Case Note & Summary
The dispute concerned central excise duty on yarn manufactured by Banswara Syntex Ltd., a company engaged in manufacturing yarn falling under tariff items 18, 18B and 18E of the Central Excise Tariff. The respondent manufactured single ply yarn and, in the course of its manufacturing process, also carried out doubling and multifolding of the yarn. The respondent paid excise duty on the weight of doubled or multifolded yarn and not separately on the single ply yarn used for that process. This practice led to a show cause notice dated 4 September 1982 by the Superintendent of Central Excise demanding Rs. 35,190.96 as short-paid duty for the year 1978-79 on the ground that 4,56,456.10 kgs of single ply yarn had been utilised for doubling without payment of duty. The respondent replied on 10 September 1982 contending that there was no removal or utilisation resulting in a new commodity and that duty had been correctly paid at the time of removal after doubling/multifolding. The respondent's stance was based on the fact that when single ply yarn is doubled or multifolded, some wastage arises, and paying duty only on the final doubled yarn allowed exclusion of that waste from the duty base. The Assistant Collector of Central Excise by order dated 27 September 1982 confirmed the demand, holding that yarn at its spindle stage after spinning was a fully manufactured product and duty was payable at that stage. On appeal, the Collector (Appeals) by order dated 27 March 1985 set aside the demand, holding that duty was chargeable at the doubling/multifolding stage. The Revenue then appealed to the Customs, Excise and Gold (Control) Appellate Tribunal, which dismissed the appeal, leading to the present appeal before the Supreme Court. The appellant contended that duty was payable when single ply yarn was manufactured, and by paying duty on the weight of doubled yarn, the respondent had avoided duty on the waste generated during doubling. The respondent relied on Bhilwara Spinners Ltd. v. Collector of Central Excise, arguing that duty was payable on doubled yarn and not on single yarn. The Supreme Court observed that it was not in dispute that at the stage of manufacture of single ply yarn, an excisable item comes into existence. Single ply yarn is first manufactured and thereafter doubled or multifolded depending on the type of fabric to be woven. Under Rule 9(1) of the Central Excise Rules and Section 49 of the Central Excise Act, 1944, it is immaterial whether the manufactured yarn is captively consumed or subjected to further process. The court referred to J.K. Spinning and Weaving Mills Ltd. v. Union of India, where the deeming provisions under explanations to Rules 9 and 49 were interpreted to regard intermediate goods as removed even if not actually removed. In that case, the court had held that conversion of unsized yarn to sized yarn for weaving does not change its character as yarn. Applying the same principle, the court held that single ply yarn when doubled or multifolded does not become a new product and no duty is leviable at that stage. The liability to excise duty arises on manufacture of single ply yarn and cannot be postponed to the time of removal after doubling or multifolding. The court distinguished Bhilwara Spinners Ltd. v. Collector of Central Excise, noting that in that case, the court only decided that single yarn attracts duty and did not go into whether doubling/multifolding results in different goods. The observations in Bhilwara Spinners were consistent with J.K. Spinning. Accordingly, the Supreme Court allowed the appeals, set aside the Tribunal's judgment and restored the Assistant Collector's decision. The respondent was held liable to pay Rs. 35,190.96 plus interest at 12 per cent per annum, and the appellant was entitled to costs.
Headnote
A) Central Excise - Levy and Collection of Duty - Excisability of Intermediate Product - Duty on single ply yarn arises at manufacture stage, not after doubling/multifolding - Central Excise Act, 1944 Section 3 and Section 49; Central Excise Rules, 1944 Rules 9 and 49 - The respondent manufactured single ply yarn and paid duty only on doubled/multifolded yarn at removal, leading to short payment on waste generated during doubling - The court held that single ply yarn is an excisable item upon manufacture and duty is payable then, irrespective of subsequent processing or captive consumption - Held that liability to excise duty arises at first stage of manufacture and cannot be postponed to removal after doubling. B) Central Excise - Classification/Taxable Event - Doubling or Multifolding Does Not Create New Product - Doubling or multifolding of single yarn does not result in a new commodity and no separate duty is leviable at that stage - Central Excise Act, 1944; Central Excise Rules, 1944 Rule 9 and Rule 49 - The court relied on J.K. Spinning and Weaving Mills Ltd. v. Union of India which held that conversion of unsized yarn to sized yarn for weaving does not change its character as yarn - Applying that principle, the court held that single ply yarn when doubled or multifolded retains its character and no new product comes into existence - Held that duty is leviable only on single ply yarn at manufacture, not on doubled or multifolded yarn. C) Precedent - Distinguishing Prior Decision - Bhilwara Spinners Ltd. v. Collector of Central Excise Did Not Decide Whether Doubling Creates New Product - Central Excise Act, 1944 - The respondent relied on Bhilwara Spinners to contend that duty was payable on doubled yarn and not on single yarn, but the court noted that Bhilwara Spinners only held single yarn attracts duty and expressly did not decide whether doubling/multifolding results in different goods - Those observations were consistent with J.K. Spinning - Held that Bhilwara Spinners was of little assistance to respondent and did not support postponement of duty to doubling stage.
Issue of Consideration
Whether excise duty on single ply yarn manufactured by respondent was payable at the stage of manufacture of single ply yarn, or only after the yarn was doubled or multifolded and removed; and whether the demand raised by the Assistant Collector was valid.
Final Decision
Appeals allowed; judgment of Tribunal set aside; decision of Assistant Collector restored; respondent liable to pay Rs. 35,190.96 plus interest at 12% per annum and costs.
Law Points
- Single ply yarn is an excisable item upon manufacture
- mere doubling or multifolding of single yarn does not bring into existence a new product
- liability to pay excise duty arises at first stage of manufacture and not after doubling or multifolding
- deeming provisions under explanations to Rules 9 and 49 of Central Excise Rules 1944 regard intermediate goods as removed even if not actually removed
- assessee cannot postpone levy of excise duty to stage of removal after further processing
