2020 (1) TMI 420 - AT - Central Excise

Relevancy of Draft Circular - Process amounting to manufacture - process of blending of Ethanol with Motor spirit - case of the department is that addition of 5% Ethanol in the Motor Spirit is amounting to manufacture and accordingly clearance of Motor Spirit blender with Ethanol is liable to Excise Duty. The Learned Adjudicating Authority has heavily relied upon the Draft circular F. No.83/04/2007-CX which intended to withdraw the Circular No.83/83/94-CX dated 13.12.1994 which circular was heavily relied upon by the appellant - HELD THAT - The draft circular which was never issued as a circular should be completely ignored and no reference can be drawn from such circular. Since the draft circular was not issued the circular No. 83/83/94-CX dated 13.12.1994 was continued and effective. Therefore, the finding of the Learned Adjudicating Authority based on the draft circular is not sustainable - In this situation we are of the view that the entire matter needs to be given a relook by considering the various alternative submission made by the appellant. Appeal allowed by way of remand.

Summary

Issues:
- Whether addition of 5% Ethanol in Motor Spirit amounts to manufacture and is liable to Excise Duty.
- Applicability and reliance on draft circular F. No. 83/04/2007-CX.
- Interpretation of Circular No. 83/83/94-CX dated 31.12.1994 regarding blending of Methanol or Ethanol with Motor Spirit.
- Applicability of Excise Duty exemptions on Ethanol blended Motor Spirit (EBMS) during the relevant period.
- Retrospective application of adverse circulars.
- Determination of whether blending of Motor Spirit with Ethanol constitutes manufacture.
- Tax liability at the last stage of value addition.
- Consideration of submissions and principles of natural justice in passing orders.

Analysis:

1. The case involved the appellant engaged in the manufacture of Motor Spirit, which was blended with 5% Ethanol and sold as Motor Spirit (Petrol). The dispute centered around whether the addition of Ethanol constituted manufacture and attracted Excise Duty. The Adjudicating Authority upheld the demand for Excise Duty, leading to the appeal.

2. The appellant contended that the reliance on a draft circular for confirming the demand was improper as the effective circular, Circular No. 83/83/94-CX, clarified that blending Ethanol with Motor Spirit does not amount to manufacture. The appellant argued that Excise Duty was paid on Motor Spirit and Ethanol, and exemptions were availed as per relevant Notifications.

3. Additionally, the appellant argued against the retrospective application of adverse circulars and cited legal precedents to support the position that blending Ethanol with Motor Spirit did not result in a new product or manufacturing process. The appellant emphasized that the process did not alter the essential characteristics of Motor Spirit.

4. The Tribunal considered the submissions and found that reliance on the draft circular was improper since it was never issued. The effective circular from 1994 remained applicable, and the matter required a reevaluation, considering the appellant's contentions. The Tribunal set aside the previous order and remanded the case for a fresh decision, emphasizing the importance of natural justice principles.

5. The judgment highlighted the significance of determining whether a process amounts to manufacture based on established legal tests and precedents. It also addressed the tax liability at the last stage of value addition and the need for a thorough reconsideration of the case based on all submissions and principles of natural justice.

6. Ultimately, the Tribunal's decision to remand the case underscored the importance of fair consideration of all arguments and adherence to legal principles in resolving the dispute over the Excise Duty liability concerning the blending of Ethanol with Motor Spirit.