1984 (2) TMI 335 - AT - Central Excise

Summary

Issues Involved:

1. Classification of the material as tow or waste.
2. Determination of whether the process of cutting tow into staple fibre constitutes "manufacture."
3. Liability for duty payment and licensing requirements.
4. Applicability of extended time-limit u/r 9(2) for duty demand.
5. Relevance of previous decisions in similar cases.

Summary:

1. Classification of Material:
The appellants argued that the material purchased was waste, not tow, as it required manual sorting and was sold as sub-standard yarn. The Department contended that the material was in running length and of good quality, thus conforming to the definition of tow. The Tribunal concluded that the material was not waste as defined in Notification No. 53/72-C.E. but substantially conformed to the definition of tow.

2. Process of Cutting Tow into Staple Fibre:
The appellants claimed that cutting tow into staple fibre did not constitute "manufacture" of a new commercial article, relying on the Supreme Court judgment in Commissioner of Sales Tax, U.P., Lucknow v. Harbilas Rai and Sons. The Department argued that tow and staple fibre were distinct commercial products and that the process of cutting constituted manufacture. The Tribunal held that cutting long fibre into short fibre did not bring into existence a new substance, as both were man-made fibres under the same tariff entry.

3. Duty Payment and Licensing Requirements:
The appellants contended that they were not liable for duty as the material was already a man-made fibre, and their cutting process did not result in a new product. The Department maintained that the appellants should pay the differential duty for manufacturing staple fibre from tow. The Tribunal upheld the appellants' contention, stating that no new product was created, and thus, no fresh levy under the same tariff entry was attracted.

4. Extended Time-Limit u/r 9(2):
The appellants argued that the extended time-limit u/r 9(2) was not applicable as there was no fraud or suppression of facts. The Department countered that the case involved unauthorized removals u/r 9(1). The Tribunal did not find it necessary to address the time bar issue, as they agreed with the appellants on the substantive issue.

5. Previous Decisions in Similar Cases:
The appellants cited previous decisions where proceedings were dropped or appeals allowed in similar circumstances. The Department distinguished these cases on facts. The Tribunal noted that the Department should direct action against the original manufacturer if the material was cleared on payment of lower duty as waste.

Conclusion:
The appeal was allowed, setting aside the duty demanded and the penalty imposed on the appellants. The Tribunal emphasized that the decision was specific to the facts of this case and did not establish a general rule regarding the process of cutting as manufacture.