Synthetic filament yarn/monofilaments - Dutiability of - Central Excise - 16/90-CX. 1

Synthetic filament yarn/monofilaments - Dutiability of Circular No. 16/90-CX. 1 Dated 23-5-1990 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise and Customs, New Delhi Subject : Synthetic filament yarn/monofilaments - Dutiability of This is to say that an issue has been raised regarding the stage at which duty should be collected in respect of synthetic filament yarn including synthetic monofilaments whether textured or not, falling under Headings 54.02 and 54.03. In other words the point is whether duty should be collected on the so called monofilaments (which are still semi-finished and could be stretched three to four times of the original length) at this stage known as take up stage, before the filaments are subjected to the process of drawing or draw-texturising and applying coning oil, etc. 2. The audit was of the view that duty should be collected as soon as the filaments come out of the spinnerettes and before they are taken for drawing or draw texturising. 3. The manufacturing process of synthetic filament yarns and synthetic monofilaments in brief is that raw material is taken, subjected to crushing, then it is melted and polymerised to obtain polymer chips. Thereafter the polymer chips are melted and extruded through the spinnerettes. This is known as spinning stage. At this stage the filaments coming out of the spinnerettes are still in the molten stage. At this stage the filaments have no shelf life and still like plastic, soft and molten. The audit is of the view that duty has to be discharged at this stage. Thereafter the filaments are quenched and then subjected to the process of bunching (only in the case of manufacture of multi-filament yarn). After that oil and water are applied when the filaments pass through oil rollers. They are, then wound on bobbins. At this stage yarn is known as undrawn yarn or filament. They can be stretched to three to four times of the original length. This is known as take-up stage. It may also be mentioned that, from the spinnerettes the molten state filaments can be taken directly for partial drawing to obtain partially oriented yarn (which can be further stretched to 1.6 times approximately). 4. The undrawn yarn at the take-up stage is stored under certain temperature and humidity condition before they are taken for drawing or draw-texturising. Otherwise the undrawn yarn would deteriorate and cannot be used for manufacture of textile monofilaments/yarn for weaving or knitting purposes. The undrawn yarn can be subjected to the process of drawing to obtain drawn yarn or monofilaments or can be subjected to the process of draw-texturising to obtain textured yarn or filaments. Thereafter coning oil is applied to obtain finished and marketable synthetic filament yarn or monofilament. If dyed yarn is required the drawn yarn or textured yarn is subjected to the process of dyeing before application of coning oil. After dyeing the resultant product is subjected to the process of application of coning oil. They are then subjected to quality control tests and graded and packed. The trade is of the view that finished marketable synthetic filament yarn or monofilament come to existence, only after application of coning oil, in the form of POY or fully drawn yarn or textured yarn/ monofilament. 5. In the case of simultaneous draw-texturising, the machines are such that no flat yarn (drawn yarn) comes into existence at any stage. On the other hand the undrawn yarn is straightaway converted into textured yarn. From the above manufacturing process it is clear that the filaments at the take-up stage are stretchable and have not yet reached the finished stage to use them in any textile weaving or knitting processes. At the take-up stage the undrawn yarn has to be kept under certain temperature and humidity condition; otherwise it loses its characters suitable for drawing and texturising. Without drawing or draw texturising they are not suitable for further use in textile industry. Thus at this stage they are still in the semi-finished condition and are not marketable. 6. As per General Explanatory Notes at Page 749 under Chapter 54 of the H.S.N. Explanatory Notes in respect of synthetic fibres the following notes are found :- "The basic materials for the manufacture of these fibres (synthetic fibres) are generally derived from coal or oil distillation products or from natural gas. The substances produced by polymerisation are either melted or dissolved in a suitable solvent and then extruded through spinnerette (Jets) into air or into a suitable coagulating bath where they solidify on cooling or evaporation of the solvent, or they may be precipitated from their solution in the form of filaments. At this stage their properties are normally inadequate for direct use in subsequent textile processes and they must then undergo a drawing process which orientates the molecules in the direction of the filaments, thus considerably improving certain technical characters (for example : strength)." 7. In view of the above, at the take up stage when the monofilaments have just come out of the spinnerettes and have been quenched, they are semi-finished and their properties are normally inadequate for subsequent use in textile processes and they must then undergo a drawing process. Therefore, it appears not proper to collect duty at the semi-finished stage, keeping in view the Supreme Court's decisions in the cases of Bhor Industries and M/s. Union Carbide. 8. In view of the above the Board is of the view that the audit's contention is unreasonable and cannot be justified. It would be proper and just if duty is collected only after the emergence of the finished POY or fully drawn yarn or the drawn texturised yarn or monofilament as the case may be. It is reported that these are not marketed without subjecting them to the application of coning oil. According to the H.S.N. Explanatory Note at Page 707 the last para reads as under :- "Yarns, may be unbleached, scoured, bleached, creamed, dyed, printed, marled etc. They may also have been gassed (i.e., signed to remove fibres which give them a hairy appearance) mercerised (treated under tension with sodium hydroxide), oiled etc. 9. Thus applying oil, dyeing, bleaching etc., are also finishing processes with reference to yarn. Collecting duty after applying oil and dyes, which increases the weight of the yarn and obviously whether specific rate or ad valorem rate of duty, would fetch more duty. Yarns/filaments subjected to the process of printing, dyeing, applying oil etc., are not separately specified under Central Excise Tariff and hence duty liability does not arise at each stage. 10. In view of the above the Board decided that it is proper that duty is collected after the yarn/monofilaments are subjected to all the finishing processes when they reach the marketable stage in the factory of production. The audit's view that the duty should be collected at the take-up stage is not acceptable as at that stage the goods cannot be called monofilament yarn in the finished and marketable condition.