Exemption for straight reel hank yarn rejected where conversion from bad bottoms did not prevent duty liability.

Clearance of yarn in straight reel hanks was considered against the exemption in Notification No. 131/77, with the key question being whether the exemption applied regardless of how the hanks came into existence. The exemption claim was rejected because conversion from bad bottoms to straight reel hanks was not treated as an intermediate stage that prevented duty from being demanded. The reasoning accepted that duty was exigible on yarn in straight reel hanks where no duty had been paid at any earlier stage before conversion, and the demand was sustained.

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Issues: Whether clearance of yarn in straight reel hanks was exempt from duty under Notification No. 131/77 dated 18-6-1977, irrespective of how the straight reel hanks came into existence.

Analysis: The exemption claim was rejected because the conversion from bad bottoms to straight reel hanks was not treated as an intermediate stage attracting repeated taxation concerns. The impugned order had held that duty was being demanded on yarn in straight reel hanks converted from bad bottoms, where no duty had been paid at any earlier stage before such conversion. The appellate authority found the reasoning in the impugned order to be proper and saw no infirmity in it.

Conclusion: The exemption contention failed and the demand was sustained.

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