Customs, Excise and Gold Tribunal - Delhi
Mineral Oil Corporation vs Commissioner Of C. Ex. on 25 June, 1999
Equivalent citations: 2000ECR640(TRI.-DELHI), 1999(114)ELT166(TRI-DEL)
ORDER V.K. Agrawal, Member (T)
1. The issue involved in this appeal filed by M/s. Mineral Oil Corporation is whether the process of reclamation of transformer oil from used transformer oil amounts to manufacture so as to attract levy of duty of excise.
2. Briefly stated the facts are that the appellants manufacture virgin transformer oil. They are also engaged in the reclamation of duty paid used transformer oil on their own account out of used transformer oil purchased from the market and also on job work basis out of used transformer oil received from U.P. State Electricity Board (UPSEB). The Commissioner, Central Excise, Kanpur, under the impugned order dated 24-12-1996, confirmed the demand of Central Excise duty amounting to Rs. 5,30,246.10 on the reclaimed transformer oil cleared during the period from 24-3-1996 to 30-6-1996 after classifying the reclaimed transformer oil under sub-heading 2710.90 of the Schedule to the Central Excise Tariff Act, holding that manufacture is a process of converting some material into a form adopted for uses to which in its original form it could not be so used; that the appellants removes the impurities to enhance the insulating quantities of the transformer oil; that used transformer oil would be covered under broad category of transformer oil feed stock; that accordingly process undertaken by the appellants to change used transformer oil into transformer oil would amount to manufacture. The Commissioner had relied upon the following decisions :-
(i) Hindustan Lever Ltd. v. C.C.E., 1985 (22) E.L.T. 232 (Tribunal)
(ii) C.C.E. v. Jayone Oil Mills Put. Ltd., 1989 (40) E.L.T. 287 (S.C.)
(iii) International Tractor Co. v. U.O.I., 1977 (1) E.L.T. (J 133) (Bom.)
(iv) Apar Pvt. Ltd. v. C.C.E., 1987 (28) E.L.T. 70 (Tribunal)
3. Shri R. Santhanam, learned Advocate, submitted that the reclamation of duty paid used transformer oil does not give rise to nor does it constitute, manufacture of any excisable goods: that used transformer oil is subjected to the process of purification in which impurities, which had come in the oil in the course of its use, are removed; that the manufacture of fresh transformer oil requires drastic/strict treatment of chemicals whereas in the case of reclamation, the requirement of treatment of chemicals is very mild one depending upon the percentage of contamination of the used transformer oil; that the process of reclamation does not involve any change of the characteristics of oil as no new product emerges as a result of purification of duty paid waste oil; that input and output are the same and as such no manufacturing activity had been undertaken by the appellants; that the Principal Collector, Central Excise, Kanpur in letter dated 15-11-1994, addressed to UPSEB opined that reclamation of used transformer oil through the process undertaken for its purpose would not amount to manufacture within the provisions of Section 2(f) of the Central Excise Act. The learned Advocate contended that the Commissioner was duty bound to abide by and follow the order of the Principal Collector; that further the impugned order had been passed in disregard and defiance of the judicial pronouncements. He relied upon the decision in the case of C.C.E. v. Crescent Chemical Corporation, 1990 (48) E.L.T. 458 (T) wherein it was helds that "It is the production or manufacture of lubricating oil which attracts the charge of excise duty and not the processing of lubricating oil as such. One may add chemicals to lubricating oil, one may subject lubricating oil to a process by which its useability may be reduced or enhanced. That would not attract the applicability of Item 11-A so long as the lubricating oil retains its character as lubricating oil and does not become a different commodity. He also placed reliance on the decision of Bombay High Court in the case of Commissioner, Sales Tax v. Oil Processors Pvt. Ltd., Sales Tax Reference No. 14 of 1992 dated August, 1997. The Bombay High Court held that every process undertaken on the goods to make them fit for the market or improving their marketability does not amount to a process of manufacture; there must be a transformation as a result of the process undertaken on the product and a new and different article having a distinctive name or character must emerge. The Court, therefore, held that the process of removing impurities of lubricating oil would not amount to manufacture as nothing was manufactured as a result of the process; Lubricating Oil remained lubricating oil even after processing with the only difference that on removal of impurities etc. it became fit for resale as lubricating oil. He also relied upon the decision in State of Maharashtra v. Shiv Datt & Sons, AIR 1992 SC 692, Premji Haridas & Co. v. Municipal Corporation of Greater Bombay, 1997 (89) E.L.T. 658 (Bom.) wherein the conversion of castor oil (commercial) to castor oil (BP) by a process of filteration was held to be not amounting to manufacture as no new product emerged. The reliance was also placed on the following two decisions :-
(i) C.C.E., Coimbatore v. Brooke Bond India Ltd., 1998 (101) E.L.T. 296 (T) Re-processing of instant clotted coffee does not result in process of manufacture.
(ii) C.C.E. v. Maize Products, 1994 (73) E.L.T. 390 (T)
(iii) C.C.E., Bombay v. S.K. Kabbur (P) Ltd., 1998 (101) E.L.T. 516 (T)
(iv)C.C.E., Bombay v. Plastipeel Chemicals & Plastic P. Ltd., 1998 (99) E.L.T. 639 (T) As no new commodity came into existence as a result of the addition of anti-oxidant and rust inhibitors to MoS2, which was already in the nature of a dry lubricant, the process does not amount to manufacture.
4. Countering the arguments, Shri Satnam Singh, learned SDR, submitted that the unusable material is received by the Appellants from UPSEB and by elaborate process of manufacture, the transformer oil is reclaimed which is usuable as transformer oil. He drew our attention to the process of manufacture given in the show cause notice which is reproduced below :-
"The process of manufacture of reclaimed transformer oil from used oil is carried out by treating it with sulphuric acid and clay treatment under vacuum. Thereafter, acid treated oil is neutralised by alkali which is washed with water. And for removing petroleum sulphonets it is treated with heavy alkylate. Finally oil is filtered/centifused blended with virgin oils and addivitives according to use and tests of reclaimed oil".
5. He contended that this process of reclamation of transformer oil definitely amounts to manufacture as per the definition of word 'manufacture' in Section 2(f) of the Central Excise Act. He further mentioned that the product had undergone a sea changes because of the treatment undertaken by the appellants. He relied upon the decision in Apar Pvt. Ltd. v. C.C.E., 1987 (28) E.L.T. 70 in which it was held that transformer base stock cannot be used as insulating oil without purification. Reliance was also placed by the learned SDR on the decision in the case of Brakes India Ltd. v. Superintendent of Central Excise, 1998 (101) E.L.T. 241 (S.C.) in which it was held that drilling, trimming and chamfiring of brake lining blanks amount to manufacture as without such process brake lining blanks cannot be used by owners of motor vehicles. It was further held that "when adopting a particular process, if a transformation takes place which makes the product have a character and use of its own, which it did not bear earlier, then the process would amount to manufacture within the meaning of Section 2(f) irrespective of the fact whether there has been a single process or have been several processes." He also referred to the decision in the case of Hawkins Cookers Ltd. v. C.C.E., Chandigarh, 1997 (96) E.L.T. 507 (S.C). Finally he relied upon the decision in Honeyrex Products (P) Ltd. v. C.C.E., Bangalore, 1998 (99) E.L.T. 402 (T) wherein the Tribunal held that by process of mixing natural honey with sucrose, glucose and preservatives, a new product has emerged which cannot be called as natural honey. The process was, therefore, held to be amounting to manufacture.
6. The learned Counsel, in reply, mentioned that every chemical change does not amount to manufacture; that the process applied is not material; what is material is that a new distinct product should come into existence as a result of the manufacture; that in the present matter transformer oil remains transformer oil; the only change that takes place is that the specific gravity of the oil changes which does not make it a new distinct product.
7. We have considered the submissions of both the sides. It is well setlled law that to amount to manufacture, a new commodity having distinct name, character or use should emerge as a result of process of manufacture. Manufacture implies a change, but every change is not manufacture. The Apex Court in the landmark decision in the case of U.O.I. v. Delhi Cloth and General Mills Co. Ltd. - 1977 (1) E.L.T. (J199), held that "The word 'manufacture' used as a verb is generally understood to mean as 'bringing into existence a new substance,' however, minor in consequence the change may be." The Apex Court further quoted the following passage from an American judgment:
"Manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use."
This judgment has been followed in numerous cases. The true test for determining whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognised in trade as a new and distinct commodity. In the present case, the appellants bring used transformer oil and by removing impurities, it is made again usuable as transformer oil. Both before and after the processing, the product is only transformer oil. That being so, it cannot be said that a new and distinct commodity has come into existence consequent to the process undertaken by the appellants. Similar was the view of the Bombay High Court in the case of M/s. Oil Processors Pvt. Ltd., supra, wherein it was held that "activity of converting the used-waste lubricating oil into usuable lubricating oil is not a refining process." The learned Counsel, appearing for the appellants has referred to a number of decisions in which it has been held that a process will amount to manufacture only if a new and distinct commodity emerges as a result of manufacture. In S.K. Kabbur's case, supra, Tribunal rejected the appeal filed by the Department as "the Revenue has not been able to substantiate its case that the conversion of already formulated/prepared/standardised S.O. Dyes by mixing/grinding/adding of diluents into reformulations results in emergence of a distinct commercial commodity having a name, character, and use different from the raw material." We observe that the Commissioner had confirmed the duty in the impugned order as the process undertaken by the appellants had improved the quality to be used as a transformer oil. He has nowhere given a finding that a new distinct commodity has emerged as a result of the process undertaken by the appellants. The ratio of the decision in the case of Apar Pvt. Ltd., supra, is not applicable to the facts of the present case. In the Apar case, the input was transformer oil base stock and not the transformer oil itself. The Tribunal, after referring to the definition of transformer oil and base stock as given in Indian Standard Glossary of Petroleum, observed the Transformer Oil Base Stock is primary material introduced into a plant for processing. In other decisions relied upon by the learned SDR on behalf of the Revenue, the process was held to be amounting to manufacture as a new distinct commodity has emerged on account of process undertaken in those cases. For instance in Honeyrex Products (P) Ltd. case, supra, the Tribunal held that Honeyrex is a new commodity as it was not marketed as natural honey and because of addition of ingredients like sucrose, glucose and preservatives a new product different from natural honey has emerged. In Brakes India case, supra, also the Supreme Court considered the 'Character or use' before holding the process of drilling, trimming & Chamfering of brake lining blanks as the process amounting to manufacture. The Supreme Court referred to the observation of the High Court that sometime it may suit the manufacturer to retain and stamp the same name to the end products also. Such is not the case in the present matter as used transformer oil remains to be transformer oil after the process undertaken by the appellants. In these circumstances, we set aside the impugned order and allow the appeal.