Deeming manufacture for lubricating oils depends on labeling, repacking, and consumer marketability; bulk clearances may fall outside it.

Chapter Note 4 to Chapter 27 applies only to lubricating oils and lubricating preparations of Heading 2710, so products under the same heading that are not lubricants are outside the deeming provision. Where lubricating oils are labeled, relabeled, repacked into retail or consumer-suitable containers, or otherwise rendered marketable to consumers, those processes amount to manufacture even if cleared to bulk users, and duty follows. By contrast, bulk clearances without label and without consumer marketability are not covered on the verified facts. Penalty under Rule 25 was not sustainable because the notice did not state specific grounds, and the demand was remanded for fresh factual verification.

---

---

Issues: (i) Whether Chapter Note 4 to Chapter 27 of the Central Excise Tariff Act, 1985 applies only to lubricating oils and lubricating preparations of Heading 2710 and not to other products under the heading; (ii) whether lubricating oils cleared after labeling or relabeling, or in consumer-suitable containers, amount to manufacture notwithstanding clearance to bulk users; (iii) whether lubricating oils cleared in bulk form without label and not made marketable to consumers are covered by the deeming provision; and (iv) whether the penalty imposed under Rule 25 of the Central Excise Rules, 2002 was sustainable.

Issue (i): Whether Chapter Note 4 to Chapter 27 of the Central Excise Tariff Act, 1985 applies only to lubricating oils and lubricating preparations of Heading 2710 and not to other products under the heading.

Analysis: The deeming provision in Chapter Note 4 is confined to lubricating oils and lubricating preparations of Heading 2710. The clarification in CBEC Circular No. 1024/12/2016-CX dated 11.4.2016 supports that products falling under Chapter 2710 but not being lubricating oils or lubricating preparations are outside the note. Therefore, products other than lubricants are not covered merely because they fall under the same chapter heading.

Conclusion: In favour of the assessee. Non-lubricant products are not covered by Chapter Note 4.

Issue (ii): Whether lubricating oils cleared after labeling or relabeling, or in consumer-suitable containers, amount to manufacture notwithstanding clearance to bulk users.

Analysis: Chapter Note 4 creates a legal fiction that labeling, relabeling, repacking from bulk to retail packs, or any other treatment rendering lubricating oils marketable to the consumer amounts to manufacture. Once lubricating oils are cleared after such treatment, the deeming fiction applies irrespective of whether the buyer is a consumer or a bulk user. Clearance in consumer-suitable containers also falls within the note.

Conclusion: Against the assessee. Such clearances amount to manufacture and attract duty.

Issue (iii): Whether lubricating oils cleared in bulk form without label and not made marketable to consumers are covered by the deeming provision.

Analysis: If lubricating oils are cleared in bulk form, are not placed in a form marketable to consumers, and carry no label on the container, the statutory fiction in Chapter Note 4 is not attracted on the facts as verified. Duty can be levied only where the requisite marketability-linked treatment is established.

Conclusion: In favour of the assessee. Bulk clearances without label and without consumer marketability are not covered by Chapter Note 4.

Issue (iv): Whether the penalty imposed under Rule 25 of the Central Excise Rules, 2002 was sustainable.

Analysis: The show-cause notice did not set out specific reasons to justify penalty under Rule 25. In the absence of stated grounds, the penalty could not be sustained.

Conclusion: In favour of the assessee. The penalty under Rule 25 was set aside.

Final Conclusion: The duty and interest liability required fresh factual verification on the nature of the clearances, while the penalty could not be sustained. The matter was therefore sent back for re-determination of the demand on the identified parameters, with deletion of penalty.

Ratio Decidendi: A deeming provision treating specified processes as manufacture applies only within its defined statutory field, and duty liability must be determined by whether the goods answered that field on the actual mode of clearance and marketability; penalty cannot be imposed without a specific factual basis in the notice.

---