1996 (11) TMI 74 - SC - Central Excise

Demand of duty on yarn - Held that - 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. Against assessee & would be liable to pay the aforesaid amount of Rs. 35, 190.96 plus interest the rate of twelve per cent per annum thereon.

Summary

Issues:
1. Whether excise duty should be paid on single ply yarn or doubled/multifolded yarn.
2. Interpretation of Rule 9(1) of the Central Excise Rules and Section 49 of the Act.
3. Applicability of previous judgments in similar cases.

Detailed Analysis:

Issue 1:
The respondent company was involved in manufacturing yarn falling under specific tariff items and was paying excise duty only on the weight of doubled or multifolded yarn, not on the single yarn used for doubling or multifolding. The dispute arose when a show cause notice was issued for short payment of duty on the single ply yarn utilized for doubling. The Assistant Collector concluded that duty was payable at the spindle stage of the yarn after spinning, while the Collector (Appeals) held that duty should be charged at the doubling/multifolding stage. The Supreme Court analyzed that excise duty should be paid at the stage of manufacturing the single ply yarn itself, as the doubling or multifolding process does not create a new product, and the duty liability arises upon the manufacture of the single yarn.

Issue 2:
Reference was made to Rule 9(1) of the Central Excise Rules and Section 49 of the Act to determine the point of duty liability. The Court highlighted a previous case where it was held that goods produced at an intermediate stage and further used in the manufacturing process of another commodity are deemed to be removed for excise duty purposes. The Court emphasized that excise duty is payable when the excisable item, in this case, the single ply yarn, is manufactured, regardless of whether it is consumed internally or subjected to additional processes.

Issue 3:
The Court distinguished a previous judgment involving a similar issue where duty liability on single yarn was in question. The Court clarified that duty is attracted at the stage of manufacturing the single yarn itself and cannot be postponed until the yarn is removed after doubling or multifolding. The Court upheld the decision of the Assistant Collector, setting aside the Tribunal's judgment and holding the respondent liable to pay the demanded excise duty amount along with interest.

In conclusion, the Supreme Court ruled in favor of the appellant, emphasizing that excise duty should be paid on the single ply yarn upon its manufacture, and not at the stage of doubling or multifolding. The judgment highlighted the importance of interpreting excise rules and previous case laws to determine duty liability accurately.