ORDER
C.N.B Nair, Member (T)
1. Both appeals E/2561 -2562/98-A are directed against the same order. Accordingly, both these appeals are taken-up together for consideration and are disposed of by this common order in appeal.
2. The appellant M/s. Vardhman Spinning and General Mills Ltd. is a public limited Company with its registered office at Ludhiana. They are engaged in the manufacture and sale of different varieties of yarn which are liable to Central Excise Duty. The manufacturing operations are carried out from different factories located at different town. The present appeal relates to manufacture of Dyed Yarn carried out in its Auro Dyeing Division Factory at Baddi, Solan Distt, Himachal Pradesh.
3. The show cause notice proposed duty demand on dyed yarn after denying the appellants, claim for exemption from Central Excise Duty on dyed yarn under Notification No. 35/95 and the valuation of “yarn”.
4. The Commissioner held in the impugned adjudication order as under :-
“(i) the above said demands raised against the noticee are not sustainable in the eyes of law as the factory of noticee is independent and licensed under factory Act and also C.E. registration under Rule 174 of C.E. Rules, 1944 has been granted to the noticee. And there is nothing on record to show that the noticee has facility (including plant and equipment) for producing single yarn and as such the benefit of exemptions available to the noticee cannot be denied.
(ii) However, it is seen that the suppliers of grey yarn to the noticee namely (1) M/s. Vardhman Spng. and General Mills, Ludhiana (2) M/s. Auro Spng. Mills, Baddi (3) Vardhman Polythen Ltd., Bhatinda (4) M/s. Archant Spng. Mills Ind. Area, Malerkotla (5) Arisht Spng. Mills Baddi are all of Vardhman group of Industries, and they are paying C.E. duty at the stage of clearance of grey yarn, but the yarn is not sold and is sent for dyeing on transfer basis and after dyeing the yarn is sent to various depots and branches who further sells them at a rate fixed by Central Marketing (yarn). No independent sale and purchase is involved in respect of duty paid yarn received by noticee as all the suppliers units are of Vardhman Group of Inds. The proprietorship of goods is not transferred. No separate balance sheet is being filed by the noticee but only one consolidated balance sheet is prepared and filed by Vardhman Spng. and General Mills. In view of above the prices charged at depots for sale of dyed yarn should be treated as assessable value for charging C.E. duty.
ORDER
22. In view of above discussions and finding I hold that the demand show cause notices referred to above are not sustainable as exemptions benefit of notification No. 35/95-CE dated 16.03.95 as amended by 84/95 dated 18.05.95, 8/96-CE dated 23.07.96, 4/97-CE dated 27.06.97 cannot be denied to the noticee, therefore, I drop the proceedings against the noticee.
23. However, proceedings for demand of differential duty should be initiated by the Range officer, Central Excise Range, Baddi in respect of amount of differential duty from that of grey yarn and dyed yarn which is sold at a much higher rate.”
5. The grievance of the appellant is directed against the direction contained in para 23 of the order that proceedings “for demand of differential duty should be initiated by the Range officer in respect of amount of differential duty from that of grey yarn and dyed yarn which is sold at a much higher rate.” The appellants have submitted that this direction is inconflict with and is contrary to that the decision that the dyed yarn manufactured in the factory are exempt from duty under Notification No. 35/95. The appellants submit that once dyeing is accepted as manufacture and is exempted, there was no justification for demanding duty on grey yarn at the sale price of dyed yarn. They have also submitted that this direction nullifies the exemption notification and is contrary to law. It is their contention that cost of dyeing the yarn and the sale price of dyed yarn are of no relevance for fixing the assessable value of the dutiable goods viz. grey yarn. They, therefore, submit that the direction for demanding differential duty is illegal. During the hearing of the case, ld. Counsel for the appellants draw our attention to the decision of the Supreme Court in Union of India v. }.}. Glass Industries Ltd. [1998 (97) E.L.T. 5 (S.C.)] in support of their contention that taking the value of dyed yarn is contrary to settled law.
6. As against the aforesaid submissions of the appellants, the ld. D.R. submitted that the direction in paragraph 23 of the order has no relation to the dispute decided in the order i.e. eligibility of dyed yarn to exemption under 35/95. He also submitted that the direction in para 23 of the order cast no additional duty liability on the appellants. It was only a direction to the jurisdictional Central Excise officers to examine the issue relating to correct valuation of the yarn. He, therefore, submitted that the appeals are not maintainable.
7. We have perused the records and have considered the submissions made by both sides. We find that the show cause notice in addition to proposing the denial of exemption under Notification No. 35/95, also mentioned that “the prices charged at Depots for sale of dyed yarn should be treated as assessable value for charging duty.” Therefore, the direction in para 23 is with reference to a specific point raised in the show cause notice. However, we are unable to appreciate how the Collector could simultaneously hold that the dyed yarn is exempt from duty, its sale value should be taken for the purpose of assessment of duty. Obviously, exempted goods cannot be subjected to duty. Therefore, the direction is with regard to valuation of grey yarn. The value of dyed yarn cannot be adopted for assessing grey yarn to duty, for the simple reason that the price of the finished product cannot be the assessable value of the price of the raw-material. In the case of dyed yarn grey yarn is the raw-material. The additional addition that takes place while dyeing grey yarn, has no relevance for assessing the raw-material out of which dyed yarn is manufactured namely grey yarn. Therefore, the direction contained in paragraph 23 of the impugned order is clearly illegal. Accordingly, it is set aside. The appeals are allowed on these terms.