Full Judgment
2. The appellants, engaged in manufacture of cotton yarn, falling within Tariff Item 18A as also T.I. 18, 91-1 and 22-1 of the Excise Tariff Act, used to send cotton yarn on bobbins to another firm, vide Rule 56B of the said Rules, for reeling them on cross reel hanks, cones, plain reel hanks etc, as they had no facility available with them for the same, and for that purpose, they had obtained necessary permission from the competent authority as provided for in the said Rule, which permission was valid upto 31-12-1985. Before the expiry date for the said permission, the appellants applied to the competent authority for extension of such permission for a period of one year more with effect from 1-1-1986. It was however, felt that what the appellants cleared were yarn on ring bobbins which were recognised as in fully finished condition, and as such, not permissible under Rule 56B of the Rules and further, the removal ought to be on payment of excise duty and as the appellant had removed them without payment of duty, they were required to pay the same. Show cause notice was thereupon issued on 6-1-1986, where demand for duty over the goods removed within a period of six months prior thereto, was also raised.
The appellants contested the same, pleading that the clearance was under specific permission granted and that even otherwise, the yarn on bobbins was a semi-finished goods, as was also recognised by the trade, and being not a marketable product, duty was not chargeable.
Adjudication proceedings were conducted and the impugned order was passed, which stood confirmed by the Collector (Appeals).
3. Mr. C.S. Lodha, the Ld. advocate for the appellant has pleaded that the demand pertains to the period when the permission was granted under Rule 56B of the Rules and it was subsisting, and by raising demand for the removals during that period, the authority has reviewed the earlier order which could not be done, and even otherwise, there is no order for withdrawal of the permission. In his submission, the entire order deserves to be set aside on that count alone. He has pleaded that even if the order is deemed to be the one of withdrawal of permission, demand could be raised only from the date of such withdrawal of the permission and has relied upon the decisions of the Tribunal in Himadri Electrical Pvt. Ltd. v. Collector, 1987 (29) E.L.T. 140 (T). The Ld.
advocate has further pleaded, that the demand is raised on the assumption that the yarn on bobbins is a finished and dutiable product and reference is made to TI18A Explanation 2 of the Central Excise Tariff. In his submission, the issue is squarely covered under the decision of the Tribunal in Collector of Central Excise v. Orissa Weavers Co-operative Spinning Mills - 1985 (21) E.L.T. 348 (T). He has further pleaded that, demand can otherwise also, not be raised, as vide Notn. No. 49/85, dated 17-3-1985, the cotton yarn is exempted from duty. Referring to the letter dated 3-9-1986, of the same Asst.
Collector who has adjudicated and has passed the impugned order, the Ld. advocate has submitted that the same officer has, accepted the subject goods as semi-finished goods and has accorded permission vide Rule 56B of the Rules, for the year 1986-87.
4. Mr. K.P. Mishra, the Ld. SDR, has however pleaded that TI 18A and the Explanation II thereunder, have recognised the yarn on Bobbins as the finished product, and has therefore, the Authority below have rightly denied permission under Rule 56B of the Rules. Pleading that the order passed cannot be construed as the one of Review of the earlier order, he has pleaded that the demand raised is within the scope of Section 11A of the CESA, 1944, as it extends upto six months from the date of the Show Cause Notice. He pleads that the order of the authority below is just and proper.
5. Considering the submissions made and going through the record, the issue for determination is whether yarn on Bobbins could be accepted as fully finished product for the purpose of denial of facility under Rule 56B of the Rules, and whether the duty can be demanded for the removals effected during the period when the permission granted under the said Rule was already subsisting. The duty demand is for removal during June 1985 to December, 1985 and undisputedly the permission earlier granted was valid upto 31-12- 1985.
6. Vide Rule 56B of the Rules, semi-finished goods could be permitted to be removed for carrying out further manufacturing process so as to make it a complete product, whereas finished goods could be permitted removal only for the purpose of testing.
7. The same authority who has adjudicated, has, subsequent to the passing of the order-in-original, for the removal of the same item by the same party to the same party to whom the goods were sent during the period of demand vide his letter dated 3-9-1986, accepted the same goods as semifinished goods and has actually granted permission for removal for the same purpose as the one for which they were being removed during June 1985 to December 1985. No plausible explanation is available as to why different approach is adopted for the intervening period.
7.1 Explanation II to T.I. 18A of the Central Excise Tariff was under consideration before the Tribunal (Special Bench D) in Collector v.Orissa Weavers Co-operative Spg. Mills (supra) and the said Bench have held that the cotton yarn remains the same at the different stages of its conversion till it reaches the final form in hanks and there is no transformation from one commodity to another in coning the same. This decision makes it clear that removal of yarn on bobbins for reeling them on cross reel hanks, cones, plain reel hanks etc. would not tantamount to any transformation from one finished product to another finished product, and with that being the position, there appears no justifiable ground to hold that provisions of Rule 56B of the Rules were not available, and that the duty could be demanded for such removals by holding them to have been done under permission, which could not have been given.
8. Madras High Court have, in Tirupiir Cone Winding Owners Association v. Union of India - 1986 (26) E.L.T. 153 (Mad.), however held that dyed yarn in bundles into cone yarn would amount to manufacture and would attract duty. It is however not discussed how the loose dyed yarn would be commercially different from dyed yarn in cones. Further going by the ratio in. the Supreme Court judgment in Ujagar Prints v. Union of India - 1988 (38) E.L.T. 535 (SC) as also in Siddeshwari Cotton Mills Pvt.
Ltd. v. Union of India - 1989 (39) E.L.T. 498 (SC), what the said court have held is that process undertaken should be the one from where a commercially different commodity ought to emerge. The view expressed by the Madras High Court, appears to be not in full conformity with the ratio of aforementioned judgments of the Supreme Court, whereas the view expressed by the Tribunal in their order in Re : Orissa Weavers Co- op. Spg. Mills (supra) besides being directly on the point and being in confirmity with the ratio of the Supreme Court judgment referred to above, has to be accepted.
9. Vide Notn. No. 49/85, dated 17-3-1985 the duty payable on cotton yarn in plain (straight) reel hanks is nil and with applicability thereof the finding that the duty is chargeable also cannot be sustained.
10. Thus the basic approach of the authority below in drawing the conclusion of non-availability of the provisions of Rule 56B of the Rules, and consequential raising of the demand does not appear justified and hence cannot be sustained.
11. This being the finding therefore, the other points raised need not be considered. It may however, be observed that Section 11A of the CESA, 1944 may stand attracted for the purpose of raising the demand.
12. The appeal under the circumstances is allowed. The impugned order is set aside, with consequential relief.
13. While agreeing with my Ld. brother that appeal is to be allowed, I would like to identify the following considerations for taking my view : (i) Permission for removal of cotton yarn in cones for conversion into hanks has been granted by the Asstt. Collector and on that basis, yarn was removed to another unit for conversion into hank yarn. This permission has not been reviewed and steps were not taken to reverse the permission granted. Hence, removals under Rule 56B have acquired finality. Though, under Section 11A, it has been held by us based on the judgment of Calcutta High Court in I.T.C. that Section 11A and 11B are independent provisions in the Central Excise law for recovery of short levy or non levy or for refund of excess duty paid, as the case may be, notwithstanding the fact that the approved classification lists and the price lists were not appealed against, that principle cannot be applied in this case; because Section 11A relates to demand, where Central Excise duty has not been levied or short levied as reflected in the orders of assessment or cases of clandestine removals, for which five years is provided for recovery. Assessment is done on the basis of approved C.L. or price list. If the Department feels that C.L. approved is erroneous resulting in non levy or short levy, it can reopen the assessment and demand short levy or non-levy within six months from the relevant date under Section 11A, notwithstanding the fact that no appeal has been filed against approval of C.L. But here, Rule 56B is a Rule governing procedure prescribed for removal of semi-finished goods outside for conversion. It is to be given on the satisfaction of proper officer on an order permitting such removals. It has no bearing on assessment on R.T. 12 returns, unlike C.Ls. filed under Rule 173B or price lists filed under Rule 173C on the basis of which assessments are done under Rule 173-1. Hence, such an order being independent of assessment provisions, has to be reversed first, if action is contemplated under Section 11A. That order, having acquired finality, cannot be disturbed in the proceedings under Section 11A. These removals under Rule 56B under a permission granted by the Asstt. Collector cannot also be equated with clandestine removals. Hence, demand is vitiated on this ground.
(ii) On merits, the Tribunal's decision in the case of Orissa Coop.
Spg. Mills is favourable to the appellants. In that case, such removal of cone yarns for conversion into hank yarn even within the factory has been held as not attracting duty, notwithstanding the provisions of Rule 9 and 49 of the Central Excise Rules. In my view, this is mainly on account of the fact that hank yarn cannot be obtained direct from spinning of cotton in the spinning frame. It has to be first obtained on bobbins and cones and then only can be converted in blanks. When exemption is given to hanks on policy considerations of helping the handloom sector, if we are to interpret the provisions of law in the manner as pleaded by revenue, it would only frustrate the notification. It is a settled position in law that any law has to be interpreted in a manner as to give effect to the same. In this case, exemption is given to hank yarn and such hank yarn cannot be obtained straight from cotton without such yarn passing through other form such as bobbin/cones. Thus, if we are to make the exemption available in reality, the question to be asked is whether such other forms of yarn (though not exempted) could be avoided in the process of obtaining hank yarn. If the answer is that the other forms of yarn are inevitable, they are to be ignored for giving effect to the notification exempting hank yarn. However, let me caution that this test cannot be applied, where at the intermediate stage of manufacture of a final product, it brings out production of certain intermediate goods which are distinct and different from the final product, their durability has to be discharged, notwithstanding the exemption of the final product. In this case, both yarn in other forms namely bobbins and cones as well as in hanks is only yarn. Hence, yarn in hank form cannot be obtained straightaway technologically without passing the stage of winding on bobbins or cones. There is a need for harmonious construction of Rules 9 & 49 and the exemption notification. Hence, the Tribunal's decision directly applicable in these circumstances, would hold good.