Excise duty on yarn attaches at manufacture, so post-spindle waste cotton yarn was not exempt under the notification.

Waste cotton yarn generated at the weaving stage was held outside Notification No. 95/61-C.E. because excise duty on cotton yarn attached when manufacture was completed at the spindle stage. Rule 49A of the Central Excise Rules, 1944 merely deferred collection until clearance of the fabrics and did not change the point at which liability crystallised. As the exemption had to be applied according to its terms, post-spindle wastage in a composite mill did not gain a fresh exemption, and the demand was sustainable.

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Issues: Whether waste cotton yarn arising at the weaving stage after yarn had been manufactured in the spinning section was exempt from duty under Notification No. 95/61-C.E. dated 1-4-1961.

Analysis: The exemption covered waste cotton yarn, but the duty liability on cotton yarn arose when manufacture was complete at the spindle stage and the yarn was removed for captive use. Rule 49A of the Central Excise Rules, 1944 only postponed collection of the duty on yarn until clearance of the fabrics and did not alter the point at which the duty liability attached. Once that stage was crossed and the duty liability had crystallised, the later waste generated during weaving could not be brought within the exemption. The notification had to be applied as written, and the extended procedure for composite mills did not create a fresh exemption for post-spindle wastage.

Conclusion: The waste cotton yarn arising at the weaving stage was not exempt under Notification No. 95/61-C.E. and the demand was sustainable.

Ratio Decidendi: Where excise duty on yarn has already attached on completion of manufacture, a subsequent deferment of collection under a special procedure does not extend an exemption for waste generated after that stage.

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