Excise valuation of captive yarn turns on spindle-stage clearance, not later sizing for partial weaving use.

Yarn captively consumed for manufacture of fabrics was assessable to excise duty on the basis of the condition in which it left the spinning section for internal use, not on the basis of later sizing applied only after transfer to weaving. Because the yarn was not sold in the market and sizing was carried out only for warp yarn, while weft yarn remained unsized, the relevant levy basis was the unsized form and weight at the spindle stage. A demand computed on sized weight was therefore unsustainable, and the revision was allowed.

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Issues: Whether yarn captively consumed for manufacture of fabrics was liable to excise duty on the basis of its sized weight or on the basis of the form and weight in which it was cleared at the spindle stage.

Analysis: The yarn was not sold in the market but was consumed internally for weaving. Sizing was carried out only for warp yarn after transfer to the weaving department, while weft yarn was not sized. The relevant basis for levy was therefore the condition of the yarn at the stage at which it left the spinning section for captive use, not a later and selective sizing process applied only to part of the yarn.

Conclusion: The duty was to be assessed on the yarn as cleared in its unsized form at the spindle stage. The demand based on sized weight was unsustainable and the revision was allowed.

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