2002 (5) TMI 190 - AT - Central Excise

Summary

Issues involved:
Whether conversion of gauzes into saturated gauzes on account of continuous use amounts to manufacture and whether such saturated gauzes are classifiable as scrap of precious metals under sub-heading 7101.80 of the Central Excise Tariff Act.

Analysis:

Issue 1: Conversion of gauzes into saturated gauzes and classification as scrap of precious metals

The appellant argued that the impugned gauzes, after becoming ineffective due to continuous use, are not newly manufactured goods and thus not liable to pay Central excise duty. They relied on a Tribunal decision stating that spent earth cannot be considered a manufactured product. The Revenue contended that the gauzes, through a chemical reaction, are converted into scrap of precious metals, as per the Explanatory Notes of H.S.N. The Revenue argued that worn-out catalysts are a new product from which precious metal is recovered. They also mentioned that a Supreme Court decision clarified that excise duty is on the manufacture of goods, emphasizing the requirement for a new and different article to emerge with a distinctive name, character, or use.

Issue 2: Test of manufacture and emergence of a new product

The Tribunal agreed with the appellant, stating that the test of manufacture as laid down by the Apex Court was not satisfied in the present case. They emphasized that no new product with a distinctive name, character, or use emerged from the saturated gauzes. The Tribunal highlighted that for Central Excise duty to be leviable, there must be a transformation resulting in a new and different article. Since the saturated gauzes remained the same but non-usable, they concluded that no Central Excise duty was applicable on worn-out gauzes. Therefore, they set aside the impugned orders and allowed both appeals.

In conclusion, the Tribunal ruled in favor of the appellant, stating that the conversion of gauzes into saturated gauzes due to continuous use did not amount to manufacture, and such gauzes were not classifiable as scrap of precious metals under the Central Excise Tariff Act. They emphasized the requirement for a new product with distinctive characteristics to emerge for Central Excise duty to be applicable.