Post-spindle processing costs cannot be added to yarn value when captively used for weaving.

The cost of post-spindle processes such as winding, reeling, warping, doubling and multi-folding could not be added to the assessable value of yarn cleared for captive consumption. The yarn was already accounted for at the spindle stage and the later processes were preparatory to weaving; any duty impact, if at all, belonged to the final grey fabric and not the yarn stage. Exemption notifications for winding and doubling on duty-paid yarn used captively within the factory also supported this treatment. The demand was therefore unsustainable to that extent and was set aside in favour of the assessee.

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Issues: Whether the cost of processes undertaken after the spindle stage, such as winding, reeling, warping, doubling and multi-folding, could be added to the assessable value of yarn cleared for captive consumption.

Analysis: The yarn was fully accounted for at the spindle stage in the RG-1 register and was thereafter used captively for manufacture of grey fabrics. The subsequent processes were preparatory to weaving and, even if some of them amounted to manufacture, their cost could not be loaded onto the value of yarn at the spindle stage. The earlier decision in the appellant's own case held that where duty-paid single ply yarn is used within the factory for weaving, the cost of such later processes is to be absorbed in the value of the final fabric and not taxed again at the yarn stage. The exemption notifications covering winding and doubling processes on duty-paid yarn meant for captive use within the factory also supported this view.

Conclusion: The demand to the extent it included the cost of post-spindle processes in the assessable value of yarn was not sustainable and was set aside in favour of the assessee.

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