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Castrol India Ltd. v. Commissioner Of Central Excise, Calcutta-I .
Factual and Procedural Background
The appellant, Castrol India Ltd., manufactures blended or compounded lubricating oils, including a product marketed as “Super TT.” The manufacturing process involves heating base oils, adding additives, cooling, and mixing with MTO and dye to obtain the final product. Because Super TT has a flash-point below 94 °C, the appellant classified it under Tariff Sub-Heading 2710.99 (“Others”) and cleared it at a nil rate of duty by invoking Exemption Notification 120/84-CE dated 11-5-1984.
The Revenue issued two sets of show-cause notices covering the periods 7-1-1989 – 31-7-1991 and 1-8-1991 – 31-1-1993, demanding a total duty of about ₹1.19 crore and proposing penalties, alleging that Super TT actually fell under Sub-Heading 2710.60 (“Lubricating oils” having flash-point above 94 °C) and that the exemption was therefore unavailable. Adjudication orders confirmed the demands.
The assessee filed two appeals before the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT). A division bench of the Tribunal delivered conflicting opinions: the Judicial Member allowed the appeals, whereas the Technical Member dismissed them. A third Member agreed with the Technical Member; therefore, by majority, CEGAT upheld the Revenue’s demands. Castrol India Ltd. appealed to the Supreme Court.
Legal Issues Presented
- Whether Exemption Notification 120/84-CE, which exempts “blended or compounded lubricating oils,” applies to lubricating oils having a flash-point below 94 °C that are classifiable under Sub-Heading 2710.99.
- Whether the Tribunal was correct in invoking the extended period of limitation on the ground of alleged suppression or mis-declaration by the assessee.
Arguments of the Parties
Appellant’s Arguments
- Notification 120/84-CE grants exemption to all blended or compounded lubricating oils without referring to any tariff sub-heading; hence it covers Super TT irrespective of its flash-point or classification.
- The expression “that is to say” in Sub-Heading 2710.60 limits, rather than defines exhaustively, the scope of that entry; oils outside the description fall under the residuary Sub-Heading 2710.99 yet remain “lubricating oils.”
- All relevant classification lists had been approved by the Department extending the benefit of the notification; therefore, there was no suppression, and the extended limitation period could not be invoked.
Respondent’s (Revenue) Arguments
- Exemption notifications must be strictly construed; because “lubricating oil” is defined under Sub-Heading 2710.60, only products falling within that entry can claim the exemption.
- By describing Super TT as qualifying for Notification 120/84-CE while it was not classifiable under 2710.60, the assessee showed mala fides, justifying invocation of the extended limitation period.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Collector of Customs v. Maestro Motors Ltd., (2004) 174 ELT 289 (SC) | Exemption notifications must be interpreted according to their plain language; goods are to be assessed for notification purposes as described, even if tariff classification differs. | Applied to support that Notification 120/84-CE, which contains no tariff reference, exempts all blended lubricating oils regardless of sub-heading. |
| Bharat Petroleum Corp. Ltd. v. CCE, (2003) 154 ELT 698 (CEGAT) | CEGAT decision adopting the same view as the Tribunal’s minority opinion in the present case. | Cited to show administrative consistency; the Revenue had not challenged this view. |
| Stukeley v. Butler (1614) Hob. | Meaning of the phrase “that is to say.” | Quoted via Stroud’s Judicial Dictionary to clarify that the expression is descriptive and restrictive. |
| State of T.N. v. Pyare Lal Malhotra, (1976) 1 SCC 834 | Interpretation of “that is to say” in statutory entries. | Reinforced restrictive reading of Sub-Heading 2710.60. |
| Mahindra Engg. & Chemical Products Ltd. v. Union of India, (1992) 1 SCC 727 | Same principle regarding “that is to say.” | Relied on for interpretative support. |
| Sait Rikhaji Furtarnal v. State of A.P., 1991 Supp (1) SCC 202 | Same interpretative principle. | Relied on for interpretative support. |
| R. Dalmia v. CIT, (1977) 2 SCC 467 | Interpretation of words of limitation in taxing statutes. | Relied on for interpretative support. |
| CST v. Popular Trading Co., (2000) 5 SCC 511 | “That is to say” is descriptive, enumerative, and exhaustive. | Used to emphasise that Sub-Heading 2710.60 does not exhaust the universe of lubricating oils. |
Court's Reasoning and Analysis
The Supreme Court noted that Notification 120/84-CE exempts blended or compounded lubricating oils “from the whole of the duty of excise” without referring to any tariff entry. By virtue of Section 5-A(4) of the Central Excise Act, 1944, the notification continued in force after the 1986 tariff restructuring.
Analysing Sub-Heading 2710.60, the Court emphasised two textual elements:
- “That is to say” – a restrictive phrase limiting, not expanding, the scope of the sub-heading.
- “Excluding” – an explicit carve-out for oils with flash-point below 94 °C.
The presence of an exclusion clause demonstrated that lubricating oils outside Sub-Heading 2710.60 (i.e. those with flash-point below 94 °C) remain lubricating oils, falling under the residuary Sub-Heading 2710.99. Therefore, the Tribunal’s majority erred in concluding that such products “cease to be lubricating oils.”
Relying on Maestro Motors, the Court reiterated that when a notification’s language is unambiguous, classification for notification purposes follows that language, not the tariff heading. Since Notification 120/84-CE refers generically to blended or compounded lubricating oils, Super TT satisfied the notification and was entitled to full exemption, irrespective of its tariff sub-heading.
The Court also observed that CEGAT itself had accepted this view in other unchallenged decisions, demonstrating consistency in administrative interpretation.
Holding and Implications
Appeals Allowed – CEGAT’s majority decision is set aside; the minority view stands confirmed.
Consequently, Super TT is entitled to the benefit of Notification 120/84-CE, and the duty demands and penalties raised against Castrol India Ltd. are unsustainable. The ruling clarifies that exemption notifications couched in generic terms apply to all goods meeting the description, even if they fall under a residuary tariff heading, thereby reinforcing principles of literal interpretation of fiscal exemptions. No broader precedent was expressly created beyond this interpretative clarification.
Arijit Pasayat, J.— The appellant calls in question legality of the judgment rendered by the Customs, Excise and Gold (Control) Appellate Tribunal, Calcutta (in short “CEGAT”). Initially there was a difference of opinion between two members i.e Technical Member and the Judicial Member and the matter was referred to a third member. The third member agreed with the Technical Member and by majority the decision went against the appellant assessee. The judgment is reported as Castrol India Ltd. v. CCE (2000) 123 ELT 789 (cegat).
2. The factual position in a nutshell is as follows:
The appellant is engaged, inter alia, in the manufacture of blended or compounded lubricating oils. It also processes a product called “Super TT” which the appellant claimed to be a blended lubricating oil ordinarily used for lubrication. The undisputed process of manufacture of the said product as stated by the appellant is as under:
“Base oils are taken to the blending kettle, heated to remove moisture. Additives are added and mixed well. Temperature reduced and MTO and green dye added and mixed well, to get the final product.”
3. Admittedly, the flashpoint of “Super TT” is below 94°C. Therefore, the appellant assessee claimed that the same is not classifiable under Sub-Heading 2710.60 of the tariff under the Excise Tariff Act, 1985 (in short “the Tariff Act”) as the same covers lubricating oils having flashpoint more than 94°C. As such, the product was claimed to be classifiable as “others” under Sub-Heading 2710.99 The Revenue disputed the position and held that the benefit of Exemption Notification No. 120/84-CE dated 11-5-1984 is applicable only to the lubricating oils falling under Sub-Heading 2710.60, as there is no other heading for lubricating oil in the Tariff Act. The appellant's stand was that the said exemption notification extends the benefit to all types of lubricating oils, irrespective of their classification. As its product is admittedly a lubricating oil, the scope of the notification cannot be restricted to the lubricating oils falling under a particular tariff entry.
4. Two show-cause notices issued related to demand of duty against the assessee in respect of their blended “Super TT” which was cleared at “nil” rate of duty during different periods. The said notices culminated in two different orders whereby proposed amount of duty and personal penalty were confirmed. The dates of show-cause notices, the period involved, the duty demanded and the penalty demanded are as follows:
Sl. No. Date of show-cause notice Period involved Demand of duty Penalty 1. (a) 29-1-1992 1-8-1991 to 31-12-1991 Rs 20,46,994.23 Nil (b) 3-8-1992 1-1-1992 to 29-2-1992 Rs 10,77,390.00 Nil (c) 1-10-1992 1-3-1992 to 31-8-1992 Rs 19,96,362.88 Nil (d) 25-2-1993 1-9-1992 to 31-1-1993 Rs 19,83,411.76 Nil Total Rs 71,04,158.87 2. 28-1-1994 7-1-1989 to 31-7-1991 Rs 47,59,343.40 Rs 30 lakhs
5. The assessee preferred two appeals before CEGAT. It was submitted that for a long time exemption notification dated 16-3-1976 in relation to Item 11-B and the rate of duty was nil was held applicable to it. Entry 11-B was repealed in the year 1984 and it became a part of Item 68. Thereafter Notification No. 120/84 covered the field and the same notification continued up to 1994. In between the Tariff Act was introduced which introduced a new tariff in Chapter 27 w.e.f 1-3-1986 under the Tariff Act. Section 5-A(4) of the Central Excise Act, 1944 (in short “the Act”) all along held the field. Originally Item 11-B was a part of the First Schedule of the Act. Prior to introduction of Section 5-A(4) in the Act w.e.f 19-5-1988 Rule 8 of the Central Excise Rules, 1944 (in short “the Rules”) provided for exemption. Notification No. 120/84-CE was issued on 11-5-1984 when the earlier excise tariff was a part of the First Schedule of the Act. The said notification exempted blended and compounded lubricating oils i.e lubricating oils obtained by straight blending of mineral oils or by blending or compounding of mineral oils with other ingredients. The said exemption was granted without reference to any tariff item under which such blended and compounded lubricating oils were classified. The new excise tariff contained in the Tariff Act came into force w.e.f February 1986. Under that tariff, blended or compounded lubricating oils with flashpoint above 94°C were classifiable under Sub-Heading 2710.60 and other lubricating oils along with other petroleum products were classified under Chapter Sub-Heading 2710.99 which was a residuary entry. Exemption Notification No. 120/84-CE continued unamended till it was rescinded by Notification No. 64/94-CE dated 1-3-1994. Three classification lists were filed by the appellant which were operative from 1-4-1986, 5-5-1996 and 1-3-1998. All these classification lists were approved by the Assistant Commissioner by extending the benefit of Notification No. 120/84. The classification list dated 18-3-1988 was operative for the relevant period under dispute. Since product was having flashpoint below 94°C, therefore, there was no question of any suppression as alleged by the Department. It was further submitted that the notices were issued after prescribed period of limitation.
6. The appellant assessee's stand was resisted by the Revenue on the ground that the appellant assessee had given description of its product to claim benefit under Notification No. 120/84-CE. Its product was not classifiable under Sub-Heading 2710.60 Wrong claiming of benefit establishes mala fide intention and, therefore, the extended period of limitation was rightly invoked by the Department. There is specific and unambiguous definition of lubricating oil under Chapter Sub-Heading 2710.60 of Chapter 27. Chapter Heading 27.10 covers a number of petroleum products and each category is further covered under a separate sub-heading. Sub-Heading 60 covers lubricating oil and there is no other sub-heading covering lubricating oils. When the exemption notification granted exemption it necessarily means that lubricating oil falling under the said sub-heading alone was covered.
7. While the Judicial Member accepted the stand of the appellant assessee, the Technical Member took the view that for the purpose of Exemption Notification No. 120/84-CE lubricating oil with flashpoint below 94°C ceases to be lubricating oil as it acquires general description “others” under Sub-Heading 2710.99 Therefore, the Department's view was accepted. With similar observations the third member concurred with the Member (Technical) and upheld the Department's stand.
8. In support of the appeal, Mr Joseph Vellapally, learned Senior Counsel submitted that the two members constituting the majority lost sight of the fact that there may be lubricating oils having flashpoint (sic below) 94°C which may be classified under Tariff Sub-Heading 2710.99 as “others”. The view of the majority that “lubricating oil” has been defined in a particular manner under Sub-Heading 2710.60 is apparently erroneous.
9. In response, Mr Mohan Parasaran, learned Additional Solicitor General submitted that the exemption notification has to be strictly construed and the view taken by the majority of the members is on a proper reading of the various provisions and the notifications.
10. It would be relevant to take note of the entries and relevant notifications at different points of time. The notification dated 16-3-1976 reads as follows:
“The Central Government has exempted the excisable goods of the description in column (3) of the Table below and falling under the item of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944), specified in the corresponding entries in column (2) of the said Table, from so much of the duty of excise leviable thereon under Section 3 of the said Act as is in excess of the duty leviable at the rates specified in the corresponding entries in column (4) of the said Table:
S. No. Item No. Description Rate of duty (1) (2) (3) (4) 6 11-B Blended or compounded lubricating oils and greases. Nil.”
Notification dated 11-5-1984 reads as follows:
“Blended or compounded lubricating oils and greases — 120/84-CE dated 11-5-1984
Blended or compounded lubricating oils and greases are fully exempt from basic excise duty.
G.S.R 354(E).—In exercise of the powers conferred by sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts blended or compounded lubricating oils and greases, that is to say lubricating oils and greases obtained by straight blending of mineral oils or by blending or compounding of mineral oils with any other ingredients, from the whole of the duty of excise leviable thereon under Section 3 of the Central Excises and Salt Act, 1944 (1 of 1944).
Explanation.—The expression ‘mineral oil’ has the meaning assigned to it in Explanation I to Item 6 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944).”
Entry 11-B reads as follows:
“11-B. Blended or compounded lubricating oils and greases.— ‘Blended or compounded lubricating oils and greases’ means lubricating oils and greases obtained by straight blending of mineral oils, or by blending or compounding of mineral oils with any other ingredients.
Explanation.—The expression ‘mineral oil’ has the meaning assigned to it in Explanation I of Item 6.”
Chapter 27 so far as relevant for the purpose of the present dispute contains Sub-Headings 2710.60 and 2710.99 which read as follows:
“2710.60 Lubricating oil, that is to say, any oil as is ordinarily used for lubrication, excluding any hydrocarbon oil which has its flashpoint below 94°C.
2710.99 Others.”
11. In Collector of Customs v. Maestro Motors Ltd. (2004) 174 ELT 289 (SC) this Court held as follows:
“It is settled law that to avail the benefit of a notification a party must comply with all the conditions of the notification. Further, a notification has to be interpreted in terms of its language. If in the notification exemption is granted with reference to tariff items in the First Schedule to the Customs Tariff Act, 1975, then the same rules of interpretation must apply. In that case the goods will be classified, even for the purposes of the notification, as they are classified for purposes of payment of customs duty. But where the language is plain and clear, effect must be given to it. In this notification what is exempted is components, including components of fuel-efficient motor cars in semi-knocked-down packs and completely-knocked-down packs. Undoubtedly, for purposes of levy of customs duty, by virtue of Interpretative Rule 2(a), the components in a completely-knocked-down pack would be considered to be cars. But in view of the clear language of the notification the components including components in completely-knocked-down packs are exempted. Effect must be given to the wording of the notification. Thus components in completely-knocked-down packs would get the exemption under this notification, even though for purposes of classification they may be considered to be cars.”
12. Section 5-A(4) of the Act reads as under:
“5-A. (4) Every notification issued under sub-rule (1), and every order made under sub-rule (2) of Rule 8 of the Central Excise Rules, 1944, and in force immediately before the commencement of the Customs and Central Excises Laws (Amendment) Act, 1987 shall be deemed to have been issued or made under the provisions of this section and shall continue to have the same force and effect after such commencement until it is amended, varied, rescinded or superseded under the provisions of this section.”
(emphasis supplied)
13. Undisputedly in the present case there was no reference to any tariff entry in the notification. Therefore, the majority view is clearly unsustainable. Additionally, we find that CEGAT had in some other cases taken the same view as the minority view. It is fairly accepted by learned Additional Solicitor General that there has been no challenge to the said decisions one of which is Bharat Petroleum Corpn. Ltd. v. CCE (2003) 154 ELT 698 (cegat) decided on 30-10-2002.
14. Exemption Notification No. 120/84-CE dated 11-5-1984, in view of what is prescribed in Section 5-A(4) of the Act, continued to be operative and effective as it was not amended, varied, rescinded or superseded under the provisions of Section 5-A of the Act.
15. In Stroud's Judicial Dictionary, 4th Edn., Vol. 5 at p. 2753, we find:
“ ‘That is to say’ is the commencement of an ancillary clause which explains the meaning of the principal clause. It has the following properties: (1) it must not be contrary to the principal clause; (2) it must neither increase nor diminish it; (3) but where the principal clause is general in terms it may restrict it; see this explained with many examples, Stukeley v. Butler (1614) Hob;”
The quotation, given above, from Stroud's Judicial Dictionary shows that, ordinarily, the expression “that is to say” is employed to make clear and fix the meaning of what is to be explained or defined. Such words are not used as a rule, to amplify a meaning while removing a possible doubt for which purpose the word “includes” is generally employed. In unusual cases, depending upon the context of the words “that is to say”, this expression may be followed by illustrative instances. (See State of T.N v. Pyare Lal Malhotra (1976) 1 SCC 834, Mahindra Engg. and Chemical Products Ltd. v. Union of India (1992) 1 SCC 727, Sait Rikhaji Furtarnal v. State of A.P 1991 Supp (1) SCC 202 and R. Dalmia v. CIT (1977) 2 SCC 467.)
16. The expression “that is to say” is descriptive, enumerative and exhaustive and circumscribes to a great extent the scope of the entry. (See CST v. Popular Trading Co. (2000) 5 SCC 511)
17. The expression “that is to say” in Sub-Heading 2710.60 has to be interpreted to be words of limitation. The fact that Sub-Heading 2710.60 contains an exclusion clause goes to show that there may be other lubricating oils which may fall in the residuary heading “others”.
18. Sub-Heading 2710.60 significantly uses two expressions. They are (i) “that is to say”, and (ii) “excluding”. The first expression is used in descriptive, enumerative and exhaustive sense and to a great extent circumscribes the scope of the entry. But the second expression dilutes the pervasiveness by carving out an exception for the purpose of the particular sub-heading a particular type of lubricating oil. All other types of lubricating oil are covered by the residuary entry i.e 2710.99
19. Under Notification No. 120/84-CE lubricating oil was exempted without reference to any tariff heading/sub-heading. Consequently, the criteria specified in the notification were satisfied. That being so, majority view contained in the order of CEGAT is not sustainable and is set aside. The minority view as expressed is confirmed.
20. The appeals are allowed with no order as to costs.
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