Excise duty on yarn must follow the product as cleared, not a later manufacturing stage or higher classification.

Partially oriented yarn cleared from the factory gate was liable to excise duty only as base yarn, because duty attaches to the commodity as it exists at the time of clearance. The tariff entry and exemption notifications treated base yarn and textured yarn as distinct products, so the department could not levy duty at the textured yarn rate on the basis that further processing would occur later. The circular relied upon did not authorise such a levy, and the provisional assessment was therefore unsustainable. The demand based on the textured yarn rate could not be sustained, and the assessee succeeded.

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Issues: Whether partially oriented yarn cleared from the factory gate was liable to excise duty at the rate applicable to textured yarn, and whether the provisional assessment and consequential demand were sustainable.

Analysis: The tariff entry and the exemption notifications treated base yarn and textured yarn as distinct commodities for duty purposes. Liability to duty arose when the manufactured product, namely base yarn, came into existence and was cleared from the factory gate. At that stage, the department could not levy duty on the footing that the goods were textured yarn to be manufactured later. The circular relied upon by the department did not authorise such levy. The provisional assessment was therefore unsustainable.

Conclusion: The issue was decided in favour of the assessee, and the demand based on the textured yarn rate could not be sustained.

Final Conclusion: The petition succeeded because excise duty was held payable only on the base yarn as cleared, not on the later textured yarn rate.

Ratio Decidendi: Excise duty on manufactured goods must be levied according to the commodity as it exists at the time of clearance, and not on the basis of a subsequent process that may transform it into a different product.

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