2017 (5) TMI 183 - HC - Central Excise

Manufacture - Whether the process to which old tyres are subject to produce two or more pieces of cut tyre is manufacture within the meaning of Section 2 (f) of the Central Excise Act 1944? - Held that - Even where an entire unit is set up for the purposes of converting old and used tyres into pieces of cut tyres the essential character remains the same. Used tyres and tubes remain as such even after they are cut into pieces. They do not undergo any transformation so as to amount to manufacture within the meaning of Section 2 (f) of the CE Act - the mere classification of old and used tyres under Tariff Entry No. 4012 or Tariff Item No. 4004 with the rate of duty at 12.5% would not mean that the process by which the scrap rubber was obtained from old tyres amounted to manufacture. With the first limb of the two-fold test i.e. manufacture not being satisfied the question of examining whether they become excisable as a result of their marketability does not arise - The process to which old tyres are subject to produce two or more pieces of cut tyre is not manufacture within the meaning of Section 2 (f) of the CE Act. Whether the decision of this Court in Modi Rubber Limited v. Union of India 1986 (12) TMI 41 - HIGH COURT OF DELHI AT NEW DELHI requires to be reconsidered? - Held that - There can be no manner of doubt that by referring to the decision of Modi Rubber Limited v. Union of India and thereafter coming to the conclusion that cinder was not manufactured the Supreme Court in Union of India v. Ahmedabad Electricity Co. Limited 2003 (10) TMI 47 - SUPREME COURT OF INDIA impliedly approved the decision of this Court in Modi Rubber Limited v. Union of India where it was held that Excise duty is an incidence of manufacture and therefore it is essential that the product sought to be subjected to excise duty should have gone though the process of manufacture. Cinder cannot be said to have gone through any process of manufacture therefore it cannot be subjected to levy of excise duty. - The decision of this Court in Modi Rubber Limited v. Union of India does not require to be reconsidered. Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Whether the process of cutting old tyres into two or more pieces constitutes 'manufacture' under Section 2(f) of the Central Excise Act, 1944.
2. Whether the decision in Modi Rubber Limited v. Union of India requires reconsideration in the context of the above issue.

Issue-wise Detailed Analysis:

1. Whether the process of cutting old tyres into two or more pieces constitutes 'manufacture' under Section 2(f) of the Central Excise Act, 1944:

The Court examined whether the cutting of old tyres into smaller pieces could be classified as 'manufacture' under Section 2(f) of the Central Excise Act, 1944. The petitioner argued that this process does not constitute 'manufacture' as it does not result in a new product with a distinct identity, characteristics, or use. The petitioner relied on previous judgments, including Modi Rubber Limited v. Union of India, where it was held that waste or scrap generated during the manufacturing process is not a result of 'manufacture.'

The Court referred to several precedents, including the Supreme Court's decision in Union of India v. Ahmedabad Electricity Co. Limited, which impliedly approved the Modi Rubber decision. The Court reiterated that for a process to be considered 'manufacture,' it must result in a new product with a distinct name, character, or use. The cutting of old tyres into pieces does not meet this criterion as the essential character of the tyres remains unchanged.

The Court also discussed other relevant cases like Commissioner of Central Excise v. Tata Iron & Steel Co. Ltd. and Servo-Med Industries Pvt. Ltd. v. CCE, Mumbai, which supported the view that mere changes in the form of a product do not constitute 'manufacture' unless a new and distinct product emerges.

2. Whether the decision in Modi Rubber Limited v. Union of India requires reconsideration:

The Court addressed whether the decision in Modi Rubber Limited v. Union of India needed reconsideration. The Modi Rubber case had concluded that waste or scrap generated during the manufacturing process is not subject to excise duty as it does not result from 'manufacture.' This decision was implicitly upheld by the Supreme Court in Union of India v. Ahmedabad Electricity Co. Limited.

The Court noted that the principles laid down in Modi Rubber were consistent with subsequent Supreme Court judgments. It emphasized that the mere saleability of waste or scrap does not make it an excisable product unless it is a result of 'manufacture.' The Court found no reason to reconsider the Modi Rubber decision, as it aligned with established legal principles.

Conclusion:

The Court concluded that the process of cutting old tyres into two or more pieces does not constitute 'manufacture' under Section 2(f) of the Central Excise Act, 1944. Consequently, such cut pieces are not subject to excise duty or countervailing duty (CVD). The decision in Modi Rubber Limited v. Union of India does not require reconsideration. The Court set aside the TRU's clarification dated 2nd January 2015, declaring the imposition of 12% CVD on cut pieces of used tyres and tubes as unlawful and ultra vires the Customs Tariff Act, 1975. The writ petition was allowed without any order as to costs.