1. The appellants are aggrieved of the demand for central excise duty of Rs. 3,42,084 confirmed against them for the period 4-5-76 to 31-3-77. The demand relates to recovery of base stage duty on grey (i.e., plain or non-texturised) acrylic yarn and arose out of the peculiar wordings of Item 18 of the Central Excise Tariff and the exemption Notification No. 125/75-CE, dated 12-5-75. In order to facilitate the understanding of the issues involved in this appeal, we reproduce below the Tariff entry as well as the exemption notification as in force at the material time :-------------------------------------------------------------------Tariff Description of goods Rate of dutyItem No. Basic (i) Fibres and Yarn, other than Textured Yarn Rs. 85.00 per kg.
(ii) Textured Yarn produced out of Base Yarn The duty for the time being leviable "(11) In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944 and in supersession of Notification No. 105/75-CE, dated 30-4-75, the Central Government hereby exempts textured yarn of the description specified in col.
(3) of the Table below and falling under such sub-items of Item No. 18 as are specified in the corresponding entries in col. (2) of the said Table, from so much of the duty of excise leviable thereon as is in excess of the duty specified in the corresponding entries in col. (4) of the said Table.-------------------------------------------------------------------S.No. Sub-item No. Description Rate of duty-------------------------------------------------------------------(1} (2) (3) (4)-------------------------------------------------------------------1.
(ii) Textured Yarn produced out The duty for the time of Base Yarn being leviable on2.
(iii) Other Textured Yarn Ninety five rupees per kilogram.
2. The appellants stated that during the relevant period they were engaged m dyeing yarn. They used to receive un-dyed acrylic yarn from the traders in the market and return the sams to them after dyeing on payment of job charges. JJunng the dyeing operation, because of passage of steam, the hand-knitted yarn acquired a degree of fluffiness or bulk which, according to the Department, amounted to texturising. The appellants cleared the dyed yarn on payment of texturising duty of Rs. 10.00 per kg. and this duty is not the subject matter of R appeal.
Subsecluently the Department raised the aforesaid demand of KS..3,42,084 for recovery of the base grey stage duty from them on the ground mat the appellants had failed to prove that such duty had also been paid on the yarn which was dyed and texturised. It is this demand which they were now contesting. Their arguments before us were twofold : (1) Central Excise duty was a tax on manufacture of goods and the liability to pay the said duty was on the manufacturer of the goods.
The appellants were admittedly not the manufacturers of the grey yarn. They could not, therefore, be called upon to pay the base stage duty. The Department was seeking to interpret the scheme of the Tariff in a manner which converted it into sales tax. This was illegal and unconstitutional. When the Tariff entry and the notification were examined in the background of this constitutional position of the nature of excise duty, it would be quite evident that the whole scheme of payment of duty on base yarn and texturised yarn was structured to facilitate the working of composite mills which were spinning the base yarn and were further texturising it also. The appellants were only dyeing or texturising the yarn on job work basis and there was no liability on them to pay the yarn duty.
(2) Placing reliance on the Delhi High Court judgment in Sulekh Ram's case [1978 E.L.T. 3. 525 (Delhi)], the appellants claimed that the material available in the market had to be deemed to have paid the duty leviable thereon and a customer purchasing the said material from the market could not be called upon to prove the duty paid character of that material. The aforesaid judgment on this point had not been over-ruled by any subsequent judgment. The appellants asserted that the onus was on the Department to prove that base stage duty on the yarn received by the appellants from the market had not been paid and even were the Department was able to discharge that onus, the demand for base stage duty should have to be made against the spinning mill which manufactured the base yarn and not the appellants.
The appellants added that besides the purchase challans, they had submitted some gate passes also to the Central Excise authorities and it was for the Department to undertake the further verification, if they so desired, by contacting the dealers and the original manufacturers. The appellants could have furnished more documents also, but in the meantime they heard of the favourable Govt, of India Order-in-Revision (Order No. 887 of 1981, dated 5-12-81) passed in a similar case of M/s. New Pritam Finishing Industries, Ludhiana, and the appellants thereafter became complacent. If the Bench should like to remand the matter for detailed verification now, the appellants would be prepared to furnish the evidence of payment of base yarn duty.
Finally, the appellants stated that Rule 9(2) cited in the demand notice had been wrongly applied as the appellants had cleared the processed yarn on payment of texturising duty and the facts were, therefore, within the knowledge of the Department. The appellants, however, conceded that the demand was within time even under Rule 10 and did not, therefore, seriously press for this point.
3. The Department's Representative stated that the appellants were availing of concession in terms of the exemption notification and it was, therefore, for them to fulfil the condition of exemption laid down in the notification. The Asstt. Collector had gone on record to say that the appellants did not cooperate for verification of duty paid nature of the base yarn. The Department's Representative added that all goods available in the market could not be presumed to have paid the duty leviable thereon and that such a presumption would be drawn only in cases where the exemption notification contained a specific deeming provision to that effect, as for example, in Notification No. 71/76-CE, dated 16-3-76 relating to paper and paperboard.
4. We have carefully considered the matter. The liability to pay base stage duty on yarn arose under Tariff Item 18(i) and that liability was on the spinner of that yarn. There were cases where the spinning mills manufacturing the base yarn were further texturising the yarn also. In that case, further duty under Tariff Item 18(ii) would have been payable on texturised yarn. However, in order to obviate the need of having to pay the duty twice, the Tariff entry as well as the exemption notification made the provision that the spinner could pay the base duty as well as the texturising duty together at the time of removal of texturised yarn. That is the only reasonable interpretation of the Tariff entry and the exemption notification as they were worded at the material time. The condition of the exemption referred to by the Department's Representative was not a new condition; it was the cumulative rate scheme of Tariff Item 18(ii) itself which was carried into the notification. All that the exemption notification itself did was to reduce the texturising duty from Rs. 20.00 to Rs. 10.00 per kg.
From the scheme of the Tariff entry and the notification, we find no warrant for coming to the conclusion that customer who had purchased plain yarn from the market and were simply texturising it, had also to pay the base stage duty over and above the texturising surcharge even though admittedly they were not the spinners of the base yarn. The appellants' reliance on Sulckh Rani's case is correct. In the context of the peculiar scheme of Tariff Item 18 and the exemption notification, plain yarn available in the market had to be regarded as having paid the base duty on its removal from the spinning mill. If the Department had evidence that this was not so in any particular case, the Department should have to initiate proceedings against the concerned spinning mill for unauthorised removal of the base yarn and demand the base stage duty from that mill. The customers who purchased the base yarn from the market or the processors who simply texturised such yarn could not be called upon to prove the duty paid character of the base yarn and to pay the base stage duty if they could not give such proof. Accordingly, we set aside the impugned demand and allow this appeal with consequential relief to the appellants.