TMI Blog1986 (8) TMI 198X X X X Extracts X X X X X X X X Extracts X X X X ..... The Respondent M/s. Reliance Industries Ltd. (for short The Reliance) have their factory at Patelganga, District Raigad, Maharashtra holding a Central Excise Licence L-4 dated 6-7-1982 for the manufacture of polyester filament yarn falling under Tariff Item No. 18 of the Central Excise Tariff. The Asstt. Collector, Central Excise, Kalyan Division, by his order dated 6-12-1982, permitted The Reliance to send polyester filament yarn faling under Tariff Item 18-II for further orientation and texturising to their another unit at Naroda, Ahmedabad. This permission was, however, withdrawn by the Asstt. Collector, Kalyan by his letter dated 16-3-1983. The Reliance made a fresh application dated 21-7-1983 for permission to operate under Rule 56-B. This application was rejected by the Asstt. Collector by his letter dated 19-9-1983. Aggrieved by the order of the Asstt. Collector, The Reliance went in appeal before the Collector of Central Excise (Appeals), Bombay. The Collector (Appeals) by his order dated 24-12-1983 allowed the appeal by holding that The Reliance are entitled for the benefit of Rule 56-B of the Central Excise Rules, 1944 (for short The Rules ). 4. The Collector of Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot arise. To substantiate his contentions that POY is itself a finished product, Shri Senthivel referred to the application dated 29-6-1982 made by The Reliance for the issue of L-4 licence. Shri Senthivel submitted that the licence was sought for the manufacture of two commodities, namely partially oriented filament yarn and fully oriented filament yarn. If POY is not a finished goods, Shri Senthivel urged, The Reliance would not make an application for L-4 licence to manufacture POY. Shri Senthivel then referred to the Literature produced by The Reliance. He drew our attention to page 201 of the paper book filed by the Respondent. He referred to the Spinning process of POY. It is stated POY spinning was initially investigated in the early 1950s, but did not become a commercial reality until the early 1970s. Widespread commercialisation was retarded primarily because high-speed production winders were not available and also because simultaneous draw-texturing in 1970 provided the major impetus which led to the recognition of the desirability of POY properties. Over the 1500-4000 meters/minute speed range typical of commercial POY spinning processes, the air drag and inertial co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elied upon by the Collector (Appeals) has no relevance to the issue involved. The Collector (Appeals) took into consideration the end use which is an irrelevant factor. The finding of the Collector (Appeals) that marketability is not a criterion to be taken into account, is again erroneous. Shri Senthivel urged the usage cannot be a relevant criterion for determination whether a product is a finished product or not. He further contended that even a texturised yarn, which is admittedly a finished product, would become a semi-finished item for the manufacture of a fabric. On that ground it cannot be contended that texturised yarn is a semi-finished excisable goods requiring further manufacturing process. (7) Excise duty is payable on POY. If it is not a finished goods no excisable duty can be levied or collected. In support of his contention that excise duty is leviable only on finished goods, Shri Senthivel relied on the decision reported in 1985 (21) E.L.T. page 3. In support of his contention, marketability is one of the criterion to determine as to whether the goods are a finished or not, Shri Senthivel relied on the decision reported in 1985 (22) E.L.T. page 809. He also rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a manufacturer and refuses permission to another manufacturer, the manufacturer to whom the permission was refused, cannot contend that he was discriminated. The other contentions urged by Shri Nariman may be formulated as under:- (a) The expression used in Rule 56-B is no semi-finished goods . Semifinished goods may be marketable but for the purpose of Rule 56-B, it is not the marketability alone that is to be taken into consideration. The relevant factor to be taken into consideration is to whom the product is semi-finished or unfinished. If a manufacturer seeks permission for removal of the semi-finished goods for further manufacturing process, the Collector is required to consider whether goods sought to be removed is semi-finished or unfinished in so far as the manufacturer is concerned. (b) The Asstt. Collector has confused the issue. He has mixed up the excisability with the finished product, (c) The Rule nowhere contemplates that the semi-finished goods and the goods that may be manufactured out of the semi-finished product should fall either under the same tariff item or under the sub-item of the same tariff item, (d) The expression used in the Rule is in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are the manufacturers of partially oriented polyester filament yarn (hereinafter referred to as POY ) classifiable under tariff item No. 18 II(i)(a) of the Central Excise Tariff. The assessees have another unit situated at Naroda Industrial Estate, Ahmedabad, where they have necessary facilities and equipment available for carrying out the further processing such as texturisation of the POY etc. The product, after undergoing the process of texturisation, is known as textured yarn classifiable under Tariff Item No. 18 II(i)(b) of the Central Excise Tariff . Shri Nariman stated that the Department also understood the POY as a semi-finished product requiring further processing. (f) Shri Nariman then referred to the explanation to Tariff Item 18(a)(ii). The further processing required is to texturise the POY. As per the explanation, Shri Nariman urged textured yarn means yarn that has been processed to introduce crimps, coils, loops or curls along the length or film and shall include bulk yarn and stretch yarn. Shri Nariman contended that unless and until POY is subject to further processing and texturised it would not be a finished product and POY cannot be used for manufacture o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Textiles, with its headquarters at Bombay. This office is headed by the Textile Commissioner assisted by an Additional Textile Commissioner, an Industrial Adviser, two Joint Textile Commissioners and one Adviser (Cotton). The Textile Commissioner acts as the principal Technical Adviser to the Ministry on all matters relating to textile industry including the textile machinery industry ..... Shri Nariman urged that an important piece of evidence, which is favourable to a respondent, has been suppressed by the Department and therefore submitted that the application made by the Respondent, to summon the opinion furnished by the Textile Commissioner, should be allowed and the opinion should be looked into. (h) Shri Nariman then referred to the definition of POY given in BISFA Terminology relating to man-made fibres. The definition Partially oriented filament yarn is given as under : Filament yarn which is incompletely drawn. In the case of polyester yarn, this is defined to be a yarn which has a breaking elongation (measured by BISFA methods) in excess of 35% and which, when subjected to an elongation of 25% in its initial length, undergoes an irreversible length change of atle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication to the facts of the present case. He contended the expression in the nature of semi-finished appearing in Rule 56-B is used in the context of further processing. Justice Pendse was considering the case whether an item was a finished product or not and not in relation to Rule 56-B. (k) Shri Nariman relied on the following decisions in support of his contention that the expression in the nature of has a wider connotation : (i) (1978) 106 I.T.R. 610, (ii) (1978) 111 I.T.R. 134, (iii) (1981) 1 I.T.R. 336. (l) Shri Nariman urged the excisability or the marketability are not the determinative factors to find out whether the goods are semi-finished for the purpose of granting permission under Rule 56-B. In the trade POY is known as semi-finished . (m) The use of POY in other industries is not relevant. What is relevant, according to Shri Nariman, is whether POY is semi-finished in so far as the textile industry is concerned. (n) There was no loss of revenue to the Government. At best, Shri Nariman urged there is only postponement of payment of revenue. But then, Rule 56-B gives a facility to a manufacturer and the same should not be denied light-heartedly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is finished goods. The Asstt. Collector observed that POY have been regularly sold to various parties at various places in the country. Further, that no evidence was produced to show that POY was a semi-finished goods . The Asstt. Collector further observed, to conclude, the finished goods are those goods which are ordinarily sold and purchased in the market in the usual course of trade. My finding is that POY is so sold and purchased. Consequently, it does not fall within the meaning of semi-finished goods. As the permission for clearance of excisable goods for further manufacturing activity under Rule 56-B of Central Excise Rules, 1944 can be granted only in respect of goods which are in the nature of semi-finished goods, I have no option but to order the rejection of the party s application for permission under the said Rule 56-B . The Collector (Appeals) in his order observed : Since the lower authority as well as the appellants have accepted that POY is an excisable goods, I do not propose to discuss on this issue. Only issue left is to decide whether POY is in the form of semi-finished" stage or in fully finished condition . The learned Collector (Appeals), after refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12. Shri S. Senthival, appearing for the Collector vehemently contended that the finding of the Collector (Appeals) that marketability is not a criterion to determine whether the goods are finished or semi-finished, the Collector (Appeals) s further finding that POY is only a semi-finished goods and it becomes a raw material only after further drawing and texturisation and as well as the finding of the Collector (Appeals) that The Reliance are entitled to avail of facility of Rule 56-B are wholly erroneous and the order passed by the Collector is wrong and not sustainable in Law. 13. Shri Senthivel urged that the Central Excise Act classifies yarn into two categories, namely, (1) textured yarn and (2) other than textured. He contended that the Central Excise Law treats these two goods distinctly and differently though basically they are yarns. In support of his contention, Shri Senthivel referred to item 18 of the First Schedule to the Act as well as relevant tariff entries in the CET. 14. It was also contended by Shri Senthivel that POY is a finished product. It is obtained by manufacture. He referred to the application for licence filed by The Reliance for the manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knitting. The sales effected by The Reliance were made to those who had the facility for further drawing and texturising, the POY. The relevant question, according to Shri Nariman, is whether POY is semi-finished for carrying out further processes. Since POY cannot be used as it is for weaving or knitting it requires further processing, namely, texturising. Admittedly, The Reliance have two units. One at Patalganga and another at Naroda. There is no facility in the Patalganga Unit for texturising and therefore POY is required to be removed to Naroda. POY, according to Shri Nariman, would remain a semi-finished product until it is drawn and texturised. Therefore, the Collector of Customs (Appeals) was right in holding that The Reliance are entitled to avail of the facility provided under Rule 56-B. Shri Nariman had drawn our attention to the two affidavits filed before the Collector (Appeals) which were identifically worded. Shri Mahesh Keswani one of the Directors of Maharaja Fabrics and Filaments Private Ltd. had sworn to an affidavit that his Company is supplying POY in the market as also drawing and texturising the said POY to supply the same as a finished goods to the weavers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectively of Section 2 of the Act. (d) excisable goods means goods specified in the First Schedule as being subject to a duty of excise and includes salt; (f) manufacture includes any process incidental or ancillary to the completion of a manufactured product. 18. Section 3 of the Act provides for levy and collection of duties of excise on all excisable goods other than salt which are produced or manufactured in (India). The rates at which the duties of excise are to be levied is set forth in the First Schedule. Rule 8 of the Rules authorises the Central Government to exempt any excisable goods from the payment of whole or any part of the excise duty. Rule 9 requires a manufacturer to pay the excise duty on the excisable goods before its removal from the factory or the place of storage. Rule 49 precludes the excise authorities from demanding excise duty until the excisable goods are about to be issued from the place of storage. Item 18 H in the First Schedule to the Act reads : Man-made Filament Yarns. (i) on-cellulosic - (a)other than textured, (b) textured. Explanation : Textured yarn means yarn that has been processed to introduce crimps, coils, loops or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under this Rule to permit removal. At the cost of repetition we emphasise that the manufacturing processes contemplated in Rule 56-B are only those processes required for the completion of the product. Excisable goods may be produced or manufactured by a single manufacturing process or by multiple processes. Until all the manufacturing processes are carried out the goods will be considered either unfinished or semi-finished or in the nature of semi-finished goods. A goods may not be an excisable goods unless and until it is a completely manufactured product excisable for levy of excise duty. Excise duty is leviable on finished goods and no excisable duty can be levied if the goods are semi-finished or in the nature of semi-finished. Section 3 of the Act which lays down the legislative policy provides for levy and collection of excise duty on all excisable goods, other than salt, which, are produced or manufactured in India. The list of excisable goods is given in the First Schedule to the Act. As seen earlier, Item 18 II of the Schedule relates to man-made filament yarn. The Man-made filament yarn is divided into two categories namely, Textured and other than textured . POY ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndup. The windup consists of four chucks which hold two bobbins each. The bobbins are surface driven by two drive rolls mounted on each side of the windup. A suction or vacuum gun is provided for stringup of the windup. The empty bobbins are brought up to speed against the drive rolls and the yarn is then brought into contact with a tail snagging slot on the bobbin and commences winding. When the bobbins become full of yarn the thread lines are cut into a doff gun just above the windup. The full bobbins are removed. Now bobbins are placed on the chucks and the windup stringup without having to stringup the entire machine. Thus the partially oriented polyester filament yarn is produced. 20. From the process description given above, it would be clear that POY is a finished product and it is not either semi-finished or in the nature of semi-finished goods. Admittedly, it falls under Tariff Item 18 II (i) (a). As a matter of fact, The Reliance had cleared 52% of the POY manufactured by them after paying excise duty for selling. As has been observed earlier, the goods will not be exigible for excise duty unless it is a finished product, falling under one or other tariff items. It re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submission of Mr. Dalal. Merely because a manufactured goods is used subsequently for manufacturing another article, it cannot be concluded that the earlier manufactured goods are not finished one. It may be that the vegetable tallow is used further for manufacture of soaps or, as stated by the Department, for glycerine, Monosteriate, Textile, Softener or Calcium Steriate, Sodium, but that would not make vegetable tallow as unfinished goods. This judgment is a complete answer to the reasons assigned by the Collector (Appeals) for coming to the conclusion that POY is a semi-finished goods. In Arvind Mills Ltd., Ahmedabad v. Union of India and others - 1983 E.L.T. 326 (Gujarat) the Division Bench of the Gujarat High Court while holding that mills having spinning as well as weaving departments are not liable to duty on the weight of the sized yarn observed : Sizing is a process as found from the materials which will hereafter be referred, which is applied to yarn when it is taken to the Weaving Department. Sizing is applied to yarn in order to strengthen the yarn so as to have proper strength at the time of weaving and it must be borne in mind that it is used only for the warp ya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als) in his order placed reliance on the Tribunal s decision reported in 1984 (16) E.L.T. 278 (Tribunal) M/s. Amber Bearing Mfg. Co. v. Collector of Central Excise, Nagpur. The Collector (Appeals) has placed reliance on a half sentence contained in that judgment which was to the effect the end-product of one manufacture may well be a raw material or semi-finished goods for another. If only the Collector (Appeals) had read the whole judgment he would not have committed the error of relying upon that judgment for his conclusion. In that case, before the Tribunal, the learned Advocate who appeared for the manufacturing company contended that the outer races manufactured by the manufacturer are not marketed and sold or bought but were used only by M/s. Metal Box (India) Ltd. Relying on the judgment of the Supreme Court in the case of Union of India v. Delhi Cloth and General Mills and others H 1979 E.L.T. (J 199), it was urged by the learned Advocate to become goods an article must be something which can ordinarily come to the market to be bought and sold. It was also urged that the article manufactured by the appellants therein were not excisable goods and therefore no duty was lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods should be sold. If excisable goods are produced or manufactured that is sufficient to attract duty. Whether the goods are consumed, sold or not used thereafter is wholly irrelevant. His Lordship further observed : Manufacture implies a change but every change in the raw material is not manufacture exigible to duty ... Further more in order to be dutiable as one of the items mentioned in the First Schedule to the Act the transformation must result in making article as one as mentioned in the First Schedule. The specific question, is whether the operation carried on by the Petitioner as indicated before would bring into being the rough rolied zinc can be considered to be manufacture of sheets or strips in terms of item 26-B (ii) of the First Schedule. The fact that these are used by the petitioner for production of end-product and not sold by it is irrelevant". The ratio of this decision also applies to the facts of the present case. Just because POY cannot be woven or knitted into fabric without texturisation, the POY does not cease to be a finished excisable product. Its use in the end-product does not determine its character or converts it into a semi-finished product. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... texturisation. 27. The Collector (Appeals) had observed So far as the marketability is concerned, it has been already discussed above that the marketability is not a criterion to determine whether the goods are finished or semi-finished. It is true that marketability may not determine the character and nature of the goods. Even a crude and semi-finished may be sold in the market. But then the crude and semi-finished would not be excisable goods because no excise duty could be levied on the crude or semi-finished goods. The excisable goods fit for marketing attracts excise duty. Therefore, it would not be unreasonable to take a view that for the purpose of Central Excise Law such goods are finished goods. 28. It was not contended for The Reliance that for the completion of POY any further manufacturing process is required to be carried out. The contention urged and the evidence adduced were that POY could not be directly used either on the weaving machine or on the knitting machine for producing wearable polyester filament yarn fabrics and therefore POY is required to be further drawn and texturised in a draw texturising machine before taking it up as finished goods for either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e removal of finished excisable goods for purposes other than testing. 31. It may be pointed out that according to the scheme of the Central Excise Rules, no excisable goods could be removed from the factory or from the approved places of storage without payment of duty. Removal of excisable goods for captive consumption is also not permitted without payment of excise duty. When that being the law, the Collector under Rule 56-B cannot permit removal of a finished excisable goods for the manufacture of a different excisable goods. The application of The Reliance was for removal of POY for the manufacture of texturised filament yarn. As has been held by us both POY as well as textured yarn are two different excisable articles and the removal of one excisable article for manufacture of another without payment of duty, would violate Rule 9 of the Rules. The contention of Shri Nariman that the removal will only result in postponement of duty cannot be accepted. Even assuming that it results in postponement of duty even then the Collector has not been authorised under Rule 56-B to permit removal of a finished product for the manufacture of another finished product even if the manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured goods are not finished one. His Lordship has further observed that the use of vegetable tallow for manufacture of soap or other articles would not make vegetable tallow as unfinished goods. 36. The contention of Shri Nariman that POY is known in the trade as semi-finished does not appear to be correct. In the affidavits relied on by the Reliance, Shri Mahesh Keshwani and Abdul Rehman Hassan Malkani have stated partially oriented filament yarn is not the finished goods which could directly be used either on the weaving machines or on the knitting machines for producing wearable polyester filament yarn fabrics and if so done, the fabric would be unstable. Therefore, partially oriented yarn is required to be further drawn and texturised in a draw texturising machine before taking it up as a finished goods for either for weaving and or knitting wearable fabrics the end use for which polyester filament yarn are manufactured. The reason given by Keshwani and Malkani for treating POY as semi-finished as it would not be suitable for weaving and knitting a wearable fabric. We have already held the subsequent use of POY would not make POY either finished or semi-finished. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho is an expert and Adviser to the Union of India has been withheld and if a copy of that opinion had been produced it would have clearly shown that POY is a semi-finished product. As a matter of fact, an application was also filed to direct the appellant to produce the clarification dated 4th October, 1984 sent by the Office of the Textile Commissioner to Addl. Collector, Thane. In support of that application, Shri Kirti V. Ambani had also filed an affidavit. This affidavit contains certain annexures. Annexure-A is a letter dated 7-4-86 addressed to the Director, Art Silk Branch, Office of the Textile Commissioner. In this letter The Reliance has sought an opinion of the Textile Commissioner as to whether the POY can be directly used for the manufacture of wearable woven/or knitted fabrics. Exhibit B is another letter to the same authority for the same purpose and it is dated 14-5-1986. Exhibit-C is another letter dated 21-5-1986 addressed to the same authority for the same purpose. Exhibit D is a letter dated 20-5-1986 from the Office of the Textile Commissioner to Shri Kirti V. Ambani. With this letter, a copy of the letter dated 7/12-5-86 was sent. In the letter dated 7/12-5- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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