2016 (9) TMI 1171 - AT - Central Excise

Deemed Manufacture - emergence of clean oil through the processes, such as, Dehydration, Distillation, Clay Polishing and Filtration from waste and used oil - clean oil were packed in bulk packs of drum and sold to industrial customers - application of Chapter note 4 of Chapter 27 of schedule to the Central Excise Tariff Act, 1985 - Held that - for applying the Chapter note 4 to any goods for examining, whether, manufacture has taken place, it is essential to establish (i) either there is labeling or re-labeling of containers, (ii) there is re-packing from bulk packs to retail packs (iii) such treatments have adopted, so that product is rendered marketable to consumer. From the show cause notice and relied upon documents for issue of show cause notices, we do not find that Revenue could establish that the goods emerged after removal of impurities from waste oil have been marketed to consumer. In fact, there was not a single invoice raised to a consumer, establishing that the goods were marketable to consumer. All the invoices were for bulk packing and sold to industrial customers. Further, there was no evidence of labeling or re-labeling or for re-packing into retail packs. We, therefore, hold that all the show cause notices involved in the four appeals in hand lack, prima facie, evidence for leveling charges leveled and unsustainable. Hence, the two Orders-in-Original impugned in four appeals in hand, are set aside. - Decided in favour of appellant

Summary

Issues:
1. Whether the treatment of waste and used oil amounts to manufacture under Chapter note 4 of Chapter 27 of the Central Excise Tariff Act, 1985.
2. Whether the imposition of Central Excise duty, interest, and penalty on the appellants is justified.
3. Whether the show cause notices issued by the Revenue are sustainable based on the evidence presented.

Analysis:
Issue 1: The appellants procured waste and used oil, subjected it to processes like Dehydration, Distillation, Clay Polishing, and Filtration, and sold the resulting clean oil to industrial customers. The Revenue contended that this treatment amounted to manufacture under Chapter note 4. The Original Authority confirmed the demand of Central Excise duty, interest, and penalty. The appellants argued that no new product emerged, relying on previous tribunal decisions and Supreme Court rulings. The Tribunal analyzed the processes applied by the appellants and the requirements of Chapter note 4. It found that the Revenue failed to establish that the treated oil was marketed to consumers, as all sales were in bulk to industrial customers. Consequently, the show cause notices lacked evidence, leading to the Orders-in-Original being set aside, and the appeals allowed.

Issue 2: The Revenue imposed Central Excise duty, interest, and penalties on the appellants based on the treatment of waste oil. The appellants challenged these impositions, arguing that no new product emerged and Chapter note 4 did not apply to them. The Tribunal, after considering the contentions of both parties, found that the Revenue did not prove that the treated oil was made marketable to consumers. As a result, it held that the show cause notices were unsustainable, leading to the Orders-in-Original being set aside, and the appeals allowed.

Issue 3: The Revenue issued multiple show cause notices to the appellants on similar grounds, confirming demands of Central Excise duty, interest, and penalties. The appellants challenged these notices, emphasizing that no new product was created and Chapter note 4 was not applicable to them. The Tribunal examined the evidence and invoices presented, noting that all sales were in bulk to industrial customers, without evidence of marketing to consumers. Consequently, it held that the show cause notices lacked prima facie evidence, leading to the Orders-in-Original being set aside, and all appeals allowed.