2017 (9) TMI 76 - AT - Central Excise

Manufacture - the bulk LLP/HLP in tankers was filled by the appellants in drums and sold to the customers - Revenue entertained a view that LLP/HLP are to be categorized as lubricating oils or lubricating preparations of CETH 2710 and the activities so carried out by the appellant/assessee amounted to manufacture - penalty - Held that - LLP/HLP cannot be considered as either lubricating oils or lubricating preparations. These products are for specific use mainly in cosmetics, foods and pharmaceutical industries. These are different from lubricating preparations, which are blended products containing more than 70% of the petroleum oils and other additives, to impart specific properties to reduce friction - CBEC Circular dated 4.5.1988 clarifies liquid paraffin IP as a separate product under Heading 271099. HSN Explanatory Notes for Heading No.2710 indicates three categories of products. LLP/HLP (White Oils) are covered under Category A. LLP and Light Parafffin are defined in Indian Pharmacopeia - there is no manufacture and demand is set aside - penalty set aside - appeal allowed - decided in favor of assessee.

Summary

Issues:
Liability of appellant to pay central excise duty on trading activities involving LLP/HLP; Interpretation of Note-4 of Chapter 27 regarding deemed manufacture; Imposition of penalty under Rule 25 of Central Excise Rules.

Analysis:

1. Liability of appellant to pay central excise duty on trading activities involving LLP/HLP:
The dispute centered around whether the appellant was liable to pay central excise duty on the trading activity involving filling bulk LLP/HLP in tankers into drums and selling them. The Revenue argued that LLP/HLP should be categorized as lubricating oils or lubricating preparations under CETH 2710, thus constituting manufacture. The appellant contested this, stating that LLP/HLP were not lubricating preparations and provided various arguments to support their position, including references to Explanatory Notes of HSN, CBEC Circulars, and case laws. They also highlighted the specific nature of their trading activities and the absence of additives in LLP/HLP, indicating their use in industries other than lubricants.

2. Interpretation of Note-4 of Chapter 27 regarding deemed manufacture:
The Tribunal analyzed Note-4 of Chapter 27, which states that certain activities like labeling, repacking, or other treatments render a product marketable and amount to manufacture. The Original Authority misdirected himself by equating LLP/HLP with paraffin wax and considering them as lubricating preparations. The Tribunal clarified that LLP/HLP, known as White Oils, were distinct products used mainly in cosmetics, foods, and pharmaceutical industries, different from lubricating preparations containing petroleum oils and additives. References to CBEC Circulars and case laws supported the Tribunal's conclusion that LLP/HLP did not fall under the category of lubricating oils or preparations, thus rejecting the Revenue's argument for central excise duty.

3. Imposition of penalty under Rule 25 of Central Excise Rules:
The Revenue sought to impose a penalty under Rule 25 of Central Excise Rules for the demand covered by a show cause notice. However, the Tribunal dismissed this claim as the demand itself was deemed unsustainable due to the appellant not being liable for central excise duty. The Tribunal's decision to set aside the impugned order and allow the appeals by the appellant reflected their finding that the demand was not justified, leading to the dismissal of the Revenue's appeal for penalty.

In conclusion, the Tribunal's detailed analysis and interpretation of the legal provisions, supported by references to relevant authorities and case laws, resulted in a favorable judgment for the appellant, absolving them from the liability to pay central excise duty on the trading activities involving LLP/HLP.