When Scrap Processing Becomes “Manufacture” Under Excise Law

Businesses that deal with metal scrap often want to know whether their processing activities will be treated as manufacture under the Central Excise Act. This question arises frequently, especially for companies that purchase mixed stainless steel scrap and convert it into a consistent grade that manufacturers can use directly. The ruling considered here helps clarify how the law approaches this issue and provides useful guidance for similar operations.

In the matter examined, the company planned to procure stainless steel scrap of various grades, sizes and chemical compositions from both domestic and international suppliers. This raw scrap arrives in a highly mixed form and cannot be used directly by stainless steel manufacturers. To make it usable, the company proposed to sort it, test its chemical content, cut it, shred it, briquette it and then blend it into a uniform grade such as 304 or 316. Stainless steel manufacturers require scrap with specific chemical properties, and ordinary mixed scrap does not meet those requirements.

The key question was whether these steps simply improved the scrap or whether they resulted in the creation of a new commercial product. The Authority reviewed the established legal principle that manufacture occurs when the original material, after processing, becomes a product that is recognised in the market as different from what it was before. Applying this principle to the facts, the Authority concluded that the final blended scrap had a distinct identity and purpose that the raw scrap did not. It was transformed from an unusable mixture into a specific, industrial-grade material ready for direct use in stainless steel production. On this basis, the activity was held to amount to manufacture. ELG_India_Private_Limited__vs_T…

To help businesses understand this more easily, a few straightforward examples make the distinction clear:

Example 1:
A company takes mixed stainless steel scrap and processes it into Grade 304 scrap that manufacturers can use immediately.
This is manufacture because the output is a new, usable product.

Example 2:
A company receives Grade 304 scrap and only cuts it into smaller pieces. The scrap remains the same Grade 304.
This is not manufacture because nothing new is created.

Example 3:
A processor blends different scrap types to match a specific chemical requirement requested by a customer.
This is manufacture because the final product did not exist before blending.

Example 4:
A business only sorts scrap into groups by type without altering it.
This is not manufacture because the material remains the same.

The central idea is that manufacture is not about how much effort is put into processing but about whether the processing results in a commercially different product. If the final output has a new identity, purpose or commercial use, the activity is likely to qualify as manufacture for excise purposes. If the output remains essentially the same material, it generally will not.

For companies involved in scrap processing, blending or upgrading, this ruling provides helpful direction. It is important to assess whether your process produces a product that customers can use directly and that is recognised in the market as distinct from the input material. If so, excise implications may arise, and it may be beneficial to seek clarity through an advance ruling before commencing operations

Target Audience:

• Metal scrap processors

• Recycling companies

• Stainless steel manufacturers

• Industrial blending and sorting units

• Importers and traders of metal scrap

• SMEs involved in material reconditioning

• Operations and plant managers

• Compliance and indirect tax teams

• In-house legal departments

• Businesses planning new processing facilities

• Firms evaluating excise exposure for processed materials