2013 (8) TMI 537 - AAR - Central Excise

Metal scrap transformation qualifies as 'manufacture' under Central Excise Act

The court ruled that the proposed activity of transforming various grades of metal scrap into 'blended metal scrap' qualifies as 'manufacture' under ... Manufacture u/s 2(f) - manufacturing of stainless steel from metal scrap - Processing of raw material into 'blended metal scrap' - Sorting grade wise - Cutting/Shredding/Crushing and sizing of oversize material - Bundling and briquetting - Blending - Whether the activity proposed to be carried out by the assesse can qualify as/can be treated to be 'manufacture' under the act - Held that:- It can be termed as 'manufacture' - any material difference was found in the relevant facts when the actual determination was made it will be open to the concerned authority to act in accordance with law as delineated above - In the aforesaid legal and factual background, it was ruled that the proposed activity would amount to manufacture. Opinion of Director, National Institute of Secondary Steel Technology - Held that:- The opinion was inconclusive and itself admitted that there was no existing production unit using the proposed methodology and therefore conclusions given are on the basis of documents only - It also goes on to add that in the absence of such process being applied in India it was very difficult to establish commercial viability of the process - the opinion seems to centre around techno-commercial viability and does not give any conclusive findings on the question of manufacture - it cannot be taken as an authority for the proposition that the said process cannot amount to manufacture. It has not been denied that scrap of specific grades alone can be used in the manufacture of stainless steel and that the processes to be adopted by the applicant would result in the transformation of their raw materials, namely, metal scrap of assorted sizes, grades, composition etc. into metal scrap of specific grades which is directly usable for manufacture of stainless steel. Therefore what emerges from the processes would be a product having distinct identity and use, different from the raw material from which it is made. - proposed activity would amount to manufacture. Issues Involved:1. Whether the activity proposed by the applicant qualifies as 'manufacture' under Section 2(f) of the Central Excise Act, 1944.Issue-wise Detailed Analysis:1. Definition of 'Manufacture':The core issue is whether the activity proposed to be undertaken by the applicant qualifies as 'manufacture' under Section 2(f) of the Central Excise Act, 1944. The term 'manufacture' includes any process incidental or ancillary to the completion of a manufactured product, as well as any process specified in relation to any goods in the section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985.2. Factual Scenario:The applicant, part of ELG Haniel Group, Germany, plans to set up a scrap yard in India to process various grades of stainless steel scrap into 'blended metal scrap'. This blended metal scrap is required by stainless steel manufacturers as a raw material for manufacturing stainless steel products. The process involves several steps, including procurement of raw materials, radioactivity checks, sorting, cutting, shredding, bundling, briquetting, and blending.3. Applicant's Argument:The applicant argues that the activity qualifies as 'manufacture' because it transforms raw materials (various grades of metal scrap) into a new product (blended metal scrap) that has a distinct identity and use. The applicant cites the inclusive definition of 'manufacture' under the Act and relies on the two-fold test laid down by the Supreme Court in Union of India v. J.G. Glass Industries Ltd., which requires that a different commercial commodity comes into existence and that the original commodity ceases to exist.4. Revenue's Argument:The Revenue contends that the activity does not qualify as 'manufacture' because there is no essential difference in the identity between the original commodity (metal scrap) and the processed article (blended metal scrap). The original commodity retains its identity, and the processing only changes certain physical properties, such as size. The Revenue argues that the blended metal scrap remains iron and steel scrap and does not become a new commodity with a distinct name, character, or use.5. Legal Precedents:The judgment discusses various legal precedents to interpret the term 'manufacture'. Notably:- In Black's Law Dictionary, 'manufacture' is defined as the process of making goods from raw materials by giving them new forms, qualities, properties, or combinations.- The Supreme Court in Union of India v. Delhi Cloth and General Mills held that 'manufacture' involves the bringing into existence of a new substance known to the market.- In Empire Industries Ltd. v. Union of India, it was observed that manufacture is complete when a new substance or a different article with a distinct name, character, or use results from a process.6. Analysis of the Process:The judgment notes that the steps involved in the applicant's process transform raw materials into a product with a distinct identity and use, different from the original raw materials. The process involves blending various grades of metal scrap to produce blended metal scrap of specific grades required by stainless steel manufacturers.7. Expert Opinion:The Commissioner submitted opinions from the Director, National Institute of Secondary Steel Technology, which stated that there seems to be no difference between the final blended product and conventional 304 grade stainless steel scrap. However, the judgment finds these opinions inconclusive and centered around techno-commercial viability rather than the legal definition of manufacture.8. Conclusion:The judgment concludes that the proposed activity qualifies as 'manufacture' because it results in the transformation of raw materials into a new product with a distinct identity and use. The ruling emphasizes that if any material differences are found in the relevant facts during actual determination, the concerned authority can act in accordance with the law.Final Ruling:In the legal and factual background, it is ruled that the proposed activity amounts to manufacture. The application is accordingly disposed of.