1981 (9) TMI 112 - HC - Central Excise

Excise Duty on Yarn Determined at Spindle Stage: Court Rules in Favor of Petitioners

The judgment by Mr. Justice S.C. Pratap clarified that excise duty liability on yarn is determined at the spindle stage, regardless of subsequent sizing ... Yarn - Sizing of yarn is not manufacture - Liability to duty - Precedent Issues:Interpretation of excise duty liability on sized yarn, distinction between captive consumption and sale of sized yarn, relevance of sizing in yarn manufacturing process.Analysis:The judgment by Mr. Justice S.C. Pratap dealt with two petitions raising an additional point regarding the distinction between captive consumption and sale of sized yarn. The judge noted that the previous judgment by Kurdukar J. established that yarn manufacture is complete at the spindle stage, regardless of whether the yarn is later sized and used internally or sold outside. The judge emphasized that sizing is a post-manufacturing process and not an essential part of the manufacturing process. Thus, the liability to pay excise duty on yarn is determined at the spindle stage, irrespective of subsequent sizing.Regarding a reference to an unreported decision of the Delhi High Court, the judge found it inconsistent with the contention of the respondents. The decision highlighted that sizing does not change the nature of the yarn significantly to render it a different excisable commodity. The judge clarified that the underlined portion of the observation, relied upon by the respondents, was obiter dicta and did not logically follow from the main judgment or preceding observations.Ultimately, the judge allowed the petitions, making the rule absolute in terms of the prayer clauses. The parties were directed to bear their own costs, and the bank guarantees furnished by the petitioners were to be discharged and returned after four weeks. The judgment reaffirmed the principle that excise duty liability on yarn is determined at the spindle stage, irrespective of subsequent sizing processes.