2022 (8) TMI 163 - AT - Central Excise

Process amounting to manufacture or not - conversion of waste oil/used oil/sludge obtained from various sources into reclaimed fuel oil / re-refining used oil amounts - classifiable under Central Excise Tariff Sub-heading No. 27101990 or classifiable under Chapter heading 27109900 as claimed by the Appellant? - Time Limitation - suppression of facts or not - HELD THAT - The basic fact that is not disputed is that the Appellant purchasing waste/ sludge oil from vessels and other sources. This is sold as waste oil/sludge oil and is purchased by the appellant also as waste oil /sludge oil. For removing impurities from said waste oil Appellant undertake various processes. The processing undertaken by the appellant is inform of filtering distillation dehydration centrifuging etc. The entire tenor of the Adjudicating Authority while confirming the demands is only on the ground that the used oil which was unfit for use as fuel Oil were made fit for use by the appellant by refining or reprocessing the same and hence characteristic and the use has changed. Due to which Chapter Note No. 4 of Chapter 27 gets attracted and the said activity becomes manufacture. It is observed that the purifying of the sludge/used oil would not amount to manufacture. Manufacture implies a change but every change is not manufacture. The Apex Court in the landmark decision in the case of UNION OF INDIA VERSUS DELHI CLOTH AND GENERAL MILLS CO. LTD. 1962 (10) TMI 1 - SUPREME COURT held that The word manufacture used as a verb is generally understood to mean as bringing into existence a new substance however minor in consequence the change may be. The true test for determining whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognized in trade as a new and distinct commodity. In the present case the appellant bring used waste oil /sludge oil and by removing impurities it is made again useable as oil. Both before and after the processing the product remains as only oil. That being so it cannot be said that a new and distinct commodity has come into existence consequent to the process undertaken by the appellant. From Circular dated 11-4-2016 it can be held that the process of cleaning of waste oil to yield reclaimed fuel oil does not amount to manufacture as defined under Section 2(f) of the Central Excise Act 1944. Once it is held that the activity is not manufacture all he demands including duty interest penalties and personal penalty in the impugned shall not sustain on merit. Extended period of Limitation - suppression of facts or not - HELD THAT - The department was aware of the Appellant s activity in respect of Waste Oil/ Sludge/Used Oil. The Appellant have not suppressed anything from the department. It is also noticed that CBEC vide circular No. 1024/12/2006-CX dated 11.04.2006 also instructed that the issue is interpretational in nature and therefore where a demand is raised pursuant to this circular it should be raised for normal period of limitation only. SSI benefit where admissible should be extended . Therefore in this fact the demand confirmed by the Ld. Commissioner invoking the extended period legally not sustainable and the same is set aside on limitation too. Appeal allowed - decided in favor of appellant.

Summary

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.