2015 (5) TMI 975 - AT - Central Excise

Denial of MODVAT Credit - benefit of Notification No. 5/99-CE dated 28.02.1999 vide Sl.No. 137, which exempts yarn subjected to process of winding with or without the aid of power and on which duty has been paid and the process of doubling the yarn is undertaken in a continuous process - Held that - Appellants are bringing duty paid single yarn and undertaking the process of winding and twisting and doubling the yarn, and counts wound in a cone in one integrated process and claimed the benefit of Notification No. 5/99 dated 28.02.1999 vide Sl.No. 137. The decision relied upon by the Ld. Counsel in the case of Sr. Raj Rajeshwara Co.op. Spinning Mills Ltd. (2004 (5) TMI 333 - CESTAT, BANGALORE), wherein it has been held that single ply yarn continue to remain yarn and no new product come to existence and merely because of the process of winding on the cops, the goods do not become different. Alternatively, the appellants claim the benefit of Sl. No. 130 of the Notification No. 5/99 which exempts multiple or cabled yarn manufactured in a factory which does not have the facilities for producing single yarn. We find that the Apex Court in the case of Swastic Rayon Processors (2006 (11) TMI 31 - SUPREME COURT OF INDIA), has held that twisting and doubling of yarn does not amount to manufacture and the yarn continues to be yarn. As the appellant has received only duty paid single yarn and carried out the process of doubling, twisting, winding all in one process on TFO machine, the adjudicating authority has not brought out any evidence and merely denied the benefit of Notification No. 5/99 on the grounds that there is no separate winding machine. Since all he above three activities are integrated in one machine as above, we do not find any justification in the order of the lower authorities in denying the exemption under Notification No. 5/99 dated 28.02.1999. - appellant is eligible for the exemption under the Notification No. 5/99. Since the appellant is eligible for the exemption under the above notification, the question of availing of MODVAT Credit on the inputs does not arise - Decided in favour of assessee.

Summary

Issues:
- Denial of benefits under Notification No. 5/99 (Sl. No. 137 & 130)
- Restriction of modvat credit to a certain amount

Analysis:

Issue 1: Denial of benefits under Notification No. 5/99 (Sl. No. 137 & 130)
The case involved the appellant, a textile company, converting duty paid single yarn into double yarn through a twisting and winding process. The authorities demanded duty payment and imposed a penalty for allegedly clearing the yarn without duty payment. The Ld. Commissioner (Appeals) partially allowed modvat credit but upheld the denial of benefits under Notification No. 5/99. The appellant appealed against the denial of benefits and the restriction of modvat credit. The appellant argued that the twisting and winding process did not create a new product and should be exempt under Notification No. 5/99. The Ld. AR contended that the twisting and doubling amounted to manufacture, making the final product dutiable. The Tribunal examined the process and relevant case laws. The Tribunal found that the twisting and winding process did not result in a new product and, therefore, qualified for the exemption under Notification No. 5/99. The Tribunal cited previous judgments supporting this interpretation and ruled in favor of the appellant, allowing the appeal and setting aside the impugned order.

Issue 2: Restriction of modvat credit
The appellant's eligibility for modvat credit was linked to the exemption under Notification No. 5/99. Since the Tribunal ruled in favor of the appellant regarding the exemption, the question of availing modvat credit on inputs did not arise. The Tribunal held that since the appellant qualified for the exemption, the denial of modvat credit was unwarranted. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief. The Tribunal based its decision on the interpretation of the twisting and winding process and its alignment with the provisions of Notification No. 5/99.

In conclusion, the Tribunal's judgment addressed the denial of benefits under Notification No. 5/99 and the restriction of modvat credit for the appellant. By analyzing the manufacturing process and relevant legal precedents, the Tribunal ruled in favor of the appellant, allowing the appeal and providing relief in line with the exemption under Notification No. 5/99.