Blending duty-paid ethanol with motor spirit was not manufacture, so excise duty on ethanol blended petrol failed.

Blending 10% duty-paid ethanol with 90% duty-paid motor spirit to produce ethanol blended petrol did not amount to manufacture under Central Excise law because the process did not create a new commodity with a distinct character, use or identity. The Tribunal applied the principle that blending of duty-paid inputs which only improves quality or marketability, without altering the essential nature of the product, is not manufacture. As no new excisable product emerged, the excise duty demand for the period before the 24.12.2008 notifications was unsustainable.

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Issues: Whether the blending of 10% duty-paid ethanol with 90% duty-paid motor spirit to produce ethanol blended petrol amounted to manufacture under the Central Excise law and attracted excise duty for the period before the relevant notifications.

Analysis: The dispute turned on whether the blending process created a product having a distinct character, use, or identity from the original duty-paid inputs. Reliance was placed on the Tribunal's earlier view that blending of small quantities of additives with motor spirit or similar products, when it only improves quality or marketability without changing the basic characteristics and use of the product, does not amount to manufacture. Following that reasoning, the Tribunal held that the process of producing ethanol blended petrol did not bring into existence a new excisable commodity. The relevant notifications dated 24.12.2008 were noted as the cut-off for the disputed liability period.

Conclusion: The process did not amount to manufacture and the excise duty demand was not sustainable. The appeal was allowed in favour of the assessee.

Ratio Decidendi: A process of blending duty-paid inputs that merely improves marketability or quality, without changing the product's essential character, use, or identity, does not constitute manufacture for excise purposes.

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