1981 (10) TMI 44 - HC - Central Excise

Yarn - Blending or twisting done to give twinkling effect is not manufacture - Removal of goods

Issues Involved:
1. Classification of Weft Yarn under Tariff Item 18E.
2. Determination of Weft Yarn as a New Product.
3. Levy of Excise Duty on Weft Yarn Consumed within the Factory.
4. Alleged Contravention of Central Excise Rules.
5. Maintainability of the Petition.

Detailed Analysis:

1. Classification of Weft Yarn under Tariff Item 18E:
The primary issue was whether the weft yarn manufactured by the petitioners, which was a combination of cotton yarn and Twinkle Nylon Yarn, should be classified under Tariff Item 18E as a new product. The petitioners argued that the weft yarn was not a new product and should not be classified under Item 18E. The classification lists filed by the petitioners in 1973 and 1975, detailing the manufacturing process, were initially approved by the Excise Authorities. However, a Circular issued by the Central Board of Excise and Customs in 1974 led to the reclassification of the weft yarn under Item 18E, which the petitioners contested.

2. Determination of Weft Yarn as a New Product:
The court examined whether the process of intertwining cotton yarn with nylon yarn constituted the manufacture of a new product under Section 2(f) of the Central Excise and Salt Act, 1944. The petitioners provided affidavits from textile experts stating that the process did not result in a new product but merely combined two existing yarns. The court referred to Supreme Court decisions in M/s. Pio Food Packers and Chowgule Co. Pvt. Ltd., which established that a new product must be commercially distinct from the original commodity. The court found that the weft yarn did not meet this criterion and thus was not a new product.

3. Levy of Excise Duty on Weft Yarn Consumed within the Factory:
The petitioners argued that even if the weft yarn was considered a new product, excise duty could not be levied as the yarn was consumed entirely within the factory for producing fabrics. The court noted that the rules post-1968 allowed for the levy of duty on goods consumed within the factory but did not delve deeply into this issue due to the primary finding that the weft yarn was not a new product.

4. Alleged Contravention of Central Excise Rules:
The show cause notice issued to the petitioners claimed contraventions of several Central Excise Rules, including Rules 173, 173F, 9(1) read with Rule 173G(1), 52A read with 173G(2), 53, and 226 read with 173G(4). The Department alleged that the petitioners had removed significant quantities of cotton yarn and doubled yarn without paying the requisite excise duty. The court found that the removal of goods was not clandestine as the petitioners had provided full factual data in their classification lists, thus nullifying the contravention claims.

5. Maintainability of the Petition:
The Department argued that the petition should not be entertained as the petitioners had an alternative remedy of filing an appeal. However, the court overruled this preliminary objection, noting that the Department was unwilling to assure that the appeal would be disposed of on merits and not dismissed on the ground of limitation.

Conclusion:
The court concluded that the weft yarn manufactured by the petitioners was not a new product and thus did not fall under Tariff Item 18E. Consequently, the show cause notice and the order passed by the Assistant Collector of Central Excise were quashed. The court directed the cancellation of the bond executed by the petitioners and ordered the refund of Rs. 65,000/- within four weeks. The petition was allowed, and the rule was made absolute with no order as to costs.

← Previous Next →