2014 (10) TMI 161 - AT - Central Excise

Manufacture - activity of dilution of sulphuric acid and finished product is supplied to the battery companies for use in the batteries - revenue is of the view that the said activity amounts to manufacture - Held that - The activity undertaken by the applicant is that they are purchasing 98% concentrated sulphuric acid, and as per the requirement of the customers they diluted it with demineralised water, to attain desired concentration. The product that emerged was diluted sulphuric acid (28-50%), which was marketable and it is specifically used in the manufacture of battery manufacturing units. Therefore, in terms of definition under Section 2(f) of the Central Excise Act, 1944, we hold that the appellant are engaged in the activity of manufacture. - Demand of duty and interest confirmed - penalty set aside - appellant allowed to use cenvat credit - Decided partly in favor of assessee.

Summary

Issues:
Interpretation of manufacturing activity under Section 2(f)(ii) of the Central Excise Act, 1944.

Analysis:
The appellant was engaged in dilution of sulphuric acid, supplying the finished product to battery companies. The Adjudicating Authority deemed this activity as manufacturing under Section 2(f)(ii) of the Central Excise Act, 1944. The appellant argued that they merely mixed chemicals, not engaged in manufacturing. The Tribunal considered the definition of manufacture under Section 2(f) of the Act, which includes processes specified in Chapter notes of the Central Excise Tariff Act, 1985. The Tribunal found that the appellant's activity of diluting sulphuric acid to produce marketable diluted sulphuric acid for battery manufacturing units constituted manufacturing. Therefore, the appellant was required to register under Central Excise and pay duty. However, due to the appellant's belief that their activity did not amount to manufacturing, they did not register or avail Cenvat Credit. The Tribunal ruled that the appellant could now claim Cenvat Credit on inputs procured during the disputed period. The appellant was directed to pay the differential duty, along with interest, and a penalty of Rs. 5000 under Rule 27 of the Central Excise Rules.

The Tribunal noted that the issue revolved around interpreting whether the appellant's activity constituted manufacturing. Since it was a matter of interpretation and not deliberate evasion, the Tribunal held that penalty under Section 11AC of the Act was not justified. Therefore, the appeal was disposed of without imposing additional penalties.