2005 (1) TMI 442 - AT - Central Excise

Summary

Issues Involved:
1. Inclusion of the cost of warping and winding in the value of captively consumed yarn.
2. Applicability of Apex Court decisions on the valuation of yarn.
3. Interpretation of Notification No. 5/99-C.E. regarding exemption for processes on duty-paid yarn.
4. Determination of the stage at which yarn is considered fully manufactured for duty purposes.

Detailed Analysis:

1. Inclusion of the Cost of Warping and Winding in the Value of Captively Consumed Yarn:
The primary issue in these appeals is whether the value of yarn captively consumed for manufacturing fabrics within the factory should include the cost of warping and winding. The Department contends that under Explanation to Rule 49 of the Central Excise Rules, 1944, yarn captively consumed for manufacturing fabrics is deemed to have been removed from the factory immediately before such consumption. Therefore, the cost of warping and winding, which occurs before the deemed removal, should be included in the value of the yarn.

2. Applicability of Apex Court Decisions on the Valuation of Yarn:
The Department argues that the decisions of the Apex Court in the cases of J.G. Glass Industries Ltd. and Sidhartha Tubes Ltd. are applicable. These decisions established that the value of the final product should include the cost of processes carried out within the factory, even if those processes do not amount to manufacture. The Tribunal found that these decisions have a direct bearing on the valuation of yarn subjected to warping and winding in an integrated factory. Therefore, the cost of these processes should be included in the value of yarn for duty purposes.

3. Interpretation of Notification No. 5/99-C.E. Regarding Exemption for Processes on Duty-Paid Yarn:
The Department contends that while Notification No. 5/99-C.E. exempts yarn subjected to warping and winding in another factory after paying duty at the spindle stage, this exemption does not apply to composite mills where these processes are carried out within the same factory. The Tribunal agreed with this interpretation, stating that the cost of warping and winding must be included in the value of yarn when these processes are carried out in an integrated factory.

4. Determination of the Stage at Which Yarn is Considered Fully Manufactured for Duty Purposes:
The lower appellate authority and the dissenting Member (Judicial) held that the manufacture of yarn is complete at the spindle stage, and duty is payable at that stage. They argued that warping and winding are subsequent processes that do not affect the assessable value of the yarn. The dissenting opinion also relied on the Tribunal's decision in the case of Maheshwari Mills Ltd., which held that yarn is fully manufactured at the spindle stage, and the cost of subsequent exempted processes should not be included in the assessable value.

Separate Judgments Delivered by the Judges:

Majority Opinion:
The majority held that the cost of warping and winding should be included in the value of yarn taken for captive consumption for manufacturing fabrics. They found that the decisions of the Apex Court in J.G. Glass Industries Ltd. and Sidhartha Tubes Ltd. were directly applicable and that the lower appellate authority's order was contrary to these decisions. Therefore, the Department's appeals were allowed, and the orders-in-original were restored.

Dissenting Opinion:
The dissenting Member (Judicial) disagreed with the majority, arguing that the manufacture of yarn is complete at the spindle stage, and duty is payable at that stage. They relied on the Tribunal's decision in Maheshwari Mills Ltd., which held that subsequent exempted processes should not be included in the assessable value. Therefore, they rejected the Department's appeal.

Final Order:
In view of the majority opinion, the appeal filed by the Department was ultimately rejected. The final order was issued by the Tribunal, confirming that the cost of warping and winding should not be included in the value of yarn for duty purposes.