Excise duty on texturising waste and base yarn cannot be sustained where exemption and duty discharge notification apply.

Central excise duty on waste arising in the texturising process was treated as unsustainable where the waste was claimed exempt under Notification No. 26 B/72 and the base yarn duty was permitted to be discharged at the stage of clearance of textured yarn under Notification No. 130/77. The demand as confirmed below proceeded on base yarn, although the notice had proposed duty on waste yarn. As the assessee showed that the duty incidence on the base yarn had in fact been borne and the Revenue did not rebut that position, the demand could not be sustained and was set aside in favour of the assessee.

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Issues: Whether the demand of central excise duty on base yarn or the waste arising during conversion into textured yarn could be sustained when the waste was claimed to be exempt and the base yarn duty had already been discharged at the stage of clearance of textured yarn under the relevant notifications.

Analysis: The demand as confirmed below proceeded on base yarn, although the notice had proposed duty on waste yarn. The assessee established that the waste generated in the texturising process was exempt under Notification No. 26 B/72 and that Notification No. 130/77 permitted discharge of the duty liability on the base yarn at the stage of clearance of textured yarn, if not already paid. The Revenue did not rebut the position that the base yarn duty incidence had in fact been borne by the assessee. On these facts, the demand could not be sustained.

Conclusion: The duty demand was not sustainable and was set aside in favour of the assessee.

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