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2022 (8) TMI 163 - AT - Central Excise


ISSUES PRESENTED and CONSIDERED

The core legal issue in this case is whether the process of converting waste oil/used oil/sludge into reclaimed fuel oil/re-refined used oil constitutes "manufacture" under Section 2(f) of the Central Excise Act, 1944, thus attracting Central Excise Duty under the Central Excise Tariff Sub-heading No. 27101990, as claimed by the department, or if it should be classified under Chapter heading 27109900, as claimed by the Appellant.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework revolves around the definition of "manufacture" under Section 2(f) of the Central Excise Act, 1944. The Appellant relied on precedents such as the Mineral Oil Corporation case and others, where it was held that processes like filtering, heating, and distillation do not constitute manufacture if the end product remains the same as the starting material, i.e., oil.

Court's Interpretation and Reasoning

The Tribunal considered whether the processes undertaken by the Appellant resulted in a new and distinct commodity. The Court emphasized that "manufacture" implies a change, but not every change amounts to manufacture. The test is whether the commodity subjected to the process can no longer be regarded as the original commodity but is recognized as a new and distinct commodity in trade. In this case, the Tribunal found that the product remained oil before and after processing, and thus, no new commodity was created.

Key Evidence and Findings

The Appellant undertook processes such as filtering, distillation, and centrifuging to remove impurities from waste oil. The Tribunal noted that these processes did not alter the fundamental nature of the oil, which remained oil throughout. The Tribunal also considered the Chemical Examiner's test reports, which confirmed that the processed oil met the parameters of fuel oil and lubricating oil, but this did not imply manufacture.

Application of Law to Facts

The Tribunal applied the legal definition of manufacture and relevant precedents to the facts, concluding that the processes undertaken by the Appellant did not result in a new product. The Tribunal referenced the Supreme Court's decision in the Delhi Cloth and General Mills Co. Ltd. case, which defined manufacture as bringing into existence a new substance.

Treatment of Competing Arguments

The Tribunal addressed the department's reliance on Chapter Note 4 of Chapter 27, which was not invoked in the show cause notice. The Tribunal found that the processes listed in Chapter Note 4, such as labeling or repacking, were not applicable to the Appellant's activities. The Tribunal also considered the Appellant's argument regarding the extended period of limitation, agreeing that the department was aware of the Appellant's activities and had previously accepted that no excise duty was payable.

Conclusions

The Tribunal concluded that the processes undertaken by the Appellant did not constitute manufacture under Section 2(f) of the Central Excise Act, 1944. Consequently, the demand for excise duty, interest, and penalties was not sustainable.

SIGNIFICANT HOLDINGS

The Tribunal held that the conversion of waste oil into reclaimed fuel oil does not amount to manufacture, as no new and distinct commodity is created. The Tribunal emphasized that the product remained oil throughout the process, and thus, the activity did not attract excise duty.

Core Principles Established

The Tribunal reinforced the principle that not every change constitutes manufacture. The true test is whether the commodity subjected to the process becomes a new and distinct commodity recognized in trade.

Final Determinations on Each Issue

The Tribunal determined that the processes undertaken by the Appellant did not constitute manufacture, and therefore, the demand for excise duty, interest, and penalties was set aside. The Tribunal also found that the extended period of limitation was not applicable, as the department was aware of the Appellant's activities and had accepted their non-excisable nature in the past.

 

 

 

 

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