Captive consumption exemption for jute yarn applied to twine cleared on cess payment, but not to other jute products.

Cess on jute yarn turned on the third proviso to Rule 9 of the Central Excise Rules, 1944 and the Jute Manufactures Cess Rules, 1976. Yarn captively used to make twine that was ultimately cleared on payment of cess fell within the proviso, so no cess was payable on that quantity. Cess remained payable on yarn captively consumed for other jute products that did not satisfy the proviso. The questions of time-bar under Rule 11A(1) and whether some yarn had been cleared under bond were not examined below and were left for fresh consideration on remand.

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Issues: Whether cess was payable on jute yarn captively consumed in the factory for manufacture of twine or other jute products, and whether the matter required remand for fresh consideration on the questions of time-bar and yarn cleared under bond.

Analysis: The liability to cess turned on the third proviso to Rule 9 of the Central Excise Rules, 1944 and the statutory scheme under the Jute Manufactures Cess Rules, 1976 read with Section 9 of the Industries (Development & Regulation) Act, 1951. The determinative consideration was whether the goods consumed and the final product fell under the same tariff item or schedule entry, and whether the finished goods were ultimately cleared on payment of cess. Applying the earlier Tribunal ratio, yarn used in the manufacture of twine which was ultimately cleared on payment of cess was treated differently from yarn captively used for other jute products. The plea of time-bar had not been examined below, and the question whether any longer limitation period could be invoked under Rule 11A(1) of the Central Excise Rules, 1944 also remained uninvestigated. The additional factual question whether some yarn had been cleared under bond likewise required fresh examination.

Conclusion: No cess was payable on jute yarn used in the manufacture of twine ultimately cleared on payment of cess, but cess remained payable on jute yarn captively used for other jute products. The questions of time-bar and bond clearance were left for fresh decision on remand.

Ratio Decidendi: Where captive consumption of excisable goods does not satisfy the statutory conditions for the exemption embodied in the third proviso to Rule 9, cess remains payable unless the final product is ultimately cleared in a manner that brings the transaction within the proviso.

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