"Their contention is not correct inasmuch as double/multifold yarn is considered as distinctly different commodity that is why the specific exemption was given in the respective notifications which clearly shows that the double/multifold yarn is excisable, dutiable product irrespective of the fact whether the same falls under the heading in which bare yarn (single yarn) is falling or otherwise.
The exemption Notification No. 318/86 clearly specifies the double/multifold yarn for exemption if manufactured from duty paid yarn. Thus, when doubling/multifolding is considered as manufacture in a notification issued under a Statute, the double/multifold yarn is distinctly different, commercially known commodity and in the market such yarns are known as fancy yarn." The ld. Collector, therefore, confirmed the demand of duty of Rs. 4,37,447.62 and imposed a personal penalty of Rs. 25,000/-. Being aggrieved by this order, the assessee has filed the captioned appeal before us.
2. The facts leading to the present appeal are that the Appellants are engaged in the manufacture of PVC Conveyor Belting. For manufacture of the above product, the Appellants purchased cotton yarn and imported nylon yarn and converted the same into nylon multifold yarn, using nylon yarn, nylon and cotton yarn doubly using cotton and nylon yarn and multifold cotton yarn using cotton yarn. Notification No. 318/86, dated 22-5-1986, inter alia, exempted yarn double and multifold falling under Chapter 54 or Chapter 55 of the Schedule from the whole of duty.
Notification No. 435/86, dated 6-10-1986 amended Notification No.318/86, dated 22-54986, stipulating thereby the exemption was extended to double/multifold yarn, using cotton yarn and any other yarn of Chapter 54 or Chapter 55. The Department alleged that for the period 1-3-1986 to 21-5-1986, the double/multifold yarn of nylon was chargeable to duty as there was no exemption and with effect from 1-3-1986 to 5-10-1986, the double/multifold yarn of cotton and nylon and cotton was chargeable to duty as there was no exemption.
3. The Appellants submitted that doubiing/multifolding of yarn does not amount to manufacture; that doubled/multifolded yarn is not marketable nor was it sold by the Appellants and thus for the purpose of excise was not goods. Revenue also extended longer period of demand stating that there was suppression and misstatement Against this, the assessee represented that the process of manufacture of PVC Conveyor belting was submitted to the Department, indicating that nylon and cotton yarn were individually or jointly doubled/multi-folded and that since this process was in vogue for a long time, everything was known to the Department and there was no suppression inasmuch as a number of audit parties of the Department visited their factory, inspected their records and saw the goods for themselves and thus there was no suppression. After careful consideration of the above submissions, the ld. Collector held as indicated in the first paragraph.
4. Shri Willingdon Christian with Shri Mayur Shroff, the ld. Advocates appeared for the Appellants and submitted that the ld. Collector relied upon Notification No. 318/86 for the purposes of deciding the question as to whether the activity of doubling of yarn amounted to manufacture.
The ld. Counsel submits that the Tribunal in the case of Lal Woollen & Silk Mills Pvt. Ltd., Amritsar v. CCE, Chandigarh [1986 (24) E.L.T.98], in Para 7 held - '7. We have carefully considered the submissions of both sides. Shri Harbans Singh contends that the tariff entry (as it stood) contained no indication regarding liability for levy of duty on processed yarn (dyed yarn in this case) and that the process of dyeing would not amount to manufacture as defined in Section 2(f) of the Centra] Excises and Salt Act. The tariff entry as it stood at the relevant time read as follows : "WOOLLEN YARN, ALL SORTS INCLUDING KNITTING WOOL, containing not less than ninety per cent by weight of wool calculated on the total fibre content in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power : Shri Raghavan Iyer contended, with reference to the above tariff entry, that as the entry read 'Woollen yarn, all sorts.........', it included all varieties of woollen yarn such as grey yarn, dyed yarn etc. He therefore contended that the tariff entry itself would make the dyed yarn liable for duty as well as the grey yarn. In this connection, he relied upon the following passage in The Law of Central Excise -- Taraporevala and Parekh (Second Edition)' "This expression which occurs in item 21(2) was construed as not having the same wide amplitude as is conveyed by the expressions, 'all forms of or 'any form of. Therefore, 'all sorts of food' included all varieties or all kinds of food, that is, it included within its ambit all possible kinds of food but with the basic requirement that the article should be regarded in ordinary parlance as 'food'. (Cadbury Fry v. Union, Kania J.H. Cr. Bom. Misc. Pet.
702/71, dated 1-9-1977)." He further referred us to the notification in question (236/76-Central Excise dated 30-8-1976) and pointed out that it laid down separate rates of duty for grey yarn and dyed yarn and this would also indicate that dyeing constituted manufacture and that is why dyed yarn was being subjected to a different rate of duty than grey yarn. But it appears to us that placing reliance on the words of the notification to draw a conclusion on excisability would not be proper. The proper course would be to find out whether the goods are excisable and, on an affirmative conclusion on that question, thereafter look at the rate of duty and exemption notifications, if any, provided therefor.' 5. He submitted that similar view was expressed by the Tribunal in the Appellant's own case [1983 (13) E.L.T. 1216] wherein the Tribunal held that if a product is not excisable under any tariff item, a notification cannot have the effect of making such product as excisable when it is issued under Rule 8 of the Central Excise Rules.
6. The ld. Counsel submitted that their case in so far as the notifications referred to above are concerned is fully covered by the decisions cited above in their favour and, therefore, contended that the reliance was misplaced by the ld. Collector.
7. The ld. Counsel submits that the Hon'ble Bombay High Court in the case of Union of India v. Piramal Spinning and Weaving Mills [1987 (31) E.L.T. 618 = 1989 (23) ECR 469 (Bom.)], in Paras 14, 15 and 16, held as under : "14. From the process of manufacture mentioned in the above paragraphs and in respect of which there is no dispute, it is obvious that by merely intertwining the strands of cotton yarn and nylon yarn it is difficult to hold that the new product comes into existence. Shri Andhyarujina is right in his submission that the process adopted by the petitioners could not be treated by holding as manufacture under Section 2(f), of the Act. Shri Andhyarujina submits that the weft yarn in question was nothing but a combination of two duty paid yarns and the weft yarn was neither spun nor made capable of being used in the weaving of fabrics. Shri Andhyarujina invited my attention to the decision of the Supreme Court reported in (1975) 35 STC 634 in the case of Commissioner of Sales Tax, U.P. v. Sarin Textile Mills, and pointed out that yarn is not being defined either in the Act and the Rules or under any notification.
According to the Oxford Dictionary yarn means "Any spun thread specially of kinds prepared for weaving, knitting or rope-making." While Webster's New World Dictionary defines it as "Any fibre, as wool, silk, flax, cotton, nylon, etc., spun into strands for weaving, knitting or making thread." The Supreme Court, after quoting the dictionary meanings, observed that the fibre in order to answer the description of 'yarn' in the ordinary commercial sense must have two characteristics: firstly, it should be a spun strand, and secondly, such strand should be primarily meant for use in weaving, knitting or rope-making. Respondent No. 6 in his order in Paragraphs 18 and 19 has made reference to the conditions and has observed that the second condition was satisfied. Respondent No. 6 has not recorded any finding about the first condition. Shri Andhyarujina submits that the twinkling yarn did not satisfy the first condition, that it should be spun and therefore respondent No. 6 was in error in treating it as a new product being a twinkle yarn.
Respondent No. 6 has observed in Paragraph 17 of his order that the weft in question was used for making closely woven fabrics and that indicates that the weft yarn could not be in loose state. According to respondent No. 6, that implies that the yarn was closely twisted and the nylon yarn constituted in the twist had become an integral part in the double yarn so that any attempt to separate one from the other was rendered difficult and could not be done without damaging the form of the yarn. This finding of respondent No. 6 is clearly contrary to the affidavit filed by Shri Thomas and to which a reference is made hereinabove, where the deponent has stated that the two yarns could be separated without any damage to the yarn.
Respondent No. 6 in paragraph 20 of the impugned order held that the petitioners adopted the process of blending of cotton yarn and nylon yarn with a desire to give a twinkling effect to the fabrics and therefore the yarn manufactured by intermixing had a distinct use and utility, and therefore the product was qualified for being treated as goods. It is difficult to accept this finding, because in every case when a process is carried out on any article, it is with intention or desire to have a better effect or use of the original article. The mere fact that the blending was done with a desire to give a twinkling effect to the fabric is no answer to the claim that design or blending did not bring into existence a new product. In my judgment, the view taken by the respondent No. 6 that the process undertaken by the petitioners amounted to manufacture and the result of blending was to bring into existence a new product is not correct. The respondent No. 6 was clearly in error in holding that the different product came into existence by virtue of the composition and process of manufacture as the two different yarns were combined.
15. There is another aspect of the matter which cannot be overlooked. It is not in dispute that the process of blending adopted by the petitioners was unique in the case of the petitioner Mill and such blended yarn was not available in the open market. It is also not in dispute that the blended material was totally consumed by the petitioners in their own Mills for the purpose of production of end-product i.e., fabrics. The affidavits filed by the petitioners of traders dealing in textiles and yarns clearly indicate that the twinkle yarn was not a product known in the trade circles, nor it was available in market. With this background it is obvious that the product was not known in the trade circles as a distinct or a separate product, and the conclusion of respondent No. 6 that by blending the cotton yarn and the nylon yarn a new product has emerged is not correct.
16. In this connection the reliance by Shri Andhyarujina on the decision of the Division Bench of this Court reported in 1980 (6) E.L.T. 249 = 1980 Cen-Cus 256D (Bom) in the case of Garware Nylons Ltd. v. Union of India and Ors. is appropriate. The Division Bench was considering the question as to whether the nylon twine falls under Item 18 or has to be classified under residuary Item 68 for the purpose of excise duty. The Division Bench observed that the nylon yarn was covered by Tariff Item 18 and nylon twine is considered as special type of nylon yarn. It is a special type of yarn which is prepared for other purposes, mainly to make it suitable for being utilised in the manufacture of fishing nets and cords. The Division Bench found that by mere application of a special process or giving it a different name would not debar the nylon twine from being considered as a nylon yarn, Shri Andhyarujina submits that respondent No. 6 was in error in assuming that the product of the petitioners was a new product because blending of various yarns are known in the market as fancy yarn. The learned counsel urged that in the first instance there is no material whatsoever to hold that such blended yarns are available and are known as fancy yarn in the market, and secondly, even otherwise merely because such blended yarn are known as fancy yarn that would not make it a different product. The submission is correct and deserves acceptance. In my judgment, respondent No. 6 was clearly in error in holding that it was a different product which by virtue of its composition and process of manufacture fell under the category of yarn not elsewhere specified under Tariff Hem 18E of the Central Excise Tariff. This finding itself is sufficient to set aside the order passed by respondent No. 6 and to quash the proceedings commenced by the show cause notice."Porritts & Spencer (Asia) Ltd. v.CCE, New Delhi [1999 (106) E.L.T. 18 (S.C.) = 1995 (58) ECR 621 SC], the Apex Court held - "In the present case also, we find that except indicating the process of preparing multifold yarn needed for the manufacture of felts the Revenue had not placed any material on record to hold that the multifold yarn was a distinct article having an identity of its own in the commercial world nor was any evidence led to show that it had marketability, however, limited it may be. Admittedly, even according to the Revenue the manufacture of felts was a monopoly item and the process of manufacture was to use cotton and nylon strands folded together and thereafter process the multifold yarn in the manufacture of felts. Every change does not necessarily fall within the expression 'manufacture' unless it is shown that the process has brought into existence a new product having a distinct identity in the commercial world. In the absence of any evidence in that behalf which the Revenue ought to have laid, we find it difficult to come to the conclusion that excisable goods came into existence by the treatment of cotton and nylon yarn into a multifold yarn." 9. The ld. Counsel submitted that the facts in their case are identical inasmuch as they prepared 3 types of double/multifold yarn either singly of cotton or nylon or jointly of cotton or nylon. He submitted that this decision of the Apex Court covers their case on all fours.
10. The ld. Counsel also submitted that the Apex Court in the case of CCE v. Banswara Syntex Ltd. [1996 (88) E.L.T. 645 (S.C)], in Paras 7 and 8, held - '7. In the present appeal it is contended on behalf of the appellant that the duty was payable when the single ply yarn was manufactured.
It is not in dispute that at the stage of the manufacture of the single ply yarn, there comes into existence an excisable item. The respondent manufactures single ply yarn and it is only thereafter, if required by its customers, that the said yarn is doubled or multifolded, as the need arises. Mere doubling or multi-folding of the single yarn which is manufactured does not bring into existence a new product. The single yarn which is manufactured is an excisable item and would be subject to duty upon its manufacture.
8. It is immaterial, in view of Rule 9(1) of the Central Excise Rules and Section 49 of the Act whether the yarn so manufactured is captively consumed or is subjected to any other or further process.
Reference may be made to J.K. Spinning and Weaving Mills Ltd. and Anr. v. Union of India and Ors. [1987 (32) E.L.T. 23 (S.C.)] where Rules 9 and 49 of the Central Excise Rules, 1944 after they were amended with retrospective effect by Section 51 of the Finance Act, 1982 came up for interpretation. It was held that "in view of the deeming provisions under Explanation to Rules 9 and 49, although the goods which are produced or manufactured at an intermediate stage and, thereafter, consumed or utilised in the integrated process for the manufacture of another commodity is not actually removed, shall be construed and regarded as removed." Dealing with the question of conversion of unsized yarn into sized yarn it was observed at Page 250 as follows: 'In our view, the High Court by the impugned judgment has rightly held that the appellants are not liable to pay any excise duty on the yarn after it is sized for the purpose of weaving the same into fabrics. No distinction can be made between unsized yarn and sized yarn, for the unsized yarn when converted into sized yarn does not lose its character as yarn.' The same principle would be applicable in the present case. A single ply yarn is first manufactured and thereafter it is doubled or multifolded, depending upon the type of fabric which is ultimately to be woven. The liability to pay excise duty would arise on the manufacture of the single ply yarn and not after the same has been doubled or multifolded. Doubling or multifolding of the same yarn does not bring into existence a new product and no duty is leviable at that stage.' 11. When these two decisions of the Hon'ble Supreme Court are read together, the ld. Counsel submitted that their case is fully covered by the ratio of these decisions. The ld. Counsel submitted that similar views were expressed by the Hon'ble Madras High Court in the case of CCE v. Madura Coats Ltd. [1986 (24) E.L.T. 504 (Mad.)] and again in the case of Ruby Mills Ltd. and Ors. v. Union of India [1987 (31) E.L.T.904 (Bom.)]. The ld. Counsel submits that the Tribunal took similar view in the case of CCE v. Rajasthan Textile Mills [1992 (42) ECR 31 (T)]; in the case of CCE v. Banswara Syntex Ltd. [1992 (62) E.L.T. 658 (T)]; in the case of CCE v. Sidha Syntex Ltd. [1996 (85) E.L.T. 45 (T) = 1995 (10) RLT 191 CEG] and in the case of CCE v. Jaipur Polyspin Ltd. [1996 (85) E.L.T. 299 (T)].
12. The ld. Counsel submitted that the ld. Collector in the impugned order had observed that the assessee was producing twisted yarn and not double/multifold yarn. The ld. Counsel submitted that in the Fair-child's Dictionary of Textiles (Sixth Edition), 'Twisting' has been defined as a process of combining two or more parallel single or ply yarns by twisting together to produce a ply-yarn or cord. He submitted that in the Textile Terms and Definitions, given by the Textile Institute in their 9th Edition, Folded yarn, Doubled yarn; piled yarn has been defined as 'A yarn in which two or more single yarns are twisted together in one operation'. He submits that, thus, the use of the word 'Twisting' does not exclude doubling/multifolding.
13. The ld. Counsel submitted that, though it was submitted before the ld. Collector that double/multifold yarn is captively consumed in the appellant's factory and was not marketable, however, no findings have been rendered by the ld. Collector in this regard. He submitted that marketability, according to the decision of the Apex Court in the case of Porritts & Spencer (Asia) Ltd. v. CCE, New Delhi (supra), is one of the essential criterion for determining whether the product is goods for purposes of levy of excise duty or not; that since this criterion was not satisfied in their case and was specifically taken up with the lower authorities which was not rebutted, therefore, the product was not marketable nor was known as such in the market or to the consumers.
14. The ld. Counsel submitted that a longer period has been invoked which is not warranted in the situation of the present case. He submitted that the appellants have been manufacturing PVC Conveyor Belting for a long time and the Department admittedly was aware of the process of manufacture of this product. Of course, the appellants had removed the goods without filing a classification list; but mere absence of the classification list should not be sufficient to hold that there was suppression; that the Show Cause Notice has been issued after a considerable delay and hence, the claim is barred by limitation. In support of his contention, the ld. Counsel cited the decision of this Tribunal in the case of Phoolson Foundary Works v. CCE [1989 (42) E.LT. 654]. The ld. Counsel also cited and relied upon the decision of this Tribunal in the case of Sundaram Industries Ltd., Madurai v. CCE, Chennai 15. Summing up his arguments, the ld. Counsel submitted that both on merits as well as on limitation, the appellants have proved that there is no case against them and, therefore, prayed that the appeal may be allowed.
16. Shri H.K. Jain, the ld. SDR appearing for the Respondent Commissioner, submits that the appellants were manufacturing twisted yarn as was evient from the statement of the Excise Authorised Representative of the appellants; that it was not a simple case of double/multifold yarn being manufactured. He submitted that the ld.Collector considered the entire case law cited before him and rightly came to the conclusion that the facts of their case were different from those on the basis of which other decisions were taken. He reiterated the findings of the ld. Collector.
17. On the question of limitation, the ld. DR submits that longer period has been invoked rightly inasmuch as they did not disclose that they were twisting the cotton and nylon yarn jointly or separately for the purpose of manufacture of the PVC Conveyor Belting.
18. Heard the submissions of both sides. We have carefully considered the submissions and case law cited and relied upon by the appellants.
The first issue for determination is whether doubling/multifolding/twisting is manufacture. Folded yarn or double yarn, according to the Textile Terms and Definitions, given by the Textile Institute includes Twisting. The appellants cited before us a number of judgments right from the Apex Court to that if the Tribunal wherein, in most unambiguous terms, it has been held that doubling/multifolding of yarn does not amount to manufacture. We have no doubt in our minds in view of the above rulings that the appellant's product doubling/multifolding/twisting of yarn does not amount to manufacture and hence no duty was chargeable at the doubling/multifolding/ twisting stage. Moreover, the issue was raised specifically before the ld. Collector by the appellants that double/multifold/twisted yarn was not marketed by them. There are a number of rulings of the Apex Court holding that marketability is an essential ingredient to be goods for the purpose of levy of excise duty. No evidence was placed before the lower authorities or before us to prove that doubled/multifolded/twisted yarn was marketed or was marketable. From that angle also, they do not become goods so as to attract Central Excise duty. Thus, on merits, we hold that no duty was chargeable on double/multifold/twisted yarn of the appellants. We also agree with the contention of the appellant that mention in a notification of a particular product does not make that product goods.
19. On limitation also, we find that the appellants had been manufacturing PVC Conveyor Belting for a long time. According to the appellant, the process of manufacture was sent to the Revenue authorities. They were conducting inspections regularly and, thus, there was no reason as to why they have not raised the issue that the appellant's products were double/multifold/twisted cotton/nylon yarn, singly or jointly. Thus, even on limitation, the appellants have proved the case in their favour.
20. In view of the above findings, the appeal is allowed. Consequential relief, if any, shall be admissible to the appellants in accordance with law.