2000 (9) TMI 492 - AT - Central Excise

Summary

Issues Involved:
1. Applicability of exemption under Notification No. 35/95-C.E. as amended by Notification No. 84/95-C.E. for double/multifold yarn manufactured in a composite mill.
2. Interpretation of the proviso to the said notification regarding clearances of yarn from a factory.
3. Eligibility for exemption under Sl. No. 5 of the same notification.
4. Impact of Rule 49A on the duty status of single yarn used for manufacturing double/multifold yarn.
5. Consideration of Modvat credit on duty paid yarns.

Detailed Analysis:

1. Applicability of Exemption under Notification No. 35/95-C.E.:
The primary issue was whether the exemption under Sl. No. 1 & 2 of Notification No. 35/95-C.E., as amended by Notification No. 84/95-C.E., applies to double/multifold yarn manufactured in a composite mill having facilities for producing single yarn. The proviso to the notification states:
"Provided that the exemption contained hereinabove relating to Sl. No. 1 & 2 shall not apply to clearances of yarn from a factory having facilities (including plant and equipment) for producing single yarn."

The Revenue contended that the exemption is not applicable to any doubled or multifolded yarn manufactured by such composite mills, regardless of whether it was cleared for captive consumption or home consumption. The appellants argued that the exemption should be available when the yarn is captively consumed and not when it is removed from the factory for home consumption.

2. Interpretation of the Proviso:
The interpretation of the proviso was central to the dispute. The appellants argued that "clearances of yarn from a factory" should be interpreted to mean physical removal from the factory gate, thus not applicable to captive consumption. The Revenue, however, argued that the proviso applies to any type of clearance, including captive consumption.

The Tribunal concluded that the proviso bars the duty exemption to multifolded/doubled yarn manufactured by composite mills for both captive consumption and clearances outside the factory gate. The proviso should be read plainly and together, and no theoretical distinction could be made between "clearance" and "removal."

3. Eligibility for Exemption under Sl. No. 5:
The appellants also claimed exemption under Sl. No. 5 of the notification, arguing that the doubled/multifolded yarn does not become 'goods' until it is wound on reels, which is exempt under Sl. No. 5. The Tribunal held that the exemption under Sl. No. 5 is not applicable to the manufacture of doubled/multifolded yarn, as this involves more intricate machinery and sophisticated technology, resulting in a new and distinct product from the single yarn used as input.

4. Impact of Rule 49A:
The appellants contended that the duty on single yarn was paid at the fabric stage under Rule 49A, and thus the condition of using duty-paid single yarn was satisfied. The Tribunal agreed that "duty paid" includes "duty ought to have been paid," and since the yarn suffered duty at the fabric stage, the exemption cannot be denied on this ground alone.

5. Consideration of Modvat Credit:
The Tribunal noted that the claim for Modvat credit on duty paid on yarns used to manufacture and clear fabrics on payment of duty was raised for the first time before the Tribunal. Since the matter was being remanded for de novo consideration on other grounds, this submission was also to be considered by the original authority during the remand proceedings.

Conclusion:
The Tribunal, by majority order, dismissed the Revenue's appeals against M/s. Coats Viyella (India) Ltd. and upheld the lower appellate authority's decision granting exemption under Sl. No. 5. The appeal of M/s. Davangere Cotton Mills was also dismissed, confirming that they were not entitled to exemption under Sl. No. 1 & 2 due to the proviso but recognizing their claim under Sl. No. 5 was not initially raised and therefore not considered.