2022 (8) TMI 163 - AT - Central Excise

Process amounting to manufacture or not - conversion of waste oil/used oil/sludge obtained from various sources into reclaimed fuel oil / re-refining used oil amounts - classifiable under Central Excise Tariff Sub-heading No. 27101990 or classifiable under Chapter heading 27109900 as claimed by the Appellant? - Time Limitation - suppression of facts or not - HELD THAT - The basic fact that is not disputed is that the Appellant purchasing waste/ sludge oil from vessels and other sources. This is sold as waste oil/sludge oil and is purchased by the appellant also as waste oil /sludge oil. For removing impurities from said waste oil Appellant undertake various processes. The processing undertaken by the appellant is inform of filtering distillation, dehydration, centrifuging etc. The entire tenor of the Adjudicating Authority while confirming the demands is only on the ground that the used oil which was unfit for use as fuel Oil were made fit for use by the appellant by refining or reprocessing the same and hence, characteristic and the use has changed. Due to which Chapter Note No. 4 of Chapter 27 gets attracted and the said activity becomes manufacture. It is observed that the purifying of the sludge/used oil would not amount to manufacture. Manufacture implies a change, but every change is not manufacture. The Apex Court in the landmark decision in the case of UNION OF INDIA VERSUS DELHI CLOTH AND GENERAL MILLS CO. LTD. 1962 (10) TMI 1 - SUPREME COURT , held that The word manufacture used as a verb is generally understood to mean as bringing into existence a new substance, however, minor in consequence the change may be. The true test for determining whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognized in trade as a new and distinct commodity. In the present case, the appellant bring used waste oil /sludge oil and by removing impurities, it is made again useable as oil. Both before and after the processing, the product remains as only oil. That being so, it cannot be said that a new and distinct commodity has come into existence consequent to the process undertaken by the appellant. From Circular dated 11-4-2016, it can be held that the process of cleaning of waste oil to yield reclaimed fuel oil does not amount to manufacture as defined under Section 2(f) of the Central Excise Act, 1944. Once it is held that the activity is not manufacture all he demands including duty, interest, penalties and personal penalty in the impugned shall not sustain on merit. Extended period of Limitation - suppression of facts or not - HELD THAT - The department was aware of the Appellant s activity in respect of Waste Oil/ Sludge/Used Oil. The Appellant have not suppressed anything from the department. It is also noticed that CBEC vide circular No. 1024/12/2006-CX dated 11.04.2006 also instructed that the issue is interpretational in nature and therefore where a demand is raised pursuant to this circular, it should be raised for normal period of limitation only. SSI benefit, where admissible, should be extended . Therefore, in this fact the demand confirmed by the Ld. Commissioner invoking the extended period legally not sustainable and the same is set aside on limitation too. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the conversion of waste oil/used oil/sludge into reclaimed fuel oil/re-refined used oil amounts to manufacture under Section 2(f) of the Central Excise Act, 1944.
2. Classification of the final product under the Central Excise Tariff.
3. Applicability of Chapter Note 4 of Chapter 27 of the Central Excise Tariff.
4. Limitation and suppression of facts for invoking the extended period of limitation.

Detailed Analysis:

1. Whether the Conversion Amounts to Manufacture:
The primary issue is to determine if the processes undertaken by the appellant€”such as vacuum distillation, filtration, heating, and centrifuging€”constitute "manufacture" as defined under Section 2(f) of the Central Excise Act, 1944. The tribunal noted that the appellant procured waste oil/sludge and processed it to remove impurities, resulting in reusable fuel oil and re-refined used oil. The department argued that these processes changed the characteristics and use of the oil, thereby amounting to manufacture. However, the tribunal observed that the purifying of sludge/used oil does not amount to manufacture since it does not result in a new and distinct commodity. The oil remains oil before and after the process, aligning with the Supreme Court's interpretation in U.O.I. v. Delhi Cloth and General Mills Co. Ltd. (1977).

2. Classification of the Final Product:
The department classified the final product under Central Excise Tariff Heading No. 27101990, while the appellant argued for classification under Chapter heading 27109900. The tribunal held that the final product, being reclaimed fuel oil, should be classified under 27109900. This classification was supported by the fact that the product remained oil and did not transform into a new commodity.

3. Applicability of Chapter Note 4 of Chapter 27:
The tribunal examined whether Chapter Note 4 of Chapter 27, which pertains to certain processes being deemed as manufacture, was applicable. The appellant contended that the show cause notice did not invoke Note 4, and the processes undertaken did not fall under the scope of Note 4, which applies to lubricating oils and preparations. The tribunal agreed, noting that the appellant's processes were not related to lubricating oils but to waste oil, and thus Note 4 was inapplicable. Furthermore, the tribunal referenced Circular No. 1024/12/2016, which clarified that Note 4 does not apply to waste oil.

4. Limitation and Suppression of Facts:
The appellant argued that the demand was time-barred as there was no suppression of facts. The tribunal found that the department was aware of the appellant's activities through correspondence and inspections over the years. The appellant had consistently communicated with the department, which had accepted their stand that the processes did not amount to manufacture. The tribunal also referred to the CBEC circular stating that demands should be raised for the normal period of limitation only. Consequently, the tribunal held that the extended period of limitation was not applicable.

Conclusion:
The tribunal concluded that the processes undertaken by the appellant did not amount to manufacture, and the classification of the final product should be under 27109900. The reliance on Chapter Note 4 was misplaced, and the extended period of limitation was not applicable due to the lack of suppression of facts. Therefore, the demand for duty, interest, and penalties was set aside, and the appeals were allowed with consequential relief.