1. This appeal by M/s Aditya Mills Limited, a company stated to be owning and running a spinning mill at Madangarh, Kishanganj, State of Rajasthan, (hereinafter referred to as the Company) is directed against an order passed by the Appellate Collector, Central Excise, Delhi on 22-2-1980, upholding an order passed by the Assistant Collector of Central Excise, Ajmer dated 3-7-1979.
2. The facts giving rise to the controversy, as stated in the grounds of appeal, are that the petitioner-company had filed a Classification List on 10-4-1978 as required under Rule 173-B of the Central Excise Rules, 1944 and had, inter alia, shown one of its products styled as 'PPRF' against column 5 of the proforma list, indicating that this yarn the company considered to be not exigible to any excise duty, having been prepared out of duty paid yarn. However, this list was returned by the concerned Inspector intimating the company that this view was not acceptable to the Department and that this product was leviable to excise duty under Tariff Item 68. The Company was accordingly required to file a fresh Classification List, to which the Company complied, though under protest. Thereafter, without raising any dispute about the classification, independent of the protest, expressed while filinga revised Classification List under directions of the concerned Inspector, the Company applied for refund of the duty paid at the rate of 5% ad valorem on the aforesaid yarn, covering the period 28-4-1978 to 30-9-1978, and the amount was computed to be Rs.84,651.77.
3. It was this refund claim which was disallowed by the Assistant Collector, on the view that since the Company had not disputed the classification, as conveyed to them by way "of appeal; they would be deemed to have accepted the said classification as determined by the Department, and so the Central excise duty was rightly levied and collected and their refund claim was liable to rejection.
4. The Company carried an appeal against this order to the Appellate Collector, pleading that they had submitted a representation to the Collector, Central Excise, Jaipur against the classification conveyed to them by the Inspector but the same could not be disposed of as the then Collector was murdered during the pendency of the proceedings before him, and that without waiting for the final decision of the Collector, the Assistant Collector proceeded with the notice to show cause against the Company, and that the action was arbitrary, whimsical, and capricious. They further contended the Inspector was not a proper officer within the meaning of Rule 173-B Central Excise Rules, and that in case it was in pursuance to any order by the Assistant Collector that ought to have been conveyed to them and it was incumbent upon the 'proper officer', to have returned the same original List with such modifications as were considered necessary and that the action in calling for a revised Classification List was in contravention of the procedure, provided by the said Rules. They also seem to have contended that before Tariff Heading 68 could be attracted, it was essential to establish that the goods were manufactured in a factory and as such Assistant Collector was bound to satisfy himself, that the process amounted to 'manufacture' but having failed to do so, the order of the Assistant Collector was not sustainable. According to them, this yarn was only a result of twisting of the two yarns one of which was polyester yarn manufactured by the company on which they had already paid duty, whereas the other component, namely, rayon filament yarn, had been purchased from the market, after paying requisite excise duty and that no new product had come into being, and no further manufacturing activity was involved, and consequently this yarn which involved just the process of blending two duty-paid yarns, this could not be subjected to any further duty, by reference to Item 68 of the Central Excise Tariff.
5. This appeal was disposed of by the Appellate Collector, Delhi by order dated 22-2-1980 rejecting the contention that Tariff Heading 68 could not be invoked in this case. The learned Appellate Collector observed that this was a new variety of yarn falling in the category of 'fancy yarn', and since it is made out of two distinct types of yarns, namely, one rayon filament yarn, and the other polyester yarn, it did not fall under any of the specific categories, namely 18, 18A, 18B, 18C, 18D, 18E and SF, and this being a type of yarn not specified under any of the Tariff Items, has been rightly taken to be falling under the residuary Item 68. The Appellate Collector further held that a new product, as known to the market, had clearly emerged and that the process of manufacture was doubling as well as twisting of different varieties of yarn, which were plain single yarn, and that since this double twisted yarn did not fall under any of the categories enumerated in the Tariff items 18 to 18F, the classification of this new product of 'fancy yarn', had been rightly done under Tariff Item 68. The appeal was accordingly dismissed.
6. Feeling aggrieved by this dismissal, the Company filed a revision petition before the Central Government, reiterating the plea that no manufacturing process was involved and that the end-product was still a yarn and since it has come into existence as a result of doubling or twisting of duty paid yarns, the lower authorities had erred in treating it as an excisable item and that the basic question which had not been appreciated was that the processdid not amount to 'manufacture'. Reference was made to the Supreme Court authorities : Union of India v. Delhi Cloth and General Mills reported in AIR 1963 SC 791 and South Behar Sugar Mills v. Union of India reported in AIR 1968 SC 922 pleading that the crux of these decisions, was that levy of an excise duty could be only in relation to those goods, which were the result of a distinct manufacturing process, as understood in trade parlance and market and that there was no warrant in law for equating 'process' with 'manufacturing'. It was further pleaded that in this case two or more duty paid components have been twisted to form yarn, and they could be easily recognised and identified, and if necessary even segregated so as to bring them back to their original form, and that yarn had already come into existence which had only been doubled or twisted and which had been accomplished at the Ring Frame Stage, and that doubling could be treated as a process of manufacture only in relation to yarn falling under T.I. 18A, and that when the product remained the same as it originally was, no manufacturing could be held to have been involved. It was pleided at the end, and alternatively, that in case the twisted yarn was held to be falling under Tariff Item 68, the Company would be entitled to a refund of duty collected under Tariff Item 18E, on the quantity of polyester yarn, manufactured by them.
7. This revision petition has been received by transfer to the Tribunal by virtue of provisions of Section 35P of the Central Excises and Salt Act, 1944 to be disposed of as appeal, and has been registered and taken up as such.
8. Shri Ravinder Narain, Advocate appeared for the appellants whereas Department was represented by Shri K.D. Tayal, S.D.R. Shri Ravinder Narain at the outset invited attention to an application that was filed on behalf of the Company, under the provisions of Rule 23 of the CEGAT (Procedure) Rules, 1982 for permission to submit an affidavit, by way of stating some facts. First of all, hearing was given to this application and on the learned counsel's pointing out that it was the Appellate Collector who had introduced two new concepts in the Order-in-Appeal, namely that of (1) 'Fancy Yarn' (2) that of 'process' and 'manufacture', and so it has become essential to clarify and elucidate the same by means of this affidavit, sworn by Vice-President (Technical) of the Company. In view of the facts stated, this affidavit was admitted on record, and then the Bench proceeded to hear arguments on merits.
9. Shri Ravinder Narain commenced his arguments by contending that there was a clear error in the observations of the Appellate Collector that the yarn in question was a 'fancy yarn', and that, in trade parlance what was known as 'fancy yarn' had entirely different characteristics and appearance, and further argued that the disputed end-product still remained a yarn and was not a different commodity so as to be taken to the residuary item, particularly when both the component yarns were already duty paid. He also made pointed reference to the Delhi Cloth & General Mills and the South Behar Sugar Mills cases to highlight distinction between a mere 'process' and 'manufacture' and also to an English Bench decision known as Mcnicol and Anr. v. PINCH in the King's Bench Division case reported in Law Reports, 1906, Vol. 6 at p. 352 where it was held that saccharine which was the basic product, was, though made of greater concentration, would still remain saccharine and no new process could be said to have been involved. The learned Counsel further referred to the Bombay High Court judgment in Garware Nylons Limited v. Union of India and reported in 1980 ELT 249 (Bom) to fortify his contention that twisting of yarn did not involve any manufacturing activity and that nylon yarn even after twisting would still remain yarn, and no new product could be said to have come into existence.
10. He explained the process and a sample was also presented and explained that two plies of polyester yarn, which would fall under Tariff Heading of Non-cellulosic spun yarn', falling under Tariff Item 18E and one of rayon filament yarn as covered by Item 1811 were twisted together which was given the name as PPRF. The learned counsel, however, reiterated that the Appellate Collector had totally gone wrong in describing it as a 'fancy yarn', which, according to him, had an altogether different connotation in trade parlance, and had distinct characteristics such as loop, knop, boucle, slub, ring, crimp, horn etc A catalogue containing samples of 'fancy yarn' as prepared by Japanese concern in Nagoya, Japan was also shown, and learned counsel stressed that, 'fancy yarn' would be that which would give a special effect to the woven fabric whereas the product in question remained plain yarn, and this could not be treated as a distinct commodity than the yarns which go into its making.
11. However, the learned Senior Departmental Representative defended the Order-in-Appeal by contending that the appellants' yarn was certainly a distinct commodity, not falling under any of the Tariff Entries, relating to yarn, and so has been rightly treated to be a variety of yarn, falling under Tariff Item 68. He also emphatically countered the arguments that this process of twisting and doubling of two varieties of yarn did not result in any new product arid as such did not amount to manufacture, and refuted the contention that no transformation had taken place. He also referred to the authority of High Court of Delhi reported as Hyderabad Asbestos Cement Products Ltd. and Anr. v. Union of India and Ors., (1980 ELT 735) which was a case of asbestos rocks being broken, crushed, powdered and marketed by the trade name 'asbestos fibre'. It was held that a distinct marketable commodity had come into existence, and excise duty was leviable in respect thereto. He contended that on the same analogy, since a different nomenclature has been given to this yarn, it has been rightly held to be classifiable under Tariff Heading 68-not being covered by any other specific entry pertaining to yarns.
12. Learned counsel for the appellants addressed some further arguments in rejoinder by highlighting the fact that the subject yarn had been prepared out of duty paid yarns and that it was not a case where no duty had been absolutely paid, and that same commodity ought not be assessed again to excise duty, and that in any case the 'added value test' had to be kept in mind and credit for duty already paid on the polyester yarn, allowed. He also referred to the case of J.K.Synthetics and reiterated that where some independent manufacturing process was involved, only then a distinct commodity as known to the trade could be deemed to have come into existence and not yarn of the variety and type produced by them.
13. We have given our very careful and anxious thought to the arguments canvassed by the learned counsel for the appellants and we appreciate the lucid exposition by him, of the points involved but we cannot persuade ourselves to accept his contentions. It is an admitted position on facts that different yarns as covered by two distinct entries, one falling under Item 1811 (rayon filament yarn), and the other falling under Item 18E (polyester spun yarn) and one of which is purchased by the appellants from outside market and the other manufactured by them distinctly are again doubled and twisted together.
We are of our clear view that a wholly new product comes into existence, as a result. It is not a case where some components of yarn, in the intermediary stage are going into the making of a finished product, but it is a case where two separate types of finished yarns are taken together, for an altogether distinct purpose; namely, of bringing into existence a twisted multi -shaded or multicoloured yarn which is traded under a specific nomenclature, of 'PPRF' in the market, so as to connote its qualities, namely to indicate that it was a mixture of 'polyester spun yarn' and 'rayon filament yarn' which will obviously acquire a specific significance for the purpose of weaving, as well as would give a special effect to the fabric, than the ordinary plain single ply yarn.
14. The reasoning on which the Delhi Cloth & General Mills and South Behar Sugar Mills cases, is based would not apply to this case because those were the case where no finished product was involved, and what was sought by the Revenue was to assess to excise duty some product at the intermediary stage and it was in that context that their Lordships of the Supreme Court held that as no product as known to the market had come into existence at that stage, no "excisable goods", could be deemed to have been produced.
15. As against this, what we have before us, as already observed, is a special type of yarn which has been given a distinct trade name and is being marketed as a finished product. The present case rather fulfils the concept of marketability, as envisaged in the Delhi Cloth Mills as well as South Behar Sugar Mills case. The case of "Asbestos rocks", relied upon by the learned Departmental Representative has, on the other hand, a pointed bearing on the present case because there even conversion of rocks into asbestos fibre by 'crushing' and 'powdering' etc. was held to be a manufacturing process, so as to make the resultant product the excisable goods.
16. We also do not find any force in the contention that the Appellate Collector has erroneously described it as 'fancy yarn'. We have not been shown any technical literature to the effect that the term 'fancy yarn', is restricted only to effects as described in the appeal, such as crimping and looping etc. and that this expression could not be extended to the twisted yarn of the type, being produced and marketed by the appellants.
17. For the same reason, the English case of saccharine is also distinguishable because that was a case where licence was required to be obtained for the purpose of manufacture of saccharine, and the party in that case had obtained the same for producing "330 saccharine". What was found was that saccharine of a higher concentration or intensity had been produced, which was "saccharine 550" and it was in those circumstances and facts of the case that it was held that what was being produced in both the cases was saccharine and, so the licence obtained for 'saccharine 330' could be utilized for 'saccharine 550' also, and there was no violation of the rule which required obtaining of excise licence, before entering into a manufacturing activity. It is nowhere indicated that in that case concept of 'manufacture' was in focus, from the point of view of levy to excise duty.
18. We have thus no hesitation in holding that these authorities are of no assistance to the appellants. The Garware case decided by the Bombay High Court, as reported in 1980 ELT 249 is also distinguishable inasmuch as that was a case as the separate judgment of B.A. Masodkar J. reveals where the contention was not, that nylon yarn was absolutely exempt from duty as is being urged in the case before us, but that it was a type of yarn which was not covered by any of the specific Tariff entries, but would go under the residuary item 68. The appellants here are urging to the contrary because whereas the excise authorities have held that only residuary item 68 would apply, their sole emphasis is that the finished product is composed of yarns where already duty had been paid, and that this resultant product could not be treated as a yarn, excisable to duty with reference to Tariff Item 68. There is thus no support from this authority for the plea that no duty whatsoever was payable on this twisted yarn, because in the Garware case also, the nylon yarn which had gone into the making of nylon twine was already duty paid, but still it was held that nylon twine was again liable to excise duty under Tariff Item 68. This is what the lower excise authorities have done in the present case. No fault could, thus, be found for the view, they have held.19. We are also unable to accept the plea of the appellant that duty having already been paid on the yarns, which go into the making of twisted yarn it could not be subjected to duty again because the concept of 'double duty', namely on the raw material as constituents or components, as well as on the finished product is a wholly recognised concept in excise law. We also are not impressed with the argument that since by unwinding or untwining the two component yarns can get back to the original shape and so new product which can be undone, ought not to be charged to excise duty, because this would not be any basis or criterion for adjudging or determining liability to excise duty. Take for instance the case of assembly of a machine, because any machine can be disassembled, but it is an accepted position that even though the component parts of the machinery have been assessed to duty, the finished product can and is, again assessed to duty.
20. We are also unable to give any relief on the principle of "added value test" because apart from the fact that this concept is not known to or recognised by the Indian Excise Tariff system but even otherwise even where proforma credit for the duty paid raw material can be allowed that is not available for the items covered by Tariff Item 68, because the procedure of Rule 56A is not attracted to the goods covered by Tariff Item 68. So, as a result, even if proper procedure of Rule 56A had been observed, which does not seem to be the case as there is no plea to that effect, because of the fact that the goods having been held to be liable to excise duty under Tariff Item 68, that benefit is not available.
21. We are also unable to see as to in what context the authorities of the Honble High Court of Delhi in J.K. Synthetic's case could be pressed into aid by the appellants in this case, because there is no finding in that case having bearing on the questions involved in this appeal.
22. We also do not find any merit in the contention that the procedure of Rule 173B was not observed because it was for the appellants to contest the decision at that stage when they were asked to file a revised Classification List. The Assistant Collector is right in observing that since they did not dispute the Classification List, they could not do so by means of a refund claim.
23. As a result, we find the Order-in-Appeal passed by the Appellate Collector as well as that of the Assistant Collector as perfectly sustainable, on the facts of the present case, and there is no scope for interference or for upsetting the view held by the lower authorities. The appeal therefore cannot succeed and is liable for dismissal and is dismissed accordingly.