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PETITIONER: COLLECTOR OF CENTRAL EXCISE, JAIPUR

       Vs.

RESPONDENT: BANSWARE SYNTEX LTD.

DATE OF JUDGMENT:       26/11/1996

BENCH: A.M. AHMADI, J.S. VERMA, B.N. KIRPAL

ACT:

HEADNOTE:

JUDGMENT:                             WITH                Civil Appeal No. 1778 of 1987 Present:                  HON‘BLE THE CHIEF JUSTICE                  HON‘BLE OF MR. JUSTICE J.S.VERMA                  HON‘BLE MR. JUSTICE B.N. KIRPAL Mr. M.S.  Usgaonker, additional  solicitor  general,  Mr.V.K Verma and  Mr. A.  Subba Rao,  Advocates with  him  for  the Appellant. Mr. D.A. Dave, Sr. Adv. Ms. Ruby adv. for Ms. M. Karanjawala Adv. With him for respondent.                       J U D G M E N T      The following judgment of the court was delivered: Kirpal. J.      The respondent company is engaged in the manufacture of yarn falling  under tariff  item No.  18, 18B and 18E of the central Excise  Tariff. It  manufactures single ply yarn and it also  in the  course of  its manufacturing  process, does doubling and multifolding of the yarn.      The respondent  was paying  excise  duty,  in  case  of doubled or  multifolded yarn,  on the  weight of  doubled or multifolded yarn,  on the  weight of  doubled or multifolded yarn and excise duty was being paid on the single yarn which was being  used for  doubling or  multifolding. A show cause notice  dated   4th  September   1982  was   issued  by  the superintendent to  pay a  sum of  Rs.   35,190,96 as central excise duty  which had been short paid during the year 1978- 79 on  the ground  that it  had utilised 4,56,456.10 kgs. of single ply for doubling process without payment of duty .      The respondent  filed its  reply dated  10th September, 1982, inter alia, contending that there had neither been any removal nor  any utilisation  of the  yarn resulting  in the production of  a new commodity and, therefore, duty had been paid   correctly    at   the    time   of    removal   after doubling/multifolding of the yarn.      It appears  that when the single ply yarn is doubled or multifolded there  is some  wastage. If  duty is paid on the production of  single ply  yarn the respondent would not get the benefit of exclusion of the waste which arises when that single   play    yarn   is    used   in   the   process   of

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doubling/multifolding, That  is why  the respondent chose to pay duty  after the  process of doubling or multifolding had been completed. The Assistant collector, central Excise vide his adjudication  order dated 27th September ,1982 confirmed the demand  raised in the show cause notice by coming to the conclusion that  the yarn at its spindle stage, after it had been spun,  was a  fully manufactured  product and  duty was payable at that stage.      Being aggrieved by the order of the assistant collector the respondent  filed an  appeal to  the collector (Appeals) who ,  vide his  order dated 27th March, 1985, set aside the impugned order  by holding  that the  duty was chargeable at the doubling/multifolding stage.      The appellant  then filed an appeal before the customs, Excise and  gold (  Control) Appellate  tribunal  contending that the  single ply yarn had to be subjected to duty and by paying duty on the weight of the doubled yarn the respondent had avoided  payment of  the duty  on the  waste  which  was generated  in  the  doubling  of  the  yarn.  The  Tribunal, however, dismissed the appeal of the appellant.      In the  present appeal  it is  contended behalf  of the appellant that the duty was payable when the single ply yarn was manufactured.  It is not in dispute that at the stage of the manufacture  of the  single ply  yarn there  comes  into existence an  excisable item.  the  respondent  manufactures single play  yarn and  it is only thereafter, if required by its customers, that the said yarn is doubled or multifolded, as the  need arises. Mere doubled or its customers, that the said yarn  is doubled  or multifolding  of the  single  yarn which is  manufactured dose  not bring  into existence a new product.  The  single  yarn  which  is  manufactured  is  an excisable item  and  would  be  subject  to  duty  upon  its manufacture.      It is  immaterial, in view of rule 9 (1) of the central Excise rules  and section  49 of the Act whether the yarn so manufactured is  captively consumed  or is  subjected to any other or  further process.  Reference may  be made  to  J.K. Spinning and  weaving mills Ltd. and Anr. Vs. Union of India and Ors.  (1987 32  ELT 234  SC) Where rules 9 and 49 of the central Excise   rules,  1944 after  they were  amended with retrospective effect  by section 51 of the finance Act. 1982 came up for interpretation. It was held that "in view of the deeming provisions  under explanation  to rules  9  and  49, although the  goods which are produced or manufactured at an intermediate stage  and thereafter,  consumed or utilized in the  integrated  process  for  the  manufacture  of  another commodity is  not actually  removed, shall  be construed and regarded  as   removed."  Dealing   with  the   question  of conversion at page 250 as follows:-      "In our view, the High court by the      impugned judgment  has rightly held      that the  appellants are not liable      to pay  any excise duty on the yarn      after it  is sized  for the purpose      of weaving  the same  into fabrics.      No. distinction can be made between      unsized yarn  when  converted  into      sized  yarn   does  not   lose  its      character as yarn.      The same  principle would  be applicable in the present case. A single ply yarn is first manufactured and thereafter it is  doubled or  multifolded, depending  upon the  type of fabric which is ultimately to be woven. The liability to pay excise duty would arise on the manufacture of the single ply yarn and not after the same has been doubled or multifolded.

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Doubling or  multifolding of  the same  yarn does  not bring into existence a new product and no duty is leviable at that stage.      Learned counsel  for the  respondent  sought  to  place reliance on  the decision of this court in Bhilwara Spinners Ltd. Vs.  Collector of  Central Excise  (1996 [82]  ELT (SC) 442) in  support of  his contention  that the respondent was liable to  pay duty on the doubled yarn and no duty ought to be levied  on the  single yarn. In our opinion this judgment and be of little assistance to the respondents.      In Bhilwara  Spinners case  the company  was engaged in the manufacture of fabrics. For that purpose it manufactured four types  of yarns.  The yarn  when produced  was a single yarn but the appellant doubled and multifolded the yarn as a step towards  manufacture of  fabrics. The  appellant’s case was that  it had  been paying duty on doubled or multifolded yarn but  not on single yarn. When called upon by the Excise Department to  show cause  why duty  should not be levied on the single yarn, the contention of the appellant therein was that both single stage yarn and doubled/multifolded yarn are one and the same goods and inasmuch as it was paying duty on the doubled/multifolded  yarn no  duty was  payable  on  the single  yarn.   The  appellate   collector   accepted   this contention but  the Tribunal  agreed with  the Revenue. This court, in appeal did not go into the question whether single yarn or  doubled/multifolded yarn are one and the same goods and observed as follows:-      "We are concerned in this case with      the only  question  whether  single      yarn attracts  duty or not. In view      of  the  finding  of  the  Tribunal      affirming  the   finding   of   the      Assistant  Collector   that  single      yarn is  a completely  manufactured      product, it cannot be disputed that      it  attracts   duty.  We   are  not      concerned with the question whether      the  doubling/multifolding  of  the      said  yarn   results  in  different      goods or  not and  whether duty  is      leviable   on   doubled/multifolded      yarn. We  need only  say  that  the      Tribunal is  right in  its  opinion      that the  single yarn is subject to      duty though used in the manufacture      of  fabrics in a continuous process      of manufacture."      These  observations   are  not  at  variance  with  the decision in  J.K. Spinning’s  case (supra).  In view  of the fact that  an excisable  item comes  into existence with the manufacture of  a single  ply yarn  it becomes liable to pay excise duty  at that  stage itself. The respondent cannot be allowed to contend that the levy of excise duty is postponed to a  point of  time when the yarn is removed after doubling or multifolding.  The liability to pay excise duty arises at the first  stage itself,  namely, at the time of manufacture of single  ply yarn.  This being so the demand raised by the Assistant Collector was not invalid.      For the  aforesaid reasons the appeals are allowed. The Judgment of  the Tribunal  is set  aside and the decision of the Assistant  Collector  of  Central  Excise  is  restored. Result of  this would be that the respondent would be liable to pay  the aforesaid  amount of Rs. 35,190,96 plus interest at the  rate of  twelve per  cent  per  annum  thereon.  The appellant would also be entitled to costs.

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