Porritts & Spencer (Asia) Ltd. v. Collector Of Central Excise, New Delhi .

Order

1. These appeals relate to the period from 1-3-1971 to 31-10-1976. The short question for consideration is whether the multifold yarn or doubled yarn prepared by the appellants out of duty-paid cotton yarn and nylon filament yarn attracts duty under Items 18-A/18-E of the Central Excise Tariff. The facts reveal that the appellants are manufacturers of cotton dryer felts. They purchase coarse cotton yarn and duty-paid nylon filament yarn from others, they take a few strands of cotton yarn and nylon filament yarn (the numbers depending on the varieties of felts) and twist them together on a doubling machine and thereafter use the multifold yarn having both the constituents for weaving of felts. This is the process through which cotton yarn and nylon filament yarn is put for the purposes of manufacturing the felts. There is no dispute that the appellants are liable to pay excise duty on the end product, namely, the felts. The question is whether they are liable to pay duty for the intermediate product known as multifold yarn. The Tribunal has considered the question from the point whether the multifold yarn could be said to be ‘goods’ and whether it can commercially be described as a new product having a distinct identity brought into existence by a process of manufacturing. Relying on the decision of the Division Bench of the Allahabad High Court in the case of Union of India v. Union Carbide India Ltd. 1978 ELT 1 (All), the Tribunal held that the test of general marketability is not a sound test in the case of monopoly products since the multifold yarn was prepared for weaving felts which was a monopoly product. The Tribunal relying on the aforesaid decision concluded that notwithstanding the fact that the intermediary product did not have a market, it was all the same ‘goods’ which had a distinct identity and was, therefore, liable to excise duty under the aforesaid tariff entries. Since the intermediary product was neither cotton yarn or nylon yarn but a mixed one, the Tribunal held that it was a distinct commodity having two constituents, cotton and nylon, and was therefore, attracted by the aforesaid tariff entries. In support, reliance was also placed on its previous decision in Aditya Mills Ltd. v. CCE 1983 ELT 1853 (CEGAT).

2. Having heard counsel on the issue involved, we are of the view that the issue calls for a brief answer by a reference to a decision of this Court in Union Carbide India Ltd. v. Union of India (1986) 2 SCC 547 by which the decision of the Allahabad High Court on which the Tribunal placed reliance came to be reversed. This Court pointed out in para 6 of the judgment that in order to attract excise duty the article manufactured must be capable of sale to a consumer. It was further pointed out that the expression “goods manufactured or produced” must refer to articles which are capable of being sold to a consumer. Referring to the decision of this Court in Union of India v. Delhi Cloth and General Mills 1963 Supp (1) SCR 586, AIR 1963 SC 791 it was observed that an article to become goods within the meaning of the Central Excises and Salt Act, 1944 must be something which can ordinarily come to the market to be bought and sold. Thereafter, going into the facts of that case, the Court found that the cans which were manufactured had sharp uneven edges and before they could be used as components for making flashlights, it was necessary that they undergo various processes such as trimming, threading and redrawing and until then they could not be said to be goods within the meaning of the Act. It was also found that the aluminium cans in the crude form without being put to trimming, threading and redrawing were unknown to the market. Since there was no satisfactory material laid to the contrary the Court held on facts that the aluminium cans did not attract excise duty. In the present case also, we find that except indicating the process of preparing multifold yarn needed for the manufacture of felts the Revenue had not placed any material on record to hold that the multifold was a distinct article having an identity of its own in the commercial world nor was any evidence led to show that it had marketability, however, limited it may be. Admittedly, even according to the Revenue the manufacture of felts was a monopoly item and the process of manufacture was to use cotton and nylon strands folded together and thereafter process the multifold yarn in the manufacture of felts. Every change does not necessarily fall within the expression ‘manufacture’ unless it is shown that the process has brought into existence and a (sic any) new product having a distinct identity in the commercial world. In the absence of any evidence in that behalf which the Revenue ought to have laid, we find it difficult to come to the conclusion that excisable goods came into existence by the treatment of cotton and nylon yarn into a multifold yarn.

3. For the above reasons, we allow these appeals, set aside the order of the excise authorities as well as the Tribunal and hold that the item multifold yarn for want of evidence, in regard to which we had made a mention, has not been shown to be liable to excise duty under the relevant tariff entry. It will be for the excise authorities to decide after notice to the appellants whether the excise duty already paid is liable to be refunded in view of Section 11-B of the Act. No costs.