Conversion of One Stage of Yarn into Another will not amount to Manufacture: CESTAT sets aside Excise Duty Demand [Read Order]

The Kolkata bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the Conversion of One Stage of Yarn into Another will not amount to Manufacture and set aside the excise duty demand.

M/s. Hada Textiles Industries Limited, the Appellant is engaged in the manufacture of 100% cotton yarn falling under heading 52.03 of the Schedule to the Central Excise Tariff Act, 1985. The folded yarn/doubled yarn/ply yarn was made from a single yarn stage and after the doubling/folding and winding process, it never forms a new product rather it remained cotton yarn.

It was submitted that there is no transformation of the product and the final product is made in a continuous process, no duty was payable. Conversion of unsized yarn into sized yarn is not liable to central excise duty and it remains yarn after such manufacturing process, it does not lose its character as yarn since such processes are undertaken in a continuous process to manufacture the final products i.e. yarn.

Show Cause Notice dated 20.01.1992 was issued demanding Central Excise duty of Rs.4,92,424/- for removal/clearance of 10,55,266.316 kgs. of cotton yarn in bobbin/cone form in spindle point without payment of duty for the manufacture of cotton yarn cleared as straight reel hank form during the period from January 1987 to May 1991.

The imposition of a penalty under Rule 173Q was also proposed. The Assistant Commissioner of Central Excise dropped the entire proceedings as proposed in the Show Cause Notice. The Department reviewed the Order-in-Original vide Review Order dated 10.11.2008 and filed an Appeal before the Commissioner of Central Excise (Appeals), Kolkata.

The same Commissioner has reviewed the Order-in-Original dated 05.09.2008 and proposed for filing of the Appeal and he sitting as Commissioner(Appeals) has decided and disposed of the Appeal vide the impugned Order-in-Appeal.

The Appellant submitted that the Commissioner(Appeals) has passed the Order ex parte without granting the opportunity of a personal hearing. On the date of the hearing i.e. on 18.02.2010, the Authorized Representative of the Appellant could not reach in time due to traffic jam. He was not allowed to make his submissions and was directed to submit the written submission by 19.02.2010 which was not considered by the Commissioner, though the order was passed after 1 month and 10 days from the date of hearing.

A two-member bench comprising Shri P K Choudhary, (Judicial)and Shri K Anpazhakan, (Technical)  held that conversion of one stage of yarn into another will not amount to manufacture. It is also seen that hank yarn is obtained as a result of a continuous process of manufacture in which the winding of the bobbin is only an intermediary process. The CESTAT set aside the impugned order and allowed the appeal.

To Read the full text of the Order CLICK HERE

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