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Collector of Central Excise Vs. Reliance Textile Industries Ltd. - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Mumbai
Decided On
Reported in(1985)LC476Tri(Mum.)bai
AppellantCollector of Central Excise
RespondentReliance Textile Industries Ltd.
Excerpt:
.....finished goods. his letter dated 19-9-1983 is reproduced below : "under rule 56b of the central excise rules, 1944, excisable goods in the nature of semi-finished goods can be removed for carrying out certain manufacturing process. the partially oriented yarn is not in the nature of semi-finished goods. hence your request for grant of permission for removal of the j,same under rule 56b of the central excise rules, 1944 cannot be entertained." the respondents, thereafter, filed an appeal before the collector (appeals), bombay who set aside the decision of the assistant collector and held that "p.o-y. is a raw material for texturisation in the semi-finished state, and the conditions laid down under rule 56b ibid are squarely applicable to it." 4. in the appeal before the tribunal, the.....
Judgment:
1. This is an appeal filed by the Additional Collector of Central Excise, Thane Collectorate which is directed against the Order-in-Appeal No. E-2339/TH-20/83 in file V. 2(18) 2238/83/59385 dated 24-12-1983 passed by the Collector of Central Excise (Appeals), Bombay. The facts of the case, briefly, are as follows : 2. The respondents M/s. Reliance Polyester (a Division of Reliance Textile Industries Ltd., Bombay) situated at Patalganga, are manufacturers of Partially Oriented Polyester Filament Yarn (P.O.Y) falling under Tariff Item No. 18-11 (i) (a) of the Central Excise Tariff. They have another unit situated at Naroda, Ahemdabad where they have necessary facilities and equipments for carrying out the processes such as further orientation and texturisation of the P.O.Y., the resultant product being known as 'textured yarn' falling under Tariff Item No. 18-11 (i) (b) of the Central Excise Tariff. In November, 1982, the respondents had requested the Assistant Collector of Central Excise for permission to work under Rule 56B procedure, so that, they could send their P.O.Y. to their Unit at Naroda for further orientation and texturisation and clear the texturised yarn from that unit on payment of duty. Or in the alternative to return the texturised yarn to the factory at Patalganga before clearance of the goods on payment of duty.

The Assistant Collector of Central Excise granted the necessary permission to the respondents vide his letter dated 6-12-1982. It may be noted that the request for permission to work under Rule 56B procedure was made in accordance with the Trade Notice dated 7-10-1976 issued by the Collector of Central Excise amended from time to time in the prescribed form. Similarly, permission was accorded to the respondents to send their goods, viz., P.O.Y. for orientation and texturisation from Patalganga to Naroda on the conditions set out in the letter dated 6-12-1982 issued by the Assistant Collector of Central Excise to the Respondents (vide Annexure 'A' in the Paper Book). The respondents were inter alia required to maintain detailed account of the goods cleared under Rule 56B for orientation and draw texturising and the duty on such goods was required to be paid at the appropriate rate at the time of final clearance. The respondents were asked to execute the necessary general bond with surety of appropriate amount for removal of polyester filament yarn sent for orientation and draw texturising. In pursuance of this permission the respondents executed the necessary bond and availed of the facility of clearing the P.O.Y.in the manner requested by them. They undertook to pay appropriate excise duty on the total quantity of goods cleared by them if they are not accounted for within 90 days from the date of despatch of goods from the factory at Patalganga.

3. On 11-3-1983 the Assistant Collector of Central Excise withdrew the permission to avail of the facility under Rule 56B on the following grounds namely, "That in view of the budgetary changes P.O.Y. is classifiable under Tariff Item 18-11 (i) (a) of C.E.T. whereas textured yarn manufactured out of it falls under Tariff Item 18-11 (i) (b) and that Rule 56A has been extended to textured yarn vide Notification No. 78/83, dated 1-3 1983".

It appears that the Respondents again approached the Assistant Collector, Central Excise on 21-7-1983 for permission to operate Rule 56B procedure on the ground that item textured yarn had been deleted from the purview of Rule 56A by Notification No. 182/83 dated 1-7-1983.

The respondents informed the Asstt. Collector that P.O.Y. cleared under Rule 56B from Patalganga would undergo the required processes at Naroda and they would clear the crimped/textured yarn on payment of excise duty from their factory at Naroda. The Asstt. Collector was further informed that most of their production at Patalganga is meant for captive consumption for being texturised after due processing at their unit at Naroda. The Asstt. Collector, Central Excise, however, in his letter dated 19-9-1983 refused to grant the permission to operate under Rule 56B on a fresh ground that the Partially Oriented Yarn is not in the nature of Semi Finished goods. His letter dated 19-9-1983 is reproduced below : "Under Rule 56B of the Central Excise Rules, 1944, excisable goods in the nature of semi-finished goods can be removed for carrying out certain manufacturing process. The partially Oriented yarn is not in the nature of semi-finished goods. Hence your request for grant of permission for removal of the j,same under Rule 56B of the Central Excise Rules, 1944 cannot be entertained." The Respondents, thereafter, filed an appeal before the Collector (Appeals), Bombay who set aside the decision of the Assistant Collector and held that "P.O-Y. is a raw material for texturisation in the semi-finished state, and the conditions laid down under Rule 56B ibid are squarely applicable to it." 4. In the appeal before the Tribunal, the Additional Collector has stated that P.O.Y. is a fully finished commodity which is brought and sold in the market, and that the respondents had in fact been selling large quantities of P.O.Y. manufactured by them in their Patalganga Unit. No doubt, some quantity especially P.O.Y. of more than 350 deniers is sent to their unit at Naroda at Ahmedabad for texturising.

The Addl. Collector has further stated that the two items, viz. P.O.Y.and textured yarn fall under two different sub-items of Item 18 of the C.E.T. Accordingly, both these products are different and distinct carrying different rates of duty.

5. Shri Pattekar, for the appellants cited the cases of Union Carbide v. Asstt. Collector of Central Excise and Ors (1978 E.L.T. J 180) and Union of India v. Delhi Cloth Mills (1977 E.L.T. J. 199) in support of his argument that the two commodities viz. P.O.Y. and Textured yarn are two different commodities which are bought and sold in the market and, therefore, are excisable.

6. Shri E.R. Srikantia, Consultant who appeared for the respondent argued that the respondent had been permitted to operate under Rule 56B in December, 1982. They had complied with all the conditions. He argued that this permission was abruptly withdrawn from 11-3-1983 by an ex parte order and that too on the grounds which were factually incorrect, inasmuch as there had been no budgetary change as such which necessitated the withdrawal of the permission already granted nor was it correct to say that Rule 56B was in any way related to the deletion or otherwise of this item from Rule 56A as stated by the Assistant Collector. Shri Srikantia further stated that withdrawal of this permission was in utter disregard of the principles of natural justice.

The respondents made a fresh application to the Assistant Collector of Central Excise to operate under Rule 56B. The Asstt. Collector, however, suddenly adduced a new ground viz. that P.O.Y. was not in the nature of semi-finished goods and ignored the fact that previously he himself had granted permission to remove P.O.Y. under bond from one unit to another unit both belonging to the same manufacturer, viz., the respondents, for the purpose of further processing. The Assistant Collector had agreed that further orientation of the P.O.Y. was a process which was necessary to manufacture textured yarn. Therefore, it was obvious that there could be no doubt that P.O.Y. was in the nature of semi- finished goods. There is no rational justification for the change of heart on the part of the Asstt. Collector. Shri Srikantia reiterated that P.O.Y. is a semi-finished excisable product. The name itself speaks for the nature of the commodity, namely that it is only "partially" oriented. It cannot be used by the consumers without further orientation and texturising. No doubt, P.O.Y. is sold in the market but it can be used for manufacturing fabrics (woven or knitted) fabrics only after it is further oriented and texturised. Before the texturising process, it is sold only to Texturing units who have the requisite draw texturising equipment. These are therefore in the nature of semi-finished goods which has to undergo further processing in order to be fit for being consumed by the textile industry. Shri Srikantia added that both the items P O.Y. and textured yarn fall under the same item viz. 18-11 of the Central Excise Tariff under the heading:------------------------------------------------------------- Rate of Duty-------------------------------------------------------------(i) Non-Cellulosic Explanation.-'Textured Yarn' means yarn that has been processed to introduce crimps, coils, loops or curis along the length of the filaments and shall include bulked yarn and stretch yarn." The Explanation to the item 18-11 is clear and shows that only difference between P.O.Y. and textured yarn is that additional processes to introduce crimps, coils, loops or curis, etc. are required to be performed. It is in- correct to say that Rule 56B would not include such a manufacturing process if it results in the change of description of the goods from one sub-item to another, although they continue to remain under the same main heading. A manufacturing process is obviously a process that should bring about some transformation in the nature of goods. Shri Srikantia emphatically brought to the notice of the Bench the grievance of the Respondent that the Asstt.

Collector's orders dated 11-3-1983 and 19-9-1983 are null and void since they have been passed in utter disregard of the principles of natural justice. They have been passed ex ,rarte without giving any opportunity to the respondents to plead their case and accordingly should be set aside and in fact were set aside by the Collector (Appeals). Even if the impugned order of the Collector (Appeals) is set aside by the Tribunal, this should not result in the confirmation of the Asstt. Collector's orders referred to above. To the question put by the Bench whether any appeal would lie in the matter which is entirely within the discretion of the Collector of Central Excise, Shri Srikantia stated that the executive authority like Collector of Central Excise has to positively apply his mind and exercise the discretion judicially and discreetly and not arbitrarily or capriciously on mere hypothesis as has been done in the present case. In support of his statement Shri Srikantia cited the judgment of the Madras High Court in A.l.R. 1973 Mad. 462 in the matter or K.V. Viswanathcm v. Collector of Central Excise, Madras and the judgment of Madhya Pradesh High Court reported in 1983 E.L.T. 883 (M,P.) in the matter of Asbestos Cement Ltd. v. Union of India and Ors. wherein it is stated, "It is well settled that an authority vested with a statutory discretion must exercise its power in good faith for furtherance of the object of the statute but it must not proceed on misconstruction of the statute and should not exercise its discretion without affording an opportunity to the party to put forward his case." Shri Srinkantia therefore urged that the impugned order of the Collector (Appeals) was correct in law and should be upheld. In the alternative he pleaded that the matter be considered afresh by the Assistant Collector of Central Excise de novo after affording full oportunity to the respondents to place all the facts and circumstances before him.

7. We have considered the submissions made by both the parties and examined the records of the case carefully. The following factors are important in this case : 8. That the Assistant Collector of Central Excise had after due consideration granted permission to the respondents to avail of the procedure under Rule 56B to remove the P.O.Y. manufactured in their unit at Patalganga to their unit at Naroda, Ahmedabad for further orientation and texturisation, since the respondents did not have the requisite machinery and equipment in their unit at Patalganga.

9. That the application for availing the facility under Rule 56B had been made in accordance with the Trade Notice No. 168, dated 7-10-1976 and the respondents complied with all the prescribed condition and executed a Bond for removal of these goods from one unit to the other.

It appears that similar permission was also granted at that time to some other manufactures on similar conditions.

10. That the permission granted to the respondents was peremptorily withdrawn without any cogent reasons. The reason given by the Asstt.

Collector in his letter dated 11-3-1983 is incorrect and cannot bear any scrutiny. It was wrong on his part to state that there had been any budgetary changes in the matter of classification of P.O.Y and Textured yarn under Tariff Item 18-11 (i) (a), C.E.T. and Tariff Item 18 Il(i) (b) respectively. The question whether Rule 56A had been extended to Textured yarn was wholly irrelevant. The order refusing to give permission for the facility under Rule 56B on the ground that, "partially 'oriented yarn is not in the nature of semi- finished goods" was ex-parte and was given without affording any opportunity to the respondents to present their case. As such the decision was one sided and apparently did not take into consideration the earlier position that the same Asstt. Collector had considered P.O.Y. as semi-finished goods it required further processes in order to be textured yarn.

11. Besides, the Asstt. Collector while arriving at this decision did not consider the peculiar or special circumstances in this case viz.

that the respon- dents had set up their unit at two places which though physically separated were in fact integrated under the same management and the P.O.Y. produced in one unit was meant to be captively processed in the other unit for the purpose of manufacturing the final product viz. Textured yarn.

12. The Bench noted that the respondents had in their several applications to the Collector of Central Excise represented that P.O.Y.has to be considered as semi-finished product and this was accepted by the authorities. The same item cannot suddenly be called a finished product by the same authorities. For the purpose of Rule 56B, P.O.Y. continued to remain the same product requiring further drawing and processing before being put to use in the manufacture of fabrics. In other words, semi-finished nature of the product and its characteristics had not undergone any change nor did the manufacturing process altered in any way to justify taking a different view. The respondents have further reiterated that the plants set out by the respondents at Patalganga and at Ahmedabad belong to the same Management and they would maintain and control the accounting of the product at a central place. They would bear the transit losses. Besides, in their letter dated 19th October, 1983, the respondents undertook to supervise the procedure and operations and maintain the necessary records and even bear the cost of employing the personnel recruited for the purpose of cost recovery basis. They urged that facility under 56B would be in the interest of revenue since the incidence of duty on textured deniers would be high.

The Tariff structure shows that the rates of duty on P.O.Y. is Rs. 95/- per kg. And textured yarn would be Rs. 105/- per kg. However, in accordance with Exemption Notification No. 49/83-C.E., dated 1-3-1983 and No. 51/83, dated 1-3-1983, the effective rates of duty for P.O.Y.and the Textured yarn have been reduced. In accordance with Notification No. 178/83, dated 1-7-1983 the textured yarn manufactured out of duty paid filament yarn other than textured is fully exempt- from basic excise duty. In other words, it is envisaged that textured yarn could be manufactured out of duty paid polyester yarn or non-duty paid polyster yarn and exemption has been pro- vided for such yarn as is made out of duty paid polyester yarn.

13. The Bench observes that the Collector of Central Excise (Appeals) has arrived at a decision on certain assumptions, viz. that the P.O.Y.is a "raw material" subjected to drawing and texturising. He has further stated that P.O.Y. is "semi-finished" goods which needs further processing to achieve/attain marketability form. He has further stated that after draw-texturisation, the denier of P.O.Y. is reduced to a greater extent and likely change the duty slab attracting higher rate of duty. He has finally arrived at the conclusions that "P.O.Y. as such i a raw material for texturisation in the semi-finished state, and the conitions laid down under Rule 56B of the Central Excise Rules are squarely applicable to this case". The Bench is of the view that their was hardly any evidence on record to justify the conclusions arrived at by show any evidence to arrive at the above conclusions.

14. We are of the view that Rule 56B of the Central Excise Rules, 1944 is merely a rule of procedure which inter alia prescribed special procedure for removal in Bond excisable goods which are in the nature of semi- finished goods for carrying out certain manufacturing processes. It empowers the Collector of Central Excise to accord his permission to the manufacture subject to such conditions as may be specified by the Collector. Rule 56B is clearly discretionary and cannot be availed of as a matter of right. At the same time, the Collector of Central Excise has to proceed in accordance with the well recognised norms of natural justice and afford adequate opportunity of personal hearing to the assessee before refusing to accord his permission as provided under the Rules. We therefore, consider that it would be more appropriate if the matter is considered by the Assistant Collector of Central Excise de novo in accordance with law and after giving full opportunity to the respondents to present their case. We set aside the orders of the Collector (Appeals) and the Assistant Collector of Central Excise and remand the case to him for de novo consideration in the light of the. observations made by us.


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