TMI Blog1997 (6) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... id that all such goods are finished goods since they are excisable and therefore necessarily marketable. The Bench which decided the aforesaid Reliance case had, in the opinion of the referring Bench, not noticed this contradiction. The question for consideration would be what exactly the Rule making authority had intended to lay down and whether it was intended that excisable goods at the stage when the full manufacturing processes were not over, though the goods have attained marketability and excisability, should be within the ambit of Rule 56B or not. It was felt that the matter had not been considered from this perspective in the aforesaid Reliance case. It was contended before the referring Bench on behalf of the respondents that the aforesaid decision required reconsideration in the light of a subsequent judgment of the Bombay High Court in Orkay Silk Mills Pvt. Ltd. v. Union of India [1989 (43) E.L.T. 265 (Bom.)]. While referring the question to the Larger Bench, the Bench, however, observed that in the Orkay Silk Mills case, the applicability or otherwise of Rule 56B was not under challenge and was not under consideration. 2.The facts leading to the aforesaid reference t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f semi-finished goods vis-a-vis any other fully manufactured product. He observed that if the Rule 56B were to be interpreted as claimed, it would be quite open for a manufacturer of metal sheets to claim that such sheets are in the nature of semi-finished goods vis-a-vis metal containers and claim the facility under Rule 56B. He thus saw an illogicality in the contention that the words "semi-finished goods" are purely relative to the end product. He, therefore, held that Nylon Flat Yarn and texturised Yarn are two distinct commodities known in the market and hence Nylon Flat Yarn will have to discharge duty liability before it is removed for manufacturing another distinct commodity viz. texturised yarn. Nirlon's interpretation that flat yarn is excisable goods in the nature of semi-finished goods which can be removed prior to payment of duty for the purpose of texturising would render the provisions of Rules 9 and 49 nugatory, according to the Assistant Collector. No exemption has been issued by the Government providing for the removal of Flat Yarn without payment of duty leviable thereon. As Nirlon's interpretation of Rule 56B renders Rules 9 and 49 nugatory, that has to be rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed goods to qualify for the benefit under Rule 56B. He handed over photocopies of relevant pages of Fair Child's Dictionary of Textiles to explain the terms crimping, crimped yarn, Drawing (of yarn), Draw-texturing, partially drawn yarn and Textured yarn. He supported the order of the Assistant Collector and pleaded that the same be restored setting aside the order of the Collector (Appeals). He stated that Nylon Flat Yarn, the goods in question, fell under erstwhile Tariff Item 18II(i)(a) as other than textured yarn while textured yarn fell under 18(II)(1)(b). The Flat Yarn is fully manufactured goods falling under 18II(1)(a) and cannot be taken to be semi-finished for the purpose of Rule 56B. Shri Ganu submitted that POY is technologically semi-finished but commercially a finished product. Under Rule 56B, finished goods can be cleared without payment of duty from the manufacturer's premises only for the purpose of carrying out tests. Only semi-finished goods can be removed for carrying out certain manufacturing processes. He supported the finding of the Assistant Collector that permitting the Nylon Filament Flat Yarn to be removed without payment of duty for the purpose of textu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read in conjunction with Rules 9, 49, 50 and other Rules. The first two Rules, after amendment in 1982 and made retrospectively applicable, require the payment of duty on excisable goods even if removed within the factory of manufacture for the manufacture of other excisable goods. Rule 56B does not use the words "Notwithstanding anything stated in Rules 9 and 49" and hence these Rules 9 and 49 will have to be applied and duty will be payable on POYand the facility of removal without payment of duty under Rule 56B will not be available. He pleaded that the appeal be allowed and the Assistant Collector's order restored setting aside the impugned order in appeal. 7.The submissions were resisted by Shri N.A. Dalvi, learned counsel for the respondents. He relied upon the judgment of the High Court of Bombay in Orkay Silk Mills Pvt. Ltd. v. Union of India reported in 1989 (43) E.L.T. 265. He referred to their application made for the facility under Rule 56B and stated that the material, Nylon Filament Flat Yarn for which they wanted the said facility continued to be Nylon Filament Yarn even after undergoing the process and no change in the Tariff Classification (main item) was involv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as yarn falling under sub-item II(i)(a) of Item No. 18 of the Central Excise Tariff from which textured yarn has been produced. The learned counsel then referred to the judgment of the High Court of Allahabad relied upon by the Joint Chief Departmental Representative in support of the stand taken in the Collector's Appeal that POY is not semi-finished goods but a final product not eligible for the benefit of Rule 56B and submitted that the said decision was distinguishable. he pointed out that the Court had in the said case only gone into the question whether POY was marketable. Whether non-marketability is a pre-requisite for semi-finished goods was not considered or decided. Such a meaning is not attributable to Rule 56B. Partially Oriented Yarn (POY) is the same as Flat Yarn, he contended and referred to Sl. No. 8 of the appeal memorandum in the EA-3 form wherein the questions raised are whether Nylon Filament Yarn POY is finished goods or semi-finished goods and whether permission under Rule 56B can be given for in bond removal of POY. This will go to show that the department understands Nylon Flat Yarn to be POY. 8.Giving a rejoinder to the points raised by the learned Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Joint Chief Departmental Representative in his rejoinder argument contended, however, that the two are different. In support of the contention he submitted a copy of the opinion given by the Man-made Textiles Research Association, Surat in response to a query addressed by the Commissioner of Central Excise, Surat. The Association has opined that POY and Nylon Filament Yarn (Flat Yarn) are not one and the same and that while POY indicates the degree of orientation of the molecules in the resulting filament yarn, Nylon Filament Yarn (Flat Yarn) is descriptive of a polyamide fully drawn untextured continuous filament yarn. It is stated that in general commercial textile processing, POY is to be first converted into a fully drawn flat yarn or textured yarn before it is used for weaving or knitting. The Association has also answered the query whether Nylon Filament Flat Yarn can be used for weaving without first subjecting it to crimping etc. with the opinion that Nylon Filament Flat Yarn can used for weaving without first subjecting it to crimping. The fabrics can be wearable as well as non-wearable like flat woolly sarees and dupattas and curtain, upholstrey and industrial fabrics ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawing and stretching processes in a draw-texturising machine in which drawing and texturising operation is carried out simultaneously in the drawing operation, the POY is stretched by 2 to 3 times its original length and the resultant denier of the draw-texturised yarn is less than that of the POY. It is also stated in the affidavit that in the process of draw-texturising it is neither possible to obtain POY separately on the machine for being sold as such, nor is it possible to measure the denier of the `base yarn' (presumably meaning the stretched yarn) during the operation once the POY is put in the draw-texturising machine. It is further stated that if one wants to produce FOY directly, it could be done by increasing the spinning (winding speed of the spinning system) from 4000 to more than 6000 mts/min. FOY can also be obtained from POY by further drawing the latter to about 1.8 times its original length on a drawing machine. Both POY and POY can be texturised. Where FOY can be texturised without the process of stretching or drawing on a texturising machine, and there is no reduction in the denierage of the FOY on being converted into texturised yarn, POY can be converted i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e original application of the respondent in the present case, made before the Collector for availment of the facility under Rule 56B in the light of the above position we find that the alleged semi-finished goods for which the said facility was sought was described as Nylon Filament Yarn (Flat Yarn) and the finished product as crimped yarn, the process involved being described as crimping. There is no mention in the application as to whether the material to be removed under Rule 56B was Partially Oriented Yarn or Fully Oriented Yarn. Since the application sought by the respondent was for the purpose of crimping and since FOY is capable of being produced directly from Polymer Filament by winding at higher speeds as has been come out in the affidavit of Mafatlal referred to earlier, it is likely that the respondent manufactured Flat Yarn which is Fully Oriented Yarn which was sought to be sent out for being processed into textured yarn. Such processing, as has come out in the Mafatlal affidavit and in the Reliance decision referred to above, is a technological possibility. If, however, we go by the arguments on behalf of the respondent that their material sent out under Rule 56B was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he plea that their goods are semi-finished and entitled to the facility under Rule 56B, POY was permitted to be removed under Rule 56B for the purpose of texturising. The dispute was only in respect of the duty payable on the textured yarn for applying the exempted rate under the relevant Notification which provided for the appropriate exempted rate including the duty payable on the base yarn, if not already paid. Thus the Tariff itself provided for clearance of POY without payment of duty which duty was taken care of while paying the duty on the textured yarn made therefrom. The department's practice as in the abovementioned Mafatlal and Orkay cases coupled with the aforesaid duty rate structure would appear to be compatible with the interpretation of Rule 56B as claimed by the respondent. 13.As against the cases of this type where the facility under Rule 56B had been allowed for POY, there are other cases where the manufacturers had cleared POY on payment of duty to an outside place for the purpose of texturising. The disputes arose in such cases as the department wanted to levy more duty on such POY. These cases include the following :- Collector of Central Excise v. Mafatla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t case. On behalf of the appellant Collector the plea is that the facility thereunder is applicable to only semi-finished goods for being removed to another premises for carrying out certain manufacturing process there and that such a process would not cover conversion of the Flat Yarn which was classifiable under Tariff sub-item 18-II(i)(a) into Textured Yarn which is another product classifiable under a different Tariff sub-item 18-II(i)(b). The rival submission in this regard on behalf of the respondent is that the yarn before and after the texturising process fall under the same Tariff Item and that the Nylon Filament Flat Yarn is semi-finished goods and its conversion to Textured Yarn is within the scope of the manufacturing process permitted under the Rule. We find that Rule 56B as it stood originally at the time of the application made by the respondent provided for the removal of excisable goods which were in the nature of semi-finished goods to another premises for completion of certain manufacturing processes. This would mean that some manufacturing process had already been started which has led to the emergence of the semi-finished goods and the process or processes shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We do not agree. The Court's finding that POY, being a marketable product and in fact marketed, was not semi-finished goods would imply that non-marketability is a criterion for semi-finished goods. We, therefore, reject this contention of the learned counsel for the respondent. 18. There is no contrary decision of any other High Court or Supreme Court brought to our notice on the issue of applicability of Rule 56B benefit to POY or Flat Yarn. The judgment of the High Court will apply to the present case. This will be the position whether the material in question is POY as claimed by the respondent (notwithstanding their mention of Flat Yarn on their application) or it is Fully Oriented Yarn. In the latter event, that material being one stage beyond POY which itself has been held to be not semi-finished goods, there is no case for holding it to be semi-finished. 19.It is to be noted incidentally, that apart from the issue whether the yarn in contention is semi-finished goods or not, there is the other question that the benefit of Rule 56B cannot be claimed by a manufacturer even for excisable semi-finished goods, as a matter of right. It is at the discretion of Collector that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time when they are sought to be removed, it can be said that all such goods are finished goods, since they are excisable and therefore necessarily marketable. The reported decision in Reliance Textile Pvt. Ltd. case did not notice this contradiction, if the interpretation that was accepted, was to be placed on the rule. It is for consideration as to what exactly the rule making authority intended to lay down, whether authority intended that excisable goods at the stage when the full manufacturing processes were not over, though the goods have attained marketability and excisability were within the ambit of the rule or not, is a matter, which in this perspective, was not considered earlier by the Tribunal." 23.Rule 56B of the Rules enables permission being granted for removal without payment of duty, inter alia, of excisable goods i n the nature of "semi-finished goods" subject to the provisions and conditions therein. The application filed by the appellant, and the order originally passed by the Collector and subsequently passed by the Assistant Collector referred to the goods as Nylon Filament Yarn (Flat Yarn) and the purpose of removal was stated as "for crimping". When the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , this decision is not an authority for deciding the issue in the present appeal. 25.In Reliance Textile Industries Ltd. v. Union of India - 1993 (63) E.L.T. 67 (Bom. HC) the question for consideration was the rate of duty applicable to POY in context of duty payable at the time of clearance tariff entry and exemption Notification. No question arose in the context of Rule 56B of the Rules. It was held that base yarn or non-textured yarn is distinct and different commodity from textured yarn and is not an intermediate product and rates of duty applicable are different. The conclusion was that duty payable was on the basis that POY is base yarn and at that juncture it is not permissible to levy duty on the basis that base yarn is textured yarn. Hence, this decision is not an authority for deciding the issue in the present appeal. 26.The issue arising for decision in the present case arose directly for consideration of the High Court of Allahabad in Lohia Machines Ltd. v. Union of India - 1987 (28) E.L.T. 234 (All. HC). Petitioner made an application before the Proper Officer under Rule 56B of the Rules for permission to clear NFN commercially known as POY without payment of duty, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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