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2017 (5) TMI 183 - DELHI HIGH COURT

2017 (5) TMI 183 - DELHI HIGH COURT - TMI - Manufacture - Whether the process to which old tyres are subject to produce two or more pieces of cut tyre is ‘manufacture’ within the meaning of Section 2 (f) of the Central Excise Act, 1944? - Held that: - Even where an entire unit is set up for the purposes of converting old and used tyres into pieces of cut tyres, the essential character remains the same. Used tyres and tubes remain as such even after they are cut into pieces. They do not undergo a .....

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heir marketability does not arise - The process to which old tyres are subject to produce two or more pieces of cut tyre is not ‘manufacture’ within the meaning of Section 2 (f) of the CE Act. - Whether the decision of this Court in Modi Rubber Limited v. Union of India [1986 (12) TMI 41 - HIGH COURT OF DELHI AT NEW DELHI] requires to be reconsidered? - Held that: - There can be no manner of doubt that by referring to the decision of Modi Rubber Limited v. Union of India and thereafter comin .....

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through any process of manufacture, therefore, it cannot be subjected to levy of excise duty. - The decision of this Court in Modi Rubber Limited v. Union of India does not require to be reconsidered. - Petition allowed - decided in favor of petitioner. - W.P. (C) 1268/2015 & CM APPL. 2251/2015 - Dated:- 3-5-2017 - MR. S. RAVINDRA BHAT DR. S. MURALIDHAR & MR. VIBHU BAKHRU Petitioner Through: Mr. V. Lakshmikumaran with Mr. Abhishek Anand, Ms. L. Charanya Lakshmikumaran, Mr. Aditya Bhatta .....

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eaning of Section 2 (f) of the Central Excise Act, 1944? and (b) In the above context, whether the decision of this Court in Modi Rubber Limited v. Union of India 1987 (29) ELT 502 (Del) requires to be reconsidered? Background 2. This petition, under Article 226 of the Constitution of India, by Tinna Rubber & Infrastructure Limited questions the validity of a clarification dated 2nd January 2015 issued by the Tax Research Unit ( TRU ) of the Department of Revenue, Ministry of Finance to the .....

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s reach a stage where they can no longer be used for automobiles, they are sold to scrap dealers, who then sell them to processors. The old tyres are thereafter recycled. One beneficial way to recycle the tyres is to mix crumb rubber with bitumen to make Crumb Rubber Modified Bitumen ( CRMB ). It is stated that the roads made of CRMB have better quality and life. CRMB is being made worldwide by mixing radial tyre crumb. However, there is scarcity of discarded radial tyres in India as a majority .....

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nted out by the Petitioner that the tyres are cut into two-three pieces for ease of accommodation in the shipping vessels. The cost of transportation of tyre scrap with one cut is much higher than transportation of tyres cut into two or three pieces. 5. This is the second round of litigation. The Petitioner had earlier made a representation to the Government of India protesting against the imposition of 12% CVD. When there was no response to the said representation, the Petitioner filed W.P. (C) .....

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108) E.L.T. 321 (SC) and Commissioner of Central Excise and Customs, Bhubaneshwar-I vs. Tata Iron and Steel Co. Ltd:2003 (154) E.L.T. 343 (SC) be also considered. We direct accordingly. In view of the statement made by the learned counsel for the respondent Nos. 1 and 2, no further directions are necessary in this writ petition. The same stands disposed of." 6. It is pursuant to the above order that the impugned clarification was issued by the TRU on 2nd January 2015 which in effect rejects .....

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xcise duty. He submits that the cutting of old tyres into two or three pieces does not and cannot be said to be 'manufacture' within the meaning of Section 2 (f) of the Central Excise Act 1944 (CE Act). Therefore, the question of such imported used and old tyres being subject to CVD does not arise. 8. Mr. Lakshmikumaran submitted that the issue stood covered in favour of the Petitioner by the decision of the Division Bench of this Court in Modi Rubber Limited, v. Union of India 1987 (29) .....

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d Collector of Central Excise v. Technoweld Industries 2003 (155) ELT 209 (SC). 9. Mr. Lakshmikumaran also placed reliance on the decision of the Customs, Excise and Gold Control Appellate Tribunal ( CEGAT ) in Gujarat Reclaim & Rubber Products Ltd. v. Collector of Central Excise & Customs, Bombay 1983 (14) ELT 2401 (Tri - Delhi), in which it was held that the crushing of waste rubber into powder does not amount to manufacture. It was held that a simple act of crushing and powdering like .....

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d product was not a new product. This is essentially a finding of fact. Likewise the decision of the CEGAT in Elgi Rubber Products Ltd. v. Collector of Central Excise, Madras 2002 (145) ELT 112 (Tri - Del.) was also affirmed with the Supreme Court dismissing the appeal on the ground of delay. This was followed in Gujarat Reclaim & Rubber Products Ltd. v. Commissioner of Central Excise, Pune 2009 (243) E.L.T. 426 (Tri. - Mumbai). 10. Mr. Lakshmikumaran also referred to the decision in Commiss .....

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est of manufacture and marketability would still apply. Submissions on behalf of the Union of India 11. In reply, it is submitted by Mr. Anurag Ahluwalia, learned Standing Counsel for the Union of India, that the test for determining if the cutting of old tyres into two or three pieces amounts to manufacture was to ask if the processes to which the old tyre was subjected to, resulted in transformation of the old tyre into a new product having a different identity, characteristics and use. He poi .....

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s did amount to manufacture. He referred to the decisions in Commissioner of Central Excise, Bangalore-II v. Osnar Chemical Pvt. Ltd. 2012 (276) ELT 162 (SC); CIPLA Ltd. v. Commissioner of Central Excise, Bangalore 2008 (225) ELT 403 (S.C.) and Union of India v. Delhi Cloth & General Mills Co. Ltd. 1977 ELT (J 199). He also referred to the decision in Cipla Limited v. Commissioner of Central Excise, Bangalore 2008 (225) ELT 403 (SC). The central issue 13. The central question that arises in .....

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ufacture of cut pieces of tyre scrap from the old tyres? 14. As pointed out by the Supreme Court in Commissioner of Central Excise, Chandigarh-I v. Markfed Vanaspati & Allied Industries (supra) it requires to be examined whether the twin test of manufacture and marketability are satisfied. In particular, as pointed out in Commissioner of Central Excise, Bangalore-II v. Osnar Chemical Pvt. Ltd. (supra), it would be required to be examined if in producing cut pieces of tyres from old tyres the .....

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. This led the Division Bench to pass the order dated 8th August 2016 referring the case to the larger Bench with the second of the two questions referred being whether the decision of this Court in Modi Rubber Limited v. Union of India (supra) required reconsideration. That is the question which is, therefore, taken up for consideration first. The decision in Modi Rubber Limited 16.1 The facts in Modi Rubber Limited v. Union of India (supra) were that Modi Rubber Limited ( MRL ) was carrying on .....

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stages of the manufacture, some quantity of rubber cuttings emerged which were also treated as waste. The substandard and defective goods were destroyed by cutting and punching. MRL's contention was that since there was no manufacture of the waste, no excise duty was leviable thereon. 16.2 This Court in Modi Rubber Limited v. Union of India (supra) considered whether such waste arising during the processing of tyres should be classifiable under Tariff item 16-A(2) or 68 of the Central Excise .....

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he ambit of the expression 'manufacture' is one which must have some relation to the manufacture of a finished product. The waste/scrap is obtained not by any process of manufacture but in the course of manufacturing process to produce the end product of tyres, tubes, flaps etc. The waste/scrap is obtained in the course of manufacture and not out of manufacture of the end product. In our opinion, it is not as a result of manufacture, because no one would produce any such degrading or eve .....

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Excise Rules, 1944 (hereinafter referred to as the Rules), provides for duty chargeable only on removal of the goods from the factory premises or from an approved place of storage. Payment of duty in respect of excisable goods is made when they are about to be issued out of the place or premises specified. Under second proviso to Rule 49, the proper officer may not demand duty due on any goods claimed by the manufacturer as unfit for consumption or marketing. The excisable goods lying in the li .....

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g out of goods brought under Rule 56A or under Chapter X or under Rule 173-K, 137-N and 173-P. The list showing the excisable commodities and the manner and method of their Destruction has been specified in para 42.07. In case of Tariff Item No. 16 i.e. Tyres it is "by cutting and punching . If under the Rules, the remission is granted on the goods found unfit for consumption or for marketing on destruction in the manner and method prescribed then there is no warrant to levy duty of excise .....

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not be the criterion for the event of manufacture. There are several commodities mentioned in the said para 42.07. Manner and method of destruction in case of each Tariff Item given there is different. In some cases it is by burning, in others, it is by cutting or breaking into small pieces. The ash by burning or small pieces may have a market value. It is sold as a waste product like rubbish undesired and unwanted with a view to get rid of it. It is no argument that it fetches some money that i .....

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d Electricity Co. Ltd. case 17.1. The above decision of this Court was referred to and impliedly approved by the Supreme Court in Union of India v. Ahmedabad Electricity Co. Ltd. (supra). The question that arose for consideration before the Supreme Court was whether the cinder - which was a waste that emerged from burning of coal in boilers - was an excisable commodity subject to levy of excise duty under Entry 26.21 to the First Schedule to the Central Excise Tariff Act ( CET Act )? It was inte .....

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was explained that the words excisable goods occurring in Section 3 of the CE Act have been quantified by the words which are produced or manufactured in India. Relying on the decision in Hyderabad Industries Limited v. Union of India (1995) 5 SCC 338 and Moti Laminates (P) Limited v. CCE, Ahnedabad (1995) 3 SCC 23 it was held that there was no merit in the argument that simply because a particular item was mentioned in the First Schedule, it becomes exigible to excise duty. 17.3 The second ques .....

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net for the reason that it is not a raw material for the end product. 28. In producing cinder there is no manufacturing process involved. Coal is simply burnt as fuel to produce steam. Coal is not tampered with, manipulated or transformed into the end product. For purposes of manufacture the raw material should ultimately get a new identity by virtue of the manufacturing process either on its own or in conjunction or combination with other raw materials. Since coal is not a raw material for the .....

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s of producing steam cannot be said to be a manufacturing activity. Therefore, neither ash nor cinder can be said to be products of a manufacturing process. From burning coal when you get either cinder or ash, it cannot be said that a new product had emerged. Cinder remains coal. In fact, the Department has itself described it as unburnt part of coal in the grounds of appeal in CAs Nos. 2168-69 of 2001 in Ahmedabad Electricity Supply Co Case. Cinder is not a new product. After correctly describi .....

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on spent earth . 17.6 The Court in Union of India v. Ahmedabad Electricity Co. Ltd. (supra) proceeded to discuss the decision of this Court in Modi Rubber Limited v. Union of India (supra) as under: 34. In Modi Rubber Limited v. Union of India it was held that waste/scrap obtained not by any process of manufacture but in the course of manufacturing the end product was not exigible to excise duty. This was a case of manufacture of tyres, tubes etc. In the course of manufacturing process to produc .....

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and different article. It requires a deliberate skilful manipulation of the inputs or the new materials. This was not so in case of scrap. 17.7 Next the Supreme Court in Union of India v. Ahmedabad Electricity Co. Ltd. (supra) proceeded to discuss the decision of Union of India v. Indian Aluminium Co. Limited 1995 Supp (2) SCC 465 and observed as under: Aluminium dross contains an amount of metal from which they come but they lack not only metal body but also metal strength, formability and char .....

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also answers the argument of the learned counsel for the appellant based on Khandelwal Metal s case (Supra) wherein brass scrap produced during manufacturing of brass goods was considered to be liable to excise. In the present case cinder though sold for small price cannot be said to be a marketable commodity in the sense the word "marketable" is understood. Due to sheer necessity cinder has to be removed from the place where it occurs because unless removed it will keep on accumulati .....

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the Supreme Court in Union of India v. Ahmedabad Electricity Co. Limited (supra) impliedly approved the decision of this Court in Modi Rubber Limited v. Union of India (supra). Thus the second question posed before this Bench requires to be answered in the negative. Is the cutting of old tyres into two or more pieces, manufacture? 18. The above discussion should also suffice to answer in the negative the first question referred to this Bench, viz., whether the process to which used or old tyres .....

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sation of steel sheets. Following the decisions in Union of India v. Delhi Cloth and General Mills Company Limited AIR 1963 SC 791 and Commissioner of Central Excise, Chandigarh-I v. Markfed Vanaspati & Allied Industries (supra) the Supreme Court in CCE v. Tata Iron & Steel Co. Ltd (supra) disagreed with the Department that zinc dross, flux skimming and zinc scallings are 'manufacture' within the meaning of Section 2 (f) of the CE Act and hence excisable. 20.1 In Commissioner of .....

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luminium itself, it would come within the purview of the term goods . 20.2 Negativing the above contentions, the Supreme Court held that "an article is not exigible to tax only because it may have some saleable value. Further, the dross no longer answered the description of waste and scrap in view of the changes made in the Tariff. It was, however, well-settled that even if some percentage of the metal was found in the dross, that would not, in the absence of something more in the entry, ma .....

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) which arose in the context of waste, scrap and parings of paper and paperboard generated during manufacture of printed paperboard boxes. It was held that though the impugned items were classifiable under sub-heading 4702.90 of the Central Excise Tariff Act, and were dutiable, that by itself could not make them excisable unless manufacture was involved. 22.1 In Servo-Med Industries Private Limited v. Commissioner of Central Excise, Mumbai (supra) the question that arose for consideration before .....

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;When a finished product cannot conveniently be used in the form in which it happens to be, and it is required to be changed into various shapes and sizes so that it can conveniently be used, no transformation takes place if the character and end use of the first product continue to be the same." 22.3 Reference was made to the decision in CCE-I v. S.R. Tissues Pvt. Ltd. (2005) 6 SCC 310 where "jumbo rolls of tissue paper were cut into various shapes and sizes so that they could be used .....

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that in Tungabhadra Industries Ltd. v. CTO AIR 1961 SC 412 it was held that "hydrogenated oil continued to be groundnut oil despite there being an intermolecular change in the content of the substance of the oil due to hydrogenation." 22.4 The second part of the two-fold test was the 'commercial user test'. This was: "if by adopting a particular process a transformation takes place which makes the product have a character and use of its own which it did not bear earlier, t .....

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ter a particular process, there is obviously no manufacture involved. Processes which remove foreign matter from goods complete in themselves and/or processes which clean goods that are complete in themselves fall within this category. (2) Where the goods remain essentially the same after the particular process, again there can be no manufacture. This is for the reason that the original article continues as such despite the said process and the changes brought about by the said process. (3) Wher .....

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category that manufacture of goods can be said to take place. 22.6 Ultimately, it was held that the case before the Supreme Court fell under category (1) above. It was explained: Further, what is to be remembered here is that the disposable syringe and needle in question is a finished product in itself. Sterilization does not lead to any value addition in the said product. All that the process of sterilization does is to remove bacteria which settles on the syringe s and needle s surface, which .....

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and needle retains its essential character as such even after sterilization. 23. Turning to the case at hand, the products we are concerned with are used tyres and tubes. It is only when the old and used tyres and tubes reach a stage where they can no longer be used for automobiles that they are sold as scrap to dealers who in turn sell them to processors. The recycling process involves mixing crumb rubber with bitumen to make CRMB. Worldwide CRMB is made by mixing radial tyre crumb. Since India .....

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transport them. It lowers the cost of transportation. 24. The case at hand can be said to fall under category (2) identified in Servo-Med Industries (P) Limited v. CCE (supra) i.e. "the goods remain essentially the same" even after they are cut into two or three pieces. There can be no manufacture since "the original article continues as such despite the said process and the changes brought about by the said process." 25. Even where an entire unit is set up for the purposes .....

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