Customs, Excise and Gold Tribunal - Delhi
Collr. Of C. Ex. vs Nirlon Synthetic Fibres And Chemicals ... on 25 June, 1997
Equivalent citations: 1997ECR385(TRI.-DELHI), 1997(95)ELT407(TRI-DEL)
ORDER K. Sankararaman, Member (T)
1. This appeal has been referred to the Larger Bench by the Bombay Bench as they were of the opinion that the earlier decision taken by that Bench in Collector of Central Excise v. Reliance Textile Pvt. Ltd. 1986 (26) E.L.T. 227 (Tribunal) holding that partially oriented Polyester Filament Yarn is finished excisable goods and hence it was not permissible under Rule 56B of Central Excise Rules, 1944 (Rules, for short) to remove the same without payment of duty to other premises for carrying out processing there requires to be reconsidered by a Larger Bench as they felt prima facie that a contradiction is involved in such a decision. It was stated by the referring Bench that if by "excisable goods" reference is to the condition of goods at the time when they are sought to be removed, it can be said that all such goods are finished goods since they are excisable and therefore necessarily marketable. The Bench which decided the aforesaid Reliance case had, in the opinion of the referring Bench, not noticed this contradiction. The question for consideration would be what exactly the Rule making authority had intended to lay down and whether it was intended that excisable goods at the stage when the full manufacturing processes were not over, though the goods have attained marketability and excisability, should be within the ambit of Rule 56B or not. It was felt that the matter had not been considered from this perspective in the aforesaid Reliance case. It was contended before the referring Bench on behalf of the respondents that the aforesaid decision required reconsideration in the light of a subsequent judgment of the Bombay High Court in Orkay Silk Mills Pvt. Ltd. v. Union of India 1989 (43) E.L.T. 265 (Bom.). While referring the question to the Larger Bench, the Bench, however, observed that in the Orkay Silk Mills case, the applicability or otherwise of Rule 56B was not under challenge and was not under consideration.
2. The facts leading to the aforesaid reference to the Larger Bench are given below:
3. The respondent, a manufacturer of Man-made Filament Yarn classifiable under Tariff Item 18 at the material time had applied to the Collector of Central Excise on 7-4-1980 for permission under Rule 56B to clear Nylon Filament Yarn (Flat Yarn) to the premises of M/s. Western India Texturisers Ltd. for the purpose of crimping. The application was rejected by the Collector by his order dated 3-6-1980 on the ground that the goods going for processing were not in the nature of semi-finished goods. The order was reiterated by a letter dated 17-7-1980 in reply to the respondent's solicitor's letter dated 14-6-1980. The respondent thereupon filed a writ petition in the Bombay High Court. After interim order allowing removal of the Nylon Flat Yarn under the Provisions of Rule 56B on execution of a Bond, the writ petition came up for hearing and final disposal on 18-1-1984. The petition was allowed to be withdrawn and it was ordered that the Assistant Collector should hear the respondent and issue fresh orders on merits. Accordingly the Assistant Collector granted hearing when it was contended that Flat Yarn must be considered semi-finished as it still required texturising before ultimate removal. The expression excisable goods as defined in Section 2(d) of the Central Excise Act, 1944 meant goods specified in the Tariff Schedule and must refer to goods in a finished state viz..marketable goods. However, as Rule 56B uses the expression "excisable goods in the nature of semi-finished goods" it was contended that the said Rule provided for the facility of carrying out certain further manufacturing process to excisable goods which, though in a finished state, require to be considered as semi-finished vis-a-vis the ultimate product, in this case, texturised yarn. If this interpretation is not given, it was contended, Rule 56B(1) will become redundant and meaningless. The Assistant Collector, however, rejected the contention holding that the words "in the nature of semi-finished goods" refer to those goods which have attained some of the essential features of a particular commodity but not all of them viz. goods requiring some further manufacturing activity to fit it in a particular Tariff Item/sub-item and that Rule 56B does not contemplate the facility of removal without payment of duty of goods, claiming them to be in the nature of semi-finished goods vis-a-vis any other fully manufactured product. He observed that if the Rule 56B were to be interpreted as claimed, it would be quite open for a manufacturer of metal sheets to claim that such sheets are in the nature of semi-finished goods vis-a-vis metal containers and claim the facility under Rule 56B. He thus saw an illogicality in the contention that the words "semi-finished goods" are purely relative to the end product. He, therefore, held that Nylon Flat Yarn and texturised Yarn are two distinct commodities known in the market and hence Nylon Flat Yarn will have to discharge duty liability before it is removed for manufacturing another distinct commodity viz. texturised yarn. Nirlon's interpretation that flat yarn is excisable goods in the nature of semi-finished goods which can be removed prior to payment of duty for the purpose of texturising would render the provisions of Rules 9 and 49 nugatory, according to the Assistant Collector. No exemption has been issued by the Government providing for the removal of Flat Yarn without payment of duty leviable thereon. As Nirlon's interpretation of Rule 56B renders Rules 9 and 49 nugatory, that has to be rejected, concluded the Assistant Collector and rejected their application dated 7-4-1990 on the ground that the goods going for processing are not in the nature of semi-finished goods.
4. Aggrieved with the order, Nirlon, respondent herein preferred an appeal before the Collector of Central Excise (Appeals). He noted that as POY (Partially Oriented Yarn) is used not only for their own use but also sold to various outside customers, it can be regarded as both semi-finished and finished. Where it is required for their own use after texturisation for purposes of weaving, then POY can be treated as semi-finished goods and hence he held that the facility of 56B can be extended to that portion of POY which is sent out for purposes of texturisation. He observed that the said Rule contemplates goods in the nature of semi-finished goods being taken out of the factory for carrying out certain manufacturing processes and texturising happened to be one such process where POY is made into textured yarn. He held that the Rule did not stipulate denial of the facility merely because the goods jumped from one sub-item to another by virtue of their undergoing certain process of manufacture. He accordingly allowed the appeal.
5. The present appeal by the Collector challenges the above said order. The issues raised in the appeal, as stated in the EA-3 form, are -
1. Whether Nylon Filament Yarn (POY) are finished goods or semifinished goods.
2. Whether permission under Rule 56B can be given for "in bond" removal of POY.
It has been urged in the appeal memorandum that merely because the Nylon Filament Yarn, POY is used to manufacture some other goods it cannot be said to be in semi-finished condition. The process of texturising only strengthens the product POY for being used for weaving/knitting and it would not change the nature from finished to semi-finished nature. The point of recovery of Central Excise duty cannot be postponed, it has been contended. Support has been sought from the decision of the Tribunal in Collector of Central Excise, Bombay-Ill v. Reliance Textile (P) Limited -1986 (26) E.L.T. 227. It has, therefore, been pleaded that the order-in-appeal be set aside and the order-in-original restored.
6. Appearing for the appellant Collector, Shri B.S. Ganu, Joint Chief Departmental Representative reiterated the plea that the goods in question are not semi-finished goods to qualify for the benefit under Rule 56B. He handed over photocopies of relevant pages of Fair Child's Dictionary of Textiles to explain the terms crimping, crimped yarn, Drawing (of yarn), Draw-texturing, partially drawn yarn and Textured yarn. He supported the order of the Assistant Collector and pleaded that the same be restored setting aside the order of the Collector (Appeals). He stated that Nylon Flat Yarn, the goods in question, fell under erstwhile Tariff Item 18II(i)(a) as other than textured yarn while textured yarn fell under 18(II)(1)(b). The Flat Yarn is fully manufactured goods falling under 18II(1)(a) and cannot be taken to be semi-finished for the purpose of Rule 56B. Shri Ganu submitted that POY is technologically semi-finished but commercially a finished product. Under Rule 56B, finished goods can be cleared without payment of duty from the manufacturer's premises only for the purpose of carrying out tests. Only semi-finished goods can be removed for carrying out certain manufacturing processes. He supported the finding of the Assistant Collector that permitting the Nylon Filament Flat Yarn to be removed without payment of duty for the purpose of texturing will go against Rules 9 and 49 of Central Excise Rules. He submitted that the expression semifinished goods would refer to intermediate goods, a stage between the raw material and finished goods, requiring certain process of manufacture to reach the finished goods stage. He referred to the judgment of Supreme Court in Tata Iron and Steel Co. Ltd. v. Collector of Central Excise 1995 (75) E.L.T. 3 wherein it had been held that semi-finished product is one which requires some further work or treatment to become serviceable. Shri Ganu then referred to the judgments of High Court of Bombay in Reliance Textile Industries 1993 (63) E.L.T. 67 and of the High Court of Allahabad in Lohia Machines Ltd. v. Union of India 1987 (28) E.L.T. 234. In the latter case, it was held that Nylon Filament Yarn partially oriented is not semi-finished goods but commercially known as goods and is saleable as such. It is a manufactured product attracting excise duty. It was then held by the High Court that Rule 56B was not applicable to the case in question before them and that duty was not deferable till the stage of texturisation. Shri Ganu also referred to the following Tribunal decisions regarding the scope of Rule 56B :-
(i) Pondy Wire Fabricators v. Collector of Customs and Central Excise, Tiruchirapalli -1985 (22) E.L.T. 809 (Tribunal), (ii) Coastal Gases and Chemicals Pvt. Ltd., Vishakapatnam v. Collector of Central Excise, Guntur -1988 (33) E.L.T. 437. (iii) J.M.C. Industries v. Collector of Central Excise, New Delhi - 1991 (53) E.L.T. 321.
(iv) Collector of Central Excise v. Reliance Textiles Pvt. Ltd. -1986 (26) E.L.T. 227 (Tribunal),
(v) Collector of Central Excise, Bombay-Ill v. Orkay Polyester - 1987 (28) E.L.T. 100. Same decision by the Tribunal as in the Reliance case referred to supra.
(vi) Universal Cables Ltd. v. Collector of Central Excise - 1991 (56) E.L.T. 416.
Tribunal had held that copper wires could not be sent under Rule 56B by the manufacturer to another factory for being insulated. Earlier decision of Tribunal in Reliance Textiles Pvt, Ltd. followed. Reference made to High Court whether Tribunal was right in holding that Rule 56B facility was not applicable for movement of base copper wire without payment of duty to another factory for insulation and bringing back.
Shri Ganu contended that Rule 56B has to be read in conjunction with Rules 9, 49, 50 and other Rules. The first two Rules, after amendment in 1982 and made retrospectively applicable, require the payment of duty on excisable goods even if removed within the factory of manufacture for the manufacture of other excisable goods. Rule 56B does not use the words "Notwithstanding anything stated in Rules 9 and 49" and hence these Rules 9 and 49 will have to be applied and duty will be payable on POY and the facility of removal without payment of duty under Rule 56B will not be available. He pleaded that the appeal be allowed and the Assistant Collector's order restored setting aside the impugned order in appeal.
7. The submissions were resisted by Shri N.A. Dalvi, learned counsel for the respondents. He relied upon the judgment of the High Court of Bombay in Orkay Silk Mills Pvt. Ltd. v. Union of India reported in 1989 (43) E.L.T. 265. He referred to their application made for the facility under Rule 56B and stated that the material, Nylon Filament Flat Yarn for which they wanted the said facility continued to be Nylon Filament Yarn even after undergoing the process and no change in the Tariff Classification (main item) was involved. Such Flat Yarn is semi-finished as it has to undergo further finishing. He contended that Flat yarn is not usable as such and it requires to be further finished before it becomes suitable for such use. Such further finishing is by the process of crimping to convert the Flat yarn which is partially oriented yarn (POY) into Fully Oriented crimped yarn. Only after such crimping can Nylon Filament yarn be used for weaving or for making hosiery. He pointed out that the facility under Rule 56B is provided for in respect of excisable goods and is available only for excisable goods which, by definition in Section 2(d) of the Act, covers goods specified in the Tariff as subject to duty of excise. Such goods, specified in the Tariff which are subject to excise duty are necessarily marketable. It is movement of such goods without payment of duty for purpose of further processing that is specifically provided for under the said Rule. Rule 56B provides for permission to be granted for removal of excisable goods without payment of duty for the purposes specified in the Rule where such excisable goods are in the nature of semi-finished goods. Learned Counsel submitted that the use of the expression "in the nature of" has been interpreted by the Supreme Court in G. Venkatasivami Naidu & Company v. Commissioner of Income Tax reported in AIR 1959 SC 359. It was observed by the Supreme Court that when Section 2 Sub-section 4 of the Income Tax Act refers to an adventure in the nature of trade, it clearly suggests that the transaction in question cannot properly be regarded as trade or business. It is allied to transactions that constitute trade or business but not trade or business itself. It is characterised by some of the essential features that make up trade or business but not by all of them. It was hence pleaded by the learned counsel that the expression excisable goods in the nature of finished goods should be understood in this context. POY does not cease to be semi-finished because it is also sold to buyers. He referred to Notification 55/78-C.E., dated 1-3-1978 under which partial exemption was granted for Textured Yarn produced out of Base Yarn. The exempted or effective rate on such Textured yarn has been specified in the Notification as the duty for the time being leviable on the Base Yarn, if not already paid, plus Rs. Five per Kilogram. Base yarn has been defined as yarn falling under sub-item II(i)(a) of Item No. 18 of the Central Excise Tariff from which textured yarn has been produced. The learned counsel then referred to the judgment of the High Court of Allahabad relied upon by the Joint Chief Departmental Representative in support of the stand taken in the Collector's Appeal that POY is not semi-finished goods but a final product not eligible for the benefit of Rule 56B and submitted that the said decision was distinguishable, he pointed out that the Court had in the said case only gone into the question whether POY was marketable. Whether non-marketability is a prerequisite for semi-finished goods was not considered or decided. Such a meaning is not attributable to Rule 56B. Partially Oriented Yarn (POY) is the same as Flat Yarn, he contended and referred to Sl. No. 8 of the appeal memorandum in the EA-3 form wherein the questions raised are whether Nylon Filament Yarn POY is finished goods or semi-finished goods and whether permission under Rule 56B can be given for in bond removal of POY. This will go to show that the department understands Nylon Flat Yarn to be POY.
8. Giving a rejoinder to the points raised by the learned Counsel, Shri Ganu, Jt. Chief Departmental Representative stated that Nylon Filament POY is different from Nylon Filament Flat Yarn. Only POY is used for texturing while Nylon Filament Flat Yam has got a number of uses. He produced a copy of the report received by the Commissioner of Central Excise, Surat from the Man-made Textiles Research Association, Surat wherein it has been stated that Nylon Filament Yarn (Flat Yarn) can be used for weaving without first subjecting it to crimping. The fabrics for which it is used have been stated to be domestic textiles like curtains and upholstery and some varieties of Sarees like flat-woolly, dupatta cloth and industrial fabrics like bolting fabrics and filter cloth.
9. We have considered the submissions of both the sides. We have perused the record as also the decisions cited before us. We notice that the application made under Rule 56B before the Collector by the respondents refers to Nylon Filament Flat Yarn as the semi-finished goods for which permission was sought to clear without payment of duty. The Assistant Collector rejected the application, referring to the item as Nylon Filament Flat Yarn. The Collector (Appeals) before whom the respondents filed the appeal challenging the Assistant Collector's order, however, introduced the term TOY' and passed his order with reference to POY and allowed the appeal. In the present appeal filed against the said order in appeal, the reference is again to POY as the goods sought to be removed without payment of duty. In the cases cited by the Chief Departmental Representative in support of the appeal also, the goods in question were POY. In none of the decisions cited has Nylon Filament Flat Yarn been the centre of controversy and decision. The impugned order-in-appeal, the present appeal memorandum and the department's contentions seeking support from the Tribunal decisions in Collector of Central Excise v. Reliance Textiles Pvt. Ltd. 1986 (26) E.L.T. 227 and Collector of Central Excise v. Orkay Polyester 1987 (28) E.L.T. 100 and the Allahabad High Court judgment in Lohia Machines Ltd. v. Union of India 1987 (28) E.L.T. 27 point to a perception in the minds of the departmental authorities also about Nylon Filament Flat Yarn and Partially Oriented Yarn POY being the same product. While the learned counsel for the respondents adopted that approach during his arguments, the Joint Chief Departmental Representative in his rejoinder argument contended, however, that the two are different. In support of the contention he submitted a copy of the opinion given by the Man-made Textiles Research Association, Surat in response to a query addressed by the Commissioner of Central Excise, Surat. The Association has opined that POY and Nylon Filament Yarn (Flat Yarn) are not one and the same and that while POY indicates the degree of orientation of the molecules in the resulting filament yarn, Nylon Filament Yarn (Flat Yarn) is descriptive of a polyamide fully drawn untextured continuous filament yarn. It is stated that in general commercial textile processing, POY is to be first converted into a fully drawn flat yarn or textured yarn before it is used for weaving or knitting. The Association has also answered the query whether Nylon Filament Flat Yarn can be used for weaving without first subjecting it to crimping etc. with the opinion that Nylon Filament Flat Yarn can used for weaving without first subjecting it to crimping. The fabrics can be wearable as well as non-wearable like flat woolly sarees and dupattas and curtain, upholstrey and industrial fabrics like bolting fabrics and filter cloth. This opinion has been relied upon by the Joint Chief Departmental Representative to counter the point made by the learned counsel for the respondents that Flat Yarn cannot be used directly for weaving or knitting purposes without first converting it into crimped or textured yarn in the first instance and hence they were in the nature of semi-finished goods within the meaning of Rule 56B. As this controversy regarding the identity of the goods for which the benefit of Rule 56B had been sought has come to the fore at the stage of hearing, it has become necessary to know whether Nylon Filament Flat Yarn is the same as Partially Oriented Yarn or different therefrom.
10. The manufacturing process involved in the manufacture of the subject Yarns was considered by the Tribunal in Collector of Central Excise v. Mafatlal Fine Spg. & Wvg. Co. 1989 (40) E.L.T. 176. The respondent received POY and subjected it to the process of draw texturising. The resulting product was textured yarn, with a lower denierage. The department denied them benefit of exempted rate under Notification 55/78 available to textured yarn manufactured from duty paid base yarn on the ground that POY was not the base yarn but it was first converted into Fully Oriented Yarn which only constituted the base yarn. Such Fully Oriented Yarn was of lower denierage attracting, on that account, a higher rate of duty than POY. This stand was rejected by the Tribunal holding that POY gets converted into Textured Yarn in the combined draw texturising process and that Fully Oriented Yarn did not come into existence independently or separately before the texturising process was completed. The affidavit sworn by the Weaving Superintendent of the respondents in the said case was referred to by the Tribunal in the following paragraph :-
"POY is manufactured from any polymer which can be melt-spun, e.g. polyester, nylon, polypropylene etc. These polymers are normally available in the form of chips. These chips are melted in the spinning head by hot grid and the polymer melt is then passed through spinnerettes to get filaments. The filaments are solidified with the help of chilled air and are wound at a speed of around 2500 to 4000 mts/min on a suitable package. The POY has a residual draw ratio of around 1 to 1.8 and its shelf life is 3 to 6 months. The POY is subjected to drawing and stretching processes in a draw-texturising machine in which drawing and texturising operation is carried out simultaneously in the drawing operation, the POY is stretched by 2 to 3 times its original length and the resultant denier of the draw-texturised yarn is less than that of the POY. It is also stated in the affidavit that in the process of draw-texturising it is neither possible to obtain POY separately on the machine for being sold as such, nor is it possible to measure the denier of the 'base yarn' (presumably meaning the stretched yarn) during the operation once the POY is put in the draw-texturising machine. It is further stated that if one wants to produce POY directly, it could be done by increasing the spinning (winding speed of the spinning system) from 4000 to more than 6000 mts/min. FOY can also be obtained from POY by further drawing the latter to about 1.8 times its original length on a drawing machine. Both POY and POY can be texturised. Where FOY can be texturised without the process of stretching or drawing on a texturising machine, and there is no reduction in the denierage of the FOY on being converted into texturised yarn, POY can be converted into texturised yarn only by putting it through simultaneously the process of drawing and texturising in a draw-texturising machine. The affidavit filed on behalf of the Department does not set out the process in detail but it does not contain anything which contradicts the averments in Shri Desai's affidavit."
The difference between Partially Oriented Polyester Filament Yarn and Fully Oriented Polyester Filament Yarn had been considered by Collector (Appeals) in the Reliance Textiles Pvt. Ltd. case decided by the Tribunal. The Collector had taken note of the article "Polyester Fibres - High Speed Melt Spinning by Dr. G.W. Davis, Dr. A.E. Everge and Dr. J.R. Taibot in an International magazine and drew a distinction between POY and FOY and held that POY is semifinished. He further observed that the process of further drawing and tex-turisation is a must before the yarn is put to end use. The affidavits of a trader and a trader cum Actual User filed by the respondent, Reliance were also referred to by him wherein it had been explained that unlike Fully Oriented Polyester Filament Yarn, POY is to necessarily undergo further process of drawing and texturising before being put to use for manufacturing woven or knitted fabrics. It was, therefore, held by the Collector that while Fully Oriented Yarn is a direct raw material for weaving and knitting fabrics, POY is only semi-finished goods and becomes a raw material only after further drawing and texturisation. Though this decision was reversed by the Tribunal, the Collector's order has been referred by us to bring into focus the identity and use of Partially Oriented Yarn vis-a-vis Fully Oriented Yarn in the light of the contentions raised by the Joint Chief Departmental Representative and the technical opinion given by the Man-made Textiles Research Association. The Collector's observations on the difference between POY and FOY are in conformity with the contents of the affidavit filed on behalf of Mafatlal Fine Spg. & Wvg. Co. in the appeal referred to above. Reading the said affidavit and the opinion of the Man-made Textiles Research Association together, it appears that if Flat yarn, is not POY but different therefrom, it is FOY or Fully Oriented Yarn which is stated to be technically capable of being used directly for the manufacture of fabrics without the necessity of being textured or crimped. Examining the original application of the respondent in the present case, made before the Collector for availment of the facility under Rule 56B in the light of the above position we find that the alleged semi-finished goods for which the said facility was sought was described as Nylon Filament Yarn (Flat Yarn) and the finished product as crimped yarn, the process involved being described as crimping. There is no mention in the application as to whether the material to be removed under Rule 56B was Partially Oriented Yarn or Fully Oriented Yarn. Since the application sought by the respondent was for the purpose of crimping and since FOY is capable of being produced directly from Polymer Filament by winding at higher speeds as has been come out in the affidavit of Mafatlal referred to earlier, it is likely that the respondent manufactured Flat Yarn which is Fully Oriented Yarn which was sought to be sent out for being processed into textured yarn. Such processing, as has come out in the Mafatlal affidavit and in the Reliance decision referred to above, is a technological possibility. If, however, we go by the arguments on behalf of the respondent that their material sent out under Rule 56B was POY, then their mention of Nylon Filament Flat Yarn in their application was a mistake.
11. From the above analysis it will be seen that POY is formed at an earlier stage before Flat Yarn or Fully Oriented Yarn and that textured yam can be produced either from POY directly by a simultaneous process of draw-texturising or from Fully Oriented Yarn or Flat Yarn. Flat Yarn represents a more advanced stage as compared to POY and it can be used not only for being converted into Textured yarn before being put to use for weaving purposes but also for weaving purposes, for certain restricted type of fabrics, directly even without being texturised. The Tribunal decisions in the Reliance and Orkay cases as well as the judgment of the High Court of Allahabad in the Lohia Machines case laid down that POY itself is not semi-finished goods but a finished product and hence not eligible for the benefit available under Rule 56B. In view of the same, the position of Fully Oriented Yarn or Flat Yarn which is a more advanced product than POY and which is capable of direct use for weaving purposes is even more pronounced as a finished product and not semi-finished goods and hence outside the purview of Rule 56B.
12. We find that as against the stand of the department in the above mentioned three decisions, the department has allowed the movement of POY without payment of duty under Rule 56B to outside premises for processing into another product. The Tribunal decision reported in 1992 (61) E.L.T. 722 (Tribunal) arose from the permission granted to the present respondents themselves for removal of Polyester Yarn under Rule 56B for the purpose of texturising; such processing was carried out in the premises of M/s. Western India Texturisers Ltd. which is the same concern to which the Flat Yarn in question in the present case was sought to be removed. In that case, Nirlon, the present respondent had obtained permission in April, 1981 under Rule 56B for such a purpose. The controversy, however, arose as the department wanted to demand duty on the waste that had arisen during the texturing process at the rate applicable to POY. This stand was held by the Tribunal to be wrong. Also, in the case of Orkay Silk Mills Pvt. Ltd. v. Union of India -1989 (43) E.L.T. 265 decided by the High Court of Bombay which case has been relied upon by the respondent in support of the plea that their goods are semifinished and entitled to the facility under Rule 56B, POY was permitted to be removed under Rule 56B for the purpose of texturising. The dispute was only in respect of the duty payable on the textured yarn for applying the exempted rate under the relevant Notification which provided for the appropriate exempted rate including the duty payable on the base yarn, if not already paid. Thus the Tariff itself provided for clearance of POY without payment of duty which duty was taken care of while paying the duty on the textured yarn made therefrom. The department's practice as in the abovementioned Mafatlal and Orkay cases coupled with the aforesaid duty rate structure would appear to be compatible with the interpretation of Rule 56B as claimed by the respondent.
13. As against the cases of this type where the facility under Rule 56B had been allowed for POY, there are other cases where the manufacturers had cleared POY on payment of duty to an outside place for the purpose of texturising. The disputes arose in such cases as the department wanted to levy more duty on such POY. These cases include the following :-
(1) Collector of Central Excise v. Mafatlal Fine Spg. & Wvg. Co. -1989 (40) E.L.T. 176.
(2) Reliance Textile Industries Ltd. v. Union of India -1993 (63) E.L.T. 67.
In the former case which has already been referred to in paragraph 10 supra, the dispute was about the applicability of exemption Notification 55/78, dated 1-3-1978 in respect of Textured Yarn. The Notification provided that for Textured Yarn produced out of Base Yarn, the rate of duty will be the duty leviable on the Base Yarn if not already paid plus five Rupees per Kilogram. The department held that duty was due on the Fully Oriented Yarn obtained in the course of conversion of POY into Textured yarn by the draw-texturising process. This stand did not find favour with the Tribunal. The case is referred to here only to take note of the fact that POY was cleared on payment of duty and Rule 56B facility was not sought by the manufacturer.
14. In the second case above (Reliance) which was decided by the High Court of Bombay. POY had been cleared for sale to customers on payment of duty besides removing certain quantity of POY under Rule 56B to the appellant's own factory in another place. The dispute was only in respect of the sales to others of POY on which appropriate duty had been paid. The department, however, demanded differential duty on such POY holding that duty on POY was actually leviable at the rate applicable to Textured Yarn. This was held to be clearly erroneous. The Court, while coming to the said conclusion, observed that it was futile to suggest that base yarn is an independent product used for bringing into existence the final product of textured yarn and that the tariff entry clearly established that base yarn is a product which comes into existence on manufacture and is liable to excise duty. Duty liability arose as soon base yarn came into existence which was cleared from the factory. The duty payable is on the basis that the manufactured product is base yarn. It was brought to the notice of the Court by the counsel for Reliance that in an earlier case the Tribunal had upheld the department's decision rejecting the claim of Reliance that the liability to pay duty on the base yarn stood postponed till the textured yarn came into existence. The Court was, however, not called upon to decide that dispute.
15. Arguments have been addressed before us regarding the scope of Rule 56B in its application in the present case. On behalf of the appellant Collector the plea is that the facility thereunder is applicable to only semifinished goods for being removed to another premises for carrying out certain manufacturing process there and that such a process would not cover conversion of the Flat Yarn which was classifiable under Tariff sub-item 18-II(i)(a) into Textured Yarn which is another product classifiable under a different Tariff sub-item 18-II(i)(b). The rival submission in this regard on behalf of the respondent is that the yarn before and after the texturising process fall under the same Tariff Item and that the Nylon Filament Flat Yarn is semi-finished goods and its conversion to Textured Yarn is within the scope of the manufacturing process permitted under the Rule. We find that Rule 56B as it stood originally at the time of the application made by the respondent provided for the removal of excisable goods which were in the nature of semi-finished goods to another premises for completion of certain manufacturing processes. This would mean that some manufacturing process had already been started which has led to the emergence of the semi-finished goods and the process or processes should be completed in the other premises. After the Rule was amended with effect from 31-1-1981 the purpose of removal was amended to refer to carrying out certain manufacturing processes. The restricted purpose of completion of certain manufacturing process had been modified to refer to carrying out certain manufacturing process. This appears to be an enlargement of the facility available earlier with its accent on "completion of process". The question is whether conversion of the untextured yarn to textured yarn can be said to be the completion of the manufacturing process for the purpose of the Rule as it stood before 31-1-1981 or for the purpose of carrying out certain manufacturing process within the ruling of the said rule after the amendment dated 31-1-1981. We are inclined to hold that as far as Flat Yarn is concerned though it is capable of direct use for manufacturing certain products as well as amenable to tex-turising or crimping process to yield textured or crimped yarn, the process of such texturising or crimping will satisfy the purpose specified in the rule both before and after the amendment. The applicability of the Rule is, however, to be decided taking into consideration the primary question whether the goods are semi-finished. It is here the judgment of the High Court of Allahabad in the Lohia Machines case comes into focus.
16. The judgment of the High Court of Allahabad in Lohia Machines Ltd. v. Union of India 1987 (28) E.L.T. 234 (All.) is apposite in the present matter. In that case which has been referred to earlier, the petitioner challenged the decision of the authorities denying the continuation of the facility of Rule 56B for removal of POY for the purpose of texturising in an outside premises. The Court held that POY has a distinctive name, character and use and was not semi-finished goods but, on the other hand, known to the market as goods and saleable as such. The Court also rejected the contention that Rule 56B was applicable and that duty was liable to be deferred till POY was texturised. It was held that Rule 56B being applicable only to semi-finished goods duty on POY was not liable to be deferred till the stage of texturisation.
17. Learned counsel for the respondent contended that this judgment of the Allahabad High Court did not lay down that non-marketability is a requirement for treating any goods as semi-finished. We do not agree. The Court's finding that POY, being a marketable prodvict and in fact marketed, was not semi-finished goods would imply that non-marketability is a criterion for semi-finished goods. We, therefore, reject this contention of the learned counsel for the respondent.
18. There is no contrary decision of any other High Court or Supreme Court brought to our notice on the issue of applicability of Rule 56B benefit to POY or Flat Yarn. The judgment of the High Court will apply to the present case. This will be the position whether the material in question is POY as claimed by the respondent (notwithstanding their mention of Flat Yarn on their application) or it is Fully Oriented Yarn. In the latter event, that material being one stage beyond POY which itself has been held to be not semi-finished goods, there is no case for holding it to be semi-finished.
19. It is to be noted incidentally, that apart from the issue whether the yarn in contention is semi-finished goods or not, there is the other question that the benefit of Rule 56B cannot be claimed by a manufacturer even for excisable semi-finished goods, as a matter of right. It is at the discretion of Collector that the facility may be allowed. Thus the Rule provides that "Collector may, by special order and subject to the execution of a bond by the manufacturer and subject to such other conditions as may be specified by him, permit a manufacturer ..." Thus the Collector may permit or he may not permit but where he permits he can impose conditions to be complied with by the manufacturer and ask for execution of a bond. These are required for safeguarding duty fallen due on the excisable semi-finished goods in question. The need for safeguarding such duty came to the forefront in the Western India Texturisers case, referred to earlier where POY removed under Rule 56B for texturisation gave rise to certain waste on which the duty leviable became an issue. The Rule provides for bond to be taken and conditions to be imposed where the facility is granted.
20. For the foregoing reasons we hold that the Collector (Appeals) erred in setting aside the order of the Assistant Collector and holding the present respondent to be eligible for the benefit of Rule 56B for removal of Nylon Filament Flat Yarn without payment of duty to another factory for the manufacture of crimped yarn. We set aside the impugned order and restore the order of the Assistant Collector.
U.L. Bhat, J. (President)
21. I have perused the order prepared by Shri K. Sankararaman (Member Technical), while I agree with the conclusion arrived at in the order, I would like to give my reasons separately.
22. Reference to Larger Bench was made on the ground that the decision of a two Member Bench of the Tribunal in Collector of Central Excise v. Reliance Textile Pvt. Ltd. -1986 (26) E.L.T. 227 (Tribunal) that Polyester Filament Yarn (POY) was finished excisable goods and, therefore, Rule 56B(1) of the Central Excise Rules, 1944 was inapplicable to POY required reconsideration as it was contended that the real meaning, context and content of the Rule was not considered by the Bench in that decision. The earlier decision took the view that POY was covered by an entry in the Excise Tariff and was, therefore, excisable and also marketable and hence it cannot be said to have the nature of semi-finished goods. The referring Bench indicated as follows :-
"It appears to us prima facie that there is a contradiction in this approach. If by "excisable goods" reference is to the conditions of goods at the time when they are sought to be removed, it can be said that all such goods are finished goods, since they are excisable and therefore necessarily marketable. The reported decision in Reliance Textile Pvt. Ltd. case did not notice this contradiction, if the interpretation that was accepted, was to be placed on the rule. It is for consideration as to what exactly the rule making authority intended to lay down, whether authority intended that excisable goods at the stage when the full manufacturing processes were not over, though the goods have attained marketability and excisability were within the ambit of the rule or not, is a matter, which in this perspective, was not considered earlier by the Tribunal."
23. Rule 56B of the Rules enables permission being granted for removal without payment of duty, inter alia, of excisable goods i n the nature of "semifinished goods" subject to the provisions and conditions therein. The application filed by the appellant, and the order originally passed by the Collector and subsequently passed by the Assistant Collector referred to the goods as Nylon Filament Yarn (Flat Yarn) and the purpose of removal was stated as "for crimping". When the Collector (Appeals) dealt with the case, he proceeded on the basis that the goods are POY. In the grounds of appeal in the present appeal, the department also proceeded on the same basis, though the statement of facts refers to the goods as NFY (Flat Yarn). In the appeal proforma, the questions posed by the department are :-
(i) Whether NFY (POY) is finished goods or semi-finished goods?
(ii) Whether permission under Rule 56B can be given for in bond removal of POY?
It was in this light that the referring Bench referred to the earlier decision of the Tribunal and a judgment of High Court of Bombay in regard to POY. Learned counsel for respondent indicated that respondent accepted that the goods sought to be removed under Rule 56B of the Rules was really POY. In the light of the above, it is not permissible for the department at the stage of hearing of the appeal to turn round and seek to draw a distinction between NFY (Flat Yarn) and POY and to contend that the subject goods were not POY but something different and while POY can be used only for texturing, NFY (Flat Yarn) has got a number of uses. Hence, it is unnecessary to consider the materials sought to be relied by the department to show that the NFY (Flat Yarn) and POY are different. Both parties have treated the two descriptions as interchangeable and referring to the same goods. We therefore proceed on the basis that the goods sought to be removed in this case under Rule 56B of the Rules was POY.
24. Reliance placed by the respondent on two decisions of the High Court of Bombay does not appear to be justified. In Orkay Silk Mills Pvt. Ltd. v. Union of India - 1989 (43) E.L.T. 265 (Bom. HC), the petitioner who was manufacturing POY was removing the same under permission granted under Rule 56B of the Rules to another unit and the question for decision related to the duty payable on the texturised yarn obtained from POY. The question whether or not POY is excisable goods of the nature of semi-finished goods falling under Rule 56B of the Rules did not arise for consideration and was not decided. It was held that POY being excisable and used for the purpose of texturising is base yarn for the purpose of Notification dated 11-5-1982 as it falls under Item 18-II(i) referred to in the Notification and, therefore, the petitioner was liable to pay duty at the rate of Rs. 66.25 (Rs. 61.25 + Rs. 5.00) per kg. Hence, this decision is not an authority for deciding the issue in the present appeal.
25. In Reliance Textile Industries Ltd. v. Union of India -1993 (63) E.L.T. 67 (Bom. HC) the question for consideration was the rate of duty applicable to POY in context of duty payable at the time of clearance tariff entry and exemption Notification. No question arose in the context of Rule 56B of the Rules. It was held that base yarn or non-textured yarn is distinct and different commodity from textured yarn and is not an intermediate product and rates of duty applicable are different. The conclusion was that duty payable was on the basis that POY is base yarn and at that juncture it is not permissible to levy duty on the basis that base yarn is textured yarn. Hence, this decision is not an authority for deciding the issue in the present appeal.
26. The issue arising for decision in the present case arose directly for consideration of the High Court of Allahabad in Lohia Machines Ltd. v. Union of India -1987 (28) E.L.T. 234 (All. HC). Petitioner made an application before the Proper Officer under Rule 56B of the Rules for permission to clear NFN commercially known as POY without payment of duty, for converting the same into textured yarn. The Proper Officer initially granted permission but withdrew it subsequently on the ground that POY is not in the nature of semi-finished goods. The withdrawal of permission was challenged in a writ petition. The High Court directed the Assistant Collector to decide the matter by a reasoned order. A reasoned order was passed holding that POY is known in trade circles as a distinctively identifiable commodity capable of being bought and sold as such and is not in the nature of semi-finished goods and must discharge duty under Rules 9 and 49 of the Rules before it is taken for texturising purpose. The High Court held as follows :-
"...it is amply clear that if a product which comes into existence at one stage is a product known to the market and is saleable as such it becomes a manufactured product which attracts excise duty. In the present case, the petitioner manufactures Nylon Filament Yarn from Caprolactum, which is the basic raw material. In our judgment, this new and different product i.e. POY has a distinctive name, character and use. This POY is, in our opinion, not semi-finished goods. On the other hand, it is commercially known to the market as goods and is saleable as such. It is thus a manufactured product which attracts duty.
... POY when sold without texturisation to consumers is excisable under Tariff Item 18(H)(i)(a).
... Rule 56B is not applicable to the case of the petitioner. The said Rule applies only to the case of semi-finished goods. Hence duty on POY is not liable to be deferred till the stage of texturisation."
The above decision which deals with POY is on all fours with the case at hand.
It is argued for respondent that the above decision did not advert to the significance of the words "in the nature of" qualifying the expression "semifinished goods" and assumed that "semi-finished goods" are the same as "goods in the nature of semi-finished goods" and also did not attach significance to the fact that Rule is intended to apply to "excisable goods" which are "in the nature of semi-finished goods." It is also argued that the decision did not point out the "contradiction" pointed out before the referring Bench. Even assuming that these submissions are relevant, we cannot go behind the decision of the High Court in the light of the circumstance that there is no contra decision of any other High Court. We are, therefore, bound to follow the above decision.
27. In the light of the above decision, we hold that Rule 56A of the Rules is not attracted to POY covered by the respondent's application and the order passed by the Collector (Appeals) is not sustainable. It is set aside and the appeal is allowed.
G.R. Sharma, Member (T)
28. I have perused the order proposed by ld. Member (Technical), Shri K. Sankararaman as also the reasons given separately by the Hon'ble President. I agree with the conclusions arrived at in the order proposed by Member (Technical) and the reasons given by the Hon'ble President.