Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2026 Supreme(Online)(CESTAT) 1407

CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
Dilip Gupta, President, Vasa Seshagiri Rao, Technical Member
Shree Renga Polymers – Appellant
Versus
Commissioner of GST & Central Excise – Respondent
Excise Appeal No. 41316 of 2019 | E/41317/2019 | E/41318/2019 | E/41319/2019 | E/41320/2019 | E/41321/2019 | E/41322/2019 | E/41323/2019 | E/41324/2019 | E/41325/2019 | E/41326/2019 | E/41327/2019

Advocates:
For the Appellants/Petitioners: Raghavan Ramabadran
For the Respondents: Anoop Singh

Excise duty is applicable only if a process results in 'manufacture,' defined as the emergence of a new, distinct commercial commodity. Mechanical processes like sorting, washing, and crushing that do not alter the essential identity of the input material do not constitute manufacture.

Headnote:(A) Central Excise Act, 1944 - Section 2(f) and Section 3 - Manufacture - The levy of excise duty is contingent upon the process amounting to 'manufacture', which implies a transformation resulting in a new and commercially distinct article having a different name, character, or use - Mere change in form or shape does not constitute manufacture unless the product ceases to be the original commodity in the eyes of trade. (Paras 18, 26, 28, 41)

(B) Evidence - Reliance on online crowd-sourced content - Adjudicating authorities should refrain from using non-authentic, user-generated online sources for dispute resolution; reliance should be placed on credible and verifiable academic or technical sources. (Para 44)

Facts of the case:
The appellant converted collected waste plastic bottles into smaller pieces (flakes) through sorting, crushing, and washing. The department issued demand notices alleging this process constituted 'manufacture' and sought to classify the resultant product under a specific tariff heading, leading to a significant excise duty demand. The appellant challenged the contention that the process amounted to manufacture, arguing that the essential identity of the material remained unchanged.

Findings of Court:
The court observed that the essential character of the material remained unchanged throughout the process of cleaning and fragmentation. The conversion of waste bottles into flakes did not transition the goods into a new and distinct commercial commodity; rather, it merely presented the same material in a more convenient form. Consequently, no 'manufacture' had occurred under the provided legal definition.

Issues: Whether the process of converting waste plastic bottles into flakes amounts to 'manufacture' under the statute of taxation, and whether the final product is a new and distinct commodity classifiable as an excisable good.

Ratio Decidendi: 'Manufacture' requires a transformation whereby a new and distinct article emerges in the market with a name, character, or use different from the original inputs. Processes involving cleaning, sorting, or simple mechanical reduction of size—where the substance retains its original identity and primary characteristics—do not satisfy the requirement of manufacture for the imposition of excise duty.

Result: Appeals allowed.

Table of Content
1. factual background regarding the industrial processes and duty demands. (Para 1 , 2 , 4 , 7)
2. parties' contentions regarding definitions of manufacture and classification. (Para 3 , 5 , 8 , 14 , 15)
3. commissioner's reasoning for holding process as manufacture and classification. (Para 9 , 10 , 11 , 12 , 13)
4. legal precedents determining what constitutes a 'manufacturing' process. (Para 16 , 17 , 18 , 19 , 20 , 21 , 22 , 23 , 24 , 25 , 26 , 32 , 33 , 34 , 35 , 38 , 39 , 40 , 41)
5. conclusion that pet flake production does not amount to manufacture. (Para 42 , 43 , 44 , 45 , 46 , 47)

WITH

E/41317/2019 E/41318/2019 E/41319/2019

E/41320/2019 E/41321/2019 E/41322/2019

E/41323/2019 E/41324/2019 E/41325/2019

E/41326/2019 and E/41327/2019

JUSTICE DILIP GUPTA:

M/s. Shree Renga Polymers¹1. the appellant has filed all these 12 appeals to assail the order dated 31.03.2019 passed by the Commissioner adjudicating the show cause notice dated 21.09.2010 for the period from March 2010 to April 2010 and the show cause notices/statements of demand issued for the subsequent period from May 2010 to September 2016. The Commissioner has ordered for classification of the final products manufactured by the appellant from waste Polyethylene Terephthalate Bottles²2. PET Bottles under Central Excise Tariff Item³3. CETI 3915 90 42 of the First Schedule to Central Excise Tariff Act, 1985⁴4. the Tariff Act as ‘parings of PET Plastics’. The Commissioner has, therefore, confirmed the demand of central excise duty with interest and penalty on the parings of PET plastics manufacture and cleared by the appellant.

2. The appellant is engaged in the activity of conversion of waste PET Bottles into Polyethylene Terephthalate Flakes⁵5. PET Flakes which are obtained by the process of sorting, crushing, washing and rinsing of waste PET Bottles.

3. The two issues that arise for consideration in these appeals are:

(i) Whether the process of conversion of waste PET Bottles into PET Flakes qualifies as ‘manufacture’ under section 2(f) of the Central Excise Act, 1944⁶6. Central Excise Act for purpose of levy of excise duty?

(ii) Whether PET Flakes generated and cleared by the appellant are classifiable under CTI 3915 90 42 as alleged by the department?

4. According to the appellant, the following process is undertaken for conversion of waste PET Bottles into PET Flakes.

(i) Non-PET materials such as PVC, Aluminium, Paper, Iron & Stone are sorted from the used PET Bottles/waste PET Bottles;

(ii) The 'used/waste PET Bottles' are then crushed into smaller pieces, which are called Flakes;

(iii) The crushed Flakes are then washed to remove sand and dirt;

(iv) The Flakes are further washed with hot water. If required, caustic soda/ cleaning reagent is added to remove dirt;

(v) The Flakes are once again washed with fresh water;

(vi) Lastly, the Flakes are dried, packed and cleared from the factory.

5. The appellant further claims that after the process of sorting, crushing, washing and rinsing of waste PET Bottles is complete, the final product, namely, PET Flakes remain in PET form. The only difference from input goods i.e. waste PET Bottles is that the final product i.e. PET Flakes are only reduced to flake form. According to the appellant, a new product does not emerge nor the raw material/input in PET form ceases to exist.

6. The appellant had been classifying PET Flakes under Central Excise Tariff Heading⁷7. CETH 3907 60 as Polyethylene Terephthalate and claimed exemption under Serial No. 78 of Notification No. 4/2006 dated 01.03.2006 from central excise duty. The appellant subsequently claimed exemption from central excise duty under Serial No. 147 of Notification No. 12/2012-CE dated 17.03.2012⁸8. the Exemption Notifications.

7. The appellant was issued show cause notices/statements of demand proposing to demand central excise duty on PET Flakes cleared by the appellant during the period from March 2010 to September 2016.

The details of the show cause noti

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