Custom, Excise & Service Tax Tribunal
M/S Jct Limited vs Cce, Jallandhar on 23 July, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. Principal Bench, New Delhi COURT NO. I DATE OF HEARING : 11/06/2014. DATE OF DECISION: 23/07/2014. Excise Misc. Application No. 513 of 2011 in Appeal Nos. 300-305 of 2005 [Arising out of the Order-in-Original No. 100-105/CE/JAL/2005 dated 20/10/2004 passed by The Commissioner of Central Excise & Customs, Jallandhar.] M/s JCT Limited Appellant Versus CCE, Jallandhar Respondent
Excise Appeal No. 556 of 2008 [Arising out of the Order-in-Appeal No. 397/CE/Appl/Jal/2007 dated 01/01/2008 passed by The Commissioner of Central Excise (Appeals), Jallandhar.] M/s JCT Limited Appellant Versus CCE, Jallandhar Respondent Excise Appeal No. 3185 of 2005 [Arising out of the Order-in-Original No. 100-105/CE/JAL/2005 dated 20/10/2004 passed by The Commissioner of Central Excise & Customs, Jallandhar.] CCE, Jallandhar Appellant Versus M/s JCT Limited Respondent For Approval and signature :
Honble Shri Justice G. Raghuram, President Honble Shri Rakesh Kumar, Member (Technical)
1. Whether Press Reporters may be allowed to see :
the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it would be released under Rule 27 of :
the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether their Lordships wish to see the fair :
copy of the order?
4. Whether order is to be circulated to the :
Department Authorities?
Appearance Shri Rajesh Chhibber, Advocate for the appellants/respondent.
Shri Pramod Kumar, Authorized Representative (Jt. CDR) for the Respondent/appellant.
CORAM : Honble Shri Justice G. Raghuram, President Honble Shri Rakesh Kumar, Member (Technical) Final Order No. 52876-52883/2014 Dated : 23/07/2014 Per. Rakesh Kumar :-
Since the facts and issue involved in this group of appeals are common, the same are being disposed of by a common order. The facts leading to filing of these appeals are, in brief, as under.
1.1 The appellant are a composite mill engaged in manufacture of textile yarn and fabrics falling under Chapter 52 and 55 of the 1st Schedule to the Central Excise Tariff Act, 1985. The appellant starting from the stage of fiber (synthetics or manmade fiber or cotton) manufacture spun yarn. The spun yarn is accounted for in the RG-1 register at spindle stage i.e. the weight of the yarn on spindle is entered in the RG-1 register. Thereafter, the yarn is used captively for manufacture of grey fabrics which are subsequently processed. The dispute in this case is about the assessable value of the spun yarn at the spindle stage. The yarn before being used for manufacture of fabrics, is subjected to the processes of winding, reeling, warping, doubling/multi folding, dyeing, sizing, beaming etc. The period of dispute in the appeal No. E/300-305/2005 and No. E/3185/2005 is from 1995-1996 to 2000-2001 and in respect of appeal No. E/556/2008 is also from 1995-1996 to 2000-2001. Since during the period of dispute, there were no factory gate sales of the yarn and the cost of comparable goods manufactured by other manufacturers was also not available, the appellant during period upto 30/06/2000, were paying duty on the yarn cleared for captive use on the value determined on the basis of cost data in terms of Rule 6 (b) (ii) of the Central Excise (Valuation) Rules, 1975 and w.e.f. 01/07/2000 were paying duty in terms of Rule 8 of the Central Excise Valuation Rules, 2000. The Department was of the view that since the appellant after RG-1 stage i.e. spindle stage, have subjected the yarn to the processes of winding, reeling, warping, doubling/multi folding, dyeing, sizing, beaming etc. and since these processes appeared to be manufacturing processes which added to the value of the yarn, the cost of these processes was also required to be added to the cost of yarn on spindles for the purpose of payment of duty. It is on this basis that the show cause notices, the details of which are given below, were issued to the appellant for recovery of allegedly short paid duty :-
Sl. No. Show Cause Notice dated Period Duty Demand (Rs.)
1.
07/11/1997 1995-1996 2,04,45,903/-
2. 25/06/1998 1996-1997 1,05,66,182/-
3. 27/09/1999 1997-1998 40,11,903/-
4. 30/01/2002 1998-1999 27,63,910/-
5. 30/01/2003 1999-2000 30,66,119/-
6. 07/02/2003 2000-2001 29,21,490/-
7. 28/01/1997 1994-1995 1,74,38,026/-
1.2 The show cause notice at Sl. No. 1 to 6 above were adjudicated by the Commissioner by a common order-in-original No. 100-105/CE/Jal/2004 dated 20th October 2004 by which the Commissioner dropped the demand in respect of sizing for the entire period holding that the same does not amount to manufacture, and also dropped the demand in respect of reeling, winding, beaming and warping, of the spun yarn other than manmade yarn cleared for captive consumption during period from 01/04/95 to 17/05/95, holding that during the remaining period, the manmade yarn, and during the entire period of dispute the cotton yarn, when subjected to above processes, was exempt from duty under exemption Notification No. 35/1995-CE dated 16/03/95 and its successor exemption notifications. He, however, confirmed the duty demand of Rs. 97,91,289/- in respect of doubling/multi folding of cotton as well as manmade yarn cleared for captive consumption during period from 18/05/95 to 31/03/01 and the manmade yarn subjected to the winding and warping cleared for captive consumption during the period from 01/04/95 to 17/05/95. This duty demand confirmed also included spun manmade yarn purchased from the market and subjected to the above processes of winding, warping etc. or doubling/multi folding and subsequently used in the factory for weaving of fabrics. In this order, the Commissioner besides confirming the above duty demand, also imposed penalty of Rs. 10,00,000/- on the appellant under Rule 173Q of Central Excise Rules, 1944. Against this order of the Commissioner, the appeal No. E/300-305/2005 EX (DB) has been filed by the appellant company.
1.3 The above order of the Commissioner was examined by the Committee of Chief Commissioners for its legality or propriety. The Committee was of the view that the Commissioners order setting aside the duty demand on the cost of winding [transferring the yarn from bobbins (spindle stage) on cones], cheese winding (transferring the yarn from bobbins or cones to a cylindrical tube) and singeing (removing protruding end of fibers by burning by passing the yarn through gas flame or heated element to make the yarn smoother and more uniform) is not correct, as yarn has to be subjected to these processes prior to doubling/multi folding and the cost of these process is part of the cost of doubling/multi folding. The Committee was also of the view that penalty of Rs. 10 lakhs imposed on the appellant company also needs to be enhanced accordingly. The Commissioner in pursuance of the order of the Committee under Section 35E (1) of the Central Excise Act, 1944 has filed appeal No. E/3185/2008-EX on the above grounds.
1.4 The show cause notice dated 28/01/97 for duty demand of Rs. 1,74,38,026/- was adjudicated by the Assistant Commissioner vide order-in-original dated 11/02/05 by which he confirmed the duty demand of Rs. 1,79,269/- and dropped the remaining demand of Rs. 1,72,58,757/-. In this case the duty demand was confirmed only on the yarn cleared for captive consumption which had undergone the processes of winding during the period from 16/03/95 to 31/03/95. On appeal being filed to Commissioner (Appeals) against this order, the Commissioner (Appeals) vide order-in-appeal dated 01/01/08 dismissed the appeal. Against this order of the Commissioner (Appeals), the appeal No. E/556/2008 EX (DB) has been filed.
2. Heard both the sides.
3. Shri K.K. Anand, Advocate, the learned Counsel for the appellant, pleaded that the duty demand in this case is on cotton spun yarn or spun yarn of manmade fiber, manufactured in the factory of the appellant and cleared for captive consumption and also on the duty paid spun yarn of manmade fiber purchased from outside and subjected to winding and doubling/multi folding prior to being used for weaving, that the duty has been demanded on the cost of winding and doubling/multi folding of the yarn prior to being used for weaving of fabrics, that in respect of the spun yarn manufactured in the factory, there is no dispute that its RG-1 stage i.e. the stage at which the quantity of the yarn manufactured is required to be recorded in the RG-1 register, is the spindle stage, that while during the period prior to 16/03/95 Chapter note 1 to Chapter 52 provided, that in relation to the products of heading 52.03 and 52.04 winding, beaming, warping, reeling or sizing or anyone or more of these processes or conversion of one form of the said product into another form of such product shall amount to manufacture and that the duty on the sized yarn shall be charged on the basis of its weight before sizing, during period w.e.f. 16/03/95, the above Chapter note 1 of Chapter 52 was replaced by a new note which provides that in relation to the products of heading 52.04, 52.05 and 52.06, the process of dyeing, printing, bleaching, mercerizing, twisting, texturising, doubling/multi folding, cabling or any other process or anyone or more of these processes or conversion of one form of the said product into another form of the said product shall amount to manufacture, that in view of this, w.e.f. 16/03/95, the process of winding, sizing, beaming, warping, or reeling of cotton yarn did not amount to manufacture and hence there is no question of adding the value of winding w.e.f. 16/03/95, that there was similar Chapter note in Chapter 55 in respect of spun yarn of manmade fiber, that the Apex Court in the case of CCE, Jaipur vs. Banswara Syntex Ltd. reported in 1996 (88) E.L.T. 645 (S.C.) has held that doubling or multi folding of yarn does not bring into existence a new excisable product and, as such, does not amount to manufacture, that same view has been taken by the Apex Court in the case of J.K. Spinning and Weaving Mills Ltd. vs. Union of India reported in 1987 (32) E.L.T. 234 (S.C.) and CCE, Mumbai V vs. Swastik Rayon Processors reported in 2007 (209) E.L.T. 163 (S.C.), that in view of this, the Commissioners order confirming duty demand by loading the value of the yarn at the spindle stage with the value of doubling/multi folding yarn prior to its use in weaving is not sustainable, that in terms of exemption Notification No. 35/1995-CE dated 16/03/95, doubled/multi folded yarn including cabled yarn, other than sewing thread falling under Chapter 51, 52, 54 or 55 was fully exempt from duty if such yarn is meant for use in the manufacture of fabrics and the same is made out of the duty paid single ply yarn, that there are similar exemptions for the subsequent period also, that in view of this, the duty demand on the value of doubled or multi folded yarn by including the value of these processes in the value of the yarn at the spindle stage is not sustainable, as it is not disputed that the doubled/multi folded yarn had been made out of duty paid single ply yarn and the same had been used for manufacture of fabrics, that during the period of dispute, the assessments were provisional and the same had not been finalized and, therefore, neither any show cause notice could have been issued for demand of duty on the spun yarn on the spindle stage nor these show cause notices could have been adjudicated by the Commissioner/Assistant Commissioner when the provisional assessment had not been finalized and that in view of the above submissions, the impugned orders passed by the Commissioner, Central Excise and Commissioner, Central Excise (Appeals) are not sustainable.
4. Shri Pramod Kumar, the learned Jt. CDR, defended the impugned orders by reiterating the findings of the Commissioner/ Commissioner (Appeals). He relying upon the Apex Courts judgments in the cases of Sidhartha Tubes Ltd. vs. CCE reported in 2000 (115) E.L.T. 32 (S.C.) and Union of India vs. J.G. Glass Industries Ltd. reported in 1998 (97) E.L.T. 5 (S.C.) pleaded that since the yarn had been cleared for captive consumption after the processes of doubling/multi folding, the value of these processes would have to be included in the value of the yarn. He in respect of appeal No. E/3185/2005 filed by the Revenue, pleaded that the Commissioner has erred in excluding the expenses incurred in the process of winding and singeing while arriving at the value of the double/multi folded yarn and that the penalty imposed by the Commissioner is too low.
5. We have carefully considered the submissions from both the sides and perused the records.
6. The duty demand in this case is for the period from 1995-1996 to 2000-2001 in appeal No. E/300-305/2005-EX (DB) and the duty demand has been demanded on -
(a) the spun yarn of Chapter 52 and 55 of the Central Excise Tariff on the spindles which had been subjected to the processes of winding/cheese winding and singeing and doubling/multi folding prior to being used captively for manufacture of fabrics ; and
(b) on the manmade spun yarn of Chapter 55 purchased from outside which had been subjected to the above processes before being used in the manufacture of fabrics.
6.1 In the appeal No. E/556/2008, the duty demand of Rs. 1,79,269/- is for the period from 16/03/95 to 31/03/95 on the manmade spun yarn which had been subjected to the process of winding before being used for weaving of fabrics within the factory.
6.2 The demands have been raised on the basis that the processes of winding/ reeling, warping, doubling/multi folding, dyeing, sizing, beaming etc. amounts to manufacture and therefore when single ply yarn manufactured in the factory or purchased from outside is subjected to these processes, the duty would be chargeable on the yarn subjected to these processes. In respect of the yarn manufactured in the factory, the duty has been demanded on the quantity of the yarn at the spindle stage i.e. on the quantity of the yarn on the bobbins, which had been accounted for in the RG-1 register, but on the value including the value of the processes of winding/cheese winding, singeing and doubling/multi folding, as according to the Department, this yarn is to be treated as having been cleared for weaving after being subjected to these processes and, therefore, in view of judgment of the Apex court in the cases of Sidhartha Tubes Ltd. vs. CCE (supra) and Union of India vs. J.G. Glass Industries Ltd. (supra), the assessable value would include the cost of these processes. While the Commissioner in the impugned order had held that the cost of winding/cheese winding and singeing would not be includible in the value of the yarn, this finding of the Commissioner has been challenged by the Revenue on the ground that since these processes have to be undertaken before subjecting the yarn to doubling/multi folding, the cost of these processes would also have to be included in the assessable value of the yarn. The appellant on the other hand relying upon the Apex Court judgment in the case of CCE, Jaipur vs. Banswara Syntex Ltd. reported in 1996 (88) E.L.T. 645 (S.C.) plead that single ply yarn at the spindle stage after it has been spun, is a fully manufactured product and, hence, is liable to excise duty at that stage only and subsequent doubling and multi folding of single ply yarn does not bring into existence a new excisable product and hence no duty would be leviable at that stage. The appellant also plead that since in this case, the single ply yarns were duty paid and had been used in the manufacture of fabrics, the processes of doubling/ multi folding or subjecting the same to beaming, warping, wrapping, winding or reeling or any one or more of these processes with or without the aid of power would be fully exempt from duty in terms of exemption Notification No. 35/1995-CE dated 16/03/1995 and its successor exemption notifications.
7. Coming first to the appeal No. E/556/2008, the duty demand of Rs. 1,79,269/- in this case is on the yarn of Chapter 52 and 55 manufactured in the unit which during the period from 16/03/95 to 31/03/95 was subjected to the process of winding before being captively used for weaving of fabrics. The duty demand is on the weight of the yarn at spindle stage and the duty has been demanded on the cost of winding on the ground that subjecting the yarn to the process of winding i.e. transferring the same from the bobbins to the cones amounts to manufacture. We find that during the period prior to 16/03/1995 there was Chapter Note 1 to Chapter 52 which provided that in relation to the products of heading 52.03 and 52.04, sizing, beaming, warping, wrapping, winding, reeling or any one or more of these processes or conversion of any form of the said product to the another form of such product shall amount to manufacture and the duty on the sized yarn shall be charged on the basis of its weight before sizing and there was similar chapter note in respect of spun yarn, manmade staple fibers in Chapter 55. However, w.e.f. 16/03/95 Chapter Note 1 of Chapter 52 was replaced by a new note providing that in relation to the products of heading 52.04, 52.05 and 52.06 the process of printing, bleaching, mercerizing, twisting, texturising, doubling, multi folding, cabling or any other process or any one or more of these processes or the conversion of any form of the said product into another form of such product shall amount to manufacture. Similar amendment was made w.e.f. 16/03/95 in the corresponding Chapter Note of Chapter 55. Thus, w.e.f. 16/03/95, the process of winding i.e. transferring the yarn from bobbins to cones was no longer a process of manufacture. In view of this, there is no question of adding the cost of winding by charging duty on the spun yarn at spindle stage. The impugned order, therefore, upholding the duty demand of Rs. 1,79,269/- is not sustainable and the same is liable to be set aside.
8. Coming to the appeals No. E/300-305/2005 EX (DB) filed by the appellant company and appeal No. E/3185/2005-EX (DB) filed by the Revenue, the dispute in these appeals is as to whether during the period from 1995-1996 to 2000-2001
(a) while charging duty on the single ply yarn at the spindle stage and which had been used in the factory for weaving, the cost of doubling/multi folding is to be added ; and
(b) whether during the above period, in respect of manmade spun yarn of Chapter 55 purchased from the market and which had been used for weaving after subjecting the same to the process of doubling/multi folding, the duty is to be charged on the value of the doubling/multi folded yarn.
8.1 We find that for this period, in terms of the Chapter notes to Chapter 52 and 55 the doubling/multi folding of single ply yarn was to be treated as process of manufacture. However, the duty demand on the yarn manufactured in the unit and at the spindle stage, i.e. yarn on bobbins which was in fully finished condition and whose quantity has been accounted for in the RG-1 register, by adding to its value, the value of subsequent processes winding/cheese winding/singeing and doubling/multi folding would not be sustainable, as when the single ply yarn is in fully finished condition at the spindle stage and is issued for weaving, it has to be treated as having been cleared at that point of time and hence the cost of subsequent processes which are the processes preparatory to weaving, cannot be added to the cost of yarn, even though those processes may amount to manufacture. Moreover, the subsequent processes winding, doubling or multi folding are fully exempt from duty in terms of Notification No. 35/95-CE and successor exemption Notifications No. 8/96-CE, 4/97-CE, 5/98-CE, 5/99-CE, 6/2000-CE and 3/2001-CE subject to the condition that the processes have been carried out on the duty paid yarn which is meant for weaving of fabrics within the factory and in these cases it is not in dispute that the single ply yarn was duty paid and the same had been used within the factory for weaving. The judgments of Apex Court in cases of Sidhartha Tubes Ltd. vs. CCE (supra) and Union of India vs. J.G. Glass Industries Ltd. (supra) relied upon by the Commissioner would be applicable only if the assessee had cleared the doubled/multi folded yarn for sale, which is not the case here. Since doubled/multi folded yarn is cleared for captive consumption within the factory for manufacture of fabrics the cost of winding, singeing, and doubling/multi folding gets included in the cost of fabrics which is cleared on payment of duty. Duty on cost of these processes cannot be charged at single yarn stage by including the cost of these processes in the value of yarn at the spindle stage. We, therefore, hold that the duty demand confirmed by the Commissioner by the impugned order is not sustainable and for this reason, there is also no merit in the appeal filed by the Revenue.
9. In view of the above discussion, while the appeal Nos. 300-305/2005 EX (DB) and 556/2008 EX (DB) filed by the appellant company are allowed, the appeal No. E/3185/2005-EX (DB) is dismissed. The miscellaneous application No. E/M/513/2011 for early hearing also stand disposed of.
(Order pronounced in the open court on 23/07/2014.) (Justice G. Raghuram) President (Rakesh Kumar) Member (Technical) PK ??
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