Intermediate excise duty does not arise where yarn stays within an integrated manufacturing process and sizing creates no new commodity.

Excise duty on an intermediate product is not attracted where blended non-cellulosic spun yarn remains within a continuous, integrated composite manufacturing process and is not removed as a distinct commodity for sale or separate use. Sizing is treated as a preparatory process that strengthens yarn for weaving, but does not create a new commercial product or fresh taxable event merely because the yarn has been sized. The text also notes that territorial jurisdiction can exist where part of the cause of action arises within the court's limits, even if assessing authorities are located elsewhere. The stated position is that duty on cone yarn and sized yarn was not leviable on these facts.

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Issues: (i) Whether blended non-cellulosic spun yarn produced in a composite spinning and weaving mill was liable to excise duty when it was not removed from the factory but used captively in the manufacture of fabric; (ii) whether sizing of the yarn created a distinct excisable commodity so as to justify levy of duty at the stage of sized yarn; and (iii) whether the Delhi High Court had jurisdiction in view of the location of the assessing authorities outside its territorial limits.

Issue (i): Whether blended non-cellulosic spun yarn produced in a composite spinning and weaving mill was liable to excise duty when it was not removed from the factory but used captively in the manufacture of fabric.

Analysis: Excise duty under the charging provision had to be read with the relevant rules governing levy and collection. On that combined reading, duty on an excisable commodity arising at an intermediate stage became payable when the commodity was removed from the stage of manufacture, or otherwise taken out for sale or for use as a separate commodity. Where the entire process formed one continuous and integrated manufacture of the final product, mere emergence of yarn at an intermediate stage did not, by itself, attract duty if it was not removed from the factory for consumption or sale as a distinct commodity.

Conclusion: The yarn was not liable to excise duty at the captive intermediate stage, and the levy on cone yarn used within the same composite mill was unlawful.

Issue (ii): Whether sizing of the yarn created a distinct excisable commodity so as to justify levy of duty at the stage of sized yarn.

Analysis: Sizing was only a preparatory physical process that strengthened the yarn for weaving and did not produce a new commercial commodity. The yarn remained yarn both before and after sizing, and the later desizing of the fabric reinforced that sizing did not bring about a true change in identity. In the absence of removal of the sized yarn as such, there was no fresh taxable event merely because the yarn had been sized.

Conclusion: Sizing did not create a new excisable commodity, and duty could not be levied on the sized yarn in the facts of the case.

Issue (iii): Whether the Delhi High Court had jurisdiction in view of the location of the assessing authorities outside its territorial limits.

Analysis: The impugned direction of the central excise board was issued in Delhi and formed part of the cause of action giving rise to the writ petition. Where part of the cause of action arose within the territorial limits of the Court, jurisdiction could not be denied merely because the assessing authorities were located elsewhere.

Conclusion: The Court had territorial jurisdiction to entertain the writ petition.

Final Conclusion: The impugned excise demands and communications were quashed, and the respondents were restrained from levying excise duty on the yarn at either the cone-yarn stage or the sized-yarn stage.

Ratio Decidendi: Excise duty on an intermediate product is not attracted where the product remains within a continuous integrated manufacturing process and is not removed as a distinct commodity for sale or separate consumption; mere sizing that does not create a new commercial product does not create a fresh taxable event.

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