Import of Crude Palm Oil which is not used exclusively for manufacture of soap or Industrial Fatty Acid not eligible for exemption: SC [Read Judgment]

Supreme Court - excise-duty - taxscan

In a recent ruling, the division bench of Supreme Court observed that, Crude Palm Oil (non-edible grade) which is not used exclusively for manufacture of soap or Industrial Fatty Acid not eligible for exemption

The assessee M/S Gujarat Ambuja Exports Limited is registered with Kadi Division of the Central Excise and engaged in the manufacture of refined edible oil along with other similar products. 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 30.04.1975.

The assessee claimed that they are entitled to avail the benefit of Notification No. 21/2002-Cus dated 01.03.2002 read with Notification No. 66/2004-Cus dated 09.07.2004 for import of crude palm oil (non-edible grade) which is not used in the manufacture of Industrial Fatty Acid whereas the assessee is using the same for manufacturing the refined edible oil. As per the said notification, crude oil (non-edible oil) could be imported by paying customs duty @20% only when the said crude oil is to be used in the manufacture of soap or Industrial Fatty Acid.

The Department, however, denied the above claim of the assessee by observing that the Palm Fatty Acid Distillate (PFAD) manufactured by the assessee was not Industrial Fatty Acid; and 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. Accordingly, an order was passed against the assessee by imposing penalty along with interest.

On appeal, the adjudicating authority confirmed the above demand by holding that the assessee did not fulfill the conditions contained in the exemption notification.On further appeal, the Tribunal accepted the contentions raised by the assessee and held that as per HSN Explanatory Notes, the fatty acids distillate are also covered by the said chapter and, therefore, benefit of the notification was available to the assessee. Being aggrieved by the said order the Department preferred an appeal before the Supreme Court.

The division bench comprising of Justice A K Sikri and Justice N V Ramana has accepted the contention of the Revenue that present case is not a case for classification of goods but relates to the admissibility of exemption notification.

The Court also found that the impugned notification stipulates the following conditions to avail exemption. Firstly, goods should be other than edible grade which means this entry exempts non-edible goods. Secondly, such goods should be having Free Fatty Acid 20% or more falling under chapter heading mentioned therein which includes 1511. Thirdly, such goods should be used for the manufacture of soaps, industrial fatty acids and fatty alcohol. And lastly, this entry further stipulates that it has to satisfy Condition No. 5 mentioned in Annexure to the said notification which states that “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.”

In view of the above findings, the division bench held that the assessee does not satisfy the above conditions since crude palm oil which was imported was used for making edible products like refined oil/Vanaspati.

Read the full text of the Judgment below.