Vegetable Waste Oil and Dry Wax from Edible Oil Refining Classified as Waste, Exempt from Excise Duty: CESTAT [Read Order]

The Chennai Bench of Customs,Excise and Service Tax Appellate tribunal ( CESTAT ) ruled that vegetable waste oil and dry wax generated during the refining of edible oils are classified as waste and are exempt from excise duty.

S.V. Sivalinga Nadar & Sons,appellant-assessee,refined crude vegetable oil into edible oils under the brand name “SVS.” It was exempt from duty under Notification No. 3/2006-CE dated March 1, 2006, until March 16, 2012, and later under Notification No. 12/2012 dated March 17, 2012. The Department claimed that by-products like “Vegetable Waste Oil/Soap Stock” and “Wax Gum (dry wax/fly ash),” sold to customers, were dutiable as they were marketable commodities and not discarded as waste.

A Show Cause Notice (SCN) dated April 16, 2014, demanded ₹17,39,557 in duty for the period from April 2008 to December 2012, along with interest and a penalty. Two more SCNs sought ₹2,93,450 and ₹4,31,780 for January 2013 to July 2013 and August 2013 to March 2014, respectively.

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The adjudicating authority confirmed the demands and imposed a ₹17,91,473 penalty. The assessee appealed, but the lower appellate authority upheld the decision while granting cum-duty benefit.

The assessee appealed before the tribunal.

The tribunal examined the dutiability of "Vegetable Waste Oil / Soap Stock" and "Wax Gum (dry wax / fly ash)" arising during the manufacture of refined edible oil. The assessee argued that soap stock was waste, not a by-product, and claimed exemption under Notification No. 89/95-CE, dated May 18, 1995. It also sought exemption under Notification No. 8/2003-CE, asserting that its turnover was within the prescribed SSI limits during the disputed period.

The appellate tribunal referred to conflicting judgments. In CCE, Hyderabad v. Priyanka Refineries Ltd., it held that soap stock was waste and not excisable, even if it had market value. The Supreme Court later affirmed this decision. However, in CCE, Jalandhar v. A.G. Fats Ltd., the tribunal ruled that soap stock, fatty acids, waxes, and gums were by-products with marketability, making them excisable. This decision was also upheld by the Supreme Court.

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In Maheshwari Solvent Extraction Ltd. v. Commissioner of C.Ex., Nagpur, the bench addressed conflicting decisions by its coordinate benches. It held that in cases of conflicting judgments, the one accurately stating the law should prevail. It concluded that waste with some value could be treated as excisable goods, while waste of no value would not attract duty. It also cited the Supreme Court's ruling in Babu Parasu Kaikadi v. Babu, applying the per incuriam principle, and held that the A.G. Fats ruling was not in line with the exemption notification's intent. The It allowed the appeals with consequential relief.

In Ricela Health Foods Ltd. v. C.C.E., Chandigarh, the Larger Bench ruled that by-products like gums, waxes, and fatty acid distillate were waste arising during the refining process and were not excisable, even if they had market value. The Supreme Court later affirmed this decision.

In Kissan Fats Ltd. v. Commissioner of Central Excise, Chandigarh-II, the tribunal followed the Ricela Health Foods Ltd. ruling, holding that waste, gums, waxes, and fatty acids from vegetable oil manufacturing were not excisable and were eligible for exemption under Notification No. 89/95-CE.

The two member bench comprising Ajayan T.V(Judicial Member) and Vasa Seshagiri Rao(Technical Member) concluded that the assessee, engaged in refining edible oils fully exempt from duty, was eligible for exemption as it did not produce any other dutiable final products.

To Read the full text of the Order CLICK HERE

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