1981 (7) TMI 78 - HC - Central Excise

Summary

Issues:
1. Whether excise duty should be levied on yarn as unsized or sized.
2. Whether sizing of yarn should influence the levy of excise duty.
3. Determining the taxable event for excise duty on yarn.
4. Refund of excise duty collected on the weight of sized yarn.

Analysis:
1. The judgment addressed the issue of whether excise duty on yarn should be charged on unsized or sized yarn. The court emphasized that the taxable event for excise duty is the manufacture of yarn, not the subsequent use of yarn. It was concluded that excise duty should be levied on the weight of unsized yarn as sizing adds weight to the yarn, which should not influence the levy of excise duty. This conclusion was supported by the order of the Government of India and the Collector of Central Excise (Appeals) in similar cases.

2. The judgment highlighted that sizing of yarn is necessary for weaving purposes after the yarn is completely manufactured. Sizing is considered a process to prepare yarn for the manufacture of fabrics and not for the manufacturing of yarn itself. Therefore, the weight of the sizing material should not be included in levying excise duty on yarn. The court directed that duty, if collected based on the weight of sized yarn, should be refunded.

3. The court clarified that the taxable event for excise duty on yarn is the manufacture of yarn, specifically at the spindle stage when the yarn is marketable. Composite mills, which have spinning and weaving departments, should not be required to pay excise duty on the weight of sized yarn as sizing is essential for weaving purposes after yarn manufacturing is completed.

4. In terms of relief, the court allowed the special civil applications and directed the respondents to refund the difference in excise duty collected between the weight of sized yarn and unsized yarn. All demand notices issued without recognizing this difference were quashed. The respondents were instructed to refund any money collected based on the weight of sized yarn with interest and were restrained from collecting excise duty on yarn based on the weight of sized yarn. Show cause notices issued for collecting the difference in excise duty were also set aside, and the respondents were ordered to pay the costs of the petitioners.