2015 (10) TMI 2398 - AT - Central Excise

Manufacture - captive consumption - Department contends that the UDMH manufactured by the appellant and used for mixing with HH in the ratio of 75 25 has to be treated as an intermediary product and since it has been used in the manufacture of an exempted final product, the benefit of exemption notification No.67/95 is not available - Held that - Admittedly UH25 is manufactured by mixing 75% of UDMH and 25% of HH in mixing container and thereafter thoroughly stirred for 90 minutes to meet the required density and specifications. According to the decision of the Hon ble Supreme Court, to call a process as manufacture it should result in emergence of a new product with distinct name, character and use. In this case there is no doubt that ISRO has given a new name UH25. The question that arises is whether it has attained a different character and is for a different use. As regards use, there is no dispute that both UDMH and HH25 are used for the same purpose viz., as a rocket propellant or fuel. In the absence of any evidence to show that there is a change in the character of the product and use of the product, we cannot say that Department has been able to show that a new product, as per the definition of manufacture laid down by the Hon ble Supreme Court, has emerged. In such a situation, when by mixing UDMH and HH a new product is not emerging, it cannot be said that UDMH has been captively consumed in the manufacture of a product which is exempted and therefore duty liability has to be discharged on UDMH manufactured by the appellants and used within the factory. - appellants have been able to show that there is no manufacture and no new product is emerging by mixing UDMH and HH and therefore the stand taken by the Revenue and the impugned order are not sustainable. - Decided in favour of assessee.

Summary

Issues Involved:
- Interpretation of Central Excise duty exemption notifications for rocket fuel/propellant used in satellite projects
- Classification of UDMH and UH25 as distinct products for duty imposition

Analysis:
1. Interpretation of Central Excise Duty Exemption Notifications:
The appeals involved a common issue regarding the duty demand and penalty imposed on the appellant for the period from June 2002 to August 2011. The appellant was supplying modified Unsymmetrical Di-Methyl Hydrazine (UDMH) mixed with Hydrazine Hydrate (HH) in a 75:25 ratio to the Indian Space Research Organisation (ISRO) for rocket fuel/propellant. The dispute arose when the department considered the UDMH used for mixing as an intermediary product, making the appellant ineligible for exemption under Notification No.67/95. The Commissioner contended that the process amounted to manufacture, leading to a duty demand on the captively used UDMH.

2. Classification of UDMH and UH25 as Distinct Products:
The appellant argued that the mixture of UDMH and HH, termed UH25, did not result in a new product as it retained the same character and use as propellant/fuel. They compared it to blending diesel/petrol with additives for improved versions while remaining fundamentally the same product. The Commissioner, however, considered the process as manufacturing based on the definition under Chapter Note-11 of Chapter 29 of the Tariff, concluding that UH25 was a newly manufactured product distinct from UDMH. The Tribunal analyzed whether the process resulted in a new product with a distinct name, character, and use, as required by the Hon'ble Supreme Court's decision. It was observed that no evidence was presented to demonstrate a change in the character or use of the product, leading to the conclusion that no new product emerged from mixing UDMH and HH.

3. Conclusion:
Ultimately, the Tribunal found in favor of the appellant, ruling that the Revenue's stand and the impugned order were not sustainable. It was held that no new product emerged from the mixing process, and therefore, the duty liability on UDMH used within the factory was discharged by the appellant. The appeals were allowed with consequential relief granted to the appellants, highlighting the importance of demonstrating a change in character or use to classify products as distinct for duty imposition.