Base-stage excise duty cannot be fastened on a processor of market yarn absent proof of duty-free removal

A processor who bought plain yarn from the market and only dyed or texturised it on job work basis could not be made liable for base-stage central excise duty in addition to the texturising duty. The tariff and exemption scheme was designed to collect duty at the spinning and texturising stages together only where the same spinning mill manufactured the base yarn and then processed it, so as to avoid double levy. The exemption notification did not create a separate duty liability for a customer or processor of market yarn. In the absence of evidence that the yarn had been removed without duty payment, it was to be treated as duty-paid, and any contrary claim lay against the spinning mill, not the processor.

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Issues: Whether a processor who purchased plain yarn from the market and merely dyed or texturised it on job work basis could be fastened with the base stage central excise duty on the yarn, over and above the texturising duty, when the tariff scheme and exemption notification were framed to avoid double levy.

Analysis: Liability to pay base stage duty under Item 18(i) of the Central Excise Tariff arose on the spinner of the yarn. The tariff scheme under Item 18(ii) and the exemption notification only enabled collection of the base duty and the texturising duty together where the same spinning mill manufactured base yarn and also texturised it, so as to avoid double payment. The notification merely reduced the texturising component and did not create a separate liability on a customer who had purchased yarn from the market. In the absence of evidence that the market yarn had been removed without payment of duty, the yarn had to be treated as duty-paid. If the Department had contrary evidence, proceedings lay against the spinning mill that removed the base yarn, not against the processor who only carried out dyeing or texturising.

Conclusion: The demand for base stage duty against the processor was unsustainable and was set aside in favour of the assessee.

Ratio Decidendi: Under a tariff and exemption scheme that merely facilitates collection of duty at the point of manufacture, a purchaser or processor of market yarn cannot be made liable for base-stage excise duty unless the Department establishes unauthorized removal by the manufacturer.

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