Manufacture in storage tanks not proved where documents showed LPG blending occurred on board the vessel, not in the factory.

Contemporaneous import, voyage, survey, time-log, tank ullage and shipping records showed the cargo as LPG mix and indicated that blending occurred at the vessel's manifold or during voyage, not in the assessee's storage tanks. Technical evidence also supported the position that such mixing could not safely take place in refrigerated storage tanks because of pressure and temperature constraints. The Department's statements were inconsistent with the documentary record and were insufficient to displace it. On that basis, the alleged manufacture in the storage tanks was not proved, and the duty demand and penalties could not be sustained.

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Issues: Whether the blending of liquefied petroleum gases occurred in the appellants' storage tanks so as to amount to manufacture attracting central excise duty, interest and penalties.

Analysis: The evidence showed that the import orders, voyage documents, survey reports, time logs, tank ullage reports and shipping records consistently described the cargo as LPG mix and showed mixing at the vessel's manifold or during voyage. The technical material also supported the appellants' case that mixing could not safely occur in refrigerated storage tanks because of the pressure and temperature characteristics of the gases. The statements relied upon by the Department were found to be inconsistent with the documentary record and insufficient to displace it.

Conclusion: The alleged manufacture in the storage tanks was not proved, and the duty demand and penalties could not be sustained.

Final Conclusion: The impugned order was set aside and the appeals were allowed.

Ratio Decidendi: When the contemporaneous documentary and technical evidence establishes that blending occurred on board the vessel or at the ship's manifold and not in the assessee's premises, a finding of manufacture within the factory cannot be sustained on the basis of inconsistent statements alone.

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