Western India Texturizers Ltd. vs Union Of India (Uoi) And Ors.
2002 Latest Caselaw 402 Del

JUDGMENT

S.B. Sinha, C.J.

The short question, which arises for consideration in these two writ petitions is as to whether processing of twisting and doubling of the yearn would amount of manufacture, so as to attract payment of excise duty in terms of the provisions of Central Excise and Salt Act, 1944 (hereinafter referred to as 'the said Act').

2. The petitioner herein is engaged in the business of processing of nylon yarn on jab basis, i.e., it processes yarn of the other parties and is paid for the work done. For the said purpose, it receives nylon yarn from various parties. It twists/doubles nylon yarn on special machine wherefor the same does not undergo any physical or Chemical changes, nor does it lose its original characteristics. According to the petitioner, twisted and doubled yarn continues to be known as yarn and is covered by TI 18 (i)(a) of the I Schedule to the said Act.

3. Central Board of Excise & Customs (hereinafter referred to as 'the Board') issued notification bearing No. 24/77, which is in the following terms :-

TARIFF ADVICE NO. 24/77

F.NO. 50/4/77-CX.2 Government of India

CENTRAL BOARD OF EXCISE AND CUSTOMS New Delhi, and June 22nd, 1977

To,

All Collectors of Central Excise, All Collectors of Customs, Deputy Collector of Central Excise, Goa, Deputy Commissioner of Andaman and Nicobar Island Port Blair.

Sub : Classification of twines and ropes of Nylon Yarn

Sir,

The question whether twine and rope made out of duty paid nylon yarn are classifiable under Item No. 18 or Item 68 of the Central Excise Tariff, was considered in the 2nd conference of Collectors of Central Excise (West Zone) held at Bombay on 4.4.77 and 5.4.77, and the conference was of the view that twine and rope would be classifiable under Item 68 of C.E.T. because :-

(1) Doubling is a process of manufacture and new product commercially known as twine/rope, which is different from yarn, is manufactured and

(2) Whereas Tariff Item 18-A covers cotton yearn, twist and thread (which term includes twine also), Tariff Item 18 includes "Yarn" only and not thread.

(2) The Board have accepted the views of the Conference. Accordingly, twines and ropes of Rayon the Synthetic yarns will be classifiable under Tariff Item 68.

(3) The receipt of this communication may please be acknowledged.

Yours faithfully,

sd/-

(A.S. Sidhu)

Under Secretary,

Central Board of Excise and Customs Copy forwarded to :-

1. All Appellate Collectors of Central Excise.

2. ... ... ... ... ... ... ..."

4. Subsequent to the aforesaid notification, the Excise Authorities initiated proceedings against the petitioner for recovery of excise duty whereupon the petitioner informed the Assistant Collector, Central Excise vide its letter dated 26.02.1981 that it intends to process fist net yarn at its factory at Ahemdabad and does not agree with their view for making payment of excise duty @ 8% However, the said duty was paid under protest.

5. The petitioner vide letter dated 28.02.1981 again informed the Assistant Collector, Central Excise that nylon yarn for processing to manufacture fish net twine on which duty is already paid, is received from M/s. Nirlon Synthetic, Fibers & Chemicals Ltd., Bombay on job work and the petitioner is doing processing work of twisting the nylon only on job basis and for the said purpose would be charging job charges. It was also submitted that the petitioner does not agree that the said product is classifiable under T.I. No. 68.

6. Pursuant to or in manufacture of the aforesaid letters, the Superintendent of Central Excise vide letter dated 28.03.1981 once against directed the petitioner to discharge its liability of payment of Central Excise Duty on the ground that nylon yarn twine falls under T.I. 68 on the full value of the costs of material and job work done by the petitioner.

7. The petitioner vide letter dated 31.03.1981 addressed to the Assistant Collector of Central Excise submitted that it filed classification under protest and proposed to submit refund application to claim refund of the excise duty paid.

8. In support of the said contention, reliance has been placed on a decision of the Bombay High Court in Garware Nylon Ltd. v. Union of India and Ors., 1980 E.L.T. 249 (Bom.) The petitioner also requested for personal hearing to explain the submissions and contentions in details.

9. The Superintendent of Central Excise vide its letter dated 06.04.1981 again directed the petitioner to make payment of central excise duty at appropriate rate on the full value of the finished products, i.e., twines of nylon yarn, as the same falls under T.I. No. 68 and the application for license under T.I. No. 18 was accordingly returned and the petitioner was requested to file classification list of the product under T.I. No. 68.

10. Pursuant to and in furtherance of the aforesaid directions, the petitioner once again represented his case vide letter 20.04.1981, which is in the following terms :-

"INDIAN ELECTRO Chemical LIMITED, AHMEDABAD

Ref. No. F-(45)/2809

The Superintendent of Central Excise, Assessment Range II, Division II, Ahmedabad

Dear Sir,

Re : Request for a license u/s

18 - Fish Net Twine

We are in receipt of your letter No. CE/VII/61 dated 6th April, 1981, Even though, we have given detailed reasons in support of our contention that Fish Net Twine falls under T.I. No. 18 duly supported by the Judgment (1980 KLT 320) of the Bombay High Court and evidence and even though we have requested for a personal hearing in the matter, you have passed an order in the matter without granting a personal hearing and without giving reasons of rejecting the Bombay High Court decision or for arriving at the decision, in the matter. Since your order is appealable under Section 35 of the Act, we have to request you to give us a speaking order in the matter. If the requisition contained in this letter is not complied with without four days from the receipt of this later, it will be presumed that justice is denied to us and we will be compelled to take such action in appropriate court of law as may be advised.

Thanking You

Yours faithfully

For India Electro Chemicals Ltd.

Sd/-

Works Manager

CC : to

The Assistant Collector of C.Excise Division II, Ahmedabad."

11. Allegedly, no reply was received by the petitioner to the aforesaid representation till the time of filing of the present writ petition.

12. The said Act was enacted in the year 1944. Section 3 of the said Act entitles the respondents to levy duty of excise on items specified in the Schedule to the said Act wherefor notification are issued from time to time. Such issuance of notification is a legislative function.

13. If any guideline is issued by way of administrative instructions or if a decision is taken, as has been taken, the same must fulfill the legal obligations. The concurrence of Collectors of Central Excise (in short, the Collectors) cannot override the legislation as insertion of any item in the Schedule must be done by way of legislation. The same cannot be done evidently in terms of executive instructions.

14. The question as to whether processing, twisting or doubling of nylon/polyester yarn amounts to manufacture of a new product came up for consideration in Union of India v. Delhi Cloth & General Mills Ltd., In that decision, the Apex Court has clearly held that for manufacture of goods, it is essential that as a result of the process in question a new and distinctive article, with a distinct use, character and name in the market must result or emerge.

15. No duty on twisting or doubling of yarn can be charged if the same does not undergo any change nor thereby does it become a new or distinctive article, as thereby double duty on the same article would be collected, which is prohibited in law.

In Garware Nylons Ltd. (Supra), it was held :-

"12. Our attention has been drawn by Mr. Paranjape who appears for the respondents to Item 18D of the First Schedule to the Central Excises and Salt Act, 1944, as amended in 1977, which deals with JUTE YARN, ALL SORTS. In Explanation I, it is stated that Jute Yarn shall include jute twist, thread, rope and twine. Similarly, before the amendment of 1977, Item 18D dealt with JUTE TWIST, YARN, THREAD, ROPE AND TWINE, ALL SORTS. etc. From this Item, it is not possible to conclude that, for the purpose of the Central Excise and Salt Act, twine is treated as something different from yarn. On the contrary, this Item goes to show that, under the Act, twine is included in yarn. It has been argued that, but for the Explanation, twine would have been excluded from yarn. This argument has not appealed to us. The Explanation goes to show that twine is included in yarn. It is not possible to conclude that, without such Explanation, twine should not be considered as yarn."

16. The aforementioned decision has been affirmed by the Apex Court, in Union of India v. Garware Nylons Ltd., in the following terms :-

"15. In our view, the conclusion reached by the High Court is fully in accord with the decisions of this Court and the same is justified in law. The burden of proof is on the taxing authorities to show that the particular case or item in question is taxable in the manner claimed by them. Mere assertion in that regard is of no avail. It has been held by this Court that there should be material to enter appropriate finding in that regard and the material may be either oral or documentary. It is for the taxing authority to lay evidence in that behalf even before the first adjudicating authority. Especially in a case as this, where the claim of the assesse is borne out by the trade inquires received by them and also the affidavits filed by persons dealing with the subject matter, a heavy burden lay upon the revenue to disprove the said materials by adducing proper evidence. Unfortunately, no such attempt was made. As stated, the evidence led in this case conclusively goes to show that Nylon Twine manufactured by the assesseds has been treated as a kind of Nylon Yarn by the people conversant with the trade. It is commonly considered as Nylon Yarn. Hence, it is to be classified under Item 18 of the Act. The Revenue has failed to establish the contrary. We would do well to remember the guidelines laid down by this Court in Dunlop India Ltd. v. Union of India , in such a situation, wherein it was stated :-

"..When an article has, by all standards, a reasonable claim to be classified under an enumerated time in the Tariff Schedule, it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause."

17. Yet again in Collector of Central Excise, Jaipur v. Banswara Syntex Ltd., 19967 (88) E.L.T. 645 (S.C.) the Apex Court held thus :-

"9. Learned Counsel for the respondent sought to place reliance on the decision of this Court in Bhilwara Spinners Ltd. v. Collector of Central Excise 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 the company was engaged in the manufacture of fabrics. For that purpose it manufactured four types of yarns. The yearn when produced was a single yarn but the appellant doubled and multi-folded the yarn as a step towards manufacture of fabrics. The appellant's case was that it has been paying duty on doubled or multi-folded yarn but not on single yarn. When called upon by the Excise Department to show cause why duty should be levied on the single yarn, the contention of the appellant therein was that both single stage yarn and doubled/multi- folded yarn are one and the same goods and inasmuch as it was paying duty on the doubled/multi-folded 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/multi-folded 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/ multi-folding of the said yarn results in different goods or not and whether duty is leviable on doubled/multi-folded 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."

18. In view of the aforementioned authoritative pronouncements of the Apex Court, we are of the opinion that the impugned order cannot be sustained. The writ petitions are allowed and the impugned order is set aside. However, in the facts and circumstances of the case, there shall be no order as to costs.