COMMISSIONER OF CENTRAL EXCISE Vs. GOYAL PROTEINS LTD

JUDGEMENT

(1.) THIS Central excise appeal under section 35G of the Central Excise Act, 1944 has been preferred by the appellant -Revenue assailing the order of the Customs, Excise and Service Tax Appellate Tribunal dated May 27, 2008 passed in Excise Appeal No. 1920 of 2006. The brief facts, which are necessary for disposal of the instant appeal, are that the respondent -assessee is a unit manufacturing refined vegetable oil through solvent extraction method. During this process, "de -oiled cake (DOC) and gum" are generated as a by -product. The process is that the oil seeds, viz., soyabean seeds and mustard are first cleaned and the foreign matters are removed by the passing through magnetic field. The cleaned seeds are cooked with steam and then crushed to form thin flakes. These flakes are again passed through the extruder/expander to make the flakes into collets. The collets are then conveyed to extractor and solvent hexane is sprayed on it in counter current direction. As hexane comes into contact with the meal, the oil get dissolved and separated out with solvent. The de -oiled meal containing about 30 per cent. solvent is sent to drying and toasting in desolventiser -cum -toaster. Dried and toastered meal is called de -oiled cake (DOC) which is ready for bagging and dispatch. The solvent containing oil is called micelle which is treated at various steps to recover solvent. Solvent free oil is called solvent extraction oil or crude oil. It is non -edible and sent to refinery for refining. Further refining of vegetable oil consists of number of steps called degumming, neutralisation, bleaching deodorization, etc. During the processes of degumming crude vegetable oil is treated with phosphoric acid at 60 degree centigrade and then fed to centrifuge machine to separate out the gummy matters. To neutralise the degummed oil it is then treated with caustic soda. The fatty acids present in the degummed oil reacts with caustic soda and gets separated as soap of heavier phase and oil is separated as lighter oil phase. These heavier soap phase and lighter oil phase are fed to the centrifuge continuously for separation. The soap phase is fed to acid oil section and reached with citric and phosphoric acid for recovery of by -product in neutral oil phase. The neutral oil obtained in this process of neutralisation is dried in vacuum drier for further processing. The colour of neutral oil is reduced up to consumer acceptable level in the process of bleaching, therein neutral oil is treated with bleaching earth and activated carbon and then filtered into clean clear bleach oil. The bleach oil has unpleasant odour which is not accepted for consumption. Therefore, in the process of deodorization the odoriferous material present in the oil is removed with steam distillation. The deodorized oil is cooled and filtered and the final oil is odourless tasteless and ready for packing.

(2.) IT is claimed by the adjudicating authority that during the process of refining, the assessee is availing of Cenvat credit on number of inputs, namely, hexane, caustic soda phosphoric acid, etc., de -oiled cake (DOC) and gum manufactured in factories of solvent extraction industries is exempt from payment of the Central excise duty under Notification No. 115/1975 -CE, dated April 30, 1975, the benefit of which the assessee is also claiming. However, the adjudicating authority was of the view that rule 6(2) of the erstwhile Cenvat Credit Rules, 2002 and rule 6(2) of the Cenvat Credit Rules, 2004 did not permit the assessee to avail of such input credit. It is the claim of the adjudicating authority that the assessee was manufacturing both dutiable as well as exempted goods but was not maintaining separate account for receipt, consumption and inventory of inputs meant for use in the manufacture of dutiable final products and the quantity of inputs intended for use in the manufacture of exempted goods. Accordingly, the adjudicating authority was of the opinion that under rule 6(3) of the Cenvat Credit Rules, 2002, they should have cleared the de -oiled cake and gum by reversing an amount equal to eight per cent of the price, and according to rule 6(3)(b) of the Cenvat Credit Rules, 2004 they should have cleared the de -oiled cake and gum by reversing an amount equal to ten per cent, of the price excluding sales tax and other taxes, if any, paid on the such goods from their Cenvat credit at the time of their clearance. It was the claim of the adjudicating authority that during the period from April 30, 2003 to September 9, 2004, the assessee had cleared 78,698.990 M.T. of de -oiled cake valued at Rs. 76,14,20,334 and 1.000 M.T. of gum valued Rs. 3,269 generated during the refining of crude vegetable oil without reversing an amount equal to eight per cent. of the price at the time of their clearance from the factory. The claim of the adjudicating authority was also that subsequently also, this happened under different periods and accordingly, was of the view that the respondent -assessee had contravened the provisions of rules 4, 6, 8, 10 and 12 of the Central Excise Rules, 2002 and rule 6 of the erstwhile Cenvat Credit Rules, 2002 and rule 6 of the Cenvat Credit Rules, 2004. Accordingly, a show -cause notice was issued and it was observed in the show -cause notice that an amount of Rs. 8,84,29,478 was recoverable from the assessee in terms of rule 12 of the erstwhile Cenvat Credit Rules, 2002 and rule 14 of the Cenvat Credit Rules, 2004 read with section 11A of the Central Excise Act, 1944 and so also the interest. It was observed that the assessee had suppressed the figures of production, clearance and value of clearance of de -oiled cake (DOC) and gum in their monthly ER -1 returns and had also suppressed the fact that they had used Cenvatable inputs in the exempted goods.

(3.) HOWEVER , the adjudicating authority was not satisfied with the explanation offered and vide order dated March 7, 2006 held the assessee liable to duty equal to 8 to 10 per cent. according to the datas for the period April 30, 2003 to November 30, 2004 and December 1, 2004 to February 28, 2005 and also imposed recovery to the extent of Rs. 8,84,29,478, the penalty under rule 13(2) was also levied. Further penalty of Rs. 40,00,000 was also imposed on the assessee under rule 25 of the Central Excise Rules, 2002. Interest was also directed to be levied accordingly.