ORDER
Lajja Ram, Member (T)
1. M/s. Baripada Spg. Mills, a unit of the Industrial Development Corporation of Orissa Ltd., (Government of Orissa Undertaking), being aggrieved with the order-in-appeal dated 29-8-1985, passed by the Collector of Central Excise (Appeals), Calcutta, have filed the present appeal.
2. The matter relates to the dutiability of cotton yarn, processed in the factory of production, for its clearance as plain (straight) reel hank yarn. A show cause notice was issued on 26-6-1984 to the appellants, and Central Excise duty amounting to Rs. 55,588.48 was demanded on the ground that the yarn of different counts was used for manufacture of twisted yarn in the doubling machine installed in the factory, and no central excise duty was paid thereon, and the goods were cleared under exemption after packing them in the plain (straight) reel hank form. The matter was adjudicated by the AC of C. Ex., Cuttack who confirmed the demand under Section 11A of the Central Excises & Salt Act, 1944 (hereinafter referred to as the ‘Act’), under his order in original dated 20-2-1985. The appeal filed before the CCE(A), Calcutta was rejected.
3. The matter was posted for hearing on 31-3-1995 when Shri S.K. Mohanty, Advocate appeared for the appellant company. Shri P.K. Jain, SDR represented the respondent.
4. Shri S.K. Mohanty, the learned Advocate referred to their reply dated 20-8-1984 at page 15 of the paper book which had been filed by them in their reply to the SCN dated 26-6-1984. He stated that the cotton yarn cleared in straight reel hank form was exempt from central excise duty, and in their case all the earlier processes were preparatory to the clearance of their yarn in the hank form. Their finished product was the straight reel hank yarn for which they had correctly enjoyed exemption from duty. The ld. Advocate submitted that in case any central excise is demanded in respect of the goods in process before the stage of conversion of such goods in the hank form, then the exemption in favour of straight reel hank yarn will have no meaning. The ld. advocate further submitted that the matter was already covered in their favour by the Tribunal decision in case of CCE, Bhubaneswar v. Orissa Weavers Cooperative Spinning Mills reported in 1985 (21) E.L.T. 348 (T).
5. In reply, Shri P.K. Jain, the Ld. SDR stated that there was no exemption for yarn at the stage prior to its conversion into hank yarn. He referred to the retrospective amendment in Rule 9 and Rule 49 of the Central Excise Rules, 1944 (hereinafter referred to as the ‘Rules’) and submitted that yarn removed for captive consumption had to discharge duty liability, and that the yarn was classifiable under erstwhile Item No. 18A of the First Schedule to the CESA, 1944 (hereinafter referred to as the ‘Tariff’). The Ld. SDR relied upon the Tribunal decision in the case of Aditya Mills Ltd., Rajasthan v. CCE Jaipur, 1983 (14) E.L.T. 1853 (T), wherein it has been held that doubling and twisting of two different yarns amounted to manufacture of a new product, classifiable under Item No. 68 of the Central Excise Tariff. This Tribunal decision has been confirmed by the Hon. SC as reported in 1988 (37) E.L.T. 471 (SC). Reference was also made to the Tribunal decision in the case of Rajasthan Spinning and Weaving Mills v. CCE, 1990 (45) E.L.T. 654 (T) wherein, relying upon the earlier decision in the case of Aditya Mills Ltd. referred to above, the Tribunal had held that doubling or twisting of spun yarns amounted to manufacture.
6. We have carefully considered the matter. The matter related to the old Central Excise Tariff when cotton yarn, all sorts, was classifiable under Item No. 18A of the Tariff. Under the above Tariff Entry, cotton yarn as per the Explanation-(1) included cotton twist and thread, Under Explanation-(2), it was provided that cotton yarn twist or thread all sorts whether sized or unsized in all forms including skeins, hanks, cops, cones, bobbins, pirns, spools, reels, cheeses, balls or on warp beams shall be deemed to be included under Item No. 18A of the Tariff. Under Section 2(f)(iv) of the Act, it was provided that in relation to goods comprised in Item No. 18A of the Tariff, ‘manufacture’ includes sizing, beaming, warping, winding or reeling or any one or more of these processes, or the conversion of any form of the said goods into another form of such goods. The above provision of law shows that while cotton yarn all sorts was excisable, it was the form in which the yarn was cleared that was material for the duty liability.
7. Under Notification No. 275/82-C.E., dated 13-11-1982 (as amended), cotton yarn in plain (straight) reel hanks, whether single or multiple fold, enjoyed full exemption from Central Excise duty. Such yarn is generally used by the handlooms. Cotton yarn in cones reel hanks, whether single or multiple fold, of count not exceeding 20S (English count) was also exempted, subjected to the condition that such yarn is purchased by a registered handloom cooperative society or any organisation set up or approved by the Government for the development of handlooms, and payment for such yarn is made by cheque drawn by such cooperative society or organisation, as the case may be, on its own bank account. It was provided in proviso (iii) under the aforesaid notification that no further duty was leviable on any yarn which had availed of the exemption available to yarn in plain hank form, when wound on cones on doubling machines for conversion into two fold yarn, and then reeled into plain hanks. The scheme of exemption thus, provided relief to handlooms, and that plain (straight) reel hank yarn are not to suffer any duty liability.
8. It has been alleged in the SCN, dated 26-6-1984 that the yarn was “used for manufacture of twisted yarn in the doubling machine installed in the factory. As we have noted above cotton yarn, all sorts, was classifiable under Item No. 18A of the Tariff. Under Explanation (1) in the said tariff entry, it had been explained that cotton yarn shall include twist and thread. Thus twist yarn continued to remain classifiable as cotton yarn all sorts. In this case no new product emerged as a consequence of processes undertaken within the factory of production. The intermediate goods were not used for production of any other item or sub-item of the Tariff or in the manufacture of any other commodity. The appellants had explained that the processes in respect of which the Central Excise duty has been demanded were intermediate processes and the goods remained within the stage of preparatory packages. It is seen that the inprocess goods were not used for weaving or for the manufacture of fabrics.They were not removed for consumption or sale. There is also no question of taking the goods to the residuary Tariff Entry No. 68 of the Tariff. In this connection, paras 10 and 11 of the Bombay High Court decision in the case of Garware Nylons Ltd. v. UOI, 1980 (6) E.L.T. 249 (Bombay) are extracted below :-
“10. The term “yarn” has been considered in a number of cases by different Courts, mainly in connection with Sales Tax. Thus, in Madura Mills Co. Ltd v. Government of Madras and Anr., 25 S.T.C. 407 the Madras High Court was required to consider whether cotton tyre cord warp sheet could be considered as cotton yarn under the provisions of the Sales Tax Acts. The Court came to the conclusion that string, cord and rope are merely different species of the same genus, namely, yarn, and held that cord is cotton yarn in the accepted commercial sense. In Commissioner of Sales Tax, U.P. v. Sarin Textile Mills, 35 S.T.C. 634, the Supreme Court was required to consider whether woollen carpet Kati was yarn under the U.P. Sales Tax Act. The Supreme Court, after referring to the dictionary meaning of the term ‘yarn’ that a 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. Secondly, such strand should be primarily meant for use in weaving, knitting or rope-making. In this case also, the Supreme Court applied the test of ordinary commercial sense. There is also an unreported decision of the Calcutta High Court in Civil Rule No. 3934 (W) of 1970, General Distributors (International) v. Commercial Tax Officer, Radhabazar Charge, dated 1st March, 1973, where Chittatosh Mukherjee J. has considered twine thread purchased by the petitioner therein as yarn within the meaning of the Bengal Finance (Sales Tax) Act. In the present case also, if we consider the characteristics of yarn as laid down in the above case by the Supreme Court, twine satisfies both the tests. It is a spun strand and it is primarily meant for use in weaving fishing nets and in rope making.
11. A number of cases were cited before us in order to show when a new product emerges after the application of a process. Thus, our attention was drawn to Commissioner of Sales Tax v. Dunken Coffee Manufacturing Co. 35 S.T.C. p. 493, which considered the meaning of the word ‘manufacture’ and held that French Coffee was a new commercial product and the process required to produce it amounted to ‘manufacture’ within the meaning of clause (17) of Section 2 of the Bombay Sales Tax Act, 1959. A reference may also be made to Deputy Commissioner of Sales Tax v. Pai and Co., 45 S.T.C. p. 58, and State of Tamil Nadu v. Pyare Lal Malhotra – 37 STC p. 319. The classic test for deciding whether there is ‘manufacture’ of a new product or not is laid down in McNicol and Anr. v. Pinch, 1906 (2) Indian Law Reports K.B., 352. In that case, Darling J. observed that, in a sense, you can only make one thing out of another. The essence of making or manufacturing is that it shall be a different thing from that out of which it is made. In other words, we come back to the same test, namely, whether the product that emerges is something different ¦ from the thing out of which it is made. If yarn after twisting, remains yarn -although it is known as twine -, then no new product emerges.”
9. In the case before us, doubling or twisting was not of any duty paid yarns. The processes undertaken were also not for the manufacture of any different product or of any other type of goods. No new product emerged, and the goods were not used for production of any other Item or any other commodity. It is also seen that as per the Board’s instruction issued under F. No. 261/181/8/84/CX. 8, dated 20-9-1984, the entry in the RG-1 was required to be done when the yarn was converted into hanks, cones, pirns or bobbins. It is also seen that under Rule 96E of the Rule, even fully finished cotton yarn could be removed without payment of duty from one factory to another for the purpose of processing or packing.
10. The matter is covered by the Tribunal decision in the case of CCE, BBSR v. Orissa Weavers Cooperative Spinning Mills, 1985 (21) E.L.T. 348 (T) para 5 from that judgment is reproduced below:
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The matter is also covered by the Tribunal decision in the case of Kalinga Weavers Cooperative Spinning Mills Ltd. v. CCE, BBSR, vide order No. 119/86-D, dated 17-2-1986 in Appeal No. 1963 of 1985-D. The Tribunal decision in the case of OWCSM was followed by the Tribunal in their order No. 132/94-D, dated 2-3-1994 in the case of Sonepur Spinning Mills Ltd. v. CCE, BBSR, in Appeal Number E/545/86-D.
11. In the matter before us, whether there is a process of manufacture or not, is not the issue. In the case of Aditya Mills Ltd., reported in 1983 (14) E.L.T. 1853 (Tribunal), a mixture of Polyester spun yarn and rayon filament yarn, which were called PPRF, was prepared out of duty paid yarns. In the case of CCE, Bombay v. Kohinoor Mills, 1995 (77) E.L.T. 42 (SC), the Hon. SC in paras 5 and 6 of their judgment have held that the liability to pay the excise duty on the manufactured item, will have to be decided in the light of the appropriate tariff applicable at the time when such manufactured commodity is cleared as per the provisions of the Excise Rules. The Duty becomes payable on a manufactured item once such goods were removed from the place of manufacture for consumption, export or manufacture of any other commodity in or outside such place. In the case before us in-process goods were not cleared or removed for consumption or manufacture of any other commodity, other than cotton yarn all sorts.
12. Taking all the relevant considerations into account, we accept the appeal and set aside the impugned order.
