2012 (1) TMI 27 - SC - Central Excise

Whether the addition and mixing of polymer and additives to base bitumen results in the manufacture of a new marketable commodity and as such exigible to Excise duty assessee engaged in the supply of Polymer Modified Bitumen (PMB) & Crumbled Rubber Modified Bitumen (CRMB) Revenue contended that such process carried out amounted to manufacture Held that - In this case, neither in the Section Note nor in the Chapter Note nor in the Tariff Item do we find any indication that the process indicated is to amount to manufacture. Thus, it is evident that the said process of adding polymers and additives to the heated bitumen to get a better quality bitumen, viz. PMB or CRMB, cannot be given an extended meaning under the expression manufacture in terms of Section 2(f) (ii) of the Act. The said process did not result in transformation of bitumen into a new product having a different identity, characteristic and use. It is well settled that mere improvement in quality does not amount to manufacture. Thus, PMB or CRMB cannot be treated as bituminous mixtures falling under CSH 27150090 and shall continue to be classified under CSH 27132000 pertaining to tariff for petroleum bitumen. - Decided against the Revenue.

Issues Involved:
1. Whether the process of mixing polymers and additives with bitumen amounts to manufacture under Section 2(f) of the Central Excise Act, 1944.
2. Whether Polymer Modified Bitumen (PMB) and Crumbled Rubber Modified Bitumen (CRMB) are commercially marketable and thus exigible to Excise duty.
3. Whether the classification of PMB and CRMB under different tariff headings implies that their production constitutes manufacture.

Detailed Analysis:

1. Manufacture Under Section 2(f) of the Central Excise Act, 1944:
The core issue was whether the process of adding polymers and additives to bitumen constitutes "manufacture" as defined in Section 2(f) of the Act. The Tribunal held that the mechanical mixing of polymer with heated bitumen does not result in the creation of a new commercially identifiable product. The Supreme Court agreed with this view, emphasizing that for a process to be considered manufacture, it must result in a transformation of raw materials into a new and different article having a distinctive name, character, and use. The Court noted that the process in question only improved the quality of bitumen but did not change its essential characteristics or end use. Therefore, the process did not amount to manufacture under the Act.

2. Commercial Marketability and Exigibility to Excise Duty:
The revenue argued that PMB and CRMB are different from bitumen and are commercially known in the market, thus satisfying the test of marketability, which is essential for levy of Excise duty. However, the Tribunal found that PMB cannot be bought and sold in the market as it is fit for use only in a molten condition and cannot be stored unless kept in a continuous agitated state. The Supreme Court supported this view, stating that mere improvement in quality does not amount to manufacture. The Court also noted that the burden to prove marketability lies on the revenue, which was not satisfactorily discharged in this case.

3. Classification Under Different Tariff Headings:
The revenue contended that the classification of bitumen, polymers, and the finished products (PMB and CRMB) under different tariff headings implied that the process of obtaining PMB and CRMB constituted manufacture. The Supreme Court, however, clarified that merely because raw materials and finished products fall under different tariff entries, it does not automatically mean that the process constitutes manufacture. The Court reiterated that the process must result in the creation of a new and distinct article, which was not the case here as bitumen remained bitumen even after the addition of polymers and additives.

Conclusion:
The Supreme Court concluded that the process of mixing polymers and additives with bitumen does not amount to manufacture under Section 2(f) of the Central Excise Act, 1944. The resultant products, PMB and CRMB, do not constitute new and distinct articles with different identities, characteristics, and uses from the original bitumen. Consequently, PMB and CRMB cannot be classified under a different tariff heading and are not exigible to Excise duty. The appeals by the revenue were dismissed, and the Tribunal's orders were upheld.

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