V.P. (which was subsequently used in the manufacture of soap, not within the same factory but at Garden Reach factory of M/s. Hindustan Lever).

2. The dispute arose from the fact that Hindustan Lever used vegetable non-essential oil to manufacture what the Assistant Collector of Central Excise calls extra hard vegetable product. The extra hard vegetable product is cleared without payment of duty for the manufacture of soap in another factory belonging to Hindustan Lever after observing the" procedure set out in Chapter X of Central Excise Rules, 1944. In terms of Government of India Notification No. 33/63, vegetable no-essential oils, "whether processed or not, used in the manufacture of goods falling under item Nos. 13, 14 and 15" of the Central Excise Tariff Schedule, were exempted from the whole of the duty of excise leviable thereon. The notification also explains that for this purpose, processed V.N.E. oil means a vegetable non-essential oil which has undergone, subsequent to its extraction, any one or more of the following processes, viz., centrifuging, treatment with an alkali or acid, bleaching, deodorization. This notification was amended on 16-7-65 by Notification No. 110/65 which substituted the following words for the words reproduced already earlier :

"Vegetable non-essential oil whether produced in the factory of production of the excisable goods specified below or elsewhere, if used after it is processed in-

(i) goods falling under item Nos. 13, 14 and 15 of the said Schedule; and

(ii) artificial or synthetic resins falling under item No. 15A of the said Schedule :

Provided that, in respect of the vegetable non-essential oil produced elsewhere than in the factory of production of the said excisable goods, the procedure set out in Rule 56A of the said Rules is followed."

3. Up to the issue of the last notification, there was no dispute. It was only when notification 181 dated 9-10-71 was issued that the trouble began for the Hindustan Levers. This notification added a proviso to Notification No. 33/63-C.E. which ran thus :

"Provided further that no such exemption shall be allowed in respect of vegetable non-essential oils used in the manufacture of finished excisable goods if such finished excisable goods produced by the manufacturer are exempted from the whole of the duty of excise leviable thereon or are chargeable to nil rate of duty."

4. The Assistant Collector required payment of duty on the vegetable non-essential oils during the period from 9-10-71, the date of this notification. We can take it, therefore, that there was nothing that, in the opinion of the Central Excise, disentitled the appellants from the duty concession till the issue of the Notification 181/71. This was because this notification required that the finished excisable goods produced from the vegetable non-essential oil should not be wholly exempted from the duty of excise or chargeable to nil rate of duty. The Central Excise authorities considered that the hardened vegetable product removed to the Garden Reach factory without payment of duty to be finished excisable goods and since this goods is not subjected to excise duty, the exemption was forbidden.

5. It appears that the hardened vegetable oil or product was cleared without payment of duty as it moved under Chapter X procedure in accordance with Notification No. C.E.R. 8(3) 56-C.E. dated 14-1-56. There appears to be no other reason for this clearance without payment of duty. In any case there appears to be no doubt that the Central Excise itself permitted the clearance of the hardened oils free of duty, and the hardened oils were taken with the knowledge of the department to the Garden Reach factory to be made into soap. The Assistant Collector himself says in his order that V.P. with melting point above 45° centigrade was considered to be extra hard V.P. in respect of which Chapter X of the Central Excise Rules, 1944 was fully enforced for all removals. There appears to be no dispute either that the hardened oil was actually used in the manufacture of soap in the second factory.

6. It was urged by the learned counsel for the appellant, Shri Lodha, that the Tribunal had already decided in 1983 E.L.T. 999 (Tata Oil Mills v. Collector of Customs, Bombay) that the finished excisable product was soap and that therefore V.N.E. oil would be eligible to the benefit of the Notification No. 33/63-C.E. He also quoted 1981 E.L.T. 189 (Bombay) (Tata Oil Mill Co. v. Union of India), wherein the Bombay High Court ruled that only vegetable product hardened and fit for consumption would fall under Item 13 of the Central Excise Tariff Act. He maintained that the oil in this case had been hardened to 42° melting point or more and would be totally unfit for human consumption. For human consumption, the maximum permissible melting point should be below 37° centigrade (under V.O.P Control Order vegetable oils can be hardened within a range of 32°C to 37°C). The hardened oil therefore cannot be classed as a vegetable product falling under Item 13 because Item 13 defines vegetable produced as "any vegetable oil or fat which, whether by itself or in admixture with any other substance, has by hydrogenation or any other process been hardened for human consumption". Therefore, if the hardened oil cannot fall under Item 13 as a vegetable product, it must remain as a vegetable-non-essential oil under heading 12 of the Central Excise Tariff. This item itself covers "vegetable non-essential oils" of "all sorts". Therefore, whether hardened or not, a vegetable non-essential oil remains a vegetable non-essential oil unless it is attracted out of the item by another more specific item. Such an event could occur if the oil is hardened just enough to still remain edible and fit for human consumption so as to qualify for assessment under Item 13, but it did not.

7. The learned counsel proceeded to discuss Notification 33/63 to show that the hardened oil does not cease to become assessable under Item 12 as vegetable non-essential oil. One might call it a processed or unprocessed oil. If unprocessed, it would be exempted by virtue of (a); but if one calls it processed it would attract the exemption under (b) because it is known to have been used in the manufacture of soap. The fact that it had been hardened by hydrogenation would not take it away from the category of processed oil.

8. The learned counsel for the department said that there was no record that the appellant had sought exemption under Notification No. 33/63-C.E. from the department at any time. He also said that the finding of the Tribunal in 1983 E.L.T. 999 that hardening by hydrogenation was essential for the purpose of soap making was not correct and that there are soaps like liquid soaps which do not involve hardening of the raw material at any stage. He also referred to "The Wealth of India" (a dictionary of Indian raw materials and industrial product-Part VIII Si Ti published by the Information Directorate, CSIR, New Delhi). At page 63, the volume has a table which shows the consumption pattern of oil and fatty materials in the organised soap making sector. This table shows the raw materials as being coconut oil, and hard oils (tallow, mahua, sal oil, hydrogenated vegetable oil etc., etc.) and soft oils (such as rice bran oil, cusum oil, groundnut oil). He argued that it would not be correct to say that hardened vegetable oil fall under Item 13, 14 or 15. Therefore, the exemption to the raw material is not merited as it is given only when it is used in the production of goods falling in these items. Hardened technical oil, hardened vegetable oil, vegetable tallow, are expressions used interchangeably. The Tribunal in 1983 E.L.T. 1822 held that hardened technical oil with a melting point of 54°C was not fit for human consumption and was classifiable under Hem 68. (We would like to observe, however, that this argument is not of much value because at the period relevant to these cases there was no Item 68 in the tariff). The appellant had not obtained any permission under Rule 56A and thus they are hit by amendment Notification No. 110/65 which require that if the vegetable non-essential oil is moved to another factory for the purpose of manufacture into a specified finished excisable goods, the procedure set out in Rule 56A should be followed. The appellant never raised the point that they are not excisable goods. They themselves had classified them under Item 13. They cannot now say that their goods, i.e. hardened oil, did not fall under Item 13. The exemption notification, therefore, was not available on a number of points and it is not correct to say that the hardened oil/vegetable product was not a finished excisable product. With respect to the Trade Notice by the Nagpur Central Excise Collectorate, the learned counsel for the department said that this was not relevant. The Trade Notice itself referred to different items and particular notifications. Hydrogenation of the oils takes them out of Item 12. He accepted the fact regarding use of the oil but said he had no information in respect of Vegetable Vitamins Food (Appeal No. 2/74-C) case. The learned counsel went on to say that the appellants have challenged Rule 9(2) only now. The appeal represents a belated challenge which should not be accepted. There have been no assessments of vegetable non-essential oil and therefore Rule 9(2) was correctly employed. The appellants now say that vegetable tallow falls outside Item 13, but the item was applied at the appellant's own demand. He further quoted Civil Writ No. 703/68 (Malwa Vanspati v. Union of India). In this decision, that Delhi High Court ruled that Rule 56A must be applied for before it can be availed.

9. The learned counsel for the appellant replied that there have been no violation of Rule 9(1) and there is nothing to prevent the appellant from making submissions regarding Rule 9(2) and its applicability because this is a question of law. He said that the department claims that notification was not sought by the appellants. If that is so, it is not clear how the department was giving it to the appellant for so long till the notice was issued, and it continued to obtain benefit under the notification from 1963. He quoted MANU/SC/0274/1960 : AIR 1961 SC 412 which ruled that despite hydrogenation the oil remained an oil.

10. Much argument has gone into for and against this appeal. We would like to start out with the argument of the department that hydrogenation is not a necessary process in manufacturing soap from vegetable oil. The counsel was unable to produce any authority for this statement. His reference to liquid oil is not apposite because liquid oil is a potassium soap different from the hard sodium soaps that are ordinarily used. The book he referred to, i.e 'The Wealth of India' does not prove what he says and we are not able to see the relevance of this publication to prove that hydrogenation is not a necessary step for making soap from vegetable oils. It is a well-known fact that in these cases and in the overwhelming majority of cases, hydrogenation is an essential step in the process of soap making and we know that this step was undergone in these manufactures. It has been urged by the department also that no permission was obtained under Rule 56A. We are unable to find any explanation for this but we see from the records that the concession went on even after the Notification 110/65 till 9-10-71 when Notification 181 was issued. It was only then that the Central Excise department began to take notice that perhaps the procedure was not correctly observed and that the notification might not be permissible. But it will be noticed from the order of the Assistant Collector that he took action to demand duty only from 9-10-71 and not for any period before that. So it is not necessary for us to go into the question whether the Rule 56(A) permission was obtained or not. We do know that the goods moved under Chapter X procedure and that the hardened oil was manufactured into soap. It was urged by the learned counsel for the department that the appellants had not raised the argument that the hardened oil was not excisable. But we must remember that the demand was on the VNE oil and not on the hardened oil itself. Furthermore, the argument looms large in Vegetable Vitamins' case before the Assistant Collector-it was indeed their main argument. It may be true that they themselves classified the goods under item 13 but since the hardened oil was being cleared free of duty to the second factory for manufacture of soap, it did not matter greatly to them how the product was assessed. So now if they have a point about assessment of the vegetable product, we can see no reason why we should shut it out. It is not as if the new fact has been canvassed and brought about for the first time. It has been conceded that the vegetable tallow falls outside Item 13 and we agree with this completely. Unless the hardened oil is fit for human consumption in the hardened state, it would not be attracted to Item 13, nor would it be attracted to any other tariff at that time. Therefore, the only item in which it can be assessed would be Item 12 as vegetable non-essential oil, which also stipulates that it covers "all sorts" of such oil. We would take this to mean vegetable non-essential oil, whether hardened or not, among other things. Therefore, the vegetable non-essential oil, after hardening, would not attract any duty and cannot therefore be finished excisable goods that have been manufactured and the free clearance of which would disentitle the vegetable non-essential oil from exemption under Notification 33/63.

11. Once we come to this stage, we will see that hydrogenation is no longer an important factor because then we find a vegetable non-essential oil that had been used in the production of soap. This production has not been disputed by anybody. In respect of Vegetable Vitamins (Appeal No. 2/74-C), the counsel for the department is not aware of the fact of actual use in the manufacture of soap. We therefore assume that it was so used as there is no claim to the contrary. The vegetable non-essential oil moving under Chapter X procedure is then known to have been used in the manufacture of soap. The department informed us that there was failure to move the goods under Rule 56A. But this played no part in events that gave rise to the demands; only the issue of Notification 181 and we have seen why this notification will not bar the exemption. It was only the emergence of the hardened oil which the department called a vegetable product and which it thought was assessable under Item 13 that led to the problem. Since it is admitted by the department that the hardening was in excess of that acceptable or permissible for human consumption and that therefore the tallow was no longer fit for such human consumption, the product cannot go to Item 13 but remains vegetable non-essential oil still assessable under Item 12. Therefore, the only conclusion possible now is that the exemption under 33/63-CE was still available even after 9-10-71 as the soap produced is admitted to be dutiable and to have been cleared on payment of duty. Let it be stated again here that the original authorities took their action not for failure to observe Rule 56A or for any other reason but only because the intermediate hardened vegetable oil/vegetable tallow was being cleared free of duty (though they accept the clearances were for soap manufacture) and so they thought that Notification 181/71-C.E. barred the exemption. As a matter of fact, the Asst. Collector narrates in his order dated 25-10-72 that the extra hard V.P. is cleared free of duty to the Garden Reach factory for soap manufacture and that the procedure of Chapter X of the Central Excise Rules, 1944 in terms of the Government of India Notification No. C.E.R. 8(3)56-C.E., dated 14-1-56 is followed. There is not a word of disapproval that the factory had not followed Rule 56A procedure. And he concludes that duty on the processed vegetable non-essential oil should be paid in terms of Notification 181/71-C.E. He never mentions Notification 110/65-C.E., when this law appears on his order, it is only as a part of what the factory said in reply to the show-cause notice. For our part, we cannot quite see how Rule 56A can be utilized when the vegetable non-essential oil is given duty exemption for soap manufacture, which means it sets out free of duty for the soap factory. If it arrives there duty-less, what credit will the soap factory take ? If it arrives there bearing duty, it is not exempted, to say nothing of the fact that the producer of (V.N.E. oil) will not be the receiver of the bounty but the soap producer. There is no difficulty if both factories are owned by the same person but we cannot depend on this being always so. So much for the Rule 56A procedure to be followed.

12. In Vegetable Vitamin appeal, Notification No. 110/65 is mentioned by the Asst. Collector but only as an appendage of Notification No. 33/63-C.E. His conclusion was based entirely on Notification 181/71-C.E .

We allow this appeal.