2003 (10) TMI 425 - AT - Central Excise

Manufacture - Liquefied Petroleum Gas - Cenvat/Modvat - Inputs - Exemption - Captive consumption

Summary

Issues involved:
Whether the process of mixing Butane and Propane amounts to manufacture, and consequently, whether the appellants are eligible to Modvat credit of duty paid on Butane under Rule 57A of the Central Excise Rules, 1944.

Analysis:
The appellant, a gas manufacturing company, received natural gas processed for extracting LPG primarily composed of Propane and Butane. A show cause notice demanded duty on Propane and disallowed Modvat credit on Butane, arguing that the mixing process did not constitute manufacture. The Commissioner upheld this decision, stating that the resulting product remained LPG with no distinct character or use. The appellant contended that various definitions of LPG from technical sources highlighted the mixture of Propane and Butane, emphasizing that the properties of the admixture differ from its constituents. They cited precedents where blending was deemed manufacturing. Additionally, they argued that the purity classification of Propane and Butane differed, indicating a transformation in the mixing process. The appellant had paid central excise duty upon clearance of LPG, filed necessary declarations, and monthly returns, asserting no intent to evade duty.

The Departmental Representative argued that Propane and Butane independently constituted LPG, and blending them did not create a new product. Referring to technical sources, they contended that LPG was available as Propane, Butane, or a mixture, emphasizing the absence of a distinct article post-mixing. Relying on legal precedents, they asserted that no new product with a different character, name, or use emerged from the mixing process. They highlighted that the Modvat credit requirement necessitated the use of inputs in manufacturing, which did not occur in this case.

The Tribunal considered both arguments, noting that LPG's definition encompassed a mixture of light hydrocarbons, including Propane and Butane. Referring to technical specifications and rules, the Tribunal concluded that LPG could be produced by mixing Propane and Butane, thus constituting a manufacturing process. Citing a relevant High Court judgment, the Tribunal affirmed that blending processes, like the one in question, amounted to manufacture, entitling the appellants to exemption under Notification No. 67/95-C.E. and Modvat credit for duty paid on Butane. Consequently, the appeal was allowed in favor of the appellants.