Ethanol blended motor spirit exemption appeal maintainability held assessment-related; remedy confined to appeal under section 35L

Dispute whether blending motor spirit with ethanol constitutes a manufacturing operation was treated as a question of classification and applicability of an exemption notification, which directly and proximately affects the rate of duty for assessment; therefore the matter is characterization for assessment purposes and not amenable to ordinary appellate jurisdiction, with the appropriate statutory remedy lying under section 35L. The court applied the principle that questions going directly to rate of duty or value are assessment issues, and concluded the appeal in the instant proceedings was not maintainable and was dismissed.

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Issues Involved:
1. Whether the blending of 5% Ethanol with 95% Motor Spirit amounts to "manufacture."
2. Whether the product "5% Ethanol Blended Petrol" is identified as excisable goods and if specific exemptions apply.
3. Whether Motor Spirit used in Ethanol Blended Motor Spirit (EBMS) can be treated as an intermediate product.
4. Whether the Tribunal's interpretation of exemption notifications under Section 5A of the Central Excise Act, 1944, is proper.

Issue-wise
Detailed Analysis:

1. Whether the blending of 5% Ethanol with 95% Motor Spirit amounts to "manufacture."
The department argued that blending Motor Spirit (MS) with Ethanol constitutes a manufacturing process, as per CBEC Circular No. 366/5/2002-TRU dated 02.01.2003, which states that a new product emerges from this process. The Tribunal, however, found that the blending process does not amount to "manufacture," relying on the CBEC Circular No. 83/83/94 dated 13.12.1994, which had continuing effect, stating that blending of Ethanol with Motor Spirit does not amount to manufacture. Consequently, the Tribunal held that the respondent was not required to pay duty on the Motor Spirit used in EBMS.

2. Whether the product "5% Ethanol Blended Petrol" is identified as excisable goods and if specific exemptions apply.
The department issued Show Cause Notices and confirmed demands based on the withdrawal of exemption notifications (No. 62/2002-CE, No. 63/2002-CE) for the period from 01.07.2004 to 07.08.2004. The Tribunal, however, set aside these orders, emphasizing that the draft Circular dated 13.12.1994, which was relied upon by the department, was never issued, and thus, the blending of Ethanol with Motor Spirit does not amount to "manufacture." Therefore, the product was not subject to excise duty as per the earlier circular.

3. Whether Motor Spirit used in Ethanol Blended Motor Spirit (EBMS) can be treated as an intermediate product.
The Tribunal held that the Motor Spirit cannot be treated as an intermediate product. The department's reliance on exemption notifications to claim excise duty on Motor Spirit used in EBMS was found to be improper by the Tribunal. The Tribunal concluded that since the respondent had already paid duty on EBMS, there was no requirement to pay duty again on the Motor Spirit used in the blending process.

4. Whether the Tribunal's interpretation of exemption notifications under Section 5A of the Central Excise Act, 1944, is proper.
The Tribunal's interpretation was that the exemption notifications under Section 5A of the Central Excise Act, 1944, did not apply to the blending process of Ethanol and Motor Spirit, as it did not amount to "manufacture." The Tribunal relied on the earlier circular dated 13.12.1994, which was still in effect, and thus, the respondent was eligible for the exemption. The Tribunal's decision was based on the principle that merely listing a product in a notification or tariff entry does not automatically classify it as a manufactured good.

Conclusion:
The High Court dismissed the department's appeal, affirming the Tribunal's decision that the blending of 5% Ethanol with 95% Motor Spirit does not amount to "manufacture," and therefore, the product was not subject to excise duty. The court also held that the appeal should be filed before the Supreme Court, as it involved the determination of the rate of duty and the value of goods for the purposes of assessment, which falls under Section 35L of the Central Excise Act, 1944.

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