Excise duty on captively consumed yarn: intermediate conversion into hank yarn did not create a new product, so no duty arose.

Yarn in cone form captively consumed for conversion into hank yarn was treated as the same commodity throughout the manufacturing stages, so the intermediate conversion did not amount to manufacture of a new product. The Tribunal relied on earlier decisions that doubling, twisting, or multi-folding of yarn for captive use did not justify excise duty at the intermediate stage. On that basis, duty was held not payable on cones used in the process, and the demand was unsustainable.

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Issues: Whether yarn in cone form captively consumed for manufacture of hank yarn was liable to excise duty before its further conversion into hanks cleared without payment of duty.

Analysis: The Tribunal held that the yarn, whether in cone form or in hank form, remained the same commodity throughout the manufacturing stages and that the conversion processes were merely preparatory to clearance in hank form. It relied on earlier Tribunal decisions holding that doubling, twisting or multi-folding of yarn for captive consumption did not amount to manufacture of a new product and did not justify levy of duty at the intermediate stage. The departmental reliance on contrary authorities was held not to displace the settled view on the issue.

Conclusion: Duty was not payable on cones captively consumed for manufacture of hank yarn, and the demand was unsustainable.

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