2024 (6) TMI 1038 - AT - Central Excise

Reprocessing waste oils into lubricants through distillation not manufacture under excise law, SSI exemption applies

M/s. Southern Refineries Limited Versus The Commissioner of Central Excise, Thiruvananthapuram

CESTAT Bangalore held that reprocessing waste oils into lubricating oils through vacuum distillation, centrifuging, and removal of impurities does not ... Process amounting to manufacture or not - activity undertaken by the appellant to convert the waste oils which is neither fit for use nor marketable as the primary product into lubricating oils which is not only fit for use - time limitation - benefit of SSI exemption under N/N. 8/2003-CE dated 01.03.2003. HELD THAT:- In the case of Servo-Med Industries Pvt. Ltd. Vs. CCE, Mumbai [2015 (5) TMI 292 - SUPREME COURT], the Hon’ble Supreme Court has held that “manufacture takes place on the application of one or more processes. Each process may lead to a change in the goods, but every change does not amount to manufacture. There must be something more- there must be transformation by which something new and different comes into being, that is there must now emerge an article which has a distinctive name, character or use.” In the case of CEE JEE Lubricants Vs. Commissioner of Central Excise & Customs, Cochin [2019 (8) TMI 1173 - CESTAT BANGALORE] wherein it is held that “We have considered the submissions made at length by both sides and peruse the records, it is undisputed that the appellant procured used oil from different sources. The processing under taken by the appellant is in form of Vacuum distillation, Centrifuging removal of moisture, carbon and other impurities. The entire tenor of the adjudicating authority while confirming the demand is only on the ground that the used oil was unfit for use as lubricating oils were made fit for the use by the appellant by refining or re-processing the same and hence, characteristic and the use has changed. Due to which Chapter Note 4 of Chapter 27 gets attracted and the said activity becomes manufacture. The various decisions and the CBEC Board Circular, it is clear that Note 9 of Chapter 27 is not applicable to the present case. Therefore, the question of whether reprocessing of used waste oils into reprocessed oils that have marketable would amount to manufacture is answered in the negative concluding that it does not amounts to manufacture. Accordingly, the appeals are allowed in favour of the appellant. Whether the appellant is entitled to avail benefit of SSI Exemption under Notification No.8/2003- CE dated 01.03.2003? - HELD THAT:- The Commissioner (A) has held that since the above process amounts to manufacture, the value needs to be included while computing the aggregate value of clearances of all excisable goods for the period 2010 to 2011. Since, it is already held that the above processes undertaken by the appellant do not amount to manufacture and they are not liable to pay excise duty, therefore, the question of including the value of those goods for computation of the aggregate value of the clearances is not sustainable. Accordingly, the appellant is eligible for the benefit of the SSI exemption under N/N. 8/2003-CE dated 01.03.2003. Appeal are partially allowed by way of remand to the original authority only for limited purpose of verification of the fact that whether the appellants have discharged duty on the reprocessed oil cleared as ‘lubricants’. Issues Involved:1. Whether the activity of converting waste oils into lubricating oils amounts to manufacture under Central Excise Tariff Act (CETA), 1985.2. Whether the appellant is liable to pay excise duty on the reprocessed oils.3. Whether the demand for excise duty is barred by limitation.4. Whether the appellant is entitled to the benefit of Small Scale Industry (SSI) exemption under Notification No. 8/2003-CE.Issue-wise Detailed Analysis:1. Whether the activity of converting waste oils into lubricating oils amounts to manufacture under Central Excise Tariff Act (CETA), 1985:The appellant was engaged in the collection and processing of waste oils into lubricating oils. The Commissioner concluded that this activity amounts to 'manufacture' as per Note 9 of Chapter 27 of CETA, 1985, which states that any treatment rendering the product marketable to the consumer amounts to manufacture. However, the appellant argued that the process does not transform the waste oil into a new product but merely removes impurities, thus not constituting 'manufacture' under Section 2(f) of the Central Excise Act, 1944. The Tribunal referred to the Supreme Court's decision in Servo-Med Industries Pvt. Ltd. and other relevant judgments, concluding that the process undertaken by the appellant does not amount to manufacture as it does not create a new and distinct commodity.2. Whether the appellant is liable to pay excise duty on the reprocessed oils:The Tribunal noted that the Commissioner demanded excise duty under Section 11A(1) of the Central Excise Act, 1944, for the period from September 2000 to September 2010. The appellant argued that excise duty was paid on the reprocessed base oil-heavy, which was sold as lubricants. The Tribunal concluded that while the reprocessed oils do not amount to manufacture, the appellant is liable to pay duty on the reprocessed oils cleared as lubricants, subject to verification.3. Whether the demand for excise duty is barred by limitation:The appellant contended that the show-cause notices were issued beyond the permissible period without any allegation of fraud or suppression. The Commissioner justified the delay citing the interim stay granted by the High Court. The Tribunal upheld the Commissioner's justification, stating that the stay period should be excluded for the purpose of limitation as per the Explanation under Section 11A(1) of the Central Excise Act, 1944.4. Whether the appellant is entitled to the benefit of Small Scale Industry (SSI) exemption under Notification No. 8/2003-CE:The Commissioner (Appeals) denied the SSI exemption on the ground that the aggregate value of clearances exceeded the threshold limit. The appellant argued that since the processes do not amount to manufacture, the value of clearances should not be included. The Tribunal agreed with the appellant, concluding that the processes do not amount to manufacture, and thus the appellant is eligible for the SSI exemption.Conclusion:The Tribunal allowed the appeals partially by remanding the matter to the original authority for verification of duty payment on reprocessed oils cleared as lubricants. The demand for excise duty was upheld with respect to the period covered by the interim stay. The appellant was granted the benefit of SSI exemption for the relevant period. The appeals were disposed of accordingly.