1987 (5) TMI 132 - AT - Central Excise

Tribunal classifies yarns as 'manufacture' under Item No. 68 CET, upholds show cause notices.

KIRAN SPINNING MILLS Versus COLLECTOR OF CENTRAL EXCISE, BOMBAY-II

KIRAN SPINNING MILLS Versus COLLECTOR OF CENTRAL EXCISE, BOMBAY-II - 1987 (30) E.L.T. 550 (Tribunal) Issues Involved:1. Classification of yarns obtained by doubling/twisting of duty-paid spun yarn with duty-paid rayon filament yarn.2. Whether the process of doubling/twisting constitutes 'manufacture.'3. Violation of principles of natural justice by the Assistant Collector.4. Validity of show cause notices based on trade notices/tariff advices.5. Limitation period for demanding duty.6. Classification under specific tariff items or residuary Item 68 CET.Issue-wise Detailed Analysis:1. Classification of Yarns:The appellants contested the classification of yarns obtained by doubling/twisting of duty-paid spun yarn with duty-paid rayon filament yarn under Item No. 68 CET. They argued that these yarns should be non-excisable as mere twisting or doubling did not amount to 'manufacture' resulting in a new product. The Appellate Collector, however, classified these yarns under Item No. 68 CET, rejecting the appellants' contention.2. Doubling/Twisting as 'Manufacture':The Tribunal examined whether the process of doubling or twisting yarns constitutes 'manufacture' within the meaning of Section 2(f) of the Act. It referred to previous decisions, including Aditya Mills Ltd. v. Collector of Central Excise, Jaipur, and General Industrial Society Ltd. v. Collector of Central Excise, West Bengal, concluding that the process resulted in a new product classifiable under Item 68 CET. The Tribunal noted distinguishing features from the Piramal Spinning & Weaving Mills Ltd. case, emphasizing that the appellants were a spinning mill, and the yarns were cleared out of the factory for further manufacture, making them known to the market.3. Violation of Principles of Natural Justice:The appellants argued that the Assistant Collector had violated principles of natural justice by adjudicating demands without giving them an opportunity to be heard. The Tribunal found that the Assistant Collector had indeed violated these principles, as noted by the Collector (Appeals). Orders passed without hearing the appellants were deemed ab initio void and could not be cured later. The Tribunal set aside these orders and remanded the matters for de novo adjudication.4. Validity of Show Cause Notices Based on Trade Notices/Tariff Advices:The appellants contended that proceedings based on show cause notices relying on trade notices/tariff advices evidenced non-application of mind and were bad in law. The Tribunal observed that while the show cause notices might have relied on trade notices/tariff advices, the Assistant Collector had recorded his own reasons in support of his findings and conclusions. Therefore, the orders could not be faulted solely on this ground.5. Limitation Period for Demanding Duty:The appellants argued that the show cause notice demanding duty for the period 17-6-1977 to 31-3-1979 was barred by limitation, as there was no allegation of suppression, fraud, or mis-statement with intent to evade duty. The Tribunal found that no classification list had been filed for the goods, implying non-disclosure to the department and clearance without payment of duty. Thus, the extended period of limitation applied.6. Classification Under Specific Tariff Items or Residuary Item 68 CET:The Tribunal examined whether the subject goods conformed to the tests laid down in specific tariff items for different types of yarn. If they did, they would fall under those items; otherwise, they would be classified under Item 68 CET. The Tribunal remanded the matter to the lower authorities for classification of each product, considering the principles laid down in General Industrial Society Ltd. v. Collector of Central Excise, West Bengal.Conclusion:The Tribunal concluded that the subject goods were new products different from their constituents and known to the market. However, they would only fall under Item 68 CET if they did not conform to specific tariff entries. The Tribunal set aside the orders of the Assistant Collector dated 27-9-1980, 12-1-1981, and 15-11-1980 due to violations of natural justice and remanded the matters for fresh adjudication. The appeals were allowed subject to the observations and directions contained in the order.