2017 (1) TMI 1543 - Commissioner - Central Excise

Manufacture - whether conversion of waste oil obtained from various sources into reclaimed fuel oil amounts to manufacture as per Section 2(f) of CEA 1994? - Held that - In Circular No. 1024/12/2016-CX, dated 11-4-2016 on the subject wherein the issue of clarification regarding re-refined used or waste oil has been discussed threadbare and certain instructions are given therein - The circular specifically talks about the lubricating oil obtained from re-refining or re-processing 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 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 2710 99 00 but used as fuel only and is not a lubricating oil or used as lubricating oil. The process of cleaning of waste oil to yield reclaimed fuel oil does not amount to manufacture as defined under Section 2(f) of the Central Excise Act, 1944 - Once it is held that the activity is not manufacture all other demands and imposition of penalty stands negated. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
- Whether the conversion of waste oil into reclaimed fuel oil amounts to manufacture under Section 2(f) of the Central Excise Act, 1994.
- Whether the penalty imposed under Rule 26(1) on the director of the company is justified.

Analysis:

Issue 1: Conversion of waste oil into reclaimed fuel oil
The case involved an appeal filed by M/s. Jonas Petro Products (P) Limited against the Orders-in-Original demanding Central Excise duty for the period from April 2013 to June 2014. The appellant contended that the process of filtering and heating waste oil to produce reclaimed fuel oil does not constitute manufacture as it does not result in a new and distinct commodity. They argued for credit on inputs and input services and cited relevant case laws. The appellant also challenged the penalty imposed. The Commissioner examined the process undertaken by the appellant and the definition of "manufacture" as per Section 2(f) of the Central Excise Act, 1994. The Commissioner considered various judicial precedents and circulars to determine that the activity of converting waste oil into reclaimed fuel oil does not amount to manufacture. Consequently, the demands and penalties imposed were negated, and the appeal was allowed.

Issue 2: Penalty imposed on the director of the company
In a separate appeal, the director of the company challenged the penalty imposed under Rule 26(1). The director argued that there was no evidence of a guilty mind or connivance in the alleged offenses by the company. The Commissioner considered the burden of proof on the department and the interpretation of Section 2(f) of the Central Excise Act. The Commissioner reviewed relevant case laws and circulars to determine that the penalty imposed on the director was not justified as there was no personal offense committed. Consequently, the penalty was quashed, and the appeal was allowed.

In conclusion, the Commissioner allowed the appeals filed by M/s. Jonas Petro Products (P) Limited and the director of the company, quashing the Orders-in-Original and providing consequential relief in both cases.