Captive consumption under jute cess law depended on matching tariff entries; exemption failed for jute yarn, but succeeded for sacking cloth.

Under the Jute Manufactures Cess Act, 1983, the Central Excise exemption for captive consumption did not automatically extend to cess under the separate levy. For jute yarn used within the factory to make sacking cloth before 1-10-1984, the tariff entries for jute yarn and sacking cloth were different, so cess remained payable. For sacking cloth used to make sacking bags, both products were treated as falling under the same schedule entry, satisfying the captive-consumption condition; the demand for cess on that chain and the related differential cess on sacking bags could not stand.

---

---

Issues: (i) Whether cess under the Jute Manufactures Cess Act, 1983 was leviable on jute yarn captively consumed within the factory for manufacture of sacking cloth during the period prior to 1-10-1984. (ii) Whether cess was leviable on sacking cloth captively consumed for manufacture of sacking bags and whether differential cess on sacking bags could be demanded for the same period.

Issue (i): Whether cess under the Jute Manufactures Cess Act, 1983 was leviable on jute yarn captively consumed within the factory for manufacture of sacking cloth during the period prior to 1-10-1984.

Analysis: Section 3(4) of the Jute Manufactures Cess Act, 1983 makes the Central Excise Act and the Central Excise Rules applicable to cess levy only so far as may be. The exemption under Central Excise Notification No. 56/72, issued under Rule 8(1) of the Central Excise Rules, could not operate as an exemption from cess under the separate cess enactment. The relevant proviso to Rule 9 required the consumed goods and the final product to fall under the same item number in the tariff or schedule, and jute yarn/twine and sacking cloth fell under different serial numbers under the Schedule to the Cess Act. The statutory scheme therefore did not support exemption for captive consumption of jute yarn in the period before the Cess Rules came into force.

Conclusion: The demand for cess on jute yarn captively consumed for manufacture of sacking cloth was valid and is against the assessee.

Issue (ii): Whether cess was leviable on sacking cloth captively consumed for manufacture of sacking bags and whether differential cess on sacking bags could be demanded for the same period.

Analysis: On the material accepted by the authorities, sacking cloth and sacking bags were both treated as falling under the same entry of the Schedule to the Cess Act as sacking. Since the requirement under the third proviso to Rule 9 was that the goods consumed and the final product must fall under the same item number, that condition stood satisfied for this chain of manufacture. The demand based on a different entry for sacking bags was therefore unsustainable, and the consequential differential cess could not survive.

Conclusion: The demand for cess on sacking cloth captively consumed for manufacture of sacking bags, as well as the differential cess on sacking bags, was unsustainable and is in favour of the assessee.

Final Conclusion: The appeal succeeded only in part, with relief granted against the demands relating to sacking cloth and differential cess on sacking bags, while the demand relating to jute yarn captively consumed for manufacture of sacking cloth was sustained.

---