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IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR

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CENTR.EXCISE APPEAL No. 12 of 2006

UNION OF INDIA
V/S
M/S SUNCITY THREADS LTD.

Mr. RISHABH SANCHETI on behalf of Mr. VK MATHUR, for


the appellant / petitioner

Mr. DINESH MEHTA, for the respondent

Date of Judgment : 14.8.2008

HON'BLE SHRI N P GUPTA,J.


HON'BLE SHRI KISHAN SWAROOP CHAUDHARI,J.

JUDGMENT
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BY THE COURT (PER HON'BLE GUPTA, J.):

This appeal, by the revenue, has been filed against the order of the Tribunal dated 1st
September 2004, dismissing the appeal of the revenue, which was filed against the order of a
Commissioner of Central Excise, dated 26.08.2002. The appeal was admitted vide order
dated 22.05.2006, by formulating two substantial questions of law as under :-

“(1) Whether in the facts and circumstances of the case, the article sewing thread is a product
which comes into existence by way of manufacturing from doubled and multi fold yarn and
therefore, is not governed by exemption Notification No.84/95-CE dated 1995?

(2) Whether the amendment introduced in Chapter 55, by putting a Chapter Note w.e.f.
26.5.95 had altered the position in respect of sewing thread than it was existing before such
chapter note was introduced?”

The learned Commissioner, by said order dated 26.08.2002, decided the


controversy, relating to availability of exemption, from excise duty, for the two spell of times;
being 01.03.1994 to 17.05.1995, and for 18.05.1995 to 07.11.1995, and in Para 22, held that
the duty is demandable from the assessee, in respect of sewing thread of polyester staple
fiber, manufactured and cleared without payment of duty, during the period from 01.03.1994
to 17.05.1995. For arriving at this finding, it was considered, that the project is not exempt
from payment of excise duty. Then, for the subsequent period, from 18.05.1995 to
07.11.1995, it was considered, that Notification No.35 of 1995 dated 16.03.1995 was
amended vide notification No.84 of 1995 dated 18.03.1995, and by that amendment specified
processes of all yarns falling under Chapter 55 were covered within the scope of aforesaid
notification for exemption, and therefore, relying upon another judgment of the Tribunal in
Ayyappa & Co. Vs. CCE, Coimbtore, reported in 1998(103) ELT 255, held, that the assessee
was entitled to the benefit of Notification No.35 of 1995, as amended by notification No.84
of 1995 dated 18.03.1995, and the demand for that period was found to be not sustainable.
Consequently, the order of confiscation etc., were also set aside.

From these two parts of the order, two appeals were filed, before the Tribunal. The revenue
filed the appeal, with respect to the findings for the period 18.05.1995 to 07.11.1995, while
the assessee filed appeal, with respect to the period 01.03.1994 to 17.05.1995. The
assessee's appeal, being Appeal No.2383/02, has been allowed by the final order dated
29.07.2003, by finding, that Chapter Note was introduced in Chapter 55 w.e.f. 26.05.1995,
which provided that conversion of any form of yarn into another form of yarn amounts to
manufacture, and that, during the period in question, there was no such chapter note, and
therefore, the activity of the assessee, was not found to be amounting to manufacture. For
this proposition, learned Tribunal relied upon other order of the Tribunal dated 27.12.2002,
passed in Appeal of CCE Vs. Anand Threads. Admittedly, this order, dated 29.07.2003, has
not been appealed by the revenue any further, and it has become final.

Thus, the controversy, in the present appeal, relates only to the subsequent
period from 18.05.1995 to 07.11.1995. The Tribunal, in this regard found, that the issue is
settled by the Tribunal, in the case of Ayyappa Vs. CCE (supra), and thus, did not find any
infirmity in the impugned order.

The question, as formulated by this Court, on 22.05.2006, in substance,


comprehends the questions, as to whether the product, which comes into existence, by way of
manufacturing, is not governed by the exemption notification No.35/95, as amended by
notification No.84 dated 18.03.1995, and the other question comprehends the effect of
introduction of Chapter note in Chapter 55 w.e.f. 26.05.1995.

In our view, the second question, need not detain us, in the circumstances of
the present case, because, the effect of introduction of Chapter 55, w.e.f 26.05.1995, is only to
bring the activity of the assessee, within the four corners of definition of 'manufacture', as
contained in Sec.2(f) of the Central Excise Act, and for the present purposes, i.e. for the
period from 18.05.1995 to 07.11.1995, it is not the controversy before us, as to whether the
activity of the assessee amounts to manufacture or not, rather, the controversy basically and
fundamentally is, as to whether the product of the assessee is governed by the exemption
notification No.35 of 1995 dated 16.03.1995, as amended by notification No.84 of 1995 dated
18.03.1995, or not?

A combined look, at the notification No.35 of 1995, and 84 of 1995, would show, that in the
table, in column No.3, the description of goods has been given, with respect to which, the
exemption was provided, and in column No.5 conditions were given, subject to which the
exemption would be available. So far as column No.5 is concerned, it is not in dispute, that
the manufacture is out of the yarn, falling under Chapter 55, which is one of the Chapters,
which is included in column No.5, therefore, we need not detain ourselves on column No.5.
Then, we come to column No.3, and a look at column No.3 of notification No.35 of 1995
would show, that in the description of goods, at Item No.1 & 2, which are relevant: sewing
thread, or doubled, or multifold, including cabled yarn, was specifically excluded, by being
put in the brackets as “other than”. Thus, per force, notification No.35 of 1995, the product
of the assessee, was clearly excluded from the exemption notification, but then, this
notification No.35 has been amended by notification No.84, and the exclusion part in column
No.3, has deleted, and the description of the goods exempted, reads as under:
“Yarn subjected to beaming, warping, wrapping, winding or reeling or any one or more of
these processes, with or without the aid of the power”.

In the present case, the product, at best, is the product, which is a yarn,
subjected to winding, and/or reeling. In that view of the matter, it is more than clear, that the
goods manufactured by the assessee, are very much governed by the exemption notification
No.35 of 1995 dated 16.03.1995, as amended by notification No.84 of 1995 dated
18.03.1995. Thus, the question No.1 is answered in favour of the assessee, and against the
revenue.

Consequently, we do not find any force in the appeal, the same is therefore
dismissed.

(KISHAN SWAROOP CHAUDHARI ),J. ( N P GUPTA ),J.

jpa/

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