By TIOL News Service

NEW DELHI, AUG 13, 2013: THE issue for determination is whether the activity proposed to be carried out by the applicant can qualify as/can be treated to be 'manufacture' under Section 2(f) of the Act.

Applicant proposes to process various grades of stainless steel scrap ('metal scrap') to produce 'blended metal scrap'. Blended metal scrap is required by the stainless steel manufacturers as a raw material for its manufacturing activity i.e. for manufacture of stainless steel products. Applicant will source different grades of metal scrap from its vendors located within India as well as outside India. The metal scrap so procured by Applicant is classified under Chapter 720421 of the Central Excise Tariff Act, 1985 (in short Tariff Act). The different grades of metal scrap will then be processed in order to produce blended metal scrap of the grade required by its customers. The blended scrap so produced by Applicant is also classified under Chapter 720421 of the Tariff Act.

It is submitted by the applicant that the activity carried out by the applicant qualifies as and has to be treated as, 'manufacture', It is urged that the definition of 'manufacture' is an inclusive one.

The core issue is whether the activity proposed to be undertaken is manufacture or production.

The AAR observed,

'Manufacture' implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. The nature and extent of processing may vary from one case to another. There may be several stages of processing, and a different kind of processing at each stage. With each process suffered, the original commodity experiences a change.

'Manufacture' is a transformation of an article, which is commercially different from the one, which is converted. The essence of manufacture is the change of one object to another for the purpose of making it marketable.

The crucial question, therefore, is whether the goods to be taxed have been subjected to a manufacturing process so as to produce a new marketable commodity with the determining factor to decide whether excise duty is leviable or not on those goods.

Further aspect which needs to be addressed is whether the commodity that is subjected to the process of manufacturing can be no longer be regarded as the original commodity, but it is recognized in the trade as a new and distinct commodity. Commonly, manufacture is end result of one or more processes through which the original commodity is made to pass.

Manufacture includes any process incidental or ancillary to completion of manufactured product. 'Any process' can be a process in manufacture or process in relation to manufacture of the end product, which involves bringing some kind of change to raw material at various stages by different operations. The process must have effect of bringing change or transformation in raw material and also lead to creation of any new or distinct and excisable product. Process in relation to manufacture means a process so integrally connected to manufacturing of end product without which, manufacture of end product would be impossible or commercially inexpedient.

The steps to be put in place in the proposed activity have been detailed. It has not been denied that scrap of specific grades alone can be used in the manufacture of stainless steel and that the processes to be adopted by the applicant would result in the transformation of their raw materials, namely, metal scrap of assorted sizes, grades, composition etc. into metal scrap of specific grades which is directly usable for manufacture of stainless steel. Therefore what emerges from the processes would be a product having distinct identity and use, different from the raw material from which it is made.

Hence, in the case at hand, it can be termed as 'manufacture'. If, however, any material difference is found in the relevant facts when the actual determination is made, it will be open to the concerned authority to act in accordance with law as delineated above.

In the aforesaid legal and factual background, it is ruled that the proposed activity would amount to manufacture.

(See 2013-TIOL-02-ARA-CX)