2015 (1) TMI 889 - AT - Central Excise

Captive consumption - Valuation of goods - assessable value of the spun yarn at the spindle stage - Held that - During the period prior to 16-3-1995 there was Chapter Note 1 to Chapter 52 which provided that in relation to the products of Headings 52.03 and 52.04, sizing, beaming, warping, wrapping, winding, reeling or any one or more of these processes or conversion of any form of the said product to the another form of such product shall amount to manufacture and the duty on the sized yarn shall be charged on the basis of its weight before sizing and there was similar chapter note in respect of spun yarn, man-made staple fibres in Chapter 55. However, w.e.f. 16-3-1995 Chapter Note 1 of Chapter 52 was replaced by a new note providing that in relation to the products of Headings 52.04, 52.05 and 52.06 the process of printing, bleaching, mercerizing, twisting, texturising, doubling, multifolding, cabling or any other process or any one or more of these processes or the conversion of any form of the said product into another form of such product shall amount to manufacture. Similar amendment was made w.e.f. 16-3-1995 in the corresponding Chapter Note of Chapter 55. Thus, w.e.f. 16-3-1995, the process of winding i.e. transferring the yarn from bobbins to cones was no longer a process of manufacture. In view of this, there is no question of adding the cost of winding by charging duty on the spun yarn at spindle stage. - impugned order, therefore, upholding the duty demand of ₹ 1,79,269/- is not sustainable and the same is liable to be set aside. - Decided in favour of assessee. In terms of the Chapter notes to Chapters 52 and 55 the doubling/multifolding of single ply yarn was to be treated as process of manufacture. However, the duty demand on the yarn manufactured in the unit and at the spindle stage, i.e. yarn on bobbins which was in fully finished condition and whose quantity has been accounted for in the RG-1 register, by adding to its value, the value of subsequent processes - winding/cheese winding/singeing and doubling/multifolding would not be sustainable, as when the single ply yarn is in fully finished condition at the spindle stage and is issued for weaving, it has to be treated as having been cleared at that point of time and hence the cost of subsequent processes which are the processes preparatory to weaving, cannot be added to the cost of yarn, even though those processes may amount to manufacture. Moreover, the subsequent processes - winding, doubling or multifolding are fully exempt from duty in terms of Notification No. 35/95-C.E. and successor exemption Notifications No. 8/96-C.E., 4/97-C.E., 5/98-C.E., 5/99-C.E., 6/2000-C.E. and 3/2001-C.E. subject to the condition that the processes have been carried out on the duty paid yarn which is meant for weaving of fabrics within the factory and in these cases it is not in dispute that the single ply yarn was duty paid and the same had been used within the factory for weaving. Since doubled/multifolded yarn is cleared for captive consumption within the factory for manufacture of fabrics the cost of winding, sungeing doubling/multifolding gets included in the cost of fabrics which is cleared on payment of duty. Duty on cost of these processes cannot be charged at single yarn stage by including the cost of these processes in the value of yarn at the spindle stage. We, therefore, hold that the duty demand confirmed by the Commissioner by the impugned order is not sustainable and for this reason, there is also no merit in the appeal filed by the Revenue. - Decided in favour of assessee.

Summary

Issues Involved:
1. Assessable value of the spun yarn at the spindle stage.
2. Inclusion of costs of subsequent processes (winding, reeling, warping, doubling/multifolding, dyeing, sizing, beaming) in the assessable value.
3. Applicability of exemption notifications.
4. Provisional assessments and issuance of show cause notices.
5. Legality of the penalty imposed.

Issue-wise Detailed Analysis:

1. Assessable Value of the Spun Yarn at the Spindle Stage:
The appellants are engaged in the manufacture of textile yarn and fabrics, and the dispute revolves around the assessable value of spun yarn at the spindle stage. The Department contended that the processes after the RG-1 stage (spindle stage) added value to the yarn and thus should be included in the assessable value. However, the Tribunal held that the yarn at the spindle stage is a fully manufactured product and should be assessed at that stage without adding the value of subsequent processes. The Tribunal cited the Apex Court's judgment in the case of CCE, Jaipur v. Banswara Syntex Ltd., which held that doubling or multifolding of yarn does not amount to manufacture and thus does not create a new excisable product.

2. Inclusion of Costs of Subsequent Processes:
The Department argued that processes like winding, reeling, warping, doubling/multifolding, dyeing, sizing, and beaming should be included in the assessable value of the yarn. The Tribunal, however, ruled that these processes are preparatory to weaving and do not add to the value of the yarn at the spindle stage. The Tribunal also noted that these processes are exempt from duty under various exemption notifications if carried out on duty-paid yarn meant for weaving within the factory. Therefore, the cost of these processes should not be added to the assessable value of the yarn at the spindle stage.

3. Applicability of Exemption Notifications:
The Tribunal observed that processes like doubling/multifolding are fully exempt from duty under Notification No. 35/1995-C.E. and its successor notifications, provided they are carried out on duty-paid yarn meant for weaving within the factory. Since the single ply yarn was duty-paid and used within the factory for weaving, the Tribunal held that the duty demand by including the cost of these processes in the value of the yarn at the spindle stage is not sustainable.

4. Provisional Assessments and Issuance of Show Cause Notices:
The appellants argued that the assessments were provisional and had not been finalized, and thus, show cause notices could not have been issued. The Tribunal did not specifically address this argument in detail but focused on the substantive issue of the assessable value and the inclusion of subsequent processes.

5. Legality of the Penalty Imposed:
The Commissioner had imposed a penalty of Rs. 10,00,000 on the appellant under Rule 173Q of the Central Excise Rules, 1944. The Tribunal, however, found that the duty demand itself was not sustainable, and thus, the penalty imposed was also not justified. Consequently, the appeal filed by the Revenue for enhancing the penalty was dismissed.

Conclusion:
The Tribunal allowed the appeals filed by the appellant company, setting aside the duty demands and penalties. The appeal filed by the Revenue was dismissed. The Tribunal emphasized that the processes subsequent to the spindle stage do not add to the assessable value of the yarn and are exempt from duty under relevant notifications. The Tribunal's decision was pronounced in open court on 23-7-2014.