Alicid Organic Industries Limited Vs C.C.E (CESTAT Ahmedabad)
Held that the process of cleaning of waste oil to yield reclaimed fuel oil does not amount to manufacture as defined under Section 2(f) of the Central Excise Act, 1944 not liable to duty.
Facts-
Appellant are engaged in the Recycling/ refining of Waste Oils/ Sludge. Appellant procured sludge/waste oil from vessels arriving from major ports Kandla, Mundra and Ship Breaking yard, Bhavanagar and also from M/s GSPC, M/s Cairn Energy and M/s Focus Energy. After procuring the said goods Appellant carried out processes like vacuum distillation, filtration, heating and centrifuging and other process to produce Re-usable Fuel Oil and Re-refined used oil. The Fuel oil so produced by Appellant is being sold to traders and consumers in open market as Re-Cycled Fuel Oil /Re-Cycled Industrial Fuel Oil and Re-refined Lube Oil without payment of Central Excise Duty. Appellant’s unit was visited by the officers and during the search proceedings, samples of finished products viz., Recycle Waste Oil and Re-refined Used Oil were withdrawn and same were sent for testing to the Chemical Examiner, Central Excise & Customs Laboratory, Vadodara. In his Test Reports, the Chemical Examiner has categorically stated that the samples of Recycled Waste Oil meet the parameter of Fuel Oil as prescribed under IS “1953”. Similarly, in case of sample of Refined Used Oil, the same confirms to the parameters of Lubricating Oil. Statement of Shri Manish C. Patel, Director of Appellant was also recorded by the department.
According to department, Appellant’s processes amounts to manufacture and the recycled fuel oil is appeared to be classifiable under Central Excise Tariff Heading No. 27101990 and Appellant is liable to discharge the Central Excise duty. Accordingly, a show cause notice dated 05.07.2016 was issued to the appellants, inter alia, proposing demand of Central Excise duty with interest and also imposition of penalty under Section 11AC of the Act and under Rule 25 of Central Excise Rules, 2002. After due process of adjudication, the adjudicating authority vide impugned order dated 11-5-2017 confirmed the proposed demand and also imposed equal penalty under Section 11AC of the Central Excise Act, 1944. He also imposed penalty under Rule 25 of Central Excise Rules, 2002 and penalty on Shri Manish C. Patel under Rule26 of Central Excise Rules, 2002. Hence, against the said order, the appellants are before us.
Conclusion-
Circular no. 1024/12/2016-CX dated 11-4-2016 specifically talks about the lubricating oil obtained from re-refining or re-processing waste oils and other oils obtained from various sources. In the instant case the product was not lubricating oil falling under the 2710 19 80 but is reclaimed fuel oil falling under 2710 99 00. The circular also states that the chapter note applies only to “lubricating oils and lubricating preparations of Heading 2710”. Other goods falling under CETH 2710 are not covered by the chapter note as the same is reclaimed fuel oil obtained from waste oils. The deeming fiction provides that when one of the process listed in the chapter note is carried out on lubricating oil or lubricating preparations, it shall be deemed to be manufacture. The instant case is the reclaimed fuel oil which is also waste oil falling under 2710 99 00 but used as fuel only and is not a lubricating oil or used as lubricating oil. It is also worthwhile that similar to chapter note 4 for Lubricating oil and preparations there is no such chapter note for the product of the appellant in question. This also suggest that legislators are very conscious that recycled oil from waste oil and sludge should not be made amounts to manufacture and should not be liable to duty.
Held that the process of cleaning of waste oil to yield reclaimed fuel oil does not amount to manufacture as defined under Section 2(f) of the Central Excise Act, 1944. Once it is held that the activity is not manufacture all he demands including duty, interest, penalties and personal penalty in the impugned shall not sustain on merit.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
These Appeals have been filed by M/s. Alicid Organic Industries Ltd. and Shri Manish C. Patel against Order-In-Original No. AHM-EXCUS-003-COM-001-16-17 dated 11.05.2017 passed by the Commissioner, Central Excise, Ahmedabad.
2. The brief facts of the case are that the Appellant are engaged in the Recycling/ refining of Waste Oils/ Sludge. Appellant procured sludge/waste oil from vessels arriving from major ports Kandla, Mundra and Ship Breaking yard, Bhavanagar and also from M/s GSPC, M/s Cairn Energy and M/s Focus Energy. After procuring the said goods Appellant carried out processes like vacuum distillation, filtration, heating and centrifuging and other process to produce Re-usable Fuel Oil and Re-refined used oil. The Fuel oil so produced by Appellant is being sold to traders and consumers in open market as Re-Cycled Fuel Oil /Re-Cycled Industrial Fuel Oil and Re-refined Lube Oil without payment of Central Excise Duty. Appellant’s unit was visited by the officers and during the search proceedings, samples of finished products viz., Recycle Waste Oil and Re-refined Used Oil were withdrawn and same were sent for testing to the Chemical Examiner, Central Excise & Customs Laboratory, Vadodara. In his Test Reports, the Chemical Examiner has categorically stated that the samples of Recycled Waste Oil meet the parameter of Fuel Oil as prescribed under IS “1953”. Similarly, in case of sample of Refined Used Oil, the same confirms to the parameters of Lubricating Oil. Statement of Shri Manish C. Patel, Director of Appellant was also recorded by the department. According to department, Appellant’s processes amounts to manufacture and the recycled fuel oil is appeared to be classifiable under Central Excise Tariff Heading No. 27101990 and Appellant is liable to discharge the Central Excise duty. Accordingly, a show cause notice dated 05.07.2016 was issued to the appellants, inter alia, proposing demand of Central Excise duty with interest and also imposition of penalty under Section 11AC of the Act and under Rule 25 of Central Excise Rules, 2002. After due process of adjudication, the adjudicating authority vide impugned order dated 11-5-2017 confirmed the proposed demand and also imposed equal penalty under Section 11AC of the Central Excise Act, 1944. He also imposed penalty under Rule 25 of Central Excise Rules, 2002 and penalty on Shri Manish C. Patel under Rule26 of Central Excise Rules, 2002. Hence, against the said order, the appellants are before us.
3. Shri J.C Patel, Learned Counsel along with Shri Rahul Gajera, Learned Counsel appearing for the appellant submits that it is settled law as laid down by the Hon’ble Supreme Court and Tribunal that recycling of waste oil/ sludge/used oil by removal of impurities by processes of filtering, heating, distillation, etc., does not amount to manufacture inasmuch as the starting material is oil and resulting material after purification is also oil and not a new and other commodity. He also relied on the following decisions:-
