Doubling of yarn treated as taxable manufacture; exemption denied where the factory could also produce single yarn, while penalty failed.

Doubling of yarn was treated as manufacture under Chapter 52 Note 1, and the exemption for double or multifold yarn under Notification No. 35/95-C.E. as amended by Notification No. 84/95-C.E. was unavailable where the factory had facilities for producing single yarn. On that basis, duty liability on doubled yarn was sustained because the proviso expressly restricted the exemption in such cases. Penalty was not supported on the facts and was deleted, as independent justification for penal action was lacking. The assessee was also allowed credit of duty paid on single yarn.

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Issues: (i) Whether doubling of yarn was liable to excise duty and whether the assessee was entitled to exemption under Notification No. 35/95-C.E. as amended by Notification No. 84/95-C.E.; (ii) Whether penalty was justified.

Issue (i): Whether doubling of yarn was liable to excise duty and whether the assessee was entitled to exemption under Notification No. 35/95-C.E. as amended by Notification No. 84/95-C.E.

Analysis: The exemption originally available for double or multifold yarn stood restricted by the proviso inserted through the amending notification, which denied the exemption to clearances of yarn from a factory having facilities for producing single yarn. Chapter 52, Note 1 also treated doubling and allied processes as manufacture. Since the assessee had plant and machinery for producing single yarn, the process of doubling yarn attracted duty and the assessee could not claim the exemption.

Conclusion: The demand of duty was upheld and the exemption claim failed, against the assessee.

Issue (ii): Whether penalty was justified.

Analysis: On the facts, no sufficient basis was found for imposition of penalty, although duty liability was confirmed.

Conclusion: The penalty was set aside, in favour of the assessee.

Final Conclusion: The duty demand on doubled yarn was sustained, but the penalty was deleted and the assessee was allowed credit of duty paid on single yarn.

Ratio Decidendi: Where an exemption for doubled or multifold yarn is expressly excluded for clearances from a factory equipped to produce single yarn, doubling of yarn is taxable manufacture and the exemption is unavailable, though penalty requires independent justification.

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