Whether blending of ordinary petrol with MFA and selling it under brand names

PJ-Case law-2013/14-1592

Case:-M/s HINDUSTAN PETROLEUM CORPN LTD Vs COMMISSIONER OF CENTRAL EXCISE, LUCKNOW

Citation:- 2013-TIOL-717-CESTAT-DEL

Brief Facts:-The appellant M/s. HPCL is a public sector undertaking engaged in business of refining crude oil and marketing petrol products thereof. They have storage facility at Mathura where they receive duty paid petrol products (motor spirit and diesel) from various oil refineries. The appellants sell most of petrol and diesel through their retail outlets. However, some quantity of petrol and diesel are mixed with Multifunctional Additives (MFA) in small quantity and sell under branded fuel namely “power petrol” and “turbo jet diesel”. Those products are sold at a price higher than ordinary petrol or high speed diesel (HSD) and it is claimed that above two brands enhance the efficiency of motor vehicle in terms of mileage, emission level and maintenance cost of engine. According to the appellant the process of mixing petrol and HSD as well as additive had already suffered duty at the time of clearance from the refinery does not amount to manufacture, therefore, the appellant did not pay any further duty at the time of retail sale of power petrol or turbo jet diesel. The department was of the view that mixing of petrol/HSD with Multifunctional additive brought in existence a new branded product which was sold at a higher price, as such the appellant was required to pay excise duty on the sale price of power petrol and turbo jet diesel. Accordingly show cause notice dated 29.3.2005 raising a demand of Rs.1,68,17,565.10/- in respect of sale of branded fuels was issued to the appellants. The appellant contested the show cause notice. However, after affording opportunity of being heard to the appellant, the jurisdictional Commissioner confirmed the duty demand of Rs.1,68,17,565.10/- and also imposed penalty of equal amount against the appellants.

Appellant Contention:-The appellant submitted that blending ordinary motor spirit (petrol) and HSD with small quantity i.e. 4% to 6% of MFA does not result in emerging of a new product with distinct name, character and use. Branded petrol and HSD basically remain petrol and HSD only. Adding of Multifunction additive in petrol and HSD only improve the engine performance but does not change basic character of the product. Hence, mixing of petrol and HSD with MFA cannot be termed as manufacture. It is further submitted that as per Board's Circular No. 83/83/94-CX dated 13.12.1994 blending of motor spirit with ethylone and methylone does not amount to manufacture and by that analogy blending of petrol and HSD with Multifunctional additive would not amount to manufacture.

Respondent Contention:-The respondent reiterated the submissions of the lower authorities.

Reasoning of Judgement:-This issue came up before the coordinate bench of this Tribunal in the case of Hindustan Petroleum Corpn. Ltd. vs. CCE, Delhi & Rohtak, reported in 2009 (234) ELT 648 (Tri.-Del.) = (2008-TIOL-2630-CESTAT-DEL).In the said matter Tribunal took the view that blending of "Petrol" and "HSD" with Multifunction Additives does not bring about a new distinct product and such process cannot be treated as manufacture. Relevant observations of this Tribunal are reproduced thus:

"4.1 The MS and HSD after being blended with small quantity of MFAs remain MS and HSD only, conforming to ISI specifications IS : 2796 - 2000 and IS : 1460 – 2000 respectively. Just because blending improves their quality and after blending they are sold under different brand names like 'Speed' , 'Power', 'Turbojet' etc. they do not become products different from unblended MS/HSD, with different characteristics and usages. Their characteristics remain the same, as they both have to conform to the ISI specification for unblended MS/HSD and their usage also remain the same. Hon'ble Supreme Court in its judgment in case of CCE vs. Sudarshan Chemical Industries (supra) and this Tribunal in its judgments in cases of Lakme Lever Ltd. v. CCE (supra) and CCE v. Mysore Ammonia Pvt. Ltd. (supra) has held that a process or treatment to enhance the marketability of a product of improve the value addition does not amount to manufacture. In this case, the blending only improves the quality of the MS/HSD resulting in better value addition, without charging the basis characteristics and usages of the products.

4.2 The ratio of the Hon'ble Supreme Court's Judgment in case of J.G. Glass v.UOI (supra) in which it was held that printing of glass bottles does not amount to manufacture is squarely applicable to the facts of this case. 4.3 Hon'ble Supreme Court in a series of judgment - South Bihar Sugar Mill v. UOI reported in 1978 (2) E.L.T.J336 (S.C.) = (2002-TIOL-26-SC-CX-LB) and Union of India v. Delhi Cloth Mills Ltd. reported in 1977 (1) E.L.T.J199 (S.C.) = (2002-TIOL-12-SC-CX-LB) and Tega India Ltd. v. CCE reported in 2004 (164) E.L.T. 390 (S.C.) = (2004-TIOL-17-SC-CX) had held that manufacture implies a process, as a result of which a new product with distinctive name, character and usages emerges, that the word 'manufacture' implies change, but every change in raw material is not manufacture and that there must be such a transformation in the raw as a result of the processing that a new and different article with distinct name, characteristics and usages emerges. This criteria of manufacture is not satisfied in this case as, as mentioned above, the MS and the HSD after blending with MFA remain MS and HSD only and except for a brand name being added to their names, there is no change in their basic characteristics and usages. As mentioned above, there is no separate ISI specification for branded MS or branded HSD and both branded as well as unbranded MS/HSD have to conform to the same ISI specifications. Similarly, there is no change in their use. Thus applying the abovementioned criteria laid down by the Hon'ble Supreme Court as to what constitutes manufacture, the process of blending ordinary MS or HSD with MFA to make branded MS or branded HSD, does not amount to manufacture."

In view of the same, the appeals are allowed.

Decision:-Appeal allowed.

Comment:-The substance of this case is that merely mixing some additives in a product to enhance its value does not amounts to manufacture and is consequently not liable to excise duty as for a product to be called as ‘manufacture”, its characteristics and use should emerge which is not in the present case.

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PJ-Case law-2013/14-1592

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