Customs, Excise and Gold Tribunal - Delhi
Kiran Spinning Mills vs Collector Of Central Excise on 5 May, 1987
Equivalent citations: 1987(13)ECR563(TRI.-DELHI), 1987(30)ELT550(TRI-DEL)
ORDER
G. Sankaran, Vice President (T)
1. These appeals arise out of, and are directed against, the common order-in-appeal dated 20-10-1981 passed by the Appellate Collector of Central Excise, Bombay disposing of four appeals filed before him. Initially, M/s. Kiran Spinning Mills (the appellants) had filed a single revision application before the Central Government against the said order and this was received in this Tribunal on transfer under Section 35-P of the Central Excises and Salt Act, 1944, (the "Act" for short), for disposal as if it were an appeal filed before the Tribunal. Later on, in accordance with the practice and procedure of this Tribunal, the appellants filed three supplementary appeals since there were four causes of action.
2. The appeals involve common issues of classification and are, therefore, disposed of by this common order. The distinctive features of the individual appeals will be dealt with at the appropriate stage(s).
3. The facts of the cases are that the appellants are engaged in the manufacture of different varieties of yarn by spinning of different fibres as well as by doubling/twisting of duty-paid spun yarn with rayon filament yarn. In the present matters, the dispute is about yarns obtained by doubling/twisting of duty-paid spun yarn with duty-paid rayon filament yarn. These yarns are marketed under different names.
4. The aforesaid yarns were being classified under Item No. 18-E of the First Schedule ("CET", for short) to the Act, prior to 18-6-1977, when, consequent upon the 1977 Budget changes, the department classified them under Item No. 68 CET. The appellants contested this classification.
5. The dispute is whether the subject yarns were classifiable under Item 68 CET as the department had done or they were non-excisable, as the appellants contend, since, according to them, mere twisting or doubling of duty-paid yarns did not amount to "manufacture", resulting in the coming into existence of any new product.
6. The Appellate Collector rejected the appellant's contention and held that the process of doubling/twisting of yarns amounted to "manufacture", resulting in the emergence of new commodity. He also held that the resultant yarns fell under Item No. 68 CET and not under any of the items specified for different types of yarns. Following this conclusion, he rejected all the appeals.
7. We have heard Shri Shankardas, Sr. Advocate, assisted by Shri M.G. Ramachandran, Advocate and Shri D.N. Kohli, Consultant, for the appellants and Shri K.C. Sachar, Departmental Representative, for the respondent.
8. In regard to certain demands [Section Nos. 11 to 23 as mentioned in para 4(e) of the impugned order dated 20-10-1981 of the Collector (Appeals) with reference to appeal No. V2(l8)3176/80 against Asstt. Collector's order No. CL/18/III/T.II/Kiran/78/l 1983, dated 30-9-1980], the appellants had urged before the Collector (Appeals) that the Assistant Collector had adjudicated upon the demands without giving them an opportunity of being heard though they had specifically requested for the same. Hence, it was urged that there had been violation of the principles of natural justice. It had been further urged before the Collector (Appeals) that the demand notices at Section Nos. 21 to 23 ibid had been adjudicated upon by the Assistant Collector even before the time limit given in the show cause notices for submission of the replies had expired. Violation of the principles of natural justice had also been alleged in respect of some of the demands mentioned in the Assistant Collector's order No. V(68)4.222/80/2142, dated 'nil' forming the subject of the Collector (Appeal)'s appeal file No. V2(68)/1268/81.
9. We note from para 10 of the impugned order that the Collector (Appeals) has found that the Assistant Collector had indeed violated the principles of natural justice. The Collector observes that it was incorrect on the Assistant Collector's part to have presumed that no useful purpose would be served by hearing the appellants and adds that it was the Assistant Collector's incumbent duty as adjudicating authority to have heard the appellants especially when they had asked for hearing. We could not agree more. But, we cannot approve of the further observation of the Collector that considering the fact that the show cause notices which had been adjudicated upon in violation of the principles of natural justice, had the same subject as contained in other show cause notices, no useful purpose would be served by directing the Assistant Collector to re-decide the notices as it would mean merely postponing the evil day.
10. The orders passed by the Assistant Collector in the matters discussed above were ab initio void and this irregularity cannot be cured at a later stage, especially when the appellants had made a grievance of it before the Appellate Authority. The same grievance has been repeated before us also. We cannot but, therefore, set aside the orders of the lower authorities in so far as the specific matters referred to in para 4(e) of the Collector's orders are concerned. 11. The Assistant Collector's order No. CL/18/IlI/T.Il/Kiran/79, dated 27-9-1980 confirms 23 demands. This Assistant Collector is not the one who passed the order dated 21-1-1980 on the basic issue of classification. The Assistant Collector refers to his predecessor's orders on classification and says that he has no locus standi to pass a fresh order on classification. However, he proceeds to briefly discuss the merits of the dispute and records the finding that Item No. 68 CET is the appropriate entry for classification of the subject goods. This order does not show lack of application of mind and cannot be faulted on that ground alone. However, it suffers from the vice of breach of the principles of natural justice as already noted in para 10 of our order. 12. The third order of the Assistant Collector bears No. V(68)4-222/80, dated 12-1-1981. This order disposes of four show cause notices. The Assistant Collector says that since the assessee had already been heard on 2-8-1980 prior to his passing the adjudication order dated 27-9-1980, he does not find it necessary to discuss the same subject again (which in itself, in our view, may not be objectionable) and to grant a fresh personal hearing since it would not help the assessee in any way. This latter conclusion of the Assistant Collector is not supportable. This is a clear violation of the principles of natural justice and the violation is rendered grosser by the fact that three of the show cause notices in question were issued after the date of hearing in the earlier matter i.e., 2-8-1980. This order has, therefore, to be set aside on this ground alone.
13. The fourth order of the Assistant Collector No. V( 1 S)III(II) 18-17/79, dated 15-11-1980 deals with a refund claim. The Assistant Collector again relies on his order dated 27-9-1980 adjudicating upon 23 demands involving the same issue and concludes that no show cause notice or personal hearing would serve any purpose. This again is a violation of the principles of natural justice and vitiates the order which has, therefore, to be set aside on this ground.
14. The matters covered by the above orders of the Assistant Collector are remanded to the Assistant Collector for de novo adjudication after giving due opportunity to the appellant to put forth their case and of being heard. The Assistant Collector will no doubt keep in view the findings and conclusions contained in this order on the merits of the dispute as would be discussed hereafter with reference to the other show cause notices.
15. The learned counsel for the appellants has vehemently urged before us that the proceedings based on show cause notices which were based on trade notices/tariff advices (thereby evidencing non-application of mind) were bad in law and should be struck down on that score. In support of his contention, a few authorities were also cited but we do not think it is necessary to refer to them and discuss them here since in all the cited cases either the show cause notices had been challenged at the initial stage or the adjudication orders/appellate/revisionary orders had been challenged before High Courts. While High Courts in their writ jurisdiction may have the power to quash show cause notices and the subsequent related orders, this Tribunal's powers are in relation to the orders impugned before it to confirm, modify or annul the orders or remand the matter to the lower authority for a fresh adjudication or decision. If, therefore, the impugned orders are based on, and rely on, trade notices/tariff advices, and not on the independent reasoning of the authority who passed the orders, those orders may be liable to be set aside on that score. But, is that the case here? As the learned departmental representative points out, though the show cause notices may have relied on trade notices/tariff advices, the Assistant Collector had not based his orders on them but had recorded his own reasons in support of his findings and conclusions. The Assistant Collector's orders cannot, therefore be faulted only on the ground that some of the show cause notices leading to those orders were based on trade notices or tariff advices.
16. The Assistant Collector's order No. CL/18/III/Kiran/78, dated 21-1-1980 which is on the basic issue of classification of goods is not founded on any trade notice or tariff advice. No fault, therefore, attaches to that order on the ground that the relative show cause notice had relied on a trade notice/tariff advice.
17. The learned counsel for the appellants had submitted before us that show cause notice No. 7/79, dated 30-6-1979 demanding duty for the period 17-6-1977 to 31-3-1979 was barred by limitation. The contention is that there is no allegation of suppression or fraud or mis-statement with intent to evade duty. A perusal of the show cause notice, however, shows that no classification list had been filed in respect of the goods described therein as required under Rule 173-B. There is no dispute that no classification list had been filed. If this be so, the obvious inference would be that the manufacture of the said goods had not been disclosed to the department and the goods had been cleared without payment of duty in contravention of the Central Excise Rules. Therefore, the extended period of limitation would apply to the notice in question and not, as the counsel urges, the ordinary period of limitation.
18. The question whether the process of doubling or twisting of yarns constitutes "manufacture" of a new commodity within the meaning of Section 2(f) of the Act came up before this Tribunal in Aditya Mills Ltd. v. Collector of Central Excise, Jaipur, 1983 ELT 1853. The goods therein (styled as "PPRF"), the result of doubling and twisting together of rayon filament yarn (falling under Item 1811, CET) and polyester spun yarn (falling under Item 18E), was held by the Tribunal to be a new product classifiable under Item 68 CET. The learned counsel for the present appellants, however, stated that this decision did not take into consideration the Bombay High Court's judgment in Piramal Spinning & Weaving Mills Ltd. v. Union of India and Ors. 1982 ELT 145. The period of dispute in that case was between the insertion of Item 18E in the CET ("yarn of all sorts, not elsewhere specified") and the tariff changes brought about by the 1977 Finance Act. The issue inter alia was whether a new product came into existence by blending or twisting together of nylon yarn and cotton yarn. The process was this: one strand of cotton yarn was fed into one strand of nylon yarn to a "double winder machine" to form a "cheese" which was subsequently fed to a doubling machine where a few turns were given to the parallel yarns (cotton and nylon) and wound on a wooden pirn. It is useful to note also the further operations. The pirn, in turn, was fed to the loom as weft yarn. The entire process was an uninterrupted one starting with the "double winder machine" and ending with the emergence of cloth. The blended yarn was fully consumed by the petitioners in their own mills for production of fabrics - such yarn was not available in the open market-In the circumstances, the court ruled that in the production of the blended yarn, no new commodity had emerged.
19. In the present case, there are some distinguishing features. The entire yarn tariff underwent restructuring in the Finance Act, 1977. Secondly, the appellants are admittedly a spinning mill. Evidently, therefore, the subject yarn had to be cleared out of the factory for use in further manufacture. The circumstance of the entire process from the doubling-of yarn to emergence of fabric' being one integrated process as in the Piramal Mills case, does not exist in the present case. We have to bear these distinguishing features in mind in coming to our findings.
20. This Tribunal had another occasion to go into the issue in General Industrial Society Ltd. v. Collector of Central Excise, West Bengal, 1983 ELT 2056. The point of dispute there also was, as in the Piramal Weaving Mills case (supra), before the 1977 tariff changes.
21. The matter again came up before the Tribunal in General Industrial Society Ltd. v. Collector of Central Excise, West Bengal, 1983 ELT 2497.1 The period of dispute was, as in the present case, subsequent to the 1977 tariff changes. The Bench noted that that case was distinguishable from the Piramal case (supra) for the reasons that the "twinkle yarn" in the Piramal case was made solely for captive consumption, the yarn was not available in the market nor was that known in the trade circles as a distinct or separate product but that in the case before the Tribunal, the General Industrial Society was a manufacturer of yarn and not fabrics, the yarn was being cleared as such obviously for sale to others and that, therefore, they must be products known to the market. Hence, concluded the Tribunal, the yarn in dispute [made; by doubling and twisting of cotton yarn (ISA CET) and staple fibre yarn (18 CET)], was the result of a process of "manufacture" and was liable to be considered for classification under Item 18E subject to the predominance of man-made non-cellulosic fibres, other than acrylic fibres. It was also held that a yarn which did not conform to the descriptions of Items 18E, 18III or 18A would be classifiable under Item 68. The ratio of this decision, it appears to us, will squarely apply to the present matters. It was stated on behalf of the appellants that, even if the ratio of the 1983 ELT 2497 case (supra) was considered applicable, the goods in the present matter would have to be classified in accordance with the criterion of the predominant fibre laid down in the decision. This exercise must inevitably be carried out before the residuary Item 68 could be invoked (in which event, it was claimed for the appellants that many of the subject yarns would fall under Item 18 III but this must be gone into by the departmental authorities).
22. Yet another decision to which reference was made by the counsel for the appellants is that of the Madras High Court in Madura Coats v. Supdt. of Central Excise and Ors.1982 ELT 370 (Mad.). It is seen from the judgment that it was rendered in the context of Central Excise Notification No. 119/75, dated 30-4-1985 which provided for partial duty exemption to job works done on materials supplied to the job worker and returned after the job-work on receipt of job charges. The petitioner used to receive from M/s. Fenner, nylon filament yarn, nylon yarn and cotton yarn which were twisted together at the petitioner's factory. The petitioner's claim was that they were not producing any new article but only processing the raw materials supplied to them and were so entitled to the benefit of the notification. The court held that the converted product produced before the court showed all the three articles supplied by Fenner, perceivable even to the naked eye and since no new material had been added by the petitioner, no new product falling under Item 68 CET had emerged. In the cases before us, Notification No. 119/75, is not in issue. Besides, as we have said earlier, the present matters would be governed by the tariff entries as they stood after the 1977 budget.
23. The last decision referred to by the appellants is of the Tribunal in CCE, Bhubaneswar v. Orissa Weavers Cooperative Spinning Mills 1985(21) ELT 348. The issue was whether removal of cotton yarn on cones for conversion into doubled yarn hanks amounted to removal for manufacture of another commodity attracting payment of duty at the time of removal of the cones. The Tribunal held that, having regard to the statutory provisions, bobbins, cones and hanks were various forms of the same commodity, namely, cotton yarn, and that, therefore, conversion of one form into another would not mean transformation of one commodity into another. We do not quite see the relevance of this decision to the present appeals. Perhaps the argument is that in the case of cotton yarn, it was only because of the extended definition in Section 2(f) of the Act and specific definition of "cotton yarn" to include twist and thread that the latter are excisable as new products. In the Orissa Weavers case (supra) the goods were made of cotton fibre whether the yarn was in cones or in hanks. What we have to consider in the present cases are the products resulting from twisting and doubling of two or more dissimilar or disparate constituents - whether they are excisable apart from their constituents. The cited decision is of no relevance.
24. The dutiability of multi-fold yarn or doubled yarn prepared out of duty-paid cotton yarn and nylon filament yarn under Item 18A/18E of the CET was also considered by the Tribunal in Porrits & Spencer (Asia) Ltd. v. Collector of Central Excise, Delhi 1985 ECR 272. The period of the dispute was prior to the 1977 budget changes. Though the decision is not directly relevant for the issue of classification in the present cases, it is being referred to here because it inter alia refers to and discusses the Bombay High Court judgment in the Piramal case (supra), the Tribunal's decision in the Aditya Mills case (1983 ELT 1853) and in the General Industrial and Society case (1983 ELT 2457). As in the Piramal case, the doubled yarn was not sold but wholly consumed by Porrits and Spencer for further manufacture in the weaving of dryer felts. The Tribunal held that multifold yarn was neither cotton yarn nor nylon yarn but a mixed yarn consisting of both and that the process of doubling or twisting which resulted in the new product (multifold yarn) was a process of "manufacture".
25. The Tribunal's decision in India Jute Co. Ltd. v. Collector of Central Excise, Calcutta, 1986(8) ETR 703, referred to in the course of the hearing before us, is, in our view, not relevant since the doubled yarn therein was made out of constituent yarns falling under the same Tariff item, which is not the case here.
26. It has been urged for the appellants that the scheme of the changes in the yarn tariff brought about by the 1977 Finance Act was not to throw out any particular type of yarn into the residuary Item No. 68 CET. We cannot accept this contention. Before the 1977 Budget, there was an express Item (18E) specifically providing for yarn, all sorts, not elsewhere specified Item (18E) specifically providing for yarn, all sorts, not elsewhere specified in the tariff. The other items relating to cotton yarn, woollen yarn, etc. were re-worded in 1977 Budget defining the scope of the respective items with reference to different tests laid down in the items themselves. However, whereas Item 18E was deleted and reworded, a residuary item to cover yarns that would not fall under the specific new entries for different types of yarn, was not provided for. The result, therefore, was that, with the 1977 Budget changes, such yarns as did not conform to the tests laid down in the items for cotton yarn, woollen yarn, etc. fell for classification under the general residuary entry in the Central Excise Tariff Schedule, namely, Item 68.
27. Following the above analysis, we are inclined to respectfully follow the previous decisions of this Tribunal and hold that the subject goods in these appeals were new products different from their constituents and since they were cleared for sale to others, were known to the market. However, as the counsel for the appellants has pointed out, even granting that this is the position, it would not follow that the subject yarns would necessarily fall under Item 68. It is only in the event of the products not conforming to the tests laid down in the specific entries for different types of yarns that resort could be had to Item No. 68. This exercise will have to be done after due investigation by the lower authorities to whom we would remit the matter for classification of each of the subject products in the light of the observations contained in this order and, in particular, the principles laid down in this Tribunal's order in General industrial Society Ltd. v. Collector of Central Excise, West Bengal Calcutta, (supra).
28. Summing up, our findings and conclusions are as follows :
(a) the subject goods would fall for classification under the tariff items for different types of yarn if they conform to the tests laid down in those items. Such products as do not get classified under specific headings by applying this principle would fall for classification under Item No. 68 CET.
(b) The above exercise has to be undertaken by the lower authorities; in this case the Assistant Collector.
(c) If in respect of any products in question, reclassification results in the levy of duty under the same tariff entry under which duty has already been paid on any of the constituent yarns, set off of such duty should be allowed, in order to avoid double taxation under same tariff entry, in accordance with para 22 of the Tribunal's order in the case of General Industrial Society Ltd. 1983 ELT 2497.
(d) The three orders passed by the Assistant Collector dated 27-9-1980, 12-1-1981 and 15-11-1980 suffer from the vice of violation of the principles of natural justice and are, therefore, set aside. The Assistant Collector shall adjudicate these notices afresh in accordance with law, after due opportunity to the assessee.
29. The appeals are thus allowed subject to the observations and directions contained in this order. The matters remanded to the Assistant Collector shall be disposed of by him as soon as possible having regard to the fact that these assessments are nearly a decade old.