2008 (12) TMI 29 - AAR - Central Excise

Duty payable on a product which is obtained by blending bio-diesel (methyl ester) and petro-diesel in the ratio of 60% & 40% classification held that the blend of pure bio-diesel and petrol-diesel in the ratio of 60% and 40% would fall under 38 24 9090 of CETA 1985- process of blending would amount to manufacture under CEA 1944 - above blend is fully exempt from excise duty under Notification No. 4/2006-Central Excise dated 1.3.2006 as amended by Not. 4/2007-Central Excise dated 1.3.07

Summary

Issues Involved:
1. Classification of the product under the Central Excise Tariff.
2. Whether the process of blending bio-diesel and petro-diesel amounts to manufacture.
3. Applicability of exemption under Notification No. 4/2007-CE.

Detailed Analysis:

1. Classification of the Product:

The applicant initially classified the blend of 60% bio-diesel and 40% petro-diesel under CETH No. 2920 90 58. However, the Commissioner argued that the product should fall under Chapter 38 of the CETA. Upon review, the Authority determined that the blend is not a separate chemically defined organic compound but a physical mixture of methyl ester and hydrocarbons. Consequently, the blend is classified under CETH No. 3824 90 90, aligning with the Harmonized System of Nomenclature (HSN) which includes "so-called bio-diesel" under this heading.

2. Whether the Process of Blending Amounts to Manufacture:

The applicant contended that blending bio-diesel with petro-diesel does not amount to manufacture as no new product emerges. However, the Commissioner and expert opinions from institutions like Indian Oil Corporation and IITs indicated that the blending process results in a new product with distinct characteristics, chemical composition, and use. The Authority referred to the definition of 'manufacture' under Section 2(f) of the Central Excise Act and various Supreme Court judgments, concluding that the process results in a new commercially distinct product. Therefore, the blending process amounts to manufacture under the Central Excise Act.

3. Applicability of Exemption under Notification No. 4/2007-CE:

The applicant argued that the blend should be exempt from excise duty under Notification No. 4/2007-CE, which exempts alkyl esters of long chain fatty acids obtained from vegetable oils, commonly known as bio-diesels. The Commissioner countered that the exemption applies only to pure bio-diesel and not to blends. The Authority examined the language of the notification and the explanatory notes, determining that the term "commonly known as bio-diesels" includes both pure bio-diesel and its blends. The notification's reference to Chapter 38 supports this interpretation. Hence, the blend is fully exempt from excise duty under the said notification.

Conclusion:

1. The blend of 60% bio-diesel and 40% petro-diesel falls under Tariff Heading No. 3824 90 90 of the Central Excise Tariff Act, 1985.
2. The process of blending amounts to manufacture under the Central Excise Act, 1944.
3. The blend is fully exempt from excise duty under Notification No. 4/2006-Central Excise dated 1.3.2006, as amended by Notification No. 4/2007-Central Excise dated 1.3.2007.

(Pronounced in the open court of Authority on 11th day of December, 2008.)