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TMI Blog1999 (9) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... ility and strength, the cotton and the nylon yarns are twisted together by a mechanical process and this twisted yarn is woven into duck fabrics. The cotton/nylon duck is an industrial fabric mainly used by rubber industries in the manufacture of conveyer belts, fan belts, V belts and similar other industrial products. The cotton yarn is spun of raw cotton and the nylon yarn made by a process of extrusion out of chemicals purchased by the petitioner company from open market. Both kinds of yarns suffer duty at the yarn stage. Till September, 1974 the Central Excise Authorities accepted that the above twisting of cotton/nylon would not amount to manufacture and allowed clearance of duck fabrics charging ad valorem duty on fabrics under Tariff Entry 19(1) of the First Schedule to the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act) and the twisting of cotton and nylon yarns was considered as an intermediary process in the manufacture of duck fabrics. However, on 21-9-1974 the Central Excise Department took the view that the twisting of cotton/nylon yarns would amount to a manufacture and the product twisted cotton/nylon yarns were liable to be classified under T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter, the Assistant Collector, Central Excise, the third respondent herein, informed the petitioner company by letter C.No. V/18/ A/15/2/74, dated 30-3-1985 that the question of levy of excise duty on twisted cotton/nylon yarn would be taken up for rehearing. On receipt of the said communication, the petitioner company sent their reply on 8-4-1985 stating that the contemplated action by the Assistant Collector was without jurisdiction as the provisions of the Act clearly impose a mandatory obligation on the Central Excise Authority to issue a show cause notice indicating the reasonings of the Department to propose a levy as only then the assessee would be in a position to make his submissions. This was particularly so when the show cause notice, dated 17-2-1975, had been quashed in the writ petition and confirmed in the writ appeal. The third respondent, however, informed the petitioner drawing its attention to the show cause notice, dated 17-2-1975. The petitioner sent its reply on 22-4-1985 stating that the Division Bench in the writ appeal has specifically held that imposing of second incidence of excise duty on twisted cotton/nylon yarn under the very same tariff entry would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt had quashed the classification T.I. 18-A (ii) held by the Department and therefore the same classification could not be proposed once again by the Department. On 28-5-1990 the third respondent herein passed orders holding that appropriate classification for twisted cotton/nylon yarns would be under T.I. 18-A(ii) and the Tariff Amendment 29/80, dated 24-5-1980 would not apply. It is against this order the present writ petition has been filed. 4. The third respondent has filed a counter on behalf of the respondents and the same is to the following effect : The product manufactured by the petitioner company is obtained by twisting duty paid cotton yarn and nylon yarn. As required under the Central Excise Rules, 1944, the petitioner company filed a classification list claiming the goods under T.I. 68 and the erstwhile Tariff. The then Assistant Collector of Central Excise, Madurai-I. Division classified the goods under T.I. 18-A of the erstwhile tariff. In conformity with the classification of cotton yarn for purposes of rate of duty, the then Assistant Collector decided that the product, viz. Cotton/nylon twisted yarn fell under T.I. 18-A (ii) as it contained more than one si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity to the petitioner to do so. The respondent will also give the petitioner an opportunity to be heard through a representative, if so desired by the petitioner." The High Court quashed only the order in original, dated 25-11-1978 and not the show cause notice issued for the reclassification as claimed by the petitioner. There was also no direction to the Assistant Collector to issue any fresh show cause notice. However, the petitioner company with a view to prolong the issue had harped on the issue of the show cause notice. The present order only confirms the classification under Tariff Item 18-A(ii) and it is not going to affect any future clearance of the cotton/nylon twisted yarn by the petitioner. The petitioner may therefore be directed to avail the alternative remedies available to them under the statute. 5. I have heard the learned counsel on both sides and perused the relevant materials. 6. The learned Counsel Mr. N.S. Sivam made the following submissions : (1) The impugned order is without authority, power or jurisdiction as Section 11A of the Central Excises and Salt Act, 1944 empowers the Assistant Collector to demand duty for the six months prec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel for the petitioner company. Section 11A of the Central Excise Act, 1944 relating to recovery of duties not levied or not paid or short levied or short paid or erroneously refunded, is relied upon by the learned Counsel for driving home his point that there had been enormous delay in the matter and the determination of duty liability has become time barred. 9. Section 11A no doubt says that, "When any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short levied or short paid or to whom the refund had erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice : Provided that where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notice had been quashed and the authorities could not take any action without a fresh show cause notice. The third respondent passed fresh order on 3-5-1985 stating that it was passed pursuant to the order of the High Court in W.A. No. 232/78 directing the Department to consider the duty liability in the light of the observation contained in the judgment of the Bench and therefore, the show cause notice, dated 17-2-1975 was once again adjudicated directing that the classification under Tariff Item 18-E was the proper and correct one. Against this order W.P. No. 5424/85 came to be filed. The writ petition was admitted and interim stay of the order impugned was granted on 21-5-1985. In the meantime, W.P. No. 2877/79 challenging the proceedings culminating in the show cause notice came to be disposed of by a learned single Judge of this Court on 25-11-1985. 12. It would be worthwhile to notice the reasoning of the learned Judge at this stage itself as it may have some relevance for the further discussion in the matter. "…… The first and foremost question which should have been considered by the respondent is whether the cotton/nylon yarn is the result of a manufacturing process ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d terrene, viz. two or more fibres or filaments. Whether the benefit of Tariff Advice No. 29 of 1980, dated 24-5-1980 could be claimed by the petitioner is also a matter which would have vital bearing on the classification of the product made by the petitioner. The aforesaid, would, in my view, be relevant aspects, which should have been considered by the respondent, apart from those pointed out by the decision of the Division Bench of this Court in W.A. No. 232/78 already referred to. The order of the respondent has not proceeded to consider or bestow any attention to the aforesaid aspects, without considering which it may not be right to classify the cotton/nylon yarn produced by the petitioner as one falling under Tariff Item 18-A (ii). Without therefore, entering upon consideration of the merits the order of the respondent, dated 25-11-1978 is quashed on the ground that it had not taken into accounts matters which would be relevant for considering the inclusion of the item under 18-A(ii) of the Tariff Items." 13. The third respondent was directed to consider the question on the liability of the petitioner for excise duty on twisted cotton/nylon yarn in the light of what has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Judge then was) by order, dated 24-4-1987 made the interim stay and the interim injunction granted in those petitions absolute, subject to the condition that the petitioner furnished before the third respondent a bank guarantee in a sum of Rs.6,85,157/- within four weeks therefrom. There was also a further direction to renew the bank guarantee if and when furnished periodically and keep the same alive till the disposal of the writ petition. The inaction on the part of the third respondent can therefore be easily accounted for. On 9-8-1999 the third respondent once again directed the petitioner to offer its explanation to the show cause notice, dated 30-8-1989. The petitioner sent a reply, dated 21-8-1989 reiterating its objections once again, in particular maintaining that the show cause notice had been quashed and unless and until the Department narrated its reasonings for arriving at its conclusion, the assessee would not be in a position to reply to the same and that the action on the part of the third respondent amounted to wilful and wanton disobedience of the order of the High Court, dated 25-11-1985. The burden of the song of the petitioner was that the proceedings ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld to be not applicable to the said yarn, and (iv) the protest of the assessee for the payment of duty made under T.I. 18-A(ii) of the erstwhile Tariff should not be vacated. 15. To this the petitioner sent a reply and it would be worthwhile to reproduce the entire reply and it reads as follows:- "MIF/Excise No. 769, 19th March, 1990 The Assistant Collector of Central Excise Madurai-I Division, Madurai-2 By R.P.A.D. Dear Sir, Sub : Show cause notice on 18-A(ii) Yarn Ref : Your Show cause notice C. No. V/18E/13/153/77-PF, dated 23-1-1990 and Your letter C. No. V/18-E/13/153/77-PF Adjn dated 26-2-1990. With reference to the above show cause notice we wish to submit our reply as follows : (1) The above show cause notice has been issued in pursuance of the order, dated 25-11-1985 by the Hon'ble High Court, Madras, in W.P. Nos. 2877/79, 11652/81 and 1090/82 after a protracted correspondence between the Department and starting from your office letter C. No. V/18E/3/153/77-PF, dated 24-9-1986 and ending with our letter MIF/Ex. 542 of 18th December, 1989. (2) We request the learned Assistant Collector to judiciously consider the various points urged by us in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubt that the petitioner had been setting a trap by raising the bogey of non-issue of a fresh show cause notice and when once the third respondent issued a fresh show cause notice at the instance of the petitioner the petitioner came up with the plea of limitation. It was totally unnecessary to have issued a fresh show cause notice at all. The order of Ratnam J. (As the learned Judge then was) already extracted is absolutely clear on the point. The third respondent was directed to consider afresh the liability of the petitioner for excise duty in respect of the cotton/nylon yarn produced by it. The issuing of show cause notice was a totally unnecessary exercise. In any event, it cannot be said that it was a fresh show cause notice. The parties had been corresponding and the petitioner had been effectively blocking the course of the proceedings by raising unnecessary queries and objections. The proceedings had not come to a stop, but had only continued from where they were left. The point on limitation raised by the petitioner is wholly unsustainable and the same is rejected. The section relied on viz., 11A of the Act does not avail to the petitioner. 18. Now coming to the merit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arn known as PPRF yarn as envisaged by section 2(f) of the Central Excises and Salt Act 1944." This decision , according to Mr. Sivam, must be deemed to have been, impliedly over-ruled by the three Judges Bench of the Supreme Court in Porritts Spencer (Asia) Ltd. v. Collector of Central Excise, New Delhi (AIR 1995 S.C. 2344). In the case before the Supreme Court the question that arose for consideration was whether the multifold yarn or doubled yarn prepared by the appellants out of duty paid cotton yarn and nylon filament yarn attracts duty under Item No.18-/18-E of the Central Excise Tariff. In that case, the appellants purchased coarse cotton yarn and duty paid nylon filament yarn from others, then took a few strands of cotton yarn and nylon filament yarn (the numbers depending on the varieties of felts) and twisted them together on a doubling machine and thereafter used the multifold yarn having both the constituents for weaving of felts. That was the process through which cotton yarn and nylon filament yarn were put for the purposes of manufacturing the felts. There was also no dispute that the appellants were liable to play excise duty on the end product, namely, the felt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry is cotton/nylon duck. After twisting the cotton and nylon yarns together, the cotton nylon duck is woven. To give further durability and strength to the duck fabrics, the cotton and nylon yarns are twisted together by a mechanical process and this twisted yarn is woven into duck fabrics. The cotton/nylon duck is an industrial fabric mainly used by rubber industries in the manufacture of conveyor belts, fan belts, V-belts and similar other industrial products. The cotton yarn is spun out of raw cotton and the nylon yarn made by process of extrusion out of chemicals purchased by the petitioner company from open market. Both these yarns suffer duty at the yarn stage. The twisting of cotton and nylon yarn according to the petitioner, is only an intermediary process in the manufacture of duck fabrics. If we apply the ratio of the Supreme Court in Porritts Spencer (Asia) Ltd. case it is incumbent on the Department to show that the resultant product obtained by the twisting of cotton and nylon yarns is a distinct article having an identity of its own in the commercial world and that it should have marketability, however, limited it may be. It is not the case of the Department that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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