ORDER
G.R. Sharma, Member (J)
1. By the captioned appeal the appellants have assailed the order of the Commissioner (Appeals). The Commissioner (Appeals) in his order had held that the appellant’s contention is that carded or combed cotton and cotton viscose fibre remains cotton and cannot be called intermediate product contrary to the facts on record. The appellant has taken wrongly credit on viscose fibres used in the manufacture of cotton viscose blended yarn, looking to the fact and circumstances of the case, it is felt that no penalty shall be imposed on the assessee under Rule 173Q.
2. The facts of the case are that the appellants are engaged in the manufacture of cotton viscose blended yarn where cotton predominates. Their product is classifiable under Chapter Heading 5203 of the Central Excise Tariff. Heading 5203 reads “5203. Cotton yarn including sewing thread, not containing synthetic staple fibres”. The appellants were purchasing cotton and viscose stable fibres from the market. Since the duty was being paid on viscose staple fibres, the appellants were availing the credit of inputs duty paid on viscose fibres under the Modvat scheme. The department alleged that in the process of manufacture of viscose cotton yarn, carded or combed cotton came into existence as an intermediate product and since duty chargeable on carded/combed cotton was nil and proviso to Rule 57D(2) of the Central Excise Rules stipulated that no credit of duty shall be admissible if the product was not specified under Rule 57A. The department alleged that carded/combed cotton which came into existence as an intermediate product was not specified under Rule 57A therefore no credit of duty on viscose staple fibres under the Modvat scheme was admissible to the appellants and denied them the benefit. The appellants in reply to the show cause notice submitted that it was a continuous process in the manufacture of viscose-cum-cotton yarn in which staple fibres were mixed and after going into the process of blending, blowing, carding, drawing etc. viscose cotton yarn comes as final product. After careful consideration of the submissions the Additional Collector disallowed the Modvat credit taken on viscose staple fibres. The appellants went in appeal before the Commissioner (Appeals) and the Commissioner (Appeals) upheld the view of the Additional Collector and hence the appeal before us.
3. Shri K.K. Anand, ld. Advocate appearing for the appellants submitted that the appellants had submitted detailed process of manufacture of viscose cotton yarn. He submitted that there were various stages in the manufacture but the process was continuous one that what was fed into machine was cotton and viscose stable fibres and that what came out of the machine was viscose cotton yarn. The ld. Counsel submitted that carded or combed cotton at no stage appeared as an independent product at the intermediate stage. He submitted that even if at the intermediate stage something came into existence it was never sold as such by the appellants and therefore the question of payment of duty on combed/carded cotton yarn did not arise. The ld. Counsel therefore prayed Modvat credit was rightly taken by the appellants.
4. Shri Mohamed Ali, ld. JDR for the respondent Commissioner submits that what was being manufactured by the appellants was being classified under Chapter Heading 52..03; that this chapter heading was for cotton yarn etc. He submits that admitted position was that in the fibre cotton predominates and therefore the blended fibre was for the purpose of classification and for tariff ‘cotton fibre’. He submits that in the process of manufacture of yarn fibre is required to be carded/combed before spinning into yarn. He submits that a stage came when fibre becomes cotton carded/combed and since cotton predominates the fibre is cotton combed/carded. He, therefore submits that in the process of manufacture of viscose cotton yarn there is a stage when carded/combed cotton comes into existence. Since there is tariff entry for cotton carded/combed therefore intermediate product is excisable. The ld. JDR submits that carded or combed cotton is exempt as rate of duty is nil in the tariff and therefore this will be governed by the Rule 57D. He submits that Rule 57D stipulates that a credit of duty taken on inputs cannot be varied if an intermediate product which comes into existence is exempt. He submits that there is a proviso to Rule 57D that proviso reads that “intermediate product should be specified under Rule 57A.” The ld. JDR submits that during the material period cotton carded /combed was not specified under Rule 57A and therefore the appellants were not entitled to the benefit of Rule 57D. He submits that in the circumstances the lower authorities have rightly denied the Modvat credit in the instant case. He, therefore prays that the appeal may be rejected.
5. Heard the submissions of both sides. I find that the first issue for determination before me is whether carded/combed cotton comes into existence before spinning of the fibre into yarn. The admitted position in the instant case is that it is blended yarn which finally comes out. However since cotton predominates for the purpose of classification it will be termed cotton yarn. Now the question is as to how this yarn is manufactured ? I find that the appellants have submitted a technical write-up on the process of manufacture of the yarn. It has been stated that there are various stages fibre has to go before being spun into yarn; that the first stage is spinning, the second stage blowing and the third is carding. Now what will be the product that comes out from the carding machine. Can it be termed cotton ? I find that carding and combing cotton are two processes to make fibre into sliver. Before sliver carded fibre is called carded cotton or carded polyester or carded nylon etc. HSN Volume 2 at Page 730 under Chapter Heading 52.03 describes what cotton carded or combed is. When reading technical write-up I find that in the instant case carded cotton comes into existence. Fair Child Dictionary also describes as to what carding is. Thus I find that carded/combed fibres are trade/common parlance recognised terms; that the technical literature and dictionary meaning show that carded/combed cotton comes into existence in the process of manufacture of cotton yarn. Thus on the first issue I hold that carded/combed cotton comes into existence in the process of manufacture of cotton yarn from viscose /cotton fibre where cotton predominates.
6. Now once admitted that carded/combed cotton comes into existence in the process of manufacture, we have to examine whether any rule of Central Excise Rules, 1944 prohibits availment of duty paid on viscose staple fibre under the Modvat scheme. I observe that on cotton, combed or carded, duty chargeable is nil. The only issue remains for examining whether in spite of nil rate of duty the appellants shall be eligible for the benefit of Modvat credit. I have seen the provisos. I find that for the benefit under Rule 57D the intermediate product should be specified under Rule 57A of the Central Excise Rules. In the instant case the admitted position is that intermediate product in the instant case namely cotton carded/combed was not specified under Rule 57A during the material period. I therefore hold that the benefit of Rule 57D(2) shall not be admissible to the appellants. In the result I hold that Modvat credit is not admissible to the appellants. Accordingly the appeal is rejected.