NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD.versusCOLLECTOR OF CENTRAL EXCISE, BOMBAY

      NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD.                                  A
                                     v.
          COLLECTOR OF CENTRAL EXCISE, BOMBAY

                            JANUARY 6, 1997

         [S.P. BHARUCHA AND K. VANKATASWAMI, JJ.]                                B

      Excise Law: Central Excises and Salt Act, 1944: Items 11-AA(2) and
68.

      Ethylene, butylene and propylene-Delived not directly from cmde            C
petroleum but from raw naphtha-Held: such products were covered by Item
11-AA (2) and not residumy Item 68--0rdinmy mean.i.ug has to be given to
words "derbled from" occurring therein-Trade Notice dated 24. n. 1!)84--Ex-
emption Notification dated 21.12.1967.

      Words and Phrases:
                                                                                 D
     "Delived from''-Meaning of-Jn the context of Item 11-AA(2) in
Schedule I to Central Excises anJ! Salt Act, 1944.

      The appellants were a refinery, recognised to be such by the Union of
India and manufactured ethylene, butylene and propylene. The Customs, E
Excise and Gold (Control) Appellate Tribunal held that the said products
were not excisable under Item 11-AA(2) but under the residuary Item 68.
Hence this appeal.

       On behalf of the appellants it was contended thAf the said products
fell within Item ll-AA(2) of the Excise Tariff and that the appellants were      p
entitled to the benefit of an Exemption Notification issued in respect of that
Item on 21-12-1967.

      On behalf of the respondent-Revenue it was contended, basing on a
Trade Notice dated 24.11.1984, that the said products were manufactured
from raw naphtha and, therefore, were not classifiable under Item ll-AA(2) G
but under the residuary item 68.

      Allowing the appeal, this Court

      HELD : 1.1. The dictionaries state that the word "derive" is usually
followed by the word "from", and it means get or trace from a source: arise H
                                      1
    2                     SUPREME COURT REPORTS                  [1997) 1 S.C.R.

A   from; originate in; show the origin or formation of. [5-E]

          1.2. The use of the words 'derived from' in Item 11-AA(2) in Schedule
    I to Central Excises and Salt Act, 1944 suggests that the original source of
    the produce has to be found. Thus, as ;;. matter of plain English, when it is
    said that one word is derived from another, often in another language, what
B   is meant is that the source of that word is another word, often in another
    language. That is the ordinary meaning of the words 'derived from' and
    there is no reason to depart from that ordinary meaning here. [5-F]

          1.3. Crude petroleum is refined to produce raw naphtha. Raw naph-
    tha is further refinea, or cracked, to produce ethylene, butylene and
C   propylene. It makes no difference that the appellants buy the raw naphtha
    from others. The question is to 1'.Je judged regardless of that. The refining
    of crude petroleum produces various products at different stages. Raw
    naphtha is one such stage. The further refining, or cracking, of raw naphtha
    results in the said products. The source of the said products is crude
D   petroleum. The said products must, therefore, be held to have been derived
    from crude petroleum. The Customs, Excise and Gold (Control) Appellate
    Tribunal erred in holding that the said products were not excisable under
    Item ll-AA(2) but under the residuary Item 68. [5-G-H, 6-A, 4-B]

         The Tata Oil Mills Co. Ltd. v. Collector of Central Excise, (1989) 43
E   ELT 183 (SC) and Nav Bharat Industries (P) Ltd. v. Collector of Customs,
    Madras, (1983) ELT 1134, referred to.

            CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3828 of
    1990.

F        . From the Judgment and Order dated 15.5.90 of the Customs, Excise
    and Gold (Control), Appellate Tribunal, New Delhi in A. No. E/3521 of
    of 1987-C and E/Cross/339/87-C (F.O. No. 496/90-C).

            Soli J. Sorabjee, Ravindra Narian, D. Shroff, Ms. Amrita Mitra and
G Amit Bansal for the Appellants.
            J. Vellapally and R.P. Srivastava for the Respondent.

            The Judgment of the Court was delivered by

H           BHARUCHA, J. The proper construction of the words "derived from"
         N.O.C. INDUSTRIES LTD. v. C.O.C.E. [BHARUCHA, J.]                3

will determine this appeal against a judgment and order of the Customs, A
Excise & Gold (Control) Appellate Tribunal.

      The appellants are a refinery, recognised to be such by the Union of
India. They manufacture ethylene, butylene and propylene ("the said
products"). It is their contention that the said products fall within Item     B
llAA of the Excise Tariff and that they are entitled to the benefit of an
Exemption Notification issued in respect of that Item on 21st December,
1967, as amended from time to time, under Rule 8 of the Central Excise
Rules. The Revenue contends, basing itself on a Trade Notice dated 24th
November, 1984, that the said products are manufactured from raw naph-
tha and, therefore, are not classifiable under Item llAA but under the         C
residuary Item 68.

      Item llAA deals with petroleum gases. Sub-item 2 thereof, which is
relevant, reads thus :

        "Other petroleum gases and gaseous hydrocarbons derived frofli D
        refining of crude petroleum or shale." (Emphasis supplied)
                                                             \

      The said Exemption Notification applies to goods falling, inter alia,
under Item llAA if they are "produced in any premises (other than the
premises wherein refining of crude petroleum or shale or blending of           E
non-duty paid petroleum. products is carried on) declared under sub-rule
(2) of rule 140 of the Central Excise Rules, 1944, to be a refinery". If the
said products are held to fall under Item llAA, the said Exemption
Notification, it is not in dispute, will apply.

      The Tribunal noted the argument on behalf of the Revenue that the F
said products were "not derived directly from refining crude petroleum.
Refining of crude petroleum means the first product obtained by refining
of crude petroleum. The products in dispute in this case are derived from
cracking raw naphtha" which was obtained by the appellants from the oil
refineries. The Tariff Advice upon which the Revenue sought to change G
the classification of the said products from Item 11AA(2) to Item 68 took
the ground that the said products were not "derived directly" from crude
petroleum. The Tribunal stated that the point for decision was whether,
for the purpose of classification under Item 11AA(2), a product should be
derived directly from the refining of crude petroleum. Relying on a judg- H
    4                    SUPREME COURT REPORTS                 (1997] 1 S.C.R.

A   ment of the Gujarat High Court, it held that for a product to be excisable
    under that Item it "must be the immediate result of refining of crude
    petroleum". The said products were not derived directly from the crude
    petroleum but were obtained from raw naphtha purchased from oil
    refineries. Accordingly, the Tribunal accepted the contention of the
B   Revenue that the said products were not excisable under the said Item but
    under the residuary Item 68.

        Learned. counsel for the appellants placed reliance upon the judg-
  ment of this Court in The Tata Oils Mills Co. Ltd. v. Collector of Central
  Excise, (1989) 43 E.L.T. 183 (S.C.). The question before this Court related ·
c to an Exemption Notification; it exempted "soap as is· made from in-
  digenous rice bran oil or from a mixture of such oil with any other oils"
  from a certain part of the excise duty leviable thereon. This Court held that
  the requirement of the notification was that the soap manufacture
  should be from rice bran oil as contrasted with other types of oil. That
D was the ordinary meaning of the words used. The words might be
  construed literally, but they had to be given their fullest amplitude and
  interpreted in . the context of the process of soap manufacture. There
  were no words in the notification to restrict it only to cases where rice
  bran oil was directly used in the factory claiming exemption and to
E exclude cases where soap was made by using rice bran fatty acid derived
  from rice bran oil. The whole purpose and object of the notification was
  to encourage the utilisation of rice bran oil in the process of manufac-
  ture of soap in preference to various other kinds of oil used in such
  manufacture a'nd this should not be defeated by an unduly narrow
F interpretation of the language of the notification even when it was clear
  that r.ice bran oil could be used for manufacfure of soap only after its
   conversion into fatty acid or hydrogenated oil.

        Learned counsel submitted that the aforesaid judgment applied to
G the facts of this case. It made no difference that the raw naphtha was
  procured by the appellants from other factories. The point was that the
  said products were derived from the refining of crude petroleum, and
  raw naphtha was an inter-mediate product in such refining.

H         Learned counsel drew attention to the judgment of the Gujarat High
           N.O.C. INDUSlRIES LTD. v. C.0.C.E. [BHARUCHA,J.]                  5

Court, upon which the Tribunal had relied Nav Bharat Industries (P) Ltd. A
v. Collector of Customs, Madras, (1983) E.L.T. 1134. Upon the assumption
contended on behalf of the Revenue that processed oil ceased to bear the
character of lubricating oil and became a new chemical compound, it was
 .
there observed that the product derived from refining crude petroleum
would be covered by Item llA, but if a different commodity was produced B
or made by subjecting the "products derived from refining of crude
petroleum" to a process, it would not fall within the plain language of Item
11-A (now Item llAA). Learned counsel submitted that the raw naphtha,
produced from refining crnde petroleum, was not subjected by the appel-
lants to a process to produce the said F1roducts. The said products were C
the result of further refining.

        Learned counsel for the Revenue submitted that the raw naphtha was
 a separate commercial commodity. It was the raw material from which the
 finished product, that is, the said products, was manufactured by the
 appellants. It could not therefore, be said in a commercial sense that the D
 said products had been derived from crude petroleum.

       The dictionaries state that the word "derive" is usually followed by
 the word "from", and it means : get or trace from a source; arise from,
 originate in; show the origin or formation of.                             E
         The use of the words "derived from" in Item 11AA(2) suggests that
  the original source of the product has to be found. Thus, as a matter of
  plain English, when it is said that one word is derived from another, often
  in another language, what is meant is that the source of that word is another
  word, often in another language. As an illustration, the word "democracy"
                                                                                  F
  is derived from the Greek word "demos", the people, and most dictionaries
. will so state. That is the ordinary meaning of the words "derived from" and
  there is no reason to depart from that ordinary meaning here.

       Crude petroleum is refined to produce raw naphtha. Raw naphtha is G
further refined, or cracked, to produce the said products. This is not
controverted. It seems to us to make no difference that the appellants buy
the raw naphtha from others. The question is to be judged regardless of
this, and the question is whether the intervention of the raw naphtha would
justify the finding that the said products are not "derived from refining of H
    6                       SUPREME COURT REPORTS                [1997] 1 S.C.R.

A crude petroleum". The refining of crude petroleum produces various               !-
    products at" different stages. Raw naphtha is one such stage. The further
    refining, or cracking, of raw naphtha results in the said products. The
    source of the said products is crude petroleum. The said products must,
    therefore, be held to have been derived from crude petroleum.
B         The judgment of the Tribunal is erroneous on the. basic question
    before it, and it is, therefore, not necessary for us to consider the aspect
    of limitation.

             The appeal is allowed and the judgment and order under appeal is
C set aside.
             No order as to costs.

    v.s.s.                                                      appeal allowed.