2013 (9) TMI 821 - AT - Central Excise

Classification of Goods - Activity Manufacture OR Not - Assesse were engaged in the manufacture of Refined Oil falling under chapter heading No.1503.00 of the Central Excise Tariff Act, 1985 Whether the Soya Gum which was settled at the bottom of the storage tank along with some oil and the separation of that oil from the said sludge by the process of decantation/filteration so to recover some crude oil, which was sold by the assessee as recovered oil can be said to be the result of any manufacture or not - Held that - It was seen that the assessee had categorical stand that such Soya Gum which was settled at the bottom of storage tank and was removed gently along with some oil cannot be held to be an excisable item emerged as a result of manufacturing process - We find that Commissioner (Appeals) had discussed the issue in detail and had rightly held that such Soya Gum and recovered oil cannot be held to be the goods emerging as a result of manufacture - Soya Gum and the other impurities were part and partial of the purchased crude oil - The same settle down during the storage of the crude oil in the storage tanks - The upper part of the crude oil was further taken up for refining of the same. What was left at the bottom of the storage tanks was the impurities which were already contained for the said crude oil - As such the impurities along with some oil, which settle down at the bottom of the tank were nothing but part of the crude oil itself - Similarly the separation of said crude oil from the sludge obtained by the process of filteration/decantation was again nothing but crude oil - The same was not refined by the assessee and was sold to the soap manufacturers etc. When the Soya Gum and the recovered oil were part of the crude oil, which was the starting raw material for the manufacture of refined oil, it cannot be said that the appellant have manufactured Soya Gum and recovered oil - The same one admittedly a part of the crude oil, which does not get converted into refined oil - A part of the crude oil had been used by the appellant for the manufacture of the refined oil and a part of the crude oil, which could not be used for the manufacture of refined oil, stands sold by them as Soya Gum and recovered oil - Accordingly we agree with the detailed findings of Commissioners (Appeals), wherein he had taken into account the explanatory note to Chapter 1507.00, the report of the Deputy Commissioner, as also the explanatory note of Chapter 15 there was no infirmity in his views - the appeal filed by the revenue was rejected.

Summary

Issues:
Classification of goods under Central Excise Tariff Act, 1985 - Whether Soya Gum and recovered oil are excisable items emerged as a result of manufacturing process?

Analysis:
The case involved the classification of goods under the Central Excise Tariff Act, 1985, specifically focusing on whether Soya Gum and recovered oil were excisable items resulting from a manufacturing process. The Respondents were engaged in manufacturing Refined Oil falling under chapter heading No.1503.00 and purchased crude vegetable oil from the market, containing impurities like Soya Seed and Soya Gum. The impurities settled at the bottom of storage tanks and were removed for further processing. The recovered crude oil, containing impurities and Soya Gum, was sold as "recovered Oil." During May to July 2003, the Respondents cleared Soya Gum and recovered oil without duty payment, leading to a show cause notice for duty demand and penalty imposition. The Commissioner (Appeals) set aside the order, prompting the Revenue's present appeal.

The key issue revolved around whether the process employed by the Appellant constituted manufacturing activities. The Commissioner (Appeals) analyzed the manufacturing process in detail, considering the separation of Soya Gum and recovered oil from crude oil settled at the tank bottom. It was established that the impurities and oil settled at the tank bottom were part of the crude oil itself, not refined by the Appellant. The separation process using decantation/filtration did not amount to manufacturing, as it did not involve chemical or physical alterations. The Appellant sold the recovered oil as it was, without refining it further. The Commissioner (Appeals' decision was based on the understanding that Soya Gum and recovered oil were inherent components of the crude oil, not transformed through manufacturing processes.

The Commissioner (Appeals) referenced the Explanatory Note to Chapter 1507.10 of the Harmonised Commodity Description and Coding System to determine whether the extraction process constituted crude oil production. The note specified that mechanical forces like decantation and centrifugation, without chemical or physical alterations, maintained the oil's crude status. The treatment given by the Appellant, involving simple filtration to remove impurities, did not align with the definition of treatment under Chapter 15.07. Therefore, the residues were not classified under Chapter 15.07, as concluded by the Adjudicating Authority.

Ultimately, the Tribunal upheld the Commissioner (Appeals) decision, rejecting the Revenue's appeal. It concurred that Soya Gum and recovered oil were not distinct excisable items resulting from a manufacturing process but integral parts of the crude oil. The Appellant's activities did not amount to manufacturing, as they merely separated impurities from crude oil without undergoing significant alterations. The decision was based on detailed analysis, considering the nature of the process employed and the classification under the Central Excise Tariff Act, 1985.

In conclusion, the judgment clarified the classification of Soya Gum and recovered oil under the Central Excise Tariff Act, emphasizing that these items were not separate excisable goods but inherent components of the crude oil, not subjected to manufacturing processes. The decision provided a comprehensive analysis of the manufacturing activities involved, ensuring adherence to the relevant legal provisions and explanatory notes for accurate classification.