of Central Excise, Jaipur Vs. Bansware Syntex Ltd.  INSC 1498 (26 November 1996)
Ahmadi, J.S. Verma, B.N. Kirpal Kirpal. J.
Appeal No. 1778 of 1987 Present:
THE CHIEF JUSTICE HON`BLE OF MR. JUSTICE J.S.VERMA HON`BLE MR. JUSTICE B.N.
KIRPAL Mr. M.S. Usgaonker, additional solicitor general, Mr.V.K Verma and Mr.
A. Subba Rao, Advocates with him for the Appellant. Mr. D.A. Dave, Sr. Adv. Ms.
Ruby adv. for Ms. M. Karanjawala Adv. With him for respondent.
following judgment of the court was delivered:
respondent company is engaged in the manufacture of yarn falling under tariff
item No. 18, 18B and 18E of the central Excise Tariff. It manufactures single
ply yarn and it also in the course of its manufacturing process, does doubling
and multifolding of the yarn.
respondent was paying excise duty, in case of doubled or multifolded yarn, on
the weight of doubled or multifolded yarn, on the weight of doubled or multifolded
yarn and excise duty was being paid on the single yarn which was being used for
doubling or multifolding. A show cause notice dated 4th September 1982 was
issued by the superintendent to pay a sum of Rs. 35,190,96 as central excise
duty which had been short paid during the year 1978- 79 on the ground that it
had utilised 4,56,456.10 kgs. of single ply for doubling process without
payment of duty .
respondent filed its reply dated 10th September, 1982, inter alia, contending
that there had neither been any removal nor any utilisation of the yarn
resulting in the production of a new commodity and, therefore, duty had been
paid correctly at the time of removal after doubling/multifolding of the yarn.
appears that when the single ply yarn is doubled or multifolded there is some
wastage. If duty is paid on the production of single ply yarn the respondent
would not get the benefit of exclusion of the waste which arises when that
single play yarn is used in the process of doubling/multifolding, That is why
the respondent chose to pay duty after the process of doubling or multifolding
had been completed. The Assistant collector, central Excise vide his
adjudication order dated 27th September ,1982 confirmed the demand raised in
the show cause notice by coming to the conclusion that the yarn at its spindle
stage, after it had been spun, was a fully manufactured product and duty was
payable at that stage.
aggrieved by the order of the assistant collector the respondent filed an
appeal to the collector (Appeals) who , vide his order dated 27th March, 1985,
set aside the impugned order by holding that the duty was chargeable at the
appellant then filed an appeal before the customs, Excise and gold ( Control)
Appellate tribunal contending that the single ply yarn had to be subjected to
duty and by paying duty on the weight of the doubled yarn the respondent had
avoided payment of the duty on the waste which was generated in the doubling of
the yarn. The Tribunal, however, dismissed the appeal of the appellant.
present appeal it is contended behalf of the appellant that the duty was
payable when the single ply yarn was manufactured. It is not in dispute that at
the stage of the manufacture of the single ply yarn there comes into existence
an excisable item. the respondent manufactures single play yarn and it is only
thereafter, if required by its customers, that the said yarn is doubled or multifolded,
as the need arises. Mere doubled or its customers, that the said yarn is
doubled or multifolding of the single yarn which is manufactured dose not bring
into existence a new product. The single yarn which is manufactured is an
excisable item and would be subject to duty upon its manufacture.
immaterial, in view of rule 9 (1) of the central Excise rules and section 49 of
the Act whether the yarn so manufactured is captively consumed or is subjected
to any other or further process. Reference may be made to J.K. and Ors. (1987
32 ELT 234 SC) Where rules 9 and 49 of the central Excise rules, 1944 after
they were amended with retrospective effect by section 51 of the finance Act.
1982 came up for interpretation. It was held that "in view of the deeming
provisions under explanation to rules 9 and 49, although the goods which are
produced or manufactured at an intermediate stage and thereafter, consumed or
utilized in the integrated process for the manufacture of another commodity is
not actually removed, shall be construed and regarded as removed." Dealing
with the question of conversion at page 250 as follows:- "In our view, the
High court by the impugned judgment has rightly held that the appellants are
not liable to pay any excise duty on the yarn after it is sized for the purpose
of weaving the same into fabrics.
distinction can be made between unsized yarn when converted into sized yarn
does not lose its character as yarn.
same principle would be applicable in the present case. A single ply yarn is
first manufactured and thereafter it is doubled or multifolded, depending upon
the type of fabric which is ultimately to be woven. The liability to pay excise
duty would arise on the manufacture of the single ply yarn and not after the
same has been doubled or multifolded.
or multifolding of the same yarn does not bring into existence a new product
and no duty is leviable at that stage.
counsel for the respondent sought to place reliance on the decision of this
court in Bhilwara Spinners 442) in support of his contention that the
respondent was liable to pay duty on the doubled yarn and no duty ought to be
levied on the single yarn. In our opinion this judgment and be of little
assistance to the respondents.
Spinners case the company was engaged in the manufacture of fabrics. For that
purpose it manufactured four types of yarns. The yarn when produced was a
single yarn but the appellant doubled and multifolded the yarn as a step
towards manufacture of fabrics. The appellant's case was that it had been
paying duty on doubled or multifolded yarn but not on single yarn. When called
upon by the Excise Department to show cause why duty should not be levied on
the single yarn, the contention of the appellant therein was that both single
stage yarn and doubled/multifolded yarn are one and the same goods and inasmuch
as it was paying duty on the doubled/multifolded yarn no duty was payable on
the single yarn. The appellate collector accepted this contention but the
Tribunal agreed with the Revenue. This court, in appeal did not go into the
question whether single yarn or doubled/multifolded yarn are one and the same
goods and observed as follows:- "We are concerned in this case with the
only question whether single yarn attracts duty or not. In view of the finding
of the Tribunal affirming the finding of the Assistant Collector that single
yarn is a completely manufactured product, it cannot be disputed that it
attracts duty. We are not concerned with the question whether the doubling/multifolding
of the said yarn results in different goods or not and whether duty is leviable
on doubled/multifolded yarn. We need only say that the Tribunal is right in its
opinion that the single yarn is subject to duty though used in the manufacture
of fabrics in a continuous process of manufacture." These observations are
not at variance with the decision in J.K. Spinning's case (supra). In view of
the fact that an excisable item comes into existence with the manufacture of a
single ply yarn it becomes liable to pay excise duty at that stage itself. The
respondent cannot be allowed to contend that the levy of excise duty is
postponed to a point of time when the yarn is removed after doubling or multifolding.
The liability to pay excise duty arises at the first stage itself, namely, at
the time of manufacture of single ply yarn. This being so the demand raised by
the Assistant Collector was not invalid.
the aforesaid reasons the appeals are allowed. The Judgment of the Tribunal is
set aside and the decision of the Assistant Collector of Central Excise is
of this would be that the respondent would be liable to pay the aforesaid
amount of Rs.35,190,96 plus interest at the rate of twelve per cent per annum
thereon. The appellant would also be entitled to costs.