1. When the case was called, the Department's Representative submitted that there was a delay of about one month in filing their appeal. He prayed that this delay be condoned. The respondents had no objection to the delay being condoned. We condoned the delay on the oral application of the Department's Representative. The hearing of the case was then proceeded with.
2. The facts of the case, in brief, are that Item 18A of the Central Excise Tariff read as under :- (2) Cotton yarn, twist or thread, all sorts, whether sized or unsized, in all forms including skeins, hanks, cops, cones, bobbins, pirns, spools, reels, cheeses, balls or on warp beams shall be deemed to be included under this Item.
(3) Explanation I, II and III under sub-item III of Item No. 18 shall, so far as may be, apply in relation to this Item as they apply in relation to that Item." Explanation II under sub-item III of Item No. 18, referred to in Explanation (3) above, read as under :- "Explanation II.-For multiple fold yarn, "count" means the count of the basic single yarn." Notification No. 131/77-Central Excises, dated 18-6-1977 fully exempted "single yarn and multiple fold yarn in plain (straight) reel hanks" while for cotton yarn in other forms the said notification fixed a concessional rate of duty. The appellants manufactured multiple fold cotton yarn in plain (straight) reel hanks. The process of manufacture of such hanks, from the stage of coming into existence of cotton yarn, is as under, sequence-wise ;- There is no dispute that the hank yarn manufactured by the respondents was fully exempt from duty. The dispute is whether the respondents should pay duty at the pre-hank stage, that is, the cone stage or not.
The Collector of Central Excise (Appeals) accepted the respondents' submission that coning was an intermediary stage of production of cotton yarn in hanks and that since the cotton yarn remained cotton yarn even after reeling into hanks and there was no transformation of the cotton yarn into any different product, therefore, the provisions of Rules 9 and 49 of the Central Excise Rules, 1944 were not applicable. The Collector (Appeals) set aside the demand for duty made on the respondents by the Assistant Collector and allowed their appeal.
The Department is in appeal against this order of the Collector (Appeals).
(1) 'Cone' is included specifically in Explanation (2) below Item 18A and hence it is a dutiable form of cotton yarn.
(2) By virtue of the expanded definition of Section 2(f) (winding, reeling, etc of cotton yarn included in the definition of 'manufacture'), doubled yarn or multiple fold yarn was a different commodity from single yarn. Further, by virtue of Rules 9 and 49, as amended in 1982 with retrospective effect, internal removal of cones for manufacture of multiple fold yarn in hanks amounted to 'removal' of excisable goods and duty had to be paid at the time of such removal.
We put it to the Department's Representative that if duty was charged at the intermediary stage of cones, the exemption given to hanks in Notification No. 131/77-C.E., dated 18-6-1977 would become meaningless and that part of the notification would be rendered nugatory. The Department's representative replied saying that under the scheme of Rules 9 and 49, extended definition of 'manufacture' which included winding, reeling, etc., of cotton yarn and Explanation (2) below Item 18A, taken together, the effect was that duty had to be paid at every stage of change in the form of cotton yarn in the respondents' factory.
4. The respondents stated that they did not seek any further relief in the Cross Objection filed by them since the Collector (Appeals) had allowed their appeal in full. On merits, they countered the Department's argument saying that cotton yam in different shapes did not mean a new commodity calling for repeated taxation and that if the Department's logic was adopted, the total exemption given to hank yarn would lose its meaning.
5. We have carefully considered the matter. We observe from Rule 9, read with Rule 49, that the charge of duty arises when excisable goods are sought to be removed from the manufacturing premises "for consumption, export or manufacture of any other commodity in or outside such place". The Department's point is that removal of cotton yarn on cones for conversion into doubled yarn hanks amounts to removal for manufacture of another commodity and hence the respondents are required to pay the duty at the time of removal of cones. We do not. agree with the Department. As made clear in Explanation (2) below Item 18A, bobbins, cones and hanks are all various 'forms' of the same commodity, namely, cotton yarn. It is further made clear in Explanation II below Item 18-III, made applicable to Item 18A by virtue of Explanation (3) thereunder, that ''cotton yarn" includes both single yarn as well as multiple fold yarn ; else, there would be no point in prescribing how the count of multiple fold yarn shall be determined for the purpose of Tariff Item 18 as well as 15A. In fact, single yarn and multiple fold yarn or doubled yarn are only two different varieties of cotton yarn.
They are not different commodities either in the Central Excise Tariff or commercially. The stages of bobbins, cones/cheeses, doubling bobbins and hanks in the respondents' factory are stages in the manufacture of cotton yarn in the final multiple fold yarn in plain (straight) reel hanks and it is only in this final form that cotton yarn is removed out of their factory. We, therefore, agree with the Collector (Appeals) that all through cotton yarn remains only cotton yarn at different stages of its conversion till it reaches the final form in hanks and there is no transformation from one commodity to another. The charge of duty under Rules 9 and 49 cannot arise since at the bobbins or cone stage there is no removal either for consumption or for export or for manufacture of some other commodity. Clause (i) of the Proviso to exemption Notification No. 131/77-C.E., dated 18-6-1977 put the matter beyond doubt by saying that "single yarn and multiple fold yarn in plain (straight) reel hanks shall be exempted from the whole of the duty of excise leviable thereon ;". So long as the respondents continue to manufacture "cotton yarn" in one form or the other, they are entitled to pay duty on the particular form of cotton yarn in which such yarn is removed from their factory. We find no warrant for taxing cotton yarn repeatedly (because of change in forms) within the same factory and under the same Tariff Item )8A-"Cotton yarn, all sorts". As already pointed out by us, such repeated taxation at intermediary stage would make the total exemption given to hank yarn meaningless and render that part of the exemption notification nugatory. It is settled law that an interpretation which makes any part of the statutory provision nugatory ought to be eschewed. The object of incorporating an extended definition of 'manufacture' in Section 2(f)of the Act was to collect the duty if hank yarn was cleared after availing full exemption from duty and was later converted into some other form of cotton yarn.
This is clearly evident from Clause (iii) of the Proviso to Notification No. 131/77-C.E., dated 18-6-1977.
6. In the light of our above discussions, we are unable to find any fault with the impugned order of the Collector (Appeals). Accordingly, we uphold that order and reject this appeal.