Assessable value of cotton fabrics includes duty on yarn used in manufacture; deferred collection does not erase excise liability.

Under the special procedure in Rule 96V and Rule 96W of the Central Excise Rules, 1944, the deferment of collection did not extinguish or alter the excise liability arising on manufacture of cotton yarn. When that yarn was used as raw material for cotton fabrics, its assessable value had to include the yarn value together with the excise duty payable on it. The definition of "value" for excisable goods did not exclude this duty component at the fabric stage, even though duty is not added to the assessable value of yarn itself. The court therefore upheld inclusion of yarn duty in valuing the fabrics and sustained the short-levy demand.

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Issues: Whether, under the special procedure under Rule 96V and Rule 96W of the Central Excise Rules, 1944, the assessable value of cotton fabrics was to exclude the excise duty payable on cotton yarn used in their manufacture.

Analysis: The special procedure merely postponed the stage of collection of duty and did not extinguish or alter the underlying liability arising on manufacture of the yarn. When cotton yarn is used as raw material for cotton fabrics, the assessable value of the fabrics must take into account the value of the yarn together with the excise duty payable thereon. The definition of "value" in relation to excisable goods did not assist the appellants, because while duty is not to be included in the assessable value of yarn itself, it remains part of the value component when the yarn is used in the manufacture of fabrics.

Conclusion: The duty on cotton yarn was rightly included for determining the assessable value of cotton fabrics, and the demand for short levy was valid. The appeal was against the assessee.

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