AI Drafter 
TaxTMI 
TaxTMI 
2026 (4) TMI 670
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....ethylene Terephthalate Bottles [PET Bottles] under Central Excise Tariff Item [CETI] 3915 90 42 of the First Schedule to Central Excise Tariff Act, 1985 [the Tariff Act] as 'parings of PET Plastics'. The Commissioner has, therefore, confirmed the demand of central excise duty with interest and penalty on the parings of PET plastics manufacture and cleared by the appellant. 2. The appellant is engaged in the activity of conversion of waste PET Bottles into Polyethylene Terephthalate Flakes [PET Flakes] which are obtained by the process of sorting, crushing, washing and rinsing of waste PET Bottles. 3. The two issues that arise for consideration in these appeals are: (i) Whether the process of conversion of waste PET Bottles into PET Flakes qualifies as 'manufacture' under section 2(f) of the Central Excise Act, 1944 [Central Excise Act] for purpose of levy of excise duty? (ii) Whether PET Flakes generated and cleared by the appellant are classifiable under CTI 3915 90 42 as alleged by the department? 4. According to the appellant, the following process is undertaken for conversion of waste PET Bottles into PET Flakes. (i) Non-PET materials such as....
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....ril 2013 2,54,01,481 0 8. 09.04.2014 April 2013 to January 2014 2,11,44,997 0 9. 19.01.2015 February 2014 to September 2014 96,64,741 0 10. 23.06.2015 October 2014 to March 2015 79,69,233 0 11. 15.12.2015 April 2015 to September 2015 58,23,789 0 12. 10.04.2017 October 2015 to September 2016 4,00,288 0 Total 9,86,03,755/- 1,05,80,286/- 8. The appellant filed detailed replies to the show cause notices/statement of demands primarily contending that the goods were not manufactured by the appellant and the goods were also correctly classifiable under CETH 3907 60. The replies filed by the appellant did not find favour of the Commissioner in the impugned order dated 31.03.2019. The Commissioner held that the process of conversion of old use PET Bottles into parings of PET Flakes results in emergence of a new and distinct product and, therefore, would amount to 'manufacture'. Regarding classification, the Commissioner after placing reliance on the final order dated 25.09.2018 of the Tribunal in the case of the appellant held that PET Flakes are classifiable under CETI 3915 90 4....
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....roduct which has a distinct name, character and use as compared to the inputs from which the same was manufactured. It is also not in dispute that the parings of PET Flakes were cleared for home consumption and were also exported [invoice No. E058 dated: 21.06.2012]. Therefore, the case laws cited by them are not applicable to the case at hand." (emphasis supplied) 11. Regarding classification of PET Flakes, the Commissioner observed: "32. As regards classification, the issue to be decided is whether the final product manufactured by the noticee is Parings of PET Bottles which is commonly known in the trade as 'PET Flakes Clear' which is classifiable under CETSH 3915.9042, or the same is 'Poly Ethylene Terepthalate (PET) in primary form as contended by the noticee which is classifiable under 3907.60. As per Chapter Note 3 to Chapter 39, Headings 3901 to 3911 apply only to goods of a kind produced by chemical synthesis. Therefore, in the first place, it is to be seen as to whether the subject final products manufactured by the noticee are produced by chemical synthesis in order to qualify for classification under 3907.60 as claimed by them. Furthermore, as pe....
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....) E.L.T. 1099 (Del.)]; (b) Crane Betel Nut Powder Works ; (c) Mahalaxmi Stores; (d) Commissioner of Central Excise, New Delhi-I vs. S.R. Tissues Pvt. Ltd. [2005 (186) E.L.T. 385 (S.C.)]; (e) M/s. Satnam Overseas Ltd. vs. Commissioner of Central Excise, New Delhi [Civil Appeal No. 8958 of 2003]; (f) Sara Spices vs. Commissioner of C. Ex., Cus. & S.T., Cochin [2018 (362) E.L.T. 151 (Tri.-Bang.)]; (g) Commissioner of Sales Tax, U.P. vs. Lal Kunwa Stone Crusher (P) Ltd. [2000 (117) E.L.T. 279 (S.C.)]; (h) Andhra Cements vs. Commissioner of Central Excise, Visakhapatnam [2005 (188) E.L.T. 179 (Tri.- Bang.)]; (i) Deputy Commissioner Sales Tax (Law), Board of Revenue (Taxes), Ernakulam vs. Pio Food Packers [1980 (6) E.L.T. 343 (S.C.)]; (ii) Wikipedia is not an authentic source and cannot be relied upon. In support of this contention, learned counsel placed reliance upon the decision of the Supreme Court in HP India Sales Pvt. Ltd. vs. CC, Nhava Sheva [2023 (383) E.L.T. 241 (S.C.)]; (iii) The onus to prove that the goods were manufactured is on the department. The department has not established that t....
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.... of the impugned order, the Commissioner has noticed the process undertaken by the appellant in the following manner: "(i) First, they are sorting out the used PET bottles and remove all non-PET materials like PVC, Aluminium, Paper, Iron & Stone materials, is any found; (ii) Then the 'used PET bottles' are put into crusher and the bottles became small pieces; (iii) Then the crushed material are washed so that the sand and the dirt particles are removed; (iv) Then the materials are washed with 'Hot water after adding required amount of Caustic/cleaning Reagents so that any sticky dirt is remove; (v) Then the 'dirt removed materials' are further washed and rinsed in two stages with fresh water; and (vi) Then, the materials are dried, packed and cleared from the factory." 20. This is also what has been contended by the appellant. There is, therefore, no dispute on the process undertaken by the appellant. 21. It is clear that non-PET materials such as PVC, Aluminium, Paper, Iron & Stone are sorted from the used PET Bottles/waste PET Bottles. Thereafter, the used/waste PET Bottles are crushed into smaller pieces, which ....
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.... Flakes whereas according to the department they are 'paring of PET Bottles'. Paring has been defined in a Concise Oxford Dictionary' as 'thin strips, pared off from something'. Thus, there is a basically no difference between PET Flakes and parings of PET Bottles. 25. The issue that arises for consideration is whether the process of conversion of waste PET Bottles into PET Flakes qualifies as 'manufacture' under section 2(f) of Central Excise Act. This aspect is relevant for the purpose of levy of excise duty because section 3 of the Central Excise Act provides that there shall be levied and collected in such manner as may be prescribed a duty of excise to be called the Central Value Added Tax on all excisable goods which are produced or manufactured in India. 26. The Supreme Court in Delhi Cloth and General Mills held that 'manufacture' means bringing into existence a new substance known to the market and not merely producing some change in a substance. In this connection, the Supreme Court placed reliance upon the passage quoted in Permanent Edition of Words and Phrases Volume 26, which is reproduced below: "Manufacture implies a change, but every change is not ma....
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....of the Supreme Court are reproduced below: "6. In the present case, there is no essential difference between pineapple fruit and the canned pineapple slices. The dealer and the consumer regard both as pineapple. The only difference is that the sliced pineapple is a presentation of fruit in a more convenient form and by reason of being canned it is capable of storage without spoiling. The additional sweetness in the canned pineapple arises from the sugar added as a preservative. On a total impression, it seems to us, the pineapple slices must be held to possess the same identity as the original pineapple fruit. 7. xxxxxxxxxxx. The comment applies fully in the case before us. Although a degree of processing is involved in preparing pineapple slices from the original fruit, the commodity continues to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it on adding sugar to preserve it. It is contended for the Revenue that pineapple slices have a higher price in the market than the original fruit and that implies that the slices constitute a different commercial commodity. The higher price, it seems to us....
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....e. We are also clearly of the view that merely because of change in tariff item, the good does not become excisable. On the application of aforesaid test, our conclusion is clear that the impugned circular dated 7-9-2001 is wholly unsustainable and has to be quashed and we order accordingly." (emphasis supplied) 34. In Crane Betel Nut Powder Works the Supreme Court observed that crushing of betel nuts into smaller pieces and adding sweetening agent does not amount to 'manufacture'. The relevant portions of the judgment of the Supreme Court are reproduced below: "29. Despite the elaborate submissions made on behalf of the respective parties, the issue involved in this appeal boils down to the question as to whether by crushing betel nuts and processing them with spices and oils, a new product could be said to have come into being which attracted duty separately under the Schedule to the Tariff Act. 30. In our view, the process of manufacture employed by the appellant-company did not change the nature of the end product, which in the words of the Tribunal, was that in the end product the 'betel nut remains a betel nut'. The said observation of the Tribunal dep....
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....rwise processing, treating or adapting of any goods fall within the meaning of the term 'manufacture'. But it may be pointed out that every type of variation of the goods or finishing of goods would not amount to manufacture unless it results in emergence of new commercial commodity. In the instant case, the very nature of the activity does not result in manufacture because no new commercial commodity comes into existence. 6. This Court in Commissioner of Sales Tax, Uttar Pradesh v. Lal Kunwa Stone Crusher (P) Ltd. [2000 (3) S.C.C. 525], on an identical question, expressed the view that when stone boulders were crushed into stone chips, gitti and stone ballast, the process could not be termed as 'manufacture'. That case arose under the Uttar Pradesh Sales Tax Act, 1948 (for short, 'the Act'). The definition of 'manufacture' in Section 2(e-1) of the U.P. Act appears to be similar to the definition under consideration. 7. In view of the judgment of this Court in Lal Kunwa Stone Crusher (P) Ltd. (supra), with which we are in respectful agreement, we find no illegality in the impugned judgment of the High Court. In the view that we have taken, the judgment of the High....
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....urt then examined when transformation does not takes place and in this context observed as follows: "10. When a finished product cannot conveniently be used in the form in which it happens to be, and it is required to be changed into various shapes and sizes so that it can conveniently be used, no transformation takes place if the character and the end use of the first product continue to be the same. An illustration of this principle is brought out by the judgment in CCE, New Delhi v. S.R. Tissues, 2005 (186) E.L.T. 385 (S.C.). On facts, in the said case, jumbo rolls of tissue paper were cut into various shapes and sizes so that they could be used as table napkins, facial tissues and toilet rolls. This Court held that there was no manufacture as the character and the end use of the tissue paper in the jumbo roll and the tissue paper in the table napkin, facial tissue and toilet roll remains the same. 11. Another example of when transformation does not take place is when foreign matter is removed from an article or additions are made to the article to preserve it or increase its shelf life. 12. In MMTC v. Union of India, 1983 (13) E.L.T. 1542 (S.C.), this....
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....nt and the said process does not give rise to a new product which is marketable. The said process cannot, therefore, be regarded as a manufacturing process. We find that the Central Government itself, in another matter relating to M/s. Premier Tyres Ltd. has passed an Order on 17-5-1977 (page 83 of Paper Book) wherein, it has been held that the transformation brought about the dipping of cotton fabrics in a soap solution is not a permanent one; it is not an operation which results in the production of a new article which could be bought and sold as such in the market." xxxxxxxxxxxx 16. Examples of additions made to the article to preserve it or increase its shelf life are to be found in Tungabhadra Industries Ltd. v. CTO, (1961) 2 SCR 14 and M/s. Maruti Suzuki India Ltd. v. CCE, 2015 (318) E.L.T. 353 (S.C.). In the Tungabhadra case, it was held that hydrogenated oil continued to be groundnut oil despite there being an intermolecular change in the content of the substance of the oil due to hydrogenation. It was held that oil made from groundnut continued as such despite the hardening process of hydrogenation. In its essential character, it was held that such hydrog....
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....character or use. In a case where the finished product cannot conveniently be used in the form in which it happens to be, and it is required to be changed into various shapes and sizes, no transformation takes place if the character and the end use of the first product continues to be the same. When a foreign matter is removed from an article or additions are made to the article to preserve it, transformation does not takes place. The test for determining whether 'manufacture' can be said to have taken place is to see whether the commodity which has been subjected to the process of 'manufacture' is no longer regarded as the original commodity and is regarded by the trade as a new and distinct commodity. 42. The facts of the present case have to be examined in the light of the law laid down in the aforesaid decisions. 43. 'Manufacture' in the present case, cannot be said to have taken place as non-PET materials had been sorted out from the used PET Bottles which were, thereafter, crushed into smaller pieces called Flakes. Flakes are then dried, packed and cleared from the factory. The final product remains the same as PET Flakes; the only difference is that the waste PET Bottl....