2003 (6) TMI 354 - AT - Central Excise

Dispute over duty on processed yarn by composite mills; exemption inapplicable, processing deemed dutiable

The case involved a dispute regarding the duty payable on yarn processed through bleaching and dyeing by composite mills. The Commissioner (Appeals) ... Demand - Manufacture Issues:1. Whether duty is payable on yarn subjected to processes like bleaching and dyeing by composite millsRs.2. Whether the exemption under Notification No. 46/86, dated 10-2-1986 is applicable to yarn processed by composite millsRs.3. Whether the process of bleaching and dyeing undertaken by the appellants amounts to manufactureRs.Issue 1: Duty on Yarn Subjected to Processes:The appellants, engaged in yarn manufacturing, processed yarn through bleaching and dyeing before using it for fabric production. They cleared the processed yarn without duty payment but recovered job charges. The authorities issued show cause notices for duty recovery, which were pending until the Assistant Commissioner confirmed the duty demands and imposed a penalty. The Commissioner (Appeals) upheld the duty demand, stating that duty should be paid on processed yarn as it emerges as a distinct commodity after processes like bleaching and dyeing, making it excisable and dutiable. The Commissioner found that the yarn was liable for duty regardless of whether it was consumed in-house or sold locally.Issue 2: Exemption under Notification No. 46/86:The appellants claimed exemption under Notification No. 46/86 for the processed yarn but the Commissioner (Appeals) found that the exemption applied to yarn processed by independent processors, not composite mills. The Commissioner emphasized the legislative intent to differentiate duty levy between small processors and large composite mills. The Commissioner held that the processed yarn by the appellants was excisable and dutiable, rejecting the contention that the processed yarn was not subject to duty, as it would render the exemption redundant.Issue 3: Manufacturing Process of Bleaching and Dyeing:The Commissioner (Appeals) previously held that the process of bleaching and dyeing on duty-paid yarn before 16-3-1995 did not amount to manufacture. This finding was not challenged, and no appeal was filed against it. The current order did not consider or differentiate this finding, leading to the judgment being set aside for reconsideration. The matter was remitted back to the Commissioner (Appeals) to determine whether the process undertaken by the appellants constituted manufacture, with an opportunity for personal hearing, keeping all issues open for both sides.In conclusion, the appeal was disposed of as a remand to the Commissioner (Appeals) for further examination and determination of whether the processes undertaken by the appellants constituted manufacture and the consequent duty and penalty implications.