2025 (5) TMI 1904 - AT - Central Excise

Waste oil purification and reclamation processes do not constitute manufacture under Central Excise law

M/s. Merlyn Hydrocarbons Pvt. Ltd. Versus Commissioner of Central Excise, Customs and Service Tax Mysore

CESTAT Bangalore held that purification and reclamation processes applied to waste oil do not constitute manufacture under Central Excise law. The ... Process amounting to manufacture or not - purification and reclamation processes applied to waste oil - Payment of applicable customs and central excise duties - applicability of relevant tariff classification - Processed oil qualifies as dutiable fuel oil under Chapter sub-heading 27101950 or remains classified as waste oil under 27109900 - HELD THAT:- Undisputed facts of the case are that the appellants procured waste oil on payment of duty which are subjected to the process of purification and the resultant oil is sold as pure fuel oil. It is the Revenue’s allegation that when the waste oil is subjected to processes such as filtration, purification, distillation, etc., resulting into fuel oil which becomes usable, hence, a new product emerges with different characteristics and accordingly chargeable to excise duty. The issue is no more res-integra and covered by a recent judgment of the Tribunal in the case of Alicid Organic Industries Ltd. V. CCE & ST, [2022 (8) TMI 163 - CESTAT AHMEDABAD]. More or less, a similar view has been expressed by this Tribunal in Southern Refineries Ltd. V. CCE, Thiruvananthpuram [2024 (6) TMI 1038 - CESTAT BANGALORE]. Hence, activities of reclaiming and purifying waste fuel oil do not constitute manufacture and are not dutiable under Central Excise law Thus, we do not find merit in the impugned orders, hence same are set aside and the appeals are allowed with consequential relief, if any, as per law. 1. ISSUES PRESENTED and CONSIDEREDThe core legal question considered by the Tribunal was whether the processing of waste oil by the appellants amounts to 'manufacture' under the Central Excise law, thereby attracting Central Excise Duty. Specifically, the Tribunal examined:Whether the purification and reclamation processes applied to waste oil result in the emergence of a new product distinct from the original waste oil.The applicability of relevant tariff classification and whether the processed oil qualifies as dutiable fuel oil under Chapter sub-heading 27101950 or remains classified as waste oil under 27109900.The relevance and binding effect of prior adjudications, including a Settlement Commission order on the same subject matter.The interpretation of Chapter Notes and Circulars issued by the Central Board of Excise and Customs (CBEC) regarding the classification and excise liability of re-refined or reclaimed oils.2. ISSUE-WISE DETAILED ANALYSISIssue: Does processing of waste oil constitute manufacture attracting Central Excise DutyRs.Relevant legal framework and precedents: The dispute revolves around the interpretation of the Central Excise Tariff Act, 1985, specifically Chapter 27 dealing with mineral oils. The appellants' product falls under sub-heading 27101950 (fuel oil) while the waste oil procured falls under 27109900. The key legal consideration is whether the processes applied-filtering, centrifuging, distillation, blending-amount to manufacture as per the definition under excise law.Several precedents were relied upon by the appellants, including:A Supreme Court decision reported in 2002 (140) ELT A248, which examined the nature of manufacture in the context of reclamation of oils.Tribunal decisions such as CCE, Chennai-I v. Metropolitan Transport Company (2008), Cee Jee Lubricants v. CCE & Customs, Cochin (2010), Alicid Organic Industries Ltd. v. CCE & ST, Ahmedabad-III (2023), and Southern Refineries Ltd. v. CCE, Thiruvananthpuram (2024), which analyzed similar issues of whether reclamation of waste oils constitutes manufacture.Court's interpretation and reasoning: The Tribunal noted that the appellants receive waste oil that contains water and impurities, which is subjected to physical and mechanical processes such as filtration, centrifugation, vacuum heating, and blending. These processes remove impurities and restore the oil to a usable state but do not chemically alter or transform the oil into a different product. The Tribunal emphasized that the appellants do not undertake chemical distillation or other transformative chemical processes that would change the fundamental nature of the oil.The Tribunal referred extensively to the recent decision in Alicid Organic Industries Ltd. v. CCE & ST, Ahmedabad-III (2023), where a similar factual matrix was considered. That decision clarified that for lubricating oils, the levy of excise duty depends on whether the product has undergone any process listed in Chapter Note 4 of Chapter 27, which defines 'manufacture' for lubricating oils. However, in the present case, the product is reclaimed fuel oil, not lubricating oil, and thus Chapter Note 4 does not apply. The absence of a similar chapter note for reclaimed fuel oil indicates legislative intent that reclamation of waste fuel oil does not constitute manufacture attracting excise duty.Key evidence and findings: The appellants procured waste oil on which duty was already paid. The oil was reclaimed through physical processes to remove impurities and water, resulting in purified fuel oil of the same nature as the original product. The appellants' processes were consistent with industry practice for recycling waste oil, which is both economically and environmentally beneficial.Application of law to facts: The Tribunal applied the principles established in the cited precedents and the CBEC Circular No. 1024/12/2016-CX dated 11.04.2016, which clarified classification and excise liability for re-refined used or waste oils. The Circular distinguished between lubricating oils and other oils, stating that the deeming fiction of manufacture applies only to lubricating oils undergoing specified processes. Since the appellants' product was reclaimed fuel oil and not lubricating oil, the processes did not amount to manufacture under the law.Treatment of competing arguments: The Revenue argued that the appellants had admitted the processes amounted to manufacture in earlier proceedings before the Settlement Commission and had discharged duty liability. Therefore, subsequent show-cause notices were justified and correctly confirmed by the Commissioner. The Tribunal rejected this contention, noting that the prior settlement related to a different period and did not preclude reconsideration of the issue in light of subsequent legal clarifications and the specific nature of the product.Moreover, the Tribunal found that the processes employed did not result in a new product with different characteristics but merely purified the existing oil. The Revenue's reliance on the prior admission was insufficient to override the legal principles and factual matrix established in the present appeals.Conclusions: The Tribunal held that the processing of waste oil by the appellants does not amount to manufacture within the meaning of Central Excise law and therefore does not attract excise duty. The impugned orders confirming duty demands were set aside, and the appeals were allowed with consequential relief.3. SIGNIFICANT HOLDINGSThe Tribunal's key legal reasoning is captured in the following verbatim extract from the Alicid Organic Industries Ltd. decision, which was relied upon:'Waste oil has two sub-classifications viz. 2710 91 00 and 2710 99 00 upon its composition whereas lubricating oil is classifiable under CETH 2710 19 80. Used lubricating oil collected is not fit for use as primary products and will be classified as waste oil whereas processed waste oil, which becomes fit for use as lubricating oil and would qualify as lubricating oil. The test for levy of Central Excise duty is whether the lubricating oil (produced from the waste oil) has undergone any of the process listed in Chapter Note 4 of Chapter 27. The circular specifically talks about the lubricating oil obtained from re-refining or reprocessing waste oils and other oils obtained from various sources. In the instant case the product was not lubricating oil falling under the 2710 19 80 but is reclaimed fuel oil falling under 2710 99 00. The circular also states that the chapter note applies only to 'lubricating oils and lubricating preparations of Heading 2710'. Other goods falling under CETH 2710 are not covered by the chapter note as the same is reclaimed fuel oil obtained from waste oils. The deeming fiction provides that when one of the process listed in the chapter note is carried out on lubricating oil or lubricating preparations, it shall be deemed to be manufacture. The instant case is the reclaimed fuel oil which is also waste oil falling under 27 10 99 00 but used as fuel only and is not a lubricating oil or used as lubricating oil. It is also worthwhile that similar to Chapter Note 4 for lubricating oil and preparations there is no such chapter note for the product of the appellant in question. This also suggests that legislators are very conscious that recycled oil from waste oil and sludge should not be made amounts to manufacture and should not be liable to duty.'Core principles established include:The nature of 'manufacture' under Central Excise law depends on whether the process results in a new product with distinct characteristics.Physical and mechanical processes that restore waste oil to its original usable state without chemical transformation do not amount to manufacture.Chapter Notes and CBEC Circulars provide authoritative guidance on classification and excise liability, distinguishing lubricating oils from other oils.Prior admissions or settlements do not preclude re-examination of the issue if subsequent legal clarifications indicate no excise liability.Final determinations on the issue were that the appellants' activities of reclaiming and purifying waste fuel oil do not constitute manufacture and are not dutiable under Central Excise law. The impugned orders demanding duty were set aside, and the appeals allowed accordingly.