Tribunal: No Excise Duty on Blending Ethanol with Motor Spirit

The tribunal held that blending ethanol with motor spirit does not amount to manufacture, and thus, the appellant is not required to pay excise duty on the unblended motor spirit. Duty should be paid on the final product, EBMS, when cleared from the factory. The tribunal also clarified that no additional duty is required on EBMS if duty is already paid on its components. The appellant correctly paid duty on EBMS and was not required to pay duty on unblended motor spirit. The impugned order was set aside, and the appeal was allowed.

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Issues Involved:
1. Whether the process of blending 5% ethanol with 95% motor spirit (EBMS) amounts to manufacture.
2. Applicability of excise duty on unblended motor spirit used in the manufacture of EBMS.
3. Interpretation and relevance of various notifications and circulars regarding the excise duty on EBMS.
4. Whether the appellant is required to pay duty on motor spirit prior to blending if duty has already been paid on EBMS.

Detailed Analysis:

1. Whether the process of blending 5% ethanol with 95% motor spirit (EBMS) amounts to manufacture:
The tribunal examined whether blending ethanol with motor spirit constitutes manufacturing under Section 2(f) of the Central Excise Act, 1944. It was found that blending 5% ethanol with 95% motor spirit does not change the chemical nature or use of the product. Both unblended and blended motor spirit fall under the same BIS specification 2796 and tariff heading 27.10, indicating no new product with distinct characteristics or commercial use is created. The tribunal relied on CBEC Circular No. 83/83/94-CX dated 13.12.1994, which clarified that blending methanol with motor spirit does not amount to manufacture, and found no significant difference between methanol and ethanol in this context. The tribunal cited multiple judgments, including Hindustan Petroleum Corporation v. CCE and Bharat Petroleum Corporation Ltd. v. CCE, which supported the view that blending additives with motor spirit does not constitute manufacturing.

2. Applicability of excise duty on unblended motor spirit used in the manufacture of EBMS:
The tribunal held that since blending ethanol with motor spirit does not amount to manufacture, the appellant is not required to pay excise duty on the unblended motor spirit. The duty should be paid on the product in the form it is cleared from the factory, which in this case is EBMS. This is consistent with the Supreme Court's judgment in Sidhartha Tubes Ltd., which stated that duty must be paid on the final product's value when cleared from the factory, even if an intermediate process does not constitute manufacturing.

3. Interpretation and relevance of various notifications and circulars regarding the excise duty on EBMS:
The tribunal considered several notifications and circulars, including Notification No. 25/2006-CE (NT) dated 20.11.2006, which exempted EBMS from excise duty for a specific period if duty was paid on motor spirit and ethanol. The tribunal concluded that the existence of an exemption notification does not imply that the process of blending ethanol with motor spirit amounts to manufacture. The tribunal also referenced CBEC Circular No. 1078/02/2021-CX dated 22.06.2021, which clarified that no additional duty is required on EBMS if duty is already paid on its components.

4. Whether the appellant is required to pay duty on motor spirit prior to blending if duty has already been paid on EBMS:
The tribunal found that the appellant had correctly paid duty on the higher value of EBMS and was not required to pay duty on the unblended motor spirit. The tribunal noted that paying duty on EBMS instead of motor spirit resulted in higher duty payments, ensuring no revenue loss. The tribunal rejected the adjudicating authority's reliance on Notification No. 67/95-CE, stating that motor spirit cannot be considered an intermediate product since blending does not constitute manufacturing.

Conclusion:
The tribunal concluded that blending 5% ethanol with 95% motor spirit does not amount to manufacture. Therefore, the appellant correctly paid duty on EBMS and is not required to pay duty on unblended motor spirit. The impugned order was set aside, and the appeal was allowed.

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