No manufacture, no excise duty: denial of exemption could not sustain a full-rate demand on the same activity.

When the authorities treated the scrap-processing activity in a 100% EOU as not amounting to manufacture, the foundation for central excise levy failed because excise is chargeable only on manufactured goods. The same activity could not be subjected to the full rate of duty merely to deny the benefit of Notification No. 23/2003-CE. On that reasoning, the demand of central excise was held unsustainable, the impugned orders were set aside, and consequential relief followed in favour of the appellant.

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Issues: Whether central excise duty could be confirmed at the full rate when the lower authorities themselves held that the activity undertaken did not amount to manufacture, and consequently the benefit of Notification No. 23/2003-CE was denied.

Analysis: The appellant's scrap was segregated and cleared in the domestic tariff area after processing in a 100% EOU. The lower authorities proceeded on the basis that the activity was not manufacture and for that reason denied the concessional benefit under the notification. Once the activity was treated as not amounting to manufacture, the foundation for levy of central excise itself was absent, because excise is chargeable only on goods manufactured. In such a situation, the demand could not be sustained by applying the full rate of duty to the same activity merely to deny the exemption.

Conclusion: The demand of central excise was unsustainable and the issue was decided in favour of the appellant.

Final Conclusion: The impugned orders were set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: If the adjudicating authorities hold that an activity does not amount to manufacture, central excise duty cannot simultaneously be sustained on that very activity by denying an exemption notification and applying the full rate of duty.

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