1991 (9) TMI 189 - AT - Central Excise

Issues Involved:

1. Interpretation of Notification 172/72-C.E.
2. Applicability of Notifications 53/72-C.E. and 272/83-C.E.
3. Segregation of waste yarn (hard waste) and its impact on exemption.
4. Definition and classification of waste yarn (hard waste).
5. Validity of the show cause notices based on audit objections.

Issue-wise Detailed Analysis:

1. Interpretation of Notification 172/72-C.E.:

The core issue revolves around the interpretation of Notification 172/72-C.E., dated 24-7-1972, which exempts hard waste falling under specific items of the Central Excise Tariff Schedule from duty. The appellants argued that the notification did not stipulate any segregation of waste yarn arising at different stages of manufacture. They contended that the absence of such a restriction indicated the legislature's intent to provide a broad exemption for all types of waste yarn. The Tribunal observed that the notification did not define waste yarn (hard waste) or restrict the stage at which such waste becomes eligible for exemption. Therefore, the exemption should apply to waste yarn arising during the manufacture of non-cellulosic man-made filament yarn falling under Item 18II.

2. Applicability of Notifications 53/72-C.E. and 272/83-C.E.:

The appellants argued that Notifications 53/72-C.E. and 272/83-C.E. were not applicable to their case since these notifications pertained to different types of waste. Notification 53/72-C.E. exempted specified varieties of waste generated in a composite textile mill, while Notification 272/83-C.E. exempted non-cellulosic waste not in the form of waste yarn. The Assistant Collector initially alleged that Notification 53/72-C.E. applied but later concluded that Notification 272/83-C.E. was applicable. The Tribunal found that the show cause notices did not provide a basis for applying Notification 272/83-C.E. and that the Assistant Collector's conclusion lacked evidence.

3. Segregation of Waste Yarn (Hard Waste) and Its Impact on Exemption:

The Department argued that the exemption under Notification 172/72-C.E. could not be extended to mixed waste yarn arising at different stages of manufacture due to the lack of segregation. The Tribunal noted that the notification did not require segregation of waste yarn and that the authorities had not conducted any investigation to identify and quantify the waste. The Tribunal concluded that denying the exemption based on non-segregation was unjustified and without any provision in the notification.

4. Definition and Classification of Waste Yarn (Hard Waste):

The appellants relied on various textile dictionaries to define hard waste and argued that the waste generated in their factory qualified as waste yarn (hard waste). The Assistant Collector's order dated 31-10-1983 had classified the waste into soft waste and hard waste, and the appellants had complied with this classification. The Tribunal observed that the authorities had not challenged the classification or conducted any investigation to redefine the waste.

5. Validity of the Show Cause Notices Based on Audit Objections:

The appellants argued that the show cause notices were issued based on audit objections without any independent investigation. The Tribunal agreed, noting that the authorities had not undertaken any investigation to identify the nature and quantity of waste yarn. The Tribunal cited the decision in Indian Plastics Ltd. & Ors. v. Collector of Central Excise, which held that show cause notices issued merely on audit objections without investigation were liable to be quashed.

Conclusion:

The Tribunal allowed the appeal, setting aside the impugned order and granting consequential relief to the appellants. It concluded that the authorities had not provided a basis for denying the exemption under Notification 172/72-C.E. and had not conducted any investigation to support their allegations. The Tribunal emphasized that the notification did not require segregation of waste yarn and that the appellants were entitled to the exemption. The Miscellaneous Application was also disposed of in light of the order allowing the appeal.

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