Partially oriented yarn classification and exemption for textured yarn clarified; dispute deposit treated as duty paid for refund or credit.

Intermediate yarn that is not fully drawn and remains capable of further drawing or stretching answers the description of partially oriented yarn and is dutiable at its own stage, while the resultant textured yarn is to be tested separately for exemption under the relevant notification. Technical evidence and the applicable departmental clarification supported that classification, and contrary findings based on inadequate material could not stand. A deposit made during the pendency of the classification dispute was treated as duty paid, so refund or credit would follow according to law.

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Issues: (i) Whether the intermediate yarn cleared by the appellant was classifiable and dutiable as partially oriented yarn or similar yarn, and whether the final textured yarn was entitled to exemption; (ii) Whether the amount deposited during the pendency of the classification dispute was to be treated as duty paid and eligible for refund or credit.

Issue (i): Whether the intermediate yarn cleared by the appellant was classifiable and dutiable as partially oriented yarn or similar yarn, and whether the final textured yarn was entitled to exemption.

Analysis: The samples were found not fully drawn and capable of further drawing or stretching, which supported their character as partially oriented yarn. The Board's clarificatory circular recognised that partially oriented yarn is dutiable at its own denierage at the take-up stage, while the resultant textured yarn is eligible for exemption under the specified notification. The finding recorded below was held to be unsustainable because it ignored the test report and proceeded on technical inferences without adequate material.

Conclusion: The intermediate yarn was held dutiable as partially oriented yarn, and the final textured yarn remained covered by the exemption notification.

Issue (ii): Whether the amount deposited during the pendency of the classification dispute was to be treated as duty paid and eligible for refund or credit.

Analysis: The deposit of Rs. 1.25 crores was made while the classification dispute was pending and before final crystallisation of the demand. In the circumstances of the case, the amount was treated as a payment relatable to the duty liability arising from the dispute and not as a separate pre-demand deposit to be ignored for all purposes.

Conclusion: The deposit was directed to be treated as duty paid, with refund or credit to follow according to law.

Final Conclusion: The impugned order was set aside, the appeal was allowed, and the appellant obtained consequential reliefs including treatment of the deposit as duty paid.

Ratio Decidendi: Where the evidence and the applicable departmental clarification establish that the intermediate product answers the description of partially oriented yarn, duty is chargeable on that product at its own stage, while the resultant textured yarn is to be tested separately for exemption; findings contrary to the technical record cannot stand.

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