1. The two appeals captioned above, filed under the provisions of Section 35B (l)(c) of the Central Excises & Salt Act, 1944 (hereinafter referred to as the Act) raise questions as to classification of yarn, described as double/twisted yarn stated to be made out of duty-paid, spun yarns, of different compositions.
2. The appellants claim to be manufacturers of various types of yarn, falling under Items 18,18B and 18E of the Central Excise Tariff (hereinafter referred to as the CET) and further that after bringing several varieties of duty paid spun yarn in the factory, in relaxation of the provisions of Rule 51-A, the process of doubling the said yarn is undertaken, and thereafter clearances effected on payment of duty under T.I. 68.
3. The controversy arose when the classification list, which was filed on 2-5-1978 indicating all these doubled or twisted yarns as assessable under T.I. 68 was not approved as submitted, and by order dated 12-9-1978, the Assistant Collector directed that revised classification list be filed indicating these products, known as "doubled yarns", to be falling under T.I. 18B(ii) of the CET, and that duty be paid accordingly.
4. Whereas, it would appear that revised classification list, as directed, was filed under protest and so were price lists, and a representation to the Collector was also made against this revision of the classification by the Assistant Collector, no statutory appeal against the order of the Assistant Collector was taken to the Appellate Collector. However, inspite of no decision having been taken expressly by the Collector on the appellants' representation, the appellants continued clearance of the goods by paying excise duty as under T.I. 68 apparently without any objection, and with the concurrence of the concerned excise authorities.
5. This position prevailed till a notice was issued to the appellants; firstly, on 22-1-1979 calling upon to show cause as to why after classification of the goods under item 18B(ii), differential duty covering the period May 1978 to September 1978 and amounting to Rs. 91,627.30P be not recovered from them. The details as to how the demand was worked out were contained in the statement enclosed as Annexure A to this notice (pages 7-8 of the Paper Book). This was followed by a corrigendum dated 6-7-1979 altering the amount of the demand from Rs. 91,627.30 to Rs. 97,878.16 P, elucidated by means of a statement enclosed with this communication, again described as "Annexure A" (Pages 9-10).
6. Another notice was issued independently, on 4-7-1979 calling upon the appellants to show cause as to why another amount determined at Rs. 1,97,978.12P be not recovered from them, by way of differential duty, covering the period October 1978 to March 1979. The first demand for the period May 1978 to September 1978 by means of notice dated 22-1-1979, as already indicated, was raised on the ground that although the goods were classificable under Item 18B(ii), they had been cleared after paying duty under T.I. 68 and to that extent, there had been short levy amounting to Rs. 91,627.30. But subsequently, the Department conveyed the view that the double yarn with constituents polyester; acrylic at the ratio of 50:50 was assessable under T.I. 18E, and working on that basis, the differential duty amount was determined to be Rs. 97,878.16. For the subsequent period also, by means of notice dated 4-7-1979 it was conveyed to the appellants that clearances under T.I. 68 were tantamount to short levy and that some of the goods were assessable to excise duty under T.I. 18B(ii) and some under 18E, depending upon the composition of the doubled yarn, or the percentage of the constituent yarns.
7. The appellants resisted both the demands, (rather three), by contending that they had bought duty paid yarn, and stored the same in the premises after obtaining permission as contemplated by Rule 51A of the Central Excise Rules, 1944 (hereinafter referred to as the Rules) and thereafter carried on the process of doubling and twisting different varieties of duty-paid spun yarns, with different compositions, as detailed in the classification list, giving all details of percentages of the constituent yarns, and cleared this final product after paying duty, under T.I. 68. They clarified duty under T.I. 68 had been paid, on the assumption that doubled or twisted yarn, fell within the category of 'fancy yarn', which was not elsewhere specified, and inspite of the fact, that all the constituent yarns had already paid duty, further excise duty was paid under T.I. 68, but now they raised dispute even in relation to the very liability to excisability, asserting that no further process of manufacture had taken place, and what they had done was merely doubling of already duty paid spun yarn. It was further pleaded that after they had received intimation of Assistant Collector's decision to categorise some of the varieties of the yarn manufactured by them as excisable under Item 18B(ii), they had submitted a representation to the Collector and after filing revised classification list under protest, continued clearing the goods under T.I. 68 with the approval of the excise authorities, and so the demands, now made were barred by time. Besides, repudiating their liability to pay any further duty, they rather claimed set off for the amount of duty already paid on the single spun yarns, which had gone into the making of the doubled yarn, which was the subject matter of the disputed levy.
8. All the demands were however confirmed by the Assistant Collector by means of two separate orders passed on 30-3-1981/31-3-1981 that had been raised by means of notice dated 22-1-1979 covering the period May 1978 to September 1978 as revised by means of corrigendum dated 6-7-1979; as well as the one raised by means of notice dated 4-7-1979; relating to period October 1978 to March 1979. Party's contention that process of doubling or twisting did not amount to manufacture, was rejected as also the plea that duty already paid on the constituent yarns required to be off-set against the final demand, on the view that the fact that classification list was filed by the party classifying the goods under T.I. 68 settled the question as to their excisability or char geability to duty. Observing that although decision of the Assistant Collector on the classification list submitted on 2-5-1978 was passed on 12-9-1978, holding the goods as falling under Item 18B(ii), no statutory appeal was taken to the prescribed authority, and to that extent, the classification issue had become final, and in view of the fact that on the particulars contained in the classification list, spun yarns of different fibre contents had been doubled, and the resultant yarn was a commodity distinct from the constituent yarns; the final product was held to be falling under T.I. 18E, depending upon the composition of the base yarns.
9. On appeals being taken up against this confirmation of the demands, the same were disposed of by the Collector (Appeals) of Central Excise, New Delhi by one consolidated order dated 30-3-1983. He took note of the pary's contention to the effect that mere doubling of different yarns did not amount to any manufacture, so as to make the resultant yarn also exigible to excise duty, and that they had been filing classification lists initially showing it as falling under T.I. 68, under guidance of the local officers, and they continued effecting clearances after paying duty under T.I. 68, on their products and that in spite of the order passed on 12-9-1978 indicating some of the products to be failing under Item 18B (ii), the goods were allowed to be cleared by the loctol excise authority after payment of duty under T.I. 68, and that demand could not be raised by reference to different tariff items, as now sought by the Department. He, however, held that the issue of classification, having not been challenged when the Assistant Collector had passed order on the class if ication list on 12-9-1978, the challenge now became barred by time, could not now be raised. The appeals were thus held to be not deserving any consideration on merits, as in his view, the protest to the Assistant Collector or a representation to the Collector (Executive) relied upon by the appellants could not serve as appeal to the statutory authorities and that the classification issue had to be treated as standing concluded.
10. Party's objection as to the demands or part thereof being barred by time to the extent they were beyond the period of six months from the date of payment of duty, alleged as short levied, was rejected on the view that the goods had been admittedly cleared after paying rate of duty lower than those payable, per the approved classification list, and to that extent there had been clearances and removal of goods, at unapproved rates, which was tantamount to unauthorised removal, in contravention of the provisions of Rule 9 of the Rules and consequently extended time limit of five years was available to the Department, under Rule 10(l)(a) and (c) of the Rules. The appeals were, thus rejected, as in his view, a protest to Assistant Collector and an appeal to jurisdictional Collector (Executive) referred to by the appellants, could not save their appeals, to him from time bar.
11. The decision of the Collector (Appeals) has been assailed in these two appeals before the Tribunal, on the plea that their appeals have been rejected by the Collector (Appeals) on flimsy and untenable grounds, and that after having been given permission to produce doubled/twisted yarns on their doubling machines, and after allowing clearances under T.I. 68, the Department was not right in changing the classification, holding the products as liable to duty payable under T.I. 18B(ii). They contended that process of doubling does not per se amount to manufacture as contemplated by Section 2(f) of the Act, but pleaded that even if it were so the resultant yarn produced by them, as a result of doubling of duty paid spun yarns, not being covered by any specified tariff entry, was rightly classifiable under T.I. 68; the plea being that how could yarn com- posed of 100% polyester yarn or 100% viscose yarn on which duty had already been paid under Item 18E or Item 18 III(i) respectively again be subjected to levy of excise duty under the same tariff entries as this clearly was tantamount to charging duty, under the same tariff entry twice which was not permissible and could have never been the intention. They even placed reliance on the Madras High Court judgment cited as Madura Coats Limited [1982 (10) E.L.T. 370 (Mad.)] holding that by twisting of duty paid yarns, no new product justifying duty under T.I.68 comes into existence. They further contend that they had cleared double/twisted yarn under T.I. 68 by submitting G.P.I and R.T. 12 Returns, without any objection being taken by the Excise staff, and that otherwise also, they were working under production based control and were thus subjected to daily visits of the excise authorities and consequently, there was no suppression or mis-statement on their part and everything was cleared after they had indicated all the particulars and so in no event the extended time limit, could be available to the Department, and had been wrongly invoked, and demands of differential duty were positively unsustainable which went beyond the period of six months, from the date of the issue of notice, or revised demand as contained in communication dated 6-7-1979. They also place reliance on Trade advice, issued by Jaipur Collectorate to the effect that all types of doubled yarn where different constituents falling under Item 18 III or Item 18E had been used would be classifiable under T.I. 68, and on that basis also the re-classification subsequently adopted by the Department is assailed.
12. Shri C.L. Sawhney, Consultant argued the appeals on behalf of the appellants whereas Shri K.D. Tayal, SDR represented the respondent. The matter was argued on two dates because on the first hearing, apart from paucity of time, certain clarifications were required from the respondent's side to which we would advert later, for which the learned SDR asked for some time.
13. The arguments convassed by the learned Consultant on the two headings were substantially the same. On the first hearing, he mostly outlined the process whereby the twisted spun yarn was prepared, laying stress on the fact that the appellants were buying duty-paid spun yarns of different varieties, and that the process undertaken by them was merely that of doubling and twisting, and that the Department itself had allowed clearances under T.I. 68 even after the Assistant Collector had indicated on the classification list filed on 2-5-1978 that some of the goods manufactured by them would be classifiable under T.I.18B(ii). Shri Sawhney, further submitted on the resumed hearing, that even though the appellants have not taken up statutory appeals against re-classification of some of their products by the Assistant Collector by his order dated 12-9-1978, this Bench was competent to go into the question of classification on merits, and determine the right one. He relied, in support of this plea, on a Bench decision of the Tribunal reported as Union Carbide India Ltd. v. Collector of C. Ex., Madras - [1983 (13) E.L.T. 1138 (CEGAT)], urging that irrespective of the fact that the party there had not pleaded for a specific classification, the Bench on the facts and circumstances of the case determined the same, on the basis of the material on record. He argued that in this view of the matter, the Tribunal was competent to arrive at the correct classification once the dispute was before the Bench, even though the party had not taken an appeal against the order of the Assistant Collector, which in this case he pleaded was in view of the peculiar circumstances that irrespective of re-classification ordered by the Asstt. Collector, the local excise authorities allowed clearances in accordance with the original classification, as submitted by the appellants.
14. On merits, he reiterated the plea that mere doubling or twisting of two different types of yarns which had already discharged duty liability could not be subjected again to levy of excise duty, particularly when some of the constituents had already paid duty under the same tariff entry, under which the duty was now sought to be levied. He, on the other hand, pleaded that the appellants were entitled to have set off for the duty which they had paid twice, once at the stage of the constituent spun yarn and again on the doubled or twisted yarn, and for this he placed reliance on another Bench decision reported as 1983 (14) E.L.T. 2497 in case of General Industrial Society Ltd. Collector of Central Excise, West Bengal, Calcutta.
15. He, however, laid utmost emphasis on the fact that the duty demand was barred by time in any case for the period going beyond six months from the date of the respective notices, inasmuch as there had been no suppression or mis-statement on the part of the appellants, so as to justify application of extended time limit. He urged that the case being of plain short-levy on Department's own showing, when the appellants had been placing all relevant facts and material before and at the time of clearances, before the concerned authorities; no more than six months' period, as contemplated by Rule 10 was available and that would be calculated from the date of issue of respective notices.
He further added that the communication described as corrigendum issued on 6-7-1979 was tantamount to fresh notice in so far as a substantial change has been made in the Department's stand by converting the tariff description of certain products from 18B(ii) to 18E and consequently in the event of it being held that some of the products were classifiable under T.I. 18E, the duty demand has to be considered in respect thereto, as if it had been made for the first time with effect from 6-7-1979, and consequently the period of six months permissible to the Department will be calculated with reference to his date, and date back from 6-7-1979 in respect to the period covered by this notice; namely, May, 1978 to September, 1978.
16. Shri K.D. Tayal vehemently opposed the appeals urging that the Bench had already held in the case cited as Aditya Mills Ltd. v.Collector of Central Excise, Jaipur [1983 (14) E.L.T. 1853] that what was described as process of doubling or twisting amounted to manufacture within the meaning of Section 2(f) of the Act, and that the contention that mere 'doubling or twisting' of spun yarn could not attract any duty was not tenable. He further contended that in another decision, this Bench has held in the case of General Industrial Society Ltd. v. Collector of Central Excise, West Bengal, Calcutta [1983 (14) E.L.T. 2497 (CEGAT)] that the mere fact that two spun yarns have been twisted or doubled would not mean that the resultant yarn cannot be characterised as "spun" yarn.
17. He pleaded that on the ratio of the said decisions, the controversy ought to be deemed to be settled and there was no force in party's plea that two duty-paid spun yarns having gone into the making of this resultant yarn, which they were manufacturing and marketing, could not be treated as a spun yarn. Relying thus heavily on these cases decided by the Tribunal, he countered the arguments of the learned Counsel that department's view to treat their product as spun yarn falling under Item 18E was not sustainable. He, however, made it clear that the Cross Objections, [No. ED/SB(CO) No. 82/83-D] which had been filed by the respondent, were not pressed and that he would argue the matter with reference to the contentions, raised on behalf of the appellants.
18. While asserting that the issue of classification, stands concluded, qua the appellant, inasmuch as no statutory appeal was filed by them after Assistant Collector's order on the classification list passed on 12-9-1978; Shri Tayal contended that so far as Department was concerned, no infirmity could be found in the view taken by the Collector (Appeals) in applying the extended time as contemplated by proviso (a) to Rule 10( 1) of the Rules, as according to him this was a case where the party had deliberately, attempted to confuse the issue by giving different compositions in the classification list and the RT12 Returns, and that this was tantamount to wilful mis-statement or suppression of facts, attracting the extended period of five years and in that view of the matter the demand could not be considered as barred by time.
19. After Shri Tayal concluded his arguments, Shri Sawhney again submitted on behalf of the appellants that it was open to the Tribunal, and he would rather solicit, that the Tribunal determine the correct classification on the basis of the facts and further that on the lines of the view already taken in the case of General Industrial Society Ltd. (supra), relief by way of set-off, may be allowed to the appellants in case it is found on record that the duty has been charged twice on the same variety of yarn, under the same tariff entry first, at the constituent stage, and then at the final stage.
20. We have given very careful thought to the controversies raised in these appeals. The appellants have not in so many words pressed the contention that the process adopted by them, in doubling or twisting of the yarn, did not amount to manufacture. Otherwise also, we find this issue concluded by our decision in case of Aditya Mills Ltd. (supra) against which the learned Consultant for the appellants did not urge any argument. We further find that although the learned Consultant for the appellants is aware of our decision in the case cited as General Industrial Society Ltd. (supra), and in fact he fell back upon the same in support of his plea for set off; he did not urge any argument against the view taken by us in that case holding that yarn which is made by doubling or twisting of two constituent spun yarns, would also be considered as "spun yarn", since it basically consisted of two spun yarns and fell within the connotation of that term in contradiction to what is known as 'filament yarn' or 'constituent yarn'. We, therefore, find existence of no ground to differ from the view already taken by us in the aforesaid case.
21. We, however, find full justification in the plea of the learned Consultant that when the whole issue is open before us, the matter of classification also falls for determination, and this we are competent to do, irrespective of the fact, that the appellants failed, for whatever reasons, to agitate the matter at the right stage, by adopting the remedy of appeal. This view, we have already adopted in the same case on which both the parties are placing reliance; namely, General Industrial Society Ltd. (Supra) and which we find ourselves bound to do, in the larger interest of settling all controversies, when entire relevant material is before us. We, therefore, are of our firm view that on the basis of the composition of the doubled/twisted yarn depending upon the percentage of the constituent yarns, the right tariff description for the products manufactured by the appellants has to be determined.
23.Given the composition as reproduced above, and adopting the criterion laid down in our judgment, in the case of General Industrial Society Ltd. (supra), the result would be that where constituent yarns of non-cellulosic origin other than acrylic fibre, predominate in weight, that product would fall under T.I. 18E. The test for determining the question of pre-dominance would be as held by us in the aforesaid case, and before that in the case; reported as 1983 (14) E.L.T. 2491 (CEGAT), (Gaekwar Mills Ltd., Bomaby v. Collector of Central Excise, Baroda), to the effect that the particular constituent should comprise more than 50% of the weight of the fabric, in order to meet the predominance test. It has further to be borne in mind, that in view of the peculiar situation in this case where some of the constituents are in equal ratio of 50 : 50, then in terms of the Explanation appended to T.I. 18E read with Explanation III attached to T.I. 18, where both the constituents are of equivalent weight, then such one of the fibres which carries higher/highest rate of duty would determine the characteristics of the resultant yarn.
24. Basing our conclusions on this criteria, and the given percentage per classification lists; which percentage is reproduced in the notices to show cause, as well as respective orders, we hold that the resultant yarn having polyester/acrylic in the ratio of 50 : 50 will fall under Item 18E in the context of Explanation attached to this entry. The yarn having composition as polyester : viscose : acrylic in the ratio of 24 : 26 : 50 would not fall either under the category of cellulosic spun yarn or that of non-cellulosic spun yarn because the weight of acrylic has not to be taken into consideration in this regard. Consequently, this would be the yarn not covered by any of the specified entries and would go under the residuary Item 68.
25. The third category of yarn, according to record, is that of polyester/viscose/acrylic in the ratio of 45 : 5 : 50. That too would go under residuary Tariff Item 68 because it could go under T.I. 18B only if either wool or acrylic or both predominated, which apparently is not the case here. Predominance of acrylic by itself on the basis of ratio of 50 cannot be taken into any reckoning in view of the principles laid down in Mis. Gaekwar Mills Ltd. (supra). This, therefore, also falls under the category of yarn 'not elsewhere specified'; namely T.I. 68.
26. In the result, whereas, in Appeal ED(SB)(T) 940/83-D, one category of resultant yarn of the ratio of 24 : 26 : 50 has to be classified under T.I. 68 the other category of yarn : polyester/acrylic in the ratio of 50 : 50 will be classifiable under T.I. 18E. Similar- ly in respect to the yarns, which are subject-matter of second appeal; namely, Appeal No. ED(SB)(T) 1482/83-D, one category, as already discussed, would fall under T.I. 18E whereas the two others would go under T.I. 68. The demand so far as it relates to Items held herein, as classifiable under T.I. 68, in both the appeals thus become wholly unsustainable, and liable to be withdrawn, because duty stands already paid with reference to this T.I. 68.
27. Consequently, the only yarns in respect whereto demand could be enforced, are those held to be classifiable under T.I. 18E; namely, the one described as polyester/acrylic in the ratio of 50 : 50. In the first case, where the period is from May 1978 to September 1978, the demand is wholly barred by time, given normal period of six months contemplated by Rule 10 of the Rules, because for the purpose of demand with reference to T.I. 18E, the notice to show cause has to be taken to have been given with effect from the date T.I. 18E was indicated, which was by means of the communication described as, corrigendum dated 6-7-1979. Thus the demand for the entire period, May 1978 to September 1978 becomes beyond six months from the date of the notice; namely, 6-7-1979.
28. As regards the second appeal, the Show Cause Notice, dated 4-7-1979 covering the period October 1978 to March 1979, can save the demand, from 5-1-1979 onwards, going back six months, from the date of the Notice. We come to this view; namely, that only six months' period is available to enforce the demands, because of the fact that we do not find it to be a case of any suppression or even mis-statement of facts, so as to attract Proviso (a), appended to Rule 10 of the Rules. It is manifest on record that the party has been filing classification lists, giving all the details of the constituent yarns, and the percentages thereof, and also setting forth their view that they were liable to pay duty under T.I. 68, which was accepted by the Department, and clearances allowed accordingly. It is thus on face of record, a case of plain short-levy owing to error or misconstruction on the part of the concerned Excise authorities, and we cannot subscribe to the Department's stand that extended period of five years, is available to them.
29. Both the appeals are disposed of in .the light of the foregoing findings, with the result that whereas in the case of Appeal No.ED(SB)(T) 940/83-D, the order of the lower authority confirming the Show Cause Notice is wholly set aside because of the Demand being partly time-barred, and partly, owing to the fact that duty stands already paid under the relevant Tariff Item, now determined by us.
Appeal No. ED(SB)(T) 1482/83-D is disposed of, to the effect that whereas demand on account of the first two items; namely, Polyester/Viscose/Acrylic in the ratio of 24 : 26 : 50 and Polyester/Viscose/Acrylic in the ratio of 45 : 5 : 50 completely falls on merits, on the basis of duty having already been paid under T.I. 68; the rest of it in respect of the third item is confirmed only with effect from 5-1-1979 under T.I. 18E. The appellants would, of course, be allowed set-off on account of duty, if any, already paid on the constituent yarns under same Tariff entry; namely, T.I. 18E. This, we direct, in the light of our earlier decision in the case of General Industrial Society Ltd. (supra).
30. Cross Objection No. ED/SB(CO) 82/83-D filed by the Department rejected as not pressed.