Holding

Hydrogenated rice bran oil remains essentially a vegetable oil and is classifiable under Tariff Item 12, not Item 68.

Summary

The Collector of Central Excise appealed against the order of the Customs, Excise and Gold (Control) Appellate Tribunal which had held that hydrogenated rice bran oil manufactured by Jayant Oil Mills Pvt. Ltd. fell under Tariff Item 12 of the Central Excise Tariff. The Department argued that the hydrogenation process created a new product, an extra‑hardened oil unfit for human consumption, which should be classified under the residuary Item 68. The Supreme Court examined the nature of the hydrogenation process, noting that while it is a process, it does not necessarily constitute manufacture unless it transforms the article into a new good with a different identity, use or purpose. The Court found that the hardened oil retained the essential character of oil, was used industrially (e.g., in soap making), and its higher melting point did not alter its nature. Consequently, the Court held that the oil is a vegetable non‑essential oil covered by Item 12, not Item 68, and affirmed the Tribunal’s decision. The appeals were dismissed.

Issues considered

Whether hydrogenated rice bran oil constitutes a new product of manufacture or merely a processed form of oil.
Whether the oil should be classified under Tariff Item 12 (vegetable non‑essential oils) or Item 68 (residuary) of the Central Excise Tariff.
Whether the oil’s suitability for human consumption affects its tariff classification.

Legislation cited

Central Excises and Salt Act, 1944s. 35L, s. 36(2)

Subjects

central excisetariff classificationhydrogenated oilrice bran oilItem 12Item 68manufacture vs processindustrial oilsoap making

Judgment

COLLECTOR OF CENTRAL EXCISE, HYDERABAD A
v.
JAYANT OIL MILLS PVT. LTD .
•
MARCH 31, 1989

[SABYASACHI MUKHARJI AND B
S. RATNAVEL PANDIAN, JJ.I

Central Excises and Salt Act, 1944-Sections 36(2) and 35L and
Notification No. 9/60 dated February 20, 1960 hydrogenated rice bran
oil used in manufacture of soap-Assessibility to excise duty Tariff Item
No. 12 or Item No. 68 of Central Excise Tariff
c
The question that arises for determination In the appeals is
whether the hydrogenated rice bran oil manufactured by the Respon-
dents, could, as claimed by them, be classlfted under Tariff Item
No. 12.
D
Respondent herein manufacture hydrogenated rice bran oil,
which is used as raw material In the soap-making and in other
·+. ' industries. The Respondent Died a classification list classifying the said
product under Tariff Item No. 12 and claimed exemption from payment
of excise duty.
E
The Asst!. Collector of Central Excise, who dealt with the matter
held that the said goods was a new product after manufacture, having a
distinct name, character and use and as such It fell under Tariff Item
68-CET and not Item 12. The Respondent preferred an appeal before
the Appellate Collector of Central Excise, Madras. The Appellate
Collector reversed the order of the Asstt. Collector and held that F
hydrogenated rice bran oil is classifiable under Tariff Item 12-CET and
granted the consequential relief. The order of the Collector was con-
I firmed by the Customs, Excise and Gold (Control) Appellate Tribunal.
'I Hence the appeal under Section 35 L of the Central Excises & Salt Act by
'\.
~.. '
. the Department.

Dismissing the appeals, the Court,
G

HELD: Indubitably hydrogenation of rice bran oil is a process.
But all processes need not be manufacture. It must be such a process
which transforms the old articles into goods and changes the Identity,
use and the purpose of use in the goods undergone by the process. By H
291
292 SUPREME COURT REPORTS [1989] 2 S.C.R.
(.

the process of manufacture a new identifiable goods, in the market as ·~
A such must come into being. [295E·Fl

The melting point of the hydrogenated rice bran oil is 45'c and it
is in the nature of extra-hardened vegetable process which is unfit for
human consumption. It was taken to be classifiable under Tariff Item
B 68-CET. [295F]
~

Rice bran oil is extracted out of rice bran by solvent extraction
method. After such extraction rice bran oil obtained is in liquid form.
J
The parties purchase rice bran oil from the market and process it. The ....,,,.
process is as follows. The oil is heated to above 80'C and the impurities
are removed by adding oxalic acid and caustic lye. The purified oil is ~
c then bleached by heating it to 85°C to lOO'C and thereby treating with
fullers earth. The processed oil is then hardened by passing it through --I
hydrogen gas. During, hydrogenation, the oil absorbs two atoms of
hydrogen and the unsaturated fetty acid present in the oil becomes
saturated. The oil is then in a semi-solid condition and its melting
D point is raised to 45°C or more. In the hardened state, the oil looks
like Vanaspati (or vegetable product, to use the Central Excise termi·
nology) but there is a difference in the degree of hydrogenation of the
two. [295H; 296A-C]

In order to differentiate between the edible hydrogenated oils
J:l
E (Vanaspati) and super hydrogenated vegetable oils, the latter are
referred to as extra hardened oil or super hardened oil. [296C-D]

This hardening of oil is necessary for soap-making, otherwise, the
soap, on coming into contract with water is likely to become soggy.
The Respondents use the hardened oil for soap making in their
F factories. Besides its use in soap making, the extra-hardened oil is
also put to various other industrial uses, such as for application as
greases. [296D-E]

It is obvious that hydrogenated oil is nothing but hardened vege-
table oil which would fall within Item 12 CET for the purpose of Central
G Excise duty. [300A]

Item 12 is more specific than Item 68, for all hardened technical
oil not fit for human consumption and as such, would be covered under
this category. l300G I

1:1 Tungabhadara Industries Ltd. v. The Commercial Tax Officer,
COLLECTOR OF CENTRAL EXCISE v. IAYANT MILLS (MUKHARJJ, J.( 293

Kurnool, [1961] 2 S,C.R. 14, followed.
A
Champakla/ v. State of Gujarat, AIR 1980 SC 1889; WP Ltd. and
Anr. v. Union of India & Ors., 11986] 25 ELT 615 (Bom) and Vital &
Vital Oil Pvt. Ltd. v. Collector of Central Excise, Bombay, [1985] 21
ELT 166, referred to.
B
CIVIL.APPELLATE JURISDICTION: Civil Appeal No. 729
of 1983.

From the Judgment aml order dated 20.11.1987 of the Customs
Excise and Gold (Control) AppelMe Tribunal, New Delhi in Appeal
No. F/ANo. 1325/83-0 (Order No. 920/87-0). ·
c
WITH

Civil Appeal No. 2479of1987.

From the Judgment and Order dated 28.2.1986 of the C11stoms o
Excise and Gold (Control) Appell'1te Tribunal, New Delhi in Appeal
No. ED(SB) (T) 155/71-C (Order No. 181/1986-C). .

.J. A.J<, Ganguli, Hemant Sharm'1 and Mrs. Sushm'1 Suri for the
Appellant in C.A. No. 729/88.

-
E
Soli J. Sorabjee for the Appellant in C.A. No. 2479of1987.

Harish N. Salve, Ravinder Narain, p.K. Ram, D.N. Misra and S.
Ganesh for the Respondents.

The Judgment of the Court was delivered by: F

SABYASACHl MUIQIAR,Jl, J, This is an appeal under section
35-L of the Central Excises & Salt Act; 1944 (hereinafter referred to as
'the Act') from the order of the Customs, Excise and Gold (Control)
Appellate Tribunal (hereinafter referred to as 'CEGAT'). The respon-
dent M/s Jayant Oil Mills Pvt. Ltd.; .Hyderabad, manufactures G
hydrogenated rice bran oil which was sold to industrial consumers.
The said hydrogenated rice bran oil is used as raw material in the
manufacture of soap. The respondents, M/s Jayant Oil Mills Pvt. Ltd.
filed a classification list dated 20th May, 1981 in respect of the said
goods classifying the same under Tariff Item 12 for approval and
claimed exemptfon \lnder notification No. 9/60 dated 20th Fe!>ruary, H
294 SUPREME COURT REPORTS [1989] 2 S.C.R.

A 1960. The Assistant Collector of Central Excise, Hyderabad III Divi-
sion by an order dated 16th June, 1981 (held that the hydrogenated
rice bran oil was classifiable under Tariff Item 68 of the Central Excise
Tariff (hereinafter referred to as 'CET), because hydrogenated rice
bran oil is solid at the ordinary temperature and therefore should be
considered as fat and not as oil. The Assistant Collector observed that
a there was one opinion that the said goods could not fall under Tariff
Item 12 as it was unfit for human consumption. The Assistant
Collector observed that the said goods was new product after
manufacture, having a dist.inc! name, character and ·use and as such it
fell under Tariff Item 68-CET. The respondent on the other hand
maintained before the Assistant Collector that the said goods was
semi-solid and still vegetable non-essential oil falling under Tariff Item
c 12-CET.

Being dissatisfied with the order dated 16th June, 1981, the res-
pondent appealed before the Appellate Collector of Central Excise,
Madras. Ry an order dated 30th November, 1981, the Appellate
D Collector held that hydrogenated rice bran oil .is classifiable under
Tariff Item 12-CET and therefore ordered for consequential relief to
the respondent.

The order of the Appellate Collector holding that the said pro-
ducts are classifiable under Item 12-CET had not been reviewed by the
E Central Government under section 36(2) of the Act. The appellate
Collector was therefore of the view that even after the superhardening
or hydrogenation vegetable oil did not cease to be oil even it became
solid.
-
The Central Government, Ministry of Finance, Department of 'r"°
F Revenue, being of the view that the order of the Appellate Collector
was not proper, legal and correct, issued a show cause notice dated
12th May, 1982 to the respondent. The Central Government informed '
the respondents in the show cause notice that it appeared to the Gov-
ernment that the hdyrogenation of rice bran oil is a process of manu-
facture which brings into existence a new product known as hydro-
G genated rice bran oil in commerolal parlance having a distinct name, ,,(.
character and use and this end product would have been classified
under Item 13 had it been fit for human consumption. It was further
observed in the said show cause notice by the Government that as the
melting point of the hdyrogenated rice bran oil is more than 45°C it
was of the nature of extra-hardened, vegetable product which was
H unfit for human consumption and since it was distinct from vegetable
COLLECTOR OF CENTRAL EXCISE v. JAYANT MILLS (MUKHARJI,J.] 295
)._.
non-essential oil it would prima facie be classifiable under the·
A
residuary item 68-CET.

The respondents were, therefore, called upon to show cause as
to why the order of the Appellate Collector should not be set aside and
that of the Assistant Collector restored.
1 ), The matter came up before the CEGAT. The CEGAT noted in
B

·its impugned order that the appeal was concluded by the judgment of
the five member Bench of the Tribunal in the case of M/s Tata Oil
Mills Co. Ltd. (1986 Vol. 24 ELT 290) an!! held that the order dated
30th November, 1981 of the Appellate Collector was correct and dis-
missed the appeal of the appellant.
\--' c
It is nec.essary, therefore, to refer to the order of the CEGAT.
The CEGAT noted that vide order dated 16th June, 1981 the Assistant
Collector classified the hydrogenated rice bran oil manufactured by
the respondents, M/s Jayant Oil Mills Ltd. under Item 68-CET. The
question, therefore, that was urged before this Court was whether the D
CEGAT was in error in holding that the hydrogenated rice bran oil
was a process of manufacture which brought into existence a new
, product, i.e., hydrogenated rice bran oil.

'* Indubitably hydrogenation of rice bran oil is a process. But all

- processes need not be manufacture. It must be such a process which E
transforms the old articles into a goods and changes the identity, use
and the purpose of use of the goods undergone by the process. By the
process which can be considered to be manufacture a new identifiable
good, in the sense known in the market as such must come into being.
But that is one part of the view. It appears, however, that the melting·
point of the hydrogenated rice bran oil is 45°Cand it is in the nature of F
extra-hard\!nPd vegetable process which is unfit for human consump-
;.. tion. It was taken to be classifiable under Tariff Item 68-CET.

Similar are the facts in Civil Appeal No. 2479 of 1987 before us in
the matter of Collector of Central Excise, Madras v. Mis Tata Oil Mills
~ Co. Ltd. There also, the CEGAT allowed the appeal of the respon- G
dents and held that the extra hardened rice bran oil continued to
remain as oil classifiable under Item 12-CET. It is necessary to decide
in both these matters the nature of the product.

Rice bran oil is extracted out of rice bran by solvent extraction
method. After such extraction, rice bran oil obtained is in liquid form. H
296 SUPREME COURT REPORTS [1989] 2 S.CR.

A The parties purchase rice bran oil from the market and process it. The
process is reported to be as follows. The oil is heated to above 80°C
and the impurities are removed by adding exalic acid and caustic lye.
The purified oil is then bleached by heating it to 85°C to 100°C and
thereby treating with fullers earth. The processed oil is then hardened
by passing it through hydrogen gas. During hydrogenation, the oil
B absorbs two atoms of hydrogen and the unsaturated fatty acid present l'-
in the oil becomes saturated. The oil is then in a semi solid condition ),,
and its melting point is raised to 45°C or more. In the hardened state,-
the oil looks like vanaspati (or vegetable product, to use the Central
Excise terminology) but there is a difference in the degree of hydroge-
nation of the two. The melting point of vanaspati, which is commonly
C used as cooking medium, does not exceed 37°C while the melting point f
of hardened rice bran oil in dispute before us is between 45°C-52°C. At -,.
such high melting point, the oils are no longer edible by human-beings. '
In order to differentiate between edible hydrogenated oils (vanaspati)
and super hydrogenated vegetable oils, the latter are referred to as
extra hardened oil or super hardened oil. The record before us shows
D that they are also known as 'vegetable tallow' or 'hard lump' or
'hardened technical oil of industrial hard oil' or just 'hardened oil'.
This hardening of oil is necessary for soap making; otherwise, the
soap, on coming into contact with water, is likely to become soggy. _l
The respondent use the hardened oil for soap making within their !'-
factories. Besides its use in soap making, the extra hardened oil is also

-
E put to various other industrial uses, such as for application as grease.

The dispute started when the appellants filed their classification
list containing the following entry at S. No. 3:

"3. Rice Bran Oil-processed-In barrels-exempted- r
F *33/63-CE dated 1.3.1963 as amended
(*Rule 56A procedure to be followed for outside des-
patches)."

The Assistant Collector approved the classification under item
12 CET (Vegetable non-essential oils, all sorts) with benefit of full
G exemption from duty under notification No. 33/63-CE dated 1st
March, 1963 as claimed by the appellants for soap making. The
Collector, however, was tentatively of the opinion that the Assistant
Collector's order was not correct. In exercise of his power of revision
under the then section 35A of the Act, the Collector called upon the
appellant to, show cause as to why the hardened oil should not be
H subjected to two-stage duty. After hearing the appellants, the
COLLECTOR OF CENTRAL EXCISE v. JAYANT MILLS [MUKHARJI, J.] 297

,.l Collector passed the orders by which he confirmed the two-stage duty. A
Being aggrieved by the Collector's order, the appellants filed a revi-
sion application before the Central Government which, on transfer of
the proceedings to the Tribunal, was transferred to the Tribunal.

The matter was hearo by a three-member Special Bench. It was
I resolved that a larger bench should be constituted and a larger bench B
1 had been constituted. It was noted by the Bench that irrespective of
,~ the fact whether extra hardened rice bran oil produced by the parties
"was classified under Item 12 CET of Item 68 CET, it would remain
fully exempt. Ou behalf of the parties, the respondents herein, it was
argued before the Tribunal that hydrogenation or hardening was a
process in the course of manufacture of a soap. The extra hardened oil
came into existence during soap manufacture at an intermediary stage c
and such oil was not a new product by itself. Secondly;it was urged
that even if the extra hardened oil was considered as a new product, its
I character still remained that of oil. It was the same oil though in a
hardened or semi-solid form. The form was not material as it only
meant that by application of heat at 45°C or more, it would again turn D
into liquid oil. As such, the oil, even in its hardened form, continued
to remain under Item 12 CET as it still was essentially oil only. The
process of hydrogenation was intended to make the oil fit for soap
j.- making. Only that part of hydrogenated oil as was fit for human con-
sumption fell under item 13 (vegetable product); the rest remained
under item 12-"vegetable non-essential oils, all sorts ..... " E

Reference may be made to the decision of this Court in
Tungabhadara Industries Ltd. v. The Commercial Tax Officer,
Kurnool, 1196112 SCR 14. There the appellant purchased groundnuts
out of which it had manufactured groundnuts oil. It also refined the oil
and hydrogenated it converting it into Venaspati. It sold the oil in the F
three states. Under the Madras General Sales Tax Act, 1939, and the
Turnover and Assessment Rules, for determining the taxable turnover
A- the appellant was entitled to deduct the purchase price of the ground-
nuts from the proceeds of the sale of all groundnut oil. The High
_Court, in that case, held that the appellant was entitled to the deduc-
tion in respect of the sales of unrefined and refined groundnut oil but G
"" not in respect of the sales of hydrogenated oil on the ground that the
vanaspati was not "groundnut oil" but a product of gtoundnut oil. This
Court, however, held that appellant was entitled to the deduction in
respect of the sales of hydrogenated groundnut oil also. The hydro-
genated groundnut oil continued to be "groundnut oil", notwithstand-
ing the processing which was merely for the purpose of rendering the H
'
298 SUPREME COURT REPORTS [1989] 2 S.C.R.

A oil more stable. To be groundnut oil two conditions had to be satisfied: ...l
it must be from groundnut and it must be "oil". The hydrogenated oil
was from groundnut and in its essential nature it remained an oil. It
continued to be used for the same purposes as groundnut oil which had
not undergone the process. A liquid state was not an essential
B characteristic of a vegetable oil; the mere fact that hydrogenation
made it semi-solid did not alter its character as an oil. In our opinion, t-
the same principle would be applicable to the facts and the problem \ ·
herein. p

In this connection, reference may be made to the observations of
this Court in Champaklal v. State of Gujarat, AIR 1980 SC 1889
C though it was a criminal case, this Court observed therein that vanas- ~
pati was essentially an oil although it was a different kind of oil than
that oil (be it rapeseed oil, cotton-seed oil, groundnut oil, soyabean oil
or any other oil) which forms its basic ingredient. Oil would remain oil
if it retained its essential properties and merely because it had been
subjected to certain processes would not convert it into a different
'D substance. In other words, although certain additions had been made
to and operations carried out on oil, it would still be classified as oil
unless its essential characteristics had undergone a change so that it
would be misnomer to call it oil as understood in ordinary parlance.
Such change was not supported by the evidence in that law. The Tri- l
bunal found so and it is a question of fact that the hydrogenated rice
E bran oil still remained oil.

On behalf of the interveners, it was further submitted before the
Tribunal that Item 12 CET which dealt with vegetable non-essential
oils, all sorts, was a specific, exhaustive and all pervasive entry and it
continued to cover the extra hardened oil. Our attention was drawn to
F the different degree of hydrogenation.

It may be appropriate to refer to the relevant Items in the First
Schedule to the Central Excise Tariff. Item 12 provides as follows: ~

"12. Vegetable non-essential oils, all sorts, in or in rela-
G tion to the manufacture of which any process is ordi-
v
narily carried on with the aid of power." (

Item 13 provides as follows:

"13. Vegetable Product:
H
COLLECTOR OF CENTRAL EXCISE v. JAYANT MilLS (MUKHARJI, J.] 299

'Vegetable Products' means any vegetable oil or fat A
which, whether by itself 1:>r in admixture with any
other substances, has by hydrogenation or by any
other process been hardened for human consump-
tion.''

The Tribunal, therefore, in our opinion, was right on a cons- B
pectus of the relevant factors in coming to the conclusion that-edible
rice bran oil falling under Tariff Item 12 CE'r would even after extra
hardening continue to fall under Tariff Item 12 and not fall under
Tariff Item 68 because it would be vegetable non-essential oils, all
sorts, in or in relation to the manufacture of which any process is
ordinarily carried on with the aid of power. In that view of the matter, C

)- it would not come within Tariff Item 68. The Tribunal, it appears, to
us, has considered the technical side of it, the manner of its produc-
tion, and in view of the principle laid down by Tungbhadara Industries
Ltd.'s case (supra) which in our opinion was essentially applicable to
the facts of this case. The Tribunal, in our opinion, came to the correct
conclusion. D

Justice Pendse of the Bombay High Court in IVP Ltd. and Anr.
v. Union of India & Ors., [1986] 25 BLT 615 (Born) had occasion to
consider some aspects of this problem. It was held by the learned
Judge that the plain reading of Item 13 CET indicated that the vege-
table products which fell ·under that item must be one for human E
consumption. It was not in dispute in that case that the product manu- ·
factured by the petitioners was used only for the industrial purposes
and not for human consumption and, therefore, Tariff Item 13 could
not be attracted. Whether Tariff Item 12 or Item 68 would be applic-
able to the products manufactured by the petitioners, it is well settled

)
that resort could not be had to the residuary item if the product comes F
within the ambit of any other tariff item. It is, therefore, necessary to
ascertain whether ··Item 12 is applicable for levy of excise duty in
respect of hardened vegetable oil. Tariff Item No. 12 brings in its
sweep "vegetable non-essential oils of all sorts" and the expression
"all sorts" would bring in its ambit hydrogenated oil. There is hardly
any distinction between vegetable oil in liquid form and the hydro- G
genated oil which is hardened with a melting point higher than 41°C.
Apart from the distinction in the physical appearance, there is no
distinction between oil and hydrogenated oil which is well supported
by the decision of this Court in Tungbhadra's case (supra) where this
Court held that several oils are viscous fluids but those do harden and
assume semi-solid condition on the lowering of the temperature. H
I

300 SUPREME COURT REPORTS [1989) 2 S.C.R.

A Therefore, it is obvious that hydrogenated oil is nothing but hardened ~
vegetable oil which would fall within Item 12 CET for the purpose of
central excise duty.

Our attention was drawn to Encyclopaedie Britannica, 1968,
Vol. 19 p. 302 where preparation of rice is indicated. It states as
a follows:

"The Kernel of rice as it leaves the thresher is enclosed by
the hull, or husk and is known as paddy or rough rice.
Rough rice is used for seed and feed for livestock, but most
of it is milled for human consumption by removing the
c hulls. Rice is a good energy food, and is consumed in vast
quantities in the Orient. In the Western Hemisphere, how-
ever, rice is not the staple cereal food, except in certain
Caribbean islands."

Our attention was also drawn to certain obsel'Vations of the Tri-
D bunal in Vital & Vital Oil Pvt. Ltd. v. Collector of Central Excise,
Bombay, [1985) 21 ELT 166 where the Tribunal observed that the
department advocates assessment of hardened technical oil under item
68. This item is only for goods not specified anywhere else. According
to Department, "all other goods not specified elsewhere" is more
specific than "vegetable non-essential oils, all sorts''. But it has to be
E borne in mind that the basic rule of construction is that a more specific
item should be preferred to one less so. It does not take much to see
whether "goods not specified elsewhere" is more specific than "vege-
table non-essential oils" for a product that has an oily nature, is pro-
duced from an oil has the uses of an oil, and indeed looks like an oil,
and is quite commonly accepted and spoken of as an oil and is so
f related to oil, that it has a little or no chemical. lf hydrogenated oil can
harden, so can many oils if subjected to heat. loss (in winter or by
chilling). It appears to us, therefore, that Item 12 is more specific than
Item 68, for all hardened technical oil not fit for human consumption
and such would cover under this category.
G In the aforesaid view of the matter, we are of the opinion that the
Tribunal particularly emphasised that the hardened technical oil is the
same thing as the oil from which it is made. It is clearly akin to the oil
in homologue, a product of scientific modification but unaltered in its
essential character. Therefore, in our opinion, the Tribunal was right
in the conclusion it arrived at.
H
COLLECTOROFCENTRALEXCISEv.JAYANTMILLSIMUKHAR.fl,J.] 301

The Tribunal in both the appeals had taken into consideration all A
relevant and material factors, and market parlance afld borne in mind
the correct legal principles. The decision of the Tribunal, therefore,
cannot.be assailed.

In the premises, as both the appeals deal with the same facts,
B

~
these are dismissed. There will, however, be no order as to costs.

.. Y. Lal Appeals dismissed .

,,.
I

"\

....