2024 (1) TMI 770 - AT - Central Excise

Tribunal Confirms Scrap Segregation Isn't 'Manufacture'; No Excise Duty Liability Arises, Upholds Commissioner's Decision.

The Tribunal dismissed the department's appeal against the Commissioner (Appeals)' decision, which set aside the Additional Commissioner's order ... Process amounting to manufacture - marketable commodity - case of Department is that scraps so cleared appeared to be generated out of a process - HELD THAT:- The Commissioner (Appeals) clearly held that the process of segregation of various scraps would not amount to manufacture under section 2(f) of the Central Excise Act and as the respondent had not availed CENVAT credit on such scrap, no duty liability would arise on clearance of such scrap. This finding is based on decisions of the Supreme Court in M/S. SATNAM OVERSEAS LTD. VERSUS COMMNR. OF CENTRAL EXCISE, NEW DELHI [2015 (4) TMI 356 - SUPREME COURT] and also M/S. SERVO-MED INDUSTRIES PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI [2015 (5) TMI 292 - SUPREME COURT]. The findings recorded by the Commissioner (Appeals) do not suffer from perversity. Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the manual segregation of mixed scrap (from used batteries, telephone sets and other e-waste) to recover constituent materials constitutes 'manufacture' under the statutory definition such that the segregated non-lead scrap cleared from the manufacturer's premises becomes exigible to excise duty. 2. Whether the fact that segregated scraps are marketable and fetch value, or that segregation is performed by the manufacturer on its premises, transforms the segregated material into a dutiable manufactured product where no input tax credit (CENVAT/Cenvat) has been availed on those scraps. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether manual segregation of mixed scrap amounts to 'manufacture' under the statutory definition - Legal framework: The statutory definition of 'manufacture' requires that a process results in the emergence of a new and different commercial commodity. Liability to excise attaches where a manufacturing process, as defined, occurs and a distinct taxable product is produced. - Precedent treatment: The Court applied the controlling principles from higher court authorities which hold that mere separation or recovery of components from a mixture/scrap does not necessarily amount to manufacture unless a new, different commercial commodity emerges from the process; and that the incidental or auxiliary nature of a process to the production of a final product is material to the characterization. - Interpretation and reasoning: The Tribunal accepted the finding that the segregated items remained essentially scrap and that the segregation was aimed at recovering desired inputs (lead) for use in the furnace to make lead ingots and rods. The process was manual and directed to recovery rather than creation of a new commodity. Even post-segregation the remnants were the same species of scrap as before and would have been marketable without segregation. The Tribunal reasoned that the manufacturing process, for the respondent, commenced with use of lead scrap in the furnace; segregation of the mixed scrap to extract lead did not, in itself, create a new commodity distinct from the original scrap lot. - Ratio vs. Obiter: Ratio - the legal principle applied is that segregation/recovery from scrap does not constitute manufacture unless a new distinct commercial commodity is produced; factual application to manual segregation of e-waste is dispositive. Obiter - ancillary observations about hypothetical separate business entities performing segregation were made for illustrative purposes but are not necessary for the holding. - Conclusion: The manual segregation of mixed scrap to recover constituent materials does not satisfy the statutory definition of 'manufacture' and therefore does not give rise to excise liability on the segregated non-lead scrap. Issue 2: Effect of marketability of segregated scrap, and absence of input tax credit, on excise liability - Legal framework: Excise liability is not triggered solely by the marketability or saleability of goods; manufacture as defined remains the threshold. Whether CENVAT (input tax) has been availed on inputs may be relevant to credits or demand but does not by itself convert a non-manufactured scrap into a manufactured excisable product. - Precedent treatment: The Tribunal relied on precedents holding that waste or spent material, even if marketable or specified in tariff, is not dutiable unless it has undergone manufacture; similarly, extraction of an independent ingredient from a mixture does not automatically equate to manufacture whenever that extraction occurs. - Interpretation and reasoning: The Tribunal accepted the appellate authority's reasoning that mere clearance from a manufacturer's premises cannot be equated with manufacture. The absence of availing CENVAT credit on the segregated scrap reinforced (but did not create) the conclusion that the clearances were not liable to duty. The analysis emphasized substance over form: the commercial saleability of scrap and its removal from manufacturer's premises are insufficient to impose excise where the statutory element of manufacture is lacking. - Ratio vs. Obiter: Ratio - marketability and place of clearance do not alone establish excise liability; absence of credit does not convert non-manufacture into manufacture. Obiter - commentary on hypothetical corporate arrangements (e.g., a separate entity doing segregation) served as illustrative reasoning but is not essential to the holding. - Conclusion: Marketability of segregated scrap and the fact that CENVAT credit was not availed do not render the segregated scrap dutiable where the process does not amount to manufacture under the statute; accordingly, no duty, interest or penalty arises on such clearances. Cross-reference and overall conclusion - The Tribunal affirmed the appellate authority's legal conclusions as neither perverse nor contrary to controlling jurisprudential principles. The determinative inquiry is whether a new and different commercial commodity was produced by the process; on facts here (manual segregation aimed at recovery, continuation of scrap character, and manufacture commencing with furnace use of lead), that test is not satisfied. - Final disposition: The claim for excise duty (and consequential interest and penalties) on the segregated non-lead scrap was held unsustainable and rejected.