2017 (11) TMI 276 - AT - Central Excise

Waste - levy of excise duty - department case is that the excise duty on the removal of such waste should be paid considering such waste yarn as finished yarn and the value of finished yarn should be adopted for payment of duty - Held that - the appellants have drawn the samples of synthetics filament yarn from the production before packing and before entering into RG-1 register. The record of the said drawal of samples was maintained by the appellants. After testing of the samples it gets converted into waste which was cleared by the appellant on payment of duty. As per this fact the goods which were cleared from the factory is the yarn waste and not the finished yarn. Therefore the duty considering the said waste as finished yarn is absolutely incorrect. The removal of waste yarn is in the same manner as goods are removed for home consumption - there is no dispute that the appellants have discharged the excise duty on the clearances of waste yarn arising out of testing of yarn. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether excise duty should be paid on waste yarn considered as finished yarn during quality testing.
- Interpretation of provisions regarding drawal of samples for testing and duty payment on waste yarn.

Analysis:
1. The appellant, engaged in manufacturing Synthetic Filament Yarn, drew samples for quality testing before reaching the RG-1 stage. The dispute arose regarding the payment of excise duty on the waste yarn considered as finished yarn during testing. The appellant argued that as per settled law, no duty is payable on samples maintained in records. The appellant relied on precedents like Economic Explosives Ltd. and Dabur India Ltd. to support their claim.

2. The Revenue contended that duty should be paid on the waste yarn as finished yarn, citing provisions from the CBEC Excise Manual and the judgment in Positive Packaging Industries Ltd. The Revenue argued that the duty should be charged on the samples as finished yarn since they eventually become waste. The Revenue's position was that the duty on waste yarn should be based on the value of finished yarn.

3. The Tribunal carefully analyzed the submissions and found that the waste yarn cleared by the appellant was not finished yarn, as it was waste resulting from testing samples. Referring to the Dabur India Ltd. case, the Tribunal held that no duty is chargeable on samples drawn for testing if proper records are maintained. The Tribunal emphasized that duty is only payable on goods removed from the factory, which in this case was waste yarn. The Tribunal also noted that the appellant followed the prescribed procedure by paying duty on clearances of waste yarn.

4. The Tribunal distinguished the Positive Packaging Industries Ltd. case relied upon by the Revenue, highlighting that it concerned duty on samples as scraps, not on finished samples. The Tribunal concluded that the impugned order demanding duty on waste yarn as finished yarn was incorrect. Therefore, the Tribunal set aside the impugned order and allowed the appeals, ruling in favor of the appellant.

This comprehensive analysis of the judgment highlights the key issues, arguments presented by both parties, relevant legal provisions, precedents relied upon, and the Tribunal's reasoning leading to its decision.