2006 (7) TMI 479 - AT - Central Excise

Summary

Issues:
1. Whether blending ethanol with motor spirit amounts to manufacture.
2. Whether duty is applicable on motor spirit used in the manufacture of ethanol blended motor spirit (EBMS).

Analysis:

Issue 1:
The appellants were engaged in blending 5% ethanol with 95% motor spirit to produce ethanol blended motor spirit (EBMS). The issue was whether this blending activity amounts to manufacture. The Commissioner issued a Show Cause Notice claiming duty on the motor spirit used in the blending process. The appellant argued that blending ethanol with motor spirit does not constitute manufacture, citing a Board circular that clarified blending of methanol and ethanol with motor spirit does not change the nature of the final product. The Tribunal referred to the Board's Circular No. 83/84/94-CS, which stated that blending 3% methanol with motor spirit does not amount to manufacture. The Tribunal found that the appellant's case was covered by this circular, concluding that the blending activity did not constitute manufacture as per the Central Excise Act.

Issue 2:
The second issue revolved around whether duty should be imposed on the motor spirit used in the production of ethanol blended motor spirit (EBMS). The Commissioner sought duty payment based on the belief that blending ethanol with motor spirit amounted to manufacture. However, the Tribunal, relying on the Board circular, determined that the blending activity did not amount to manufacture. Consequently, the Tribunal ruled in favor of the appellants, stating that they had made a prima facie case supported by the Board's circular. As a result, the Tribunal waived the requirement for the appellants to pre-deposit the entire duty and penalty amount pending the appeal's final disposal.

In conclusion, the Tribunal held that blending ethanol with motor spirit to produce ethanol blended motor spirit did not amount to manufacture as per the Central Excise Act. The decision was supported by the Board's circular, which clarified that blending methanol and ethanol with motor spirit did not change the nature of the final product. Therefore, the appellants were not liable to pay duty on the motor spirit used in the blending process, and the pre-deposit of duty and penalty was dispensed with until the appeal's final resolution.