Case Law Details
Hada Textiles Industries Limited Vs Commissioner of Central Excise & Service Tax (CESTAT Kolkata)
Department had demanded duty on the cotton yarn in view of the Chapter Note I to Chapter 52 of CETA, 1985 on the ground that products covered under Heading No.52.03, sizing, beaming, warping, winding or reeling or any one or more of these processes for conversion of any form of the said products into another form of such product amounted to manufacture and on the ground that since the stage in which it was actually removed by the said assessee i.e. straight reel hank cotton yarn exempted from duty of excise, therefore the duty was not leviable since final product is exempted vide Notification No.187/83 dated 09.07.1983. Undisputedly Cotton Yarn in straight reel hank falling under heading NO.52.03 of the Schedule to the Central Excise Tariff Act, 1985 was exempted from payment of Central Excise duty. There is also no dispute in the present case that the Appellants had cleared the cotton yarn in straight reel hank and prima facie we find that their case is covered by the judgment of this Tribunal in the case of Arati Cotton Mills v. Commissioner of C.Ex., Calcutta-II [2001 (130) E.L.T. 191 (Tri.-Kolkata)], wherein the Tribunal held as under:-
5. A reading of the above para of Commissioner (Appeals) order shows that strong reliance has been placed by him on Chapter Note 1 of the Chapter 52 of the Central Excise Tariff Act, 1985. We find that identical definition of manufacture was there in the erstwhile Tariff Item under Section 2(f)(iv), which was referred to by the Revenue before the Tribunal in the case of Orissa Cotton Mills and in the case of Orissa Weavers Cooperative Spinning Mills relied upon by the ld. consultant. In para 5 of Orissa Weavers’ Judgment it was observed by the Bench as under :-
5. We have carefully considered the matter. We observe from Rule 9, read with Rule 49, that the charge of duty arises when excisable goods are sought to be removed from the manufacturing premises “for consumption, export or manufacture of any other commodity in or outside such place”. The Department’s point is that removal of cotton yarn on cones for conversion into doubled yarn hanks amounts to removal for manufacture of another commodity and hence the respondents are required to pay the duty at the time of removal of cones. We do not agree with the Department. As made clear in Explanation (2) below item 18A, bobbins, cones and hanks are all various ‘forms’ of the same commodity namely cotton yarn. It is further made clear in Explanation II below Item 18-III, made applicable to Item 18A by virtue of Explanation (3) thereunder, that “cotton yarn” includes both single yarn as well as multiple fold yarn shall be determined for the purpose of Tariff Item 18 as well as 18A. In fact, single yarn and multiple fold yarn or doubled yarn are only two different varieties of cotton yarn. They are not different commodities either in the Central Excise Tariff or commercially. The stages of bobbins, cones/cheeses, doubling bobbins and hanks in the respondents ’ factory are stages in the manufacture of cotton yarn in the final multiple fold yarn in plain (straight) reel hanks and it is only in this final form that cotton yarn is removed out of their factory. We, therefore, agree with the Collector (Appeals) that all through cotton yarn remains only cotton yarn at different stages of its conversion till it reaches the final form in hanks and there is no transformation from one commodity to another. The charge of duty under Rules 9 and 49 cannot arise since at the bobbins or cone stage there is no removal either for consumption or for export or for manufacture of some other commodity.”
6. As such it is seen that no new definition of manufacture is introduced in the new tariff. The identical definition which was already in existence under Section 2(f) was considered by the Bench and it was held that conversion of one stage of yarn into another will not amount to manufacture. It is also seen that hank yarn is obtained as a result of continuous process of manufacture in which the winding of bobbin is only an intermediary process. As such we do not find any reasons to take a different view than the one taken by the Tribunal In the earlier decisions. Accordingly we set aside the impugned order and allow the appeal.”
In view of the above discussion, it is our considered view that the impugned order cannot be sustained and is accordingly set aside. The Appeal filed by the Appellant is allowed.
FULL TEXT OF THE CESTAT KOLKATA ORDER
Briefly stated the facts of the case are that the Appellant is engaged in the manufacture of 100% cotton yarn falling under heading 52.03 of the Schedule to the Central Excise Tariff Act, 1985. The folded yarn/doubled yarn/ply yarn was made out of single yarn stage and after doubling/folding and winding process, it never forms a new product rather it remained cotton yarn. It is the case of the Appellant that there is no transformation of the product and the final product is made in a continuous process, no duty was payable. Conversion of unsized yarn into sized yarn is not liable to central excise duty and it still remains yarn and after such manufacturing process, it does not loose its character as yarn since such processes are undertaken in a continuous process to manufacture the final products i.e. yarn. Show Cause Notice dated 20.01.1992 was issued demanding Central Excise duty of Rs.4,92,424/- for removal/clearance of 10,55,266.316 kgs. of cotton yarn in bobbin/cone form in spindle point without payment of duty for the manufacture of cotton yarn cleared as straight reel hank form during the period from January 1987 to May 1991. Imposition of penalty under Rule 173Q was also proposed. The Assistant Commissioner of Central Excise, Bishnupur Division vide Order-in-Original No.03/AC/CE/BCD/2008-09 dated 05.09.2008 dropped the entire proceedings as proposed in the Show Cause Notice. The Department reviewed the Order-in-Original vide Review Order dated 10.11.2008 and filed Appeal before the Commissioner of Central Excise (Appeals), Kolkata. At this juncture it is interesting to note that the same Commissioner has reviewed the Order-in-Original dated 05.09.2008 and proposed for filing of the Appeal and he himself sitting as Commissioner(Appeals) has decided and disposed of the Appeal vide the impugned Order-in-Appeal. Hence, the present Appeal before the Tribunal.
2. The Ld. Advocate appearing on behalf of the Appellant submits that the Ld. Commissioner(Appeals) has passed the Order ex parte without granting opportunity of personal hearing. On the date of hearing i.e. on 18.02.2010, the Authorized Representative of the Appellant could not reach in time due to traffic jam. He was not allowed to make his submissions and was directed to submit the written submission by 19.02.2010. The Written Submission was given but the same was not considered by the Ld. Commissioner, though the order was passed after 1 month and 10 days from the date of hearing. This order is a glaring example of arbitrariness in the decision making process.
3. The Ld. Advocate vehemently argued that the Ld. Commissioner should have restrained himself from taking up the matter since he himself had reviewed the order of the Adjudicating authority and he himself has decided the Appeal. As such it was difficult for him to take a different stand from the stand taken in the review order. It is the case of the Appellant that cotton yarn in straight reel hank falling under heading 52.03 of the Schedule to the Central Excise Tariff Act, 1985 was exempted from payment of Central Excise duty. There is no dispute in the present case that the Appellants had cleared the cotton in straight reel hank. Reel and straight reel hank are one and the same thing. The manufactured goods are cotton yarn on which no duty is payable.
4. The Ld. Authorized Representative for the Department justified the impugned order and prays that the appeal filed by the Appellant, be dismissed being devoid of any merits.
5. Heard both sides and perused the appeal records.
6. A proceeding was initiated when the goods were at the bobbin stage and ready for manufacture of final product i.e. cotton in hank form alleging that the Appellant had manufactured 10,55,266.314 kgs. of cotton yarn in spindle point which was cleared for manufacture of cotton yarn in straight reek hank during the said period with intent to evade payment of excise duty amounting to Rs.4,92,424/-. The Appellant in their reply contended that production of yarn is a continuous process and yarn at bobbin stage is an intermediate stage of production. Yarn in bobbin stage is not goods since it is not marketable. No new substance comes into existence. Straight hank yarn is exempted from payment of Central Excise duty under Chapter 52.03. The Adjudicating authority held that bobbins/cones are converted into straight reek hanks and are not removed from the factory. They get transferred from one machine to another machine for manufacturing of final product.
7. We find that the Department had demanded duty on the cotton yarn in view of the Chapter Note I to Chapter 52 of CETA, 1985 on the ground that products covered under Heading No.52.03, sizing, beaming, warping, winding or reeling or any one or more of these processes for conversion of any form of the said products into another form of such product amounted to manufacture and on the ground that since the stage in which it was actually removed by the said assessee i.e. straight reel hank cotton yarn exempted from duty of excise, therefore the duty was not leviable since final product is exempted vide Notification No.187/83 dated 09.07.1983. Undisputedly Cotton Yarn in straight reel hank falling under heading NO.52.03 of the Schedule to the Central Excise Tariff Act, 1985 was exempted from payment of Central Excise duty. There is also no dispute in the present case that the Appellants had cleared the cotton yarn in straight reel hank and prima facie we find that their case is covered by the judgment of this Tribunal in the case of Arati Cotton Mills v. Commissioner of C.Ex., Calcutta-II [2001 (130) E.L.T. 191 (Tri.-Kolkata)], wherein the Tribunal held as under:-
”2.Shri H.L. Banerjee, ld. Consultant appearing for the appellant submits that the issue is covered by the earlier decision of the Tribunal in the case of CCE, Bhubaneswar v. Orissa Weavers Cooperative Spinning Mills – 1985 (21) E.L.T. 348. He submits that it has been held by the Tribunal that conversion of yarn from one stage to another stage does not amount to manufacture or removal under Rules 9 and 49 and no duty can be demanded at bobbin stage or at hank stage. He submits that the said order of the Tribunal was also followed subsequently in the case of Orissa Cotton Mills, Cuttack v. CCE, BBSR vide order No. 63 and 64/86-D. He submits that though the Commissioner (Appeals) accepts that the issue is covered but he has not followed the said decisions of the Tribunal on the ground that the said decisions were in the context of erstwhile Tariff Item whereas the period involved in the present appeal pertains to the new Central Excise Tariff Act, 1985 and as per chapter note 1 to chapter 52, conversion of any form of product under heading No. 52.53 into another form of such products shall amount to manufacture. Shri Banerjee submits that the above ground for rejection of appeal by the Commissioner is not tenable inasmuch as definition of manufacture of yarn in Section 2(f)(iv) of the Central Excises & Salt Act in relation to the goods comprised in item No. 18-A of the first Schedule is exactly the same as defined in Note 1 of Chapter 52 of CETA, 1985. As such it cannot be said that the new tariff extends the scope of the term ‘manufacture’. He submits that the duty under Rules 9 and 49 (as amended) can only be charged when yarn is consumed captively for the manufacture of any other commodity. Inasmuch as conversion of yarn from bobbin stage to reel hank stage does not result in emergence of another commodity, inasmuch as yarn remains yarn, the confirmation of demand of duty is not justified. He also made reference to Commissioner (Appeals)’s Calcutta order (Order No. 57/Cal-II/90 dated 25-2-1990) relating to the period July 1988 to December 1988 i.e. after introduction of CETA, 1985 dropping the demand against the assessees. He submits that no appeal was filed by the Revenue against the above order of the Commissioner (Appeals). Similarly Shri Banerjee makes a reference to another order of the Asstt. Commissioner dropping the demand on an identical issue for the period from January 1989 to June 1989. He submits that the said order has also been accepted by the Revenue and no appeal has been filed there against.
3. Shri R.K. Roy, ld. JDR appears on behalf of Revenue and draws our attention to Chapter Note 1 of Chapter 52 which is to the effect that conversion of any form of the product under Heading No. 52.53 into another form of such product shall amount to manufacture. As such he submits that the duty is leviable on yarn at bobbin stage for captive use in the manufacture of reel hank.
4. After considering the submissions made from both the sides we find that the Commissioner (Appeals) has rejected the appeal by observing as under :-
“From the facts-in-issue, I find that the impugned demands pertain to the period when C.E. Tariff Act, 1985 (5 of 1986) has come into force. As during the material period as per Note 1 to Chapter 52 of the CETA, 1985, conversion of any form of the products under Heading No. 52.53 into another form of such products shall amount to manufacture, it cannot be said that yarn at bobbin stage is not goods. Therefore, duty is leviable on yarn at bobbin stage for captive use in the manufacture of reel hank in terms of Rules 9 and 49, although the latter is exempted from payment of duty. The judgment delivered by the CEGAT in the case of Orissa Cotton Mills being passed relating to the period prior to introduction of CETA, 1985 is not relevant to the impugned order-in-original, confirming the demands is legal and proper and, thus, the same does not call for interference with.
Accordingly, I uphold the order-in-original and reject the appeal”.
5. A reading of the above para of Commissioner (Appeals) order shows that strong reliance has been placed by him on Chapter Note 1 of the Chapter 52 of the Central Excise Tariff Act, 1985. We find that identical definition of manufacture was there in the erstwhile Tariff Item under Section 2(f)(iv), which was referred to by the Revenue before the Tribunal in the case of Orissa Cotton Mills and in the case of Orissa Weavers Cooperative Spinning Mills relied upon by the ld. consultant. In para 5 of Orissa Weavers’ Judgment it was observed by the Bench as under :-
5. We have carefully considered the matter. We observe from Rule 9, read with Rule 49, that the charge of duty arises when excisable goods are sought to be removed from the manufacturing premises “for consumption, export or manufacture of any other commodity in or outside such place”. The Department’s point is that removal of cotton yarn on cones for conversion into doubled yarn hanks amounts to removal for manufacture of another commodity and hence the respondents are required to pay the duty at the time of removal of cones. We do not agree with the Department. As made clear in Explanation (2) below item 18A, bobbins, cones and hanks are all various ‘forms’ of the same commodity namely cotton yarn. It is further made clear in Explanation II below Item 18-III, made applicable to Item 18A by virtue of Explanation (3) thereunder, that “cotton yarn” includes both single yarn as well as multiple fold yarn shall be determined for the purpose of Tariff Item 18 as well as 18A. In fact, single yarn and multiple fold yarn or doubled yarn are only two different varieties of cotton yarn. They are not different commodities either in the Central Excise Tariff or commercially. The stages of bobbins, cones/cheeses, doubling bobbins and hanks in the respondents ’ factory are stages in the manufacture of cotton yarn in the final multiple fold yarn in plain (straight) reel hanks and it is only in this final form that cotton yarn is removed out of their factory. We, therefore, agree with the Collector (Appeals) that all through cotton yarn remains only cotton yarn at different stages of its conversion till it reaches the final form in hanks and there is no transformation from one commodity to another. The charge of duty under Rules 9 and 49 cannot arise since at the bobbins or cone stage there is no removal either for consumption or for export or for manufacture of some other commodity.”
6. As such it is seen that no new definition of manufacture is introduced in the new tariff. The identical definition which was already in existence under Section 2(f) was considered by the Bench and it was held that conversion of one stage of yarn into another will not amount to manufacture. It is also seen that hank yarn is obtained as a result of continuous process of manufacture in which the winding of bobbin is only an intermediary process. As such we do not find any reasons to take a different view than the one taken by the Tribunal In the earlier decisions. Accordingly we set aside the impugned order and allow the appeal.”
The facts of the present case are squarely covered by the aforesaid decision of the Tribunal.
In view of the above discussion, it is our considered view that the impugned order cannot be sustained and is accordingly set aside. The Appeal filed by the Appellant is allowed.
(Order pronounced in the open court on 04 May 2023.)
