Tata Oil Mills Company Limited vs Union of India

The Petitioner is a manufacturer of Vanaspathy and other edible oils. One of the goods imported by the Petitioner was Palmolein. On the import

of Palmolein consignments additional duty u/s 3(1) of the Customs Tariff Act was levied and collected. The Petitioner after paying the amount

under protest filed refund applications. The Assistant Collector by his order 150/64-C.E., dated 24-8-1978 held that only palm oil is exempted

and not Palmolein and, therefore, refund cannot be granted. This order of the Assistant Collector was confirmed on appeal by the appellate

Collector of Customs, Madras. The Petitioner''s revision petitions to the Government were not successful and they were rejected by a common

order dated 1-5-1981. W.P. No. 798 of 1982 was filed for quashing the order of the Government dated 1-5-1981 while W.P. No. 799 of 1982

has been filed for a declaration that the explanation to Section 3(1) of the Customs Tariff Act of 1975 is unconstitutional.

Learned Counsel for the Petitioner states that in view of the decision of the Supreme Court in Khandelwal Metal and Engineering Works and

Another Vs. Union of India (UOI) and Others, the points raised by him regarding the validity of the explanation to Section 3(1) of the Customs

Tariff Act cannot be seriously urged, but requests that the point may be taken as argued so that if and when any occasion arises the Petitioner can

pursue his attack on the validity of the explanation to Section 3(1) of the Customs Tariff Act.

Section 3 of the Customs Tariff Act reads as follows :-

Levy of additional duty equal to excise duty : (1) Any article which is imported into India shall, in addition be liable to a duty (hereafter in this

Section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India

and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable

shall be calculated at that percentage of the value of the imported article.

The expression in the explanation to this Section ""the excise duty for the time being leviable on alike article if produced or manufactured in

India."" means the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India, or, if a like

article is not so produced or manufactured, which would be leviable on the class or description of articles to which the imported article belongs,

and where such duty is liable at different rates, the highest duty. Learned counsel traced the history of Section 3 of the Customs Tariff Act and

states that the additional levy under that Section is popularly known as countervailing duty and is imposed in order to protect the indigenous

production and to safeguard against foreign competition. A local manufacturer has to suffer excise duty; whereas the importer has to pay only the

customs duty and if the cost of production of the imported item in the foreign country is lower than that of a similarly produced indigenous item,

imported item may be available at a cheaper rate in the local market which would be to the ruination of indigenous production. Consequently to

protect the indigenous production, the countervailing duty on imported items is levied u/s 3 of the Customs Tariff Act, the rate of duty being

equivalent to the excise duty leviable on a similarly produced local item.

The Contention of the learned counsel is that since Palmolein is not locally produced no corresponding excise duty is leviable and, therefore, no

additional duty u/s 3 of the Customs Tariff Act which is equivalent to the excise duty leviable on a like article can be imposed or collected.

The Supreme Court has held in Khandelwal Metal and Engineering Works and Another Vs. Union of India (UOI) and Others, that the

additional duty mentioned in Section 3(1) of the Customs Tariff Act is not in the nature of countervailing duty. The contention advanced in that case

was that Section 3(1) of the Customs Tariff Act is the charging Section. Repelling that, the court held that Section 3(1) of the Customs Tariff Act,

the not an independent charging section and the charging section is only Section 12 of the Customs Act. It was also held that for the purposes of

levying additional duty, the taxable event is not the manufacture of the goods. u/s 3(1) of the Customs Tariff Act, the excise duty for the time being

leviable on a like article if produced or manufactured in India is only the measure of the duty leviable on the imported articles. While referring to the

explanation to Section 3 of the Customs Tariff Act, it was held that the explanation furnishes a dictionary for the interpretation of Section 3(1) of

the Customs Tariff Act and it provides a clue to its understanding.

Since the premise on which the learned counsel for the Petitioner advanced his argument that the levy u/s 3 of the Customs Tariff Act is in the

nature of a countervailing duty has not been accepted by the Supreme Court, the attack on the validity of the explanation to Section 3 of the

Customs Tariff Act based on a similar contention would fail. Consequently, W.P. No. 799 of 1982 is dismissed.

The contention of the learned counsel for the Petitioner in W.P. No. 798 of 1982 requires stating of a few facts for the disposal of this case.

Section 12 of the Customs Act which is the charging Section states that duties of Customs shall be levied at such rates as may be specified in the

Customs Tariff Act on goods imported into or exported from India. Section 25 of the Customs Act enables the Central Government by notification

to grant exemption generally or subject to such conditions as may be specified in the notification of any goods from the whole or any part of duty of

customs leviable thereon. Section 2 of the Customs Tariff Act states that the rates at which duties of customs shall be levied under the Customs

Act 1962, are specified in the First and Second Schedules. Section 3(1) and the explanation thereunder of the Customs Tariff Act which are

necessary for the purposes of this case have already been extracted. The Petitioner had paid the additional duty on the imported palmolein under

protest and field refund applications which are not favourably considered by the Assistant Collector, on appeal by the Collector and on further

revision by the Government. The learned counsel for the Petitioner relies on Notification No. 150/64-C.E., dated 19-9-1964 which reads as

follows :-

In exercise of the powers conferred by Rule 8(1) of the Central Excise Rules, 1944, the Central Government hereby exempts palm oil from the

payment of the whole of the excise duty leviable thereon"".

The import in the instant case was during the period from 26-1-1977 to 13-12-1978. It is not in dispute that during this period Notification No.

150/64-C.E., dated 19-9-1964 was in force. It is petitioner''s contention that palmolein imported by them is nothing but palm oil or species of

palm oil and it would not be correct to treat palmolein as different or distinct from palm oil. If palmolein imported by them is treated as Palm oil

then under Notification No. 150/64-C.E., dated 19-9-1964 no excise duty is leviable with the result the additional duty contemplated u/s 3 of the

Customs Tariff Act would not also be attracted. In Saigal Industries Vs. Central Board of Excise and Customs and Another, when dealing with the

prayer for a writ of mandamus for refund of the countervailing duty collected by the Petitioner, after extracting Section 2A of the Indian Tariff Act,

1934 corresponding to Section 3 of the Customs Tariff Act, 1975 it was held ""it is not necessary to extract the other clauses in the Section, as the

levy was not in pursuance of any other Central Government notification, it may be seen from this provision that in order to attract the liability for

payment of countervailing duty, an excise duty shall be leviable on like article, if produced or manufactured in India. If no excise duty was payable

on a like article if produced or manufactured in India, no countervailing duty also would be payable."" In M.R.F. Limited Vs. Union of India and

Others, it was held that,

Hence, there must be an excise duty for the time being in force and which is leviable on the goods then only there could be the levy of additional

duty u/s 3(1) of the Act. If no excise duty is in force and could be levied on the goods, then there is no question of the levy of additional duty u/s

3(1) of the Act. When there is no excise duty in force and leviable on the goods, by virtue of the exemption notifications, if it is not possible to

bring in a fiction that the goods is amenable and liable for levy of excise duty and the exemption notification have only suspended such levy and on

that basis there could be levy of additional duty u/s 3(1) of the Act, When the very measure for the additional duty is not available, it would be

doing violence to the express language and implications of Section 3(1) of the Act, and the explanation thereto, as construed by the Supreme

Court, to work out the additional levy on the fictional basis.

These two judgments are clear authority for the proposition that if excise duty is not actually levied by reason of an exemption granted by the

Government, then the corresponding liability for payment of an additional duty u/s 3(1) of the Customs Tariff Act does not also arise.

Learned counsel for the respondents submits that the exemption notification, namely, 150/64-C.E., dated 19-9-1964 granted exemption only in

respect of palm oil and not Palmolein and, therefore, the petitioner is liable to pay the additional customs duty u/s 3 of the Customs Tariff Act. The

learned counsel for the Petitioner on the contrary contends that palmolein and palm oil are not two distinct or different goods but if there is

exemption granted in .....of palm oil it would equally apply to palmolein. These rival contentions lead to the crucial question as to whether palm oil

and palmolein can be considered as not distinct from each other.

Learned counsel for the Petitioner states that palmolein is only derivative from palm oil. In the affidavit filed in support of the writ petition, it is

stated that palm oil and palmolein are not two different products, and both are edible oils. There is no new item manufactured when palmolein is

obtained by fraction. Palm oil is derived by the process of extraction of the fleshy mesocrap of the fruits of the oil palm tree. This Palm oil is then

subjected to a process of fractional crystallisation by which stearin is removed from palm oil, so that oil is rendered more digestiable and

acceptable to the consumer. This is known as palmolein. Refined, bleached and deodorised palmolein may be obtained by fractional crystallisation

of RBD palm oil or by refining, bleaching and deodorising the palmolein. The fractionation is only a physical process and there is no chemical

change in the product as a result of the fractionation process. Fractionation does not render the palm oil any the less palm oil. The Petitioner has

given the chemical composition of palmolein and palm oil and states that only in iodine value, melting point and cloud point there is a difference

palmolein and palm oil and the difference in the iodine value is incidental and inconsequential. In addition to these averments found in the affidavit of

the Petitioner it is also submitted by the counsel for the Petitioner that in the import control policy for the period April 1978 to March 1979 the

relevant entry reads as palm oil excluding palmolein. It is the contention of the Petitioner''s counsel that if palmolein was not included within the

meaning of the word palm oil, there would have been no necessity to expressly exclude palmolein. He refers to a notification issued by the Ministry

of Commerce dated 17-1-1977 where palm oil was described as one of the items which was allowed import for direct human consumption. By

another notification dated 24-1-1977 the same Ministry clarified that import of palm oil will also cover import of palmolein. He further refers to

Notification No. 42-Cus, dated 1-3-1979 under which the Government had granted exemption from the whole of additional duty leviable u/s 3 of

the Customs Tariff Act both for palm oil and palmolein. Learned counsel relies upon these three circumstances, namely, the import policy, the

notifications issued by the Ministry of Commerce and the exemption granted under the Customs Tariff Act by notification dated 1-3-1979 to state

that the Central Government itself had been treating palm oil and palmolein as falling within the same class of goods.

Learned counsel for the Petitioner then refers to a judgment of the Supreme Court in Tungabhadra Industries Ltd. Vs. The Commercial Tax

Officer, Kurnool, . In that case, the Supreme Court had to consider the question as to whether the exemption granted to groundnut oil would be

available to hydrogenated oil popularly known as Vanaspati. The Supreme Court held that in hydrogenation, oil absorbs two atoms of hydrogen

and that there an inter-molecular change in the content of the substance, but that would not be decisive of the matter. They posed the question as

to whether hydrogenated oil continues even after the change as ""Groundnut Oil"". In answering this question, the Supreme Court held that to be

groundnut oil two conditions have to be satisfied : (1) The oil in question must be from groundnut; and (2) The commodity must be oil. The

hydrogenated oil sold by the appellants was out of groundnut not being in dispute, the only point is whether it continues to be oil even after

hydrogenation. Oil is a chemical compound of glycerine with fatty acids, or rather a glyceride of a mixture of fatty acids - principally oleic, linoleic,

stearic and palmitic, the proportion of the particular fat varying in the case of the oil from different oil-seeds and it remains a glyceride of fatty acids

even after the hardening process, though the relative proportion of the different types of fatty acids undergoes a slight change. In its essential nature

therefore no change has occurred and it remains an oil-a glyceride of fatty acids-that it was when it issued out of the press.

In this view the Supreme Court held that the Petitioner therein was entitled to the benefit of Rule 18(2) under which an abatement was

provided in respect of groundnut purchased by the manufacturer for extracting oil therefrom. Rule 18(1) reads as follows :-

Any dealer who manufactured groundnut oil and cake from groundnut and or kernel purchased by him may, on application to the assessing

authority having jurisdiction over the area in which he carries on his business, be registered as a manufacturer of groundnut oil and cake.

Rule 18(2) reads as follows :

Every such registered manufacturer of groundnut oil will be entitled to a deduction under C1. (k) of sub-rule (1) of R. 5 equal to the value of the

groundnut and/or kernel, purchased by him and converted into oil and cake if he has paid the tax to the State on such purchases.

The petitioner in Tungabhadra Industries Ltd. Vs. The Commercial Tax Officer, Kurnool, was manufacturer of groundnut oil/raw, refined and

hydrogenated. He claimed exemption under Rule 18(2) of the Rules in respect of raw groundnut oil, refined groundnut oil and hydrogenated

groundnut oil manufactured by him. His claim was allowed only in respect of raw and refined groundnut oil and not for hydrogenated oil. When the

matter came up before the Supreme Court, it was held that by hydrogenation groundnut oil does not cease to be groundnut oil and, therefore, the

benefit under Rule 18(2) is available to hydrogenated groundnut oil also. Learned counsel for the Petitioner states that on a similar reasoning it

should be held in the present case that palmolein being a product of fractionation of palm oil by which stearin is removed from palm oil so that the

oil is rendered more fit and digestible palm oil does not cease to be palm oil when palmolein results by fractionation. Learned counsel also relies

upon a judgment of the Andhra Pradesh High Court in State of A.P. v. Sri Durga Hardware Stores (A.P.) - 1973 (32) S.T.C. 322, and a decision

of this Court in Pyarelal Malhotra v. Joint Comml. Tax Officer - 1970 (26) S.T.C. 416, to contend that no manufacturing process is involved when

galvanised sheets are made out of iron and steel and M.S. rounds and flats would continue to have the benefit of being described as iron and steel

notwithstanding the change in shape and size. Hence he contends that palmolein and palm oil being identical products, the exemption Notification

No. 150/64-C.E., dated 19-9-1964 would come to the aid of the petitioner and not additional duty is payable u/s 3 of the Customs Tariff Act.

Learned Counsel for the respondents submits that no one of the contentions of the Petitioner has any validity. He says that palmolein and palm oil

are two different commodities, having distinct trade names. It is only by a chemical process palm oil is converted into palmolein. The common use

of the two products are also not identical. He commends on the other reasons given in the order of the Government in rejecting the claim for

refund. He submits that the decision in Tungabhadra Industries Ltd. Vs. The Commercial Tax Officer, Kurnool, , State of A.P. v. Sri Durga

Hardware Stores (A.P.) - 1973 (32) S.T.C. 322, and Pyarelal Malhotra v. Joint Comml. Tax Officer - 1970 (26) S.T.C. 416 were all cases

under the Sales Tax Act and those cases were not concerned with the question now arising for decision in this case. He submits that the exemption

Notification No. 150/64-C.E., dated 19-9-1964 covers only palm oil and not palmolein and, therefore, the petitioner is not entitled to any refund.

The sheet anchor of the case of the Petitioner is that palm oil and palmolein are not two different or distinct commodities, that palmolein is only

a derivative from palm oil, and, therefore, if exemption was granted to palm oil that exemption should be extended and applied to palmolein also.

The above contention was urged by the petitioner before the Government, in the revision filed by the petitioner. The Government held that

palmolein is produced by fractionation. Fractionation is a manufacturing process undertaken with the aid of power as a result of which a

manufactured product distinct from palm oil comes into being. In the market this product is separately known as palmolein which is distinct from

palm oil. The Government refers to the ISI specification for these two products, namely, palmolein and palm oil and stated that two different

standards are prescribed. Their Chemical properties vary particularly in respect of iodine value. The physical appearance of these two products is

not the same in that in palmolein the solid portion in palm oil which is known as Stearin is separated and taken away by the process of

fractionation. They finally referred to the fact that in the trade these two products are quoted indented, invoiced and marketed under two different

names.

None of the above averments in the order of the Government is controverted on behalf of petitioner. It is admitted that palmolein is produced

by fractionation; that the iodine value is different, physical appearance is different; Stearin is not found in palmolein, and in the trade they are

separately quoted and marketed. It is also not in dispute that it was only for the first time in the year 1979 by Notification No. 42 Cus., dated 1-3-

1979 apart from granting an exemption of the whole of the additional duty in respect of palm oil, a similar exemption was granted in respect of

palmolein. It would, therefore, follow that the Government had been treating palmolein and palm oil as two different and distinct commodities. If

the contentions of the learned counsel for the Petitioner are to be accepted, that by virtue of Notification No. 150/64-C.E., dated 19-9-1964 there

is an exemption in respect of palmolein also in payment of additional duty, there would be no need or necessity to issue Notification No. 42-Cus.,

dated 1-3-1979.

15A. The Judgment of the Supreme Court in Tungabhadra Industries Ltd. Vs. The Commercial Tax Officer, Kurnool, which has already been

referred to, related to a case where the benefit under Rule 18(2) of the Rules made under the Sales Tax Act was claimed on the plea that

Vanaspati is also a species of groundnut oil and the Supreme Court held that the word ""Groundnut Oil"" would include within its scope oil made out

of groundnut whether refined or hydrogenated. Hydrogenated groundnut oil known in the market is Vanaspati was, therefore, held to be entitled to

the benefit of Rule 18(2) of the Rules. The question that arises for consideration in this case, namely, as to whether in producing the resultant

product palmolein out of palm oil any manufacturing process is involved or not and whether by reason of the different specifications prescribed for

the two products, both can rightly be described as one and the same goods, etc., did not arise for consideration in the case before the Supreme

Court and consequently, the said judgment is of no assistance to the Petitioner, namely, Pyarelal Malhotra v. Joint Comml. Tax Officer - 1970 (26)

S.T.C. 416 and State of A.P. v. Sri Durga Hardware Stores (A.P.) - 1973 (32) S.T.C. 322 have not decided the point that arise in these writ

petitions and all that was decided there was whether galvanised sheet and or M.S. flats and rounds would continue to fall under the item iron and

steel for the purpose of Sales Tax. Hence, these two judgments are also of no assistance to the petitioner.

Item No. 12 of the First Schedule to the Central Excises and Salt Act describes the entry as follows : Item 12 vegetable no-essential oils - All

sorts, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power. The rate of duty - Rs. 100/- per

metric tonne. It was by virtue of the exemption granted in favour of palm oil under Notification No. 150/64-C.E., dated 19-9-1964 manufacture of

palm oil was granted exemption from the payment of the whole of the duty of excise which would otherwise be leviable thereon. The Notification is

very specific and it exempts only palm oil. There is no similar exemption granted in favour of palmolein, since palm oil and palm oil. There is no

similar exemption granted in favour of palmolein, since palm oil and palmolein have already been held to be not identical and because exemption

Notification No. 150/64-C.E., dated 19-9-1964 covers only palm oil, it follows that the levy u/s 3 of the Customs Tariff Act of an additional duty

is well-founded in respect of palmolein.

Before parting with this case, it is necessary to refer to the judgment of this Court in Appraiser, Madras Customs Vs. Tamil Nadu Newsprint

Papers Ltd., on which learned counsel for the Petitioner placed reliance to contend that in a fiscal law the interpretation should be in favour of the

tax-payer and not in favour of the revenue whenever two views are possible. But the same judgment is the authority for the position that this Rule

of interpretation will apply only if there is an ambiguity in the language. If the concerned provision is clear enough, it is be given its plain meaning,

and there is no question of its being interpreted in favour of the tax payer when there is no ambiguity in the language. In the instant case also, for the

reasons already stated, there is no ambiguity in interpreting the exemption Notification No : 150/69 [This should read No. 150/64-CE]-C.E.,

dated 19-9-1964 and also in holding that palmolein and palm oil are two different commodities. Hence, there are no merits in the Writ Petition and

the same is dismissed. No Costs.