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Collector Of Central Excise, Jaipur v. Banswara Syntex Ltd. .
Factual and Procedural Background
The respondent company manufactures yarn falling under Tariff Items 18, 18-B and 18-E of the Central Excise Tariff. Its production process first yields single-ply yarn, which may later be doubled or multifolded according to customer requirements. Between 1978-1979, the respondent paid excise duty only on the finished doubled/multifolded yarn and not on the single-ply yarn used captively for that purpose.
On 4-9-1982 the Superintendent of Central Excise issued a show-cause notice demanding Rs 35,190.96 in alleged short-paid duty for 4,56,456.10 kg of single-ply yarn consumed without duty. The Assistant Collector confirmed the demand on 27-9-1982, holding that the single-ply yarn was fully manufactured and dutiable at the spindle stage. On appeal, the Collector (Appeals) set aside this order on 27-3-1985, deciding that duty was chargeable only at the doubling/multifolding stage. The Revenue’s appeal to the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) was dismissed. The present appeal was therefore filed by the Revenue before the Supreme Court.
Legal Issues Presented
- Whether excise duty under the Central Excise Act, 1944 becomes payable upon manufacture of single-ply yarn or can be postponed until the yarn is doubled or multifolded.
- Whether doubling or multifolding single-ply yarn constitutes manufacture of a new excisable product so as to attract a separate levy.
Arguments of the Parties
Appellant (Revenue) Arguments
- Single-ply yarn is an excisable commodity that comes into existence upon manufacture; duty therefore accrues at that stage under Rules 9(1) and 49 of the Central Excise Rules, 1944.
- Doubling or multifolding does not create a new product; hence payment of duty only on the doubled yarn enables the respondent to evade duty on the wastage generated during doubling.
Respondent (Assessee) Arguments
- No new commodity emerges until the yarn is doubled/multifolded; therefore duty is correctly paid on the weight of the doubled yarn at the time of its removal.
- Reliance placed on Bhilwara Spinners Ltd. v. CCE to contend that duty on doubled yarn suffices and no separate levy lies on single-ply yarn.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| J.K. Cotton Spg. & Wvg. Mills Ltd. v. Union of India, 1987 Supp SCC 350; 32 ELT 234 | Rules 9 and 49 deem intermediate goods captively consumed to be “removed” and therefore dutiable. | The Court applied this principle to hold that single-ply yarn, though used further in-house, is deemed removed on manufacture and therefore attracts duty immediately. |
| Bhilwara Spinners Ltd. v. CCE, 1995 Supp (4) SCC 644; 82 ELT 442 | Considered whether single yarn attracts duty; affirmed that single-ply yarn is a complete product dutiable on manufacture. | The Court distinguished the reliance placed by the respondent and reaffirmed that the observations in Bhilwara align with the J.K. Cotton principle, supporting the Revenue’s stance. |
Court's Reasoning and Analysis
The Court reasoned that manufacture of single-ply yarn completes the emergence of an excisable commodity. Under Rules 9(1) and 49, as interpreted in J.K. Cotton, goods captively consumed in further processing are deemed removed and therefore taxable at the point of first manufacture. Doubling or multifolding does not transform the yarn into a different product; it merely adapts existing yarn for specific fabric requirements.
The Court examined Bhilwara Spinners and found nothing inconsistent with this approach, noting that Bhilwara expressly accepted that single-ply yarn is dutiable on manufacture. Consequently, the respondent cannot postpone liability until the doubled yarn is cleared, nor claim exemption for wastage incurred in doubling.
Accordingly, the Assistant Collector’s demand was held to be valid, and the contrary views of the Collector (Appeals) and the Tribunal were set aside.
Holding and Implications
APPEAL ALLOWED. The Supreme Court set aside the Tribunal’s order and restored the Assistant Collector’s demand for Rs 35,190.96 with 12% interest, along with costs to the appellant.
The decision affirms that excise duty on yarn arises at the spindle stage upon manufacture of single-ply yarn, even when the yarn is captively consumed for further processes such as doubling or multifolding. It reinforces the jurisprudence that intermediate goods used in subsequent in-house processes are deemed removed and taxable, thereby clarifying duty liability for the textile industry without creating new precedent beyond existing principles.
B.N Kirpal, J.— The respondent company is engaged in the manufacture of yarn falling under Tariff Items Nos. 18, 18-B and 18-E 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.
2. The respondent was paying excise duty, in case of doubled or multifolded yarn, on the weight of doubled or multifolded yarn and no excise duty was being paid on the single yarn which was being used for doubling or multifolding. A show-cause notice dated 4-9-1982 was issued by the Superintendent of Central Excise asking the respondent to pay a sum of Rs 35,190.96 as Central excise duty which had been short-paid during the year 1978-1979 on the ground that it had utilised 4,56,456.10 kgs of single ply yarn for doubling process without payment of duty.
3. The respondent filed its reply dated 10-9-1982, 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.
4. 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 ply yarn is used in the process of 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 27-9-1982 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.
5. Being aggrieved by the order of the Assistant Collector the respondent filed an appeal to the Collector (Appeals) who, vide his order dated 27-3-1985, set aside the impugned order by holding that the duty was chargeable at the doubling/multifolding stage.
6. 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.
7. In the present appeal it is contended on 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 ply yarn and it is only thereafter, if required by its customers, that the said yarn is doubled or multifolded, as the need arises. Mere doubling or multifolding of the single yarn which is manufactured does 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.
8. It is immaterial, in view of Rules 9(1) and 49 of the Central Excise Rules whether the yarn so manufactured is captively consumed or is subjected to any other or further process. Reference may be made to J.K Cotton Spg. and Wvg. Mills Ltd. v. Union of India 1987 Supp SCC 350, (1987) 32 ELT 234 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 Explanations to Rules 9 and 49, although the goods which are produced or manufactured at an intermediate stage and, thereafter, consumed or utilised 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 of unsized yarn into sized yarn it was observed as follows: (ELT p. 250 :
“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 and sized yarn, for the 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. Doubling or multifolding of the same yarn does not bring into existence a new product and no duty is leviable at that stage.
9. The learned counsel for the respondent sought to place reliance on the decision of this Court in Bhilwara Spinners Ltd. v. CCE 1995 Supp (4) SCC 644, (1996) 82 ELT 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 can be of little assistance to the respondents.
10. In Bhilwara Spinners case 1995 Supp (4) SCC 644, (1996) 82 ELT 442 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.”
11. These observations are not at variance with the decision in J.K Spg. case 1987 Supp SCC 350, (1987) 32 ELT 234. 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.
12. 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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