2000 (4) TMI 312 - AT - Central Excise

Summary

Issues:
1. Denial of exemption from Central Excise Duty on dyed yarn under Notification No. 35/95.
2. Valuation of "yarn" for charging Central Excise Duty.

Issue 1: Denial of exemption from Central Excise Duty on dyed yarn under Notification No. 35/95:
The appellant, a public limited company engaged in manufacturing dyed yarn, received a show cause notice proposing duty demand on dyed yarn by denying the claim for exemption from Central Excise Duty under Notification No. 35/95. The Commissioner initially held that the demands were not sustainable as the appellant's factory was independent and licensed under the Factory Act, and the appellant did not have the facility to produce single yarn. The Commissioner also noted that the suppliers of grey yarn to the appellant were all part of the same group of industries, and the dyed yarn was not sold independently but sent for dyeing on a transfer basis. The Commissioner concluded that the prices charged for dyed yarn should be considered as the assessable value for charging Central Excise Duty. However, the Tribunal held that the demands were not sustainable as the appellant was entitled to the exemption under Notification No. 35/95, and therefore, dropped the proceedings against the appellant.

Issue 2: Valuation of "yarn" for charging Central Excise Duty:
The grievance of the appellant was directed against the direction in the order that proceedings should be initiated for demanding differential duty based on the sale price difference between grey yarn and dyed yarn. The appellant argued that this direction contradicted the decision that dyed yarn was exempt from duty under Notification No. 35/95. The appellant contended that the cost of dyeing yarn and the sale price of dyed yarn should not affect the assessable value of grey yarn for duty calculation. The Tribunal observed that while the show cause notice mentioned treating the sale price of dyed yarn as the assessable value for charging duty, exempted goods like dyed yarn cannot be subjected to duty. The Tribunal clarified that the value of dyed yarn cannot be used to assess the duty on grey yarn since the finished product's price should not determine the raw material's value. Therefore, the Tribunal deemed the direction for demanding differential duty based on the sale price of dyed yarn as illegal and set it aside. The appeals were allowed on these grounds.

In conclusion, the Tribunal upheld the appellant's entitlement to the exemption under Notification No. 35/95 and deemed the direction for demanding differential duty based on the sale price of dyed yarn as illegal.