AI Drafter 
TaxTMI 
TaxTMI 
2017 (9) TMI 273
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....al which is polymerized and extruded into strands. These strands are cut into chips. These chips are known as virgin chips or main poly chips. The chips are drawn into yarn. The yarn is woven into fabrics which is dipped in chemicals and the dipped fabric is sold to tyre manufacturers. SRF cleared the final products namely yarn, fabric and dipped fabric on payment of Central Excise duty. They manufacture yarn of different deniers like 210d, 420d, 840d, 1680d etc. The 210d yarn is predominantly used for making fishnet and is exempted from payment of Central Excise duty under Notification No.27/1995-CE dated 16/03/1995 and various successor notifications during the period 16/03/1995 to 28/02/2006. The central point of dispute in these cases is relating to Central Excise duty liability on poly chips - both virgin and non-virgin, manufactured and consumed further by the appellant/assessee in the manufacture of 210d yarn which is exempted. Connected dispute is demand of Modvat credit taken on inputs used in the manufacture of 210d yarn which is exempted. 2. The Department issued various show cause notices to the appellant/assessee to demand excise duty on main poly chips (virgin chip....
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....g significant commercial value and accordingly liable to Central Excise duty. The product was classified under CETH 3824. 5. Another set of demands were for Central Excise duty on batch non-virgin chips cleared by SRF Polymers Ltd. to SRF Ltd. These demands were decided by the Commissioner vide order dated 31/03/2005. He held that these batch non-virgin poly chips are marketable. They are not eligible for exemption under Notification 6/2002-CE dated 01/03/2002. The exemption for batch non-virgin poly chips claimed to have been used in the manufacture of nylon yarn exported was denied. 6. As narrated above, the dispute mainly centered around Central Excise duty liability of non-virgin batch poly chips manufactured by SRF/SRF Polymers and connected issue of valuation and Modvat on inputs. To summarize, the appeals - both by assessee as well as Revenue, are against 4 sets of orders passed by the Commissioner of Central Excise, Chennai - I : these are 59/2005 dated 29/07/2005, 22-23/2005 dated 31/03/2005, 25-38/2005 dated 31/03/2005 and 21/02/2006 and 39-43/2005 dated 31/03/2005. 7. Shri Sridharan, Senior Advocate appeared for the appellant/assessee. He elaborately submitted o....
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....is taken, arbitrarily ; (h) 210d yarn exported was made using main virgin poly chips only. The entire export quantity was wound on cheese. This is clear from packing list and invoice. The impugned order mixed up the manufacturing process of SRF and SRF Polymers. SRF Polymers do not manufacture any virgin poly chips. The entire export benefit claimed by SRF Polymers is correct due to the fact that the yarn/twine manufactured by SRF Polymers are only from non-virgin poly chips. There is no conflict of claims by these two units; (i) the Original Authority did not follow the principles of natural justice. The basis for valuation followed in the impugned order is different from what is alleged in the show cause notice. The second order is different from the first order. Due verification of documents available and submitted by the appellant/assessee has not been made by the Commissioner. The export of 210d yarn and twine is supported by documents and the duty demand on poly chips attributable to such export is not sustainable. Similarly, there is no need for reversing Modvat credit on inputs used in the manufacture of goods which are exported. 8. The learned Counsel for the appe....
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..... The polymerized material is extruded into nylon strands and then cut into chips known as main poly chips. During the course of polymerization only 90% of the caprolactam is polymerized fully. The rest of about 10% is sticking to the nylon strand as a coating in the form of unreacted and partially reacted material referred to as monomer (8.5%) and oligomer (1.5%), respectively. The nylon strand cut to nylon chips are washed with hot water jets. During such washing monomer and oligomer get dissolved and collected as wash water. The said wash water is pumped to monomer recovery plant where the monomer (caprolactam) is recovered by a process of evolution and distillation. The resultant recovered product is known as MRP lactum. During this process, oligomers are also separated and taken to depolymerisation plant for recovery of caprolactam. The caprolactam recovered on such depolymerization is called de-poly lactum. Apart from oligomer, nylon yarn waste, tyre cord fabric waste, drawn waste, waste chips etc. which are generated in various manufacturing sections are also de-polymerized in the commodity polymerization plant resulting in recovery of de-poly lactum. The MRP lactum and depo....
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....her process, as already discussed earlier in this order, resulting in the production of batch non-virgin poly chips. Regarding requirement of nitrogen packing we note that such packing will be required when the product is cleared to some distance. In the present case, in an integrated chemical plant, for captive consumption there is apparently no need for such nitrogen packing as the product is stored and dealt with in controlled environment for the required use. We note that this issue has been dealt with by the Tribunal in J.C.T. Ltd. Vs. CCE, Jallandhar reported in 2004 (169) E.L.T. 154 (Tri. - Del.). It was held that if the product is captively consumed which does not require any packing nor any precaution is to be taken in respect of those products; this does not mean that the product loses the capacity of being marketed. As held by the Hon'ble Apex court in Camlin Ltd. Vs. CCE, Mumbai reported in 2005 (180) E.L.T. 307 (S.C.), marketability is essentially a question of fact to be decided on facts of each case and once it is shown that the product as actually being bought marketability gets established. Admittedly, non-virgin poly chips are in fact marketed and the appellants/a....
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....ater. In order to extract the available monomer/oligomer for further use from such wash water separate recovery processes are undertaken by the appellant/assessee. Incidentally, we note that in appellant/assessee's own case the oligomer were held to be classifiable under Heading 3916 vide final order dated 05/06/1998. We also note that the Original Authority in his order No.22-23/2005 (para 5) recorded that wash water is a 'process waste' obtained during the course of manufacture of nylon chips. We also note that in the demand notice issued to SRF Polymers Ltd. it is stated that in respect of poly chips produced out of caprolactam recovered from the waste material in the de-polymerisation plant the assessee is eligible for exemption under Notification 6/2002-CE (Sl. No.73). This is contrary to the claim now being made in appeal by the Department regarding Original Authority extending benefit of Notification 111/1995-CE to batch non-virgin poly chips manufacturing out of waste chips, strand waste, pan cake, undrawn waste, drawn yarn waste and tyre cord waste etc. We hold that while the Original Authority allowed the said exemption to batch non-virgin poly chips manufactured out of w....
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....ee categorically asserted that they have been maintaining proper Cost Auditor's report under Section 233B of Companies Act. They have never been asked to provide these cost auditor's reports. The matter was pending before the Commissioner for 9 years and no request to submit data of cost of production was made to SRF. For the first time, the data was asked on 15/03/2005 and the same was submitted on 30/03/2005. The impugned order was passed on 31/03/2005. In such situation, we note that when the appellant/assessee is having certified CAS-4 Standard Cast Data for the periods now in dispute the same should have been adopted by the Original Authority for arriving at the duty liability on virgin poly chips. Incidentally, we also note that in the first round of adjudication the duty demand was based on cost of production. 16. Similarly, the appellant/assessee also contested the valuation adopted for non-virgin chips. In any case, we note that since non-virgin chips were found to be eligible for exemption under Notification 111/1995 when used in the manufacture of exempted final product, the valuation for this period is of no relevance. 17. Two appeals by SRF Ltd. (E/4042/2005 and ....
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....ssee to sustain the allegation of "manufacture" and "marketability" of wash water. The onus to show that goods have gone through a process of manufacture lies on the Revenue [Union of India vs. Ahmedabad Electricity Co. Ltd. reported in 2003 (158) E.L.T. 3 (S.C.)]. It is necessary to note that the Revenue has conducted chemical test of wash water. Then reports state that wash water is an aqueous solution of un-identifiable organic compounds. These test reports do not support the case of the Revenue with reference to "manufacture" of excisable goods or "marketability" of such goods. In CCE, Bombay Vs. Nirlon Synthetic Fibres & Chemicals Ltd. reported in 1983 (14) E.L.T. 2418 (CEGAT), while deciding whether recovery of caprolactam out of wash water is a manufacturing activity, the Tribunal held that wash water is not of excisable commodity. The Hon'ble Supreme Court in Nirlon Synthetic Fibres & Chemicals Ltd. Vs. CCE reported in 1996 (86) E.L.T. 457 (S.C.) held that recovery of caprolactam from wash water is not manufactured. On careful analysis of the facts of the case, we are of the considered view that wash water is nothing but a residual waste emerging in the process of manufactu....