1980 (4) TMI 105 - HC - Central Excise

Nylon Twine - Yarn and Twine - Distinction between - Validity - Fiscal statutes - Criteria for Constitution - Two views - Effect

Summary

Issues Involved:

1. Classification of nylon twine under the Central Excises and Salt Act, 1944.
2. Applicability of Item 18 versus Item 68 for excise duty purposes.
3. Interpretation of "yarn" and "twine" in commercial and legal contexts.
4. Burden of proof on the taxing authorities.
5. Applicability of principles from previous case law.

Detailed Analysis:

1. Classification of Nylon Twine under the Central Excises and Salt Act, 1944:

The primary issue revolves around whether nylon twine can be classified under Item 18 of the First Schedule to the Central Excises and Salt Act, 1944, which pertains to "Rayon and Synthetic Fibres and Yarn," or if it should fall under the residuary Item 68, which covers "all other goods, not elsewhere specified."

2. Applicability of Item 18 Versus Item 68 for Excise Duty Purposes:

The petitioners argued that nylon twine is essentially nylon yarn, specifically a man-made filament yarn that is non-cellulosic and other than textured. The process of manufacturing nylon twine involves giving a ply twist or cable twist to strands of 210 denier nylon yarn, primarily for making fishing nets. The Excise authorities contended that nylon twine is distinct from nylon yarn and should be taxed under Item 68.

3. Interpretation of "Yarn" and "Twine" in Commercial and Legal Contexts:

The court examined various definitions and standards, including those from the Encyclopaedia Britannica, the Indian Standards Institution, and the Food and Agriculture Organisation of the United Nations. These sources generally defined "yarn" as a continuous strand of fibres grouped or twisted together, suitable for textile construction, and "twine" as a ply yarn made by twisting two or more strands of yarn.

The court also considered trade practices and expert affidavits, which indicated that nylon twine is regarded as a type of nylon yarn in the industry. The court emphasized that the test to determine whether twine is different from yarn is how it is understood in common parlance and by people in the trade.

4. Burden of Proof on the Taxing Authorities:

The court highlighted that the burden of proof lies on the respondents (taxing authorities) to establish that nylon twine is not covered by Item 18 and should be taxed under Item 68. The court found that the respondents failed to meet this burden, as there was sufficient material to show that nylon twine is commercially considered a type of nylon yarn.

5. Applicability of Principles from Previous Case Law:

The court referred to several precedents, including Dunlop India Ltd. v. Union of India and Commissioner of Sales Tax, U.P. v. Sarin Textile Mills, which emphasized that the meaning of articles in fiscal statutes should align with how they are understood in trade and commerce. The court also cited the principle that when two possible views exist regarding tax liability, the one favoring the subject should be adopted.

Conclusion:

The court concluded that nylon twine retains its character as nylon yarn despite the special process applied to it. Therefore, it should be classified under Item 18, not the residuary Item 68. The petitioners were entitled to a refund of the excess excise duty collected under Item 68.

Separate Judgment by Masodkar, J.:

Masodkar, J. concurred with the majority judgment but expressed a preference for a different interpretation. He opined that "yarn" signifies the basic filament distinct from "twine," which is a processed product. However, he acknowledged that when two views are possible, the one favoring the subject should prevail. He emphasized the importance of specificity in fiscal statutes and agreed that nylon twine could be classified under Item 18 based on commercial understanding.

Per Court:

The rule was made absolute, and the respondents were directed to refund the excess excise duty collected from the petitioners. No order as to costs was made.