The conversion of dyed cotton yarn in loose form into cones constitutes a manufacturing process and attracts levy of excise duty under item 18A of the Central Excise Tariff.

When cotton yarn plain straight real hanks in loose form grey or dyed in various colours, is converted into cones, it is liable to payment of Central Excise duty is the question for consideration in this petition. According to the Central Excise authorities, the conversion of cotton yarn hanks in loose form into cones constitute 'manufacture' and hence. Central Excise duty is attracted.

2.The petitioner-Association made a representation to the Collector of Central Excise, Coimbatore, to grant exemption to the members of its Association from payment of excise duty on the cone yarn would on the Cone Winding machines. The petitioner-Association stated that its members are getting dyed cotton yarn in loose form from the dyeing factories and then wind them into cones with the aid of power by means of Cone Winding machines. The dyed cotton yarn is supplied to the manufacturers of hosiery products. Some of the members being very poor, they are doing cone winding on job-charge basis on the loose dyed cotton yarn supplied by the hosiery manufacturers.

3.The petitioner represented that on a plain reading of tariff item 18A read with Sec. 2(f) and sub-item (iv) thereof, of the Central Excises and Salt Act, 1944 the process of manufacture enumerated therein would be applicable only in the case of cotton yarn in the grey stage and not to dyed cotton yarns, as dyeing of cotton yarn is not included as a process of manufacture. It was further represented that since for the purpose of dyeing, cotton yarn was received in loose form, it was supplied in the same loose form after being dyed to the members of the petitioner-association for being wound into cones on their Cone Winding machines and hence, the process will not amount to 'manufacture' attracting payment of excise duty.

4.The Superintendent of Central Excise, Tirupur, sent a communication to the petitioner-association on 25.4.1984, informing the petitioner that the cone yarn is liable to Central Excise duty. The letter is in the following terms:-

"With reference to your representation on the above subject, you are hereby informed that your representation was duly considered by the Central Board of Excise and Customs, New Delhi. The Board is of the opinion that cotton yarn plain straight reel hanks in loose form, grey or dyed in various colours, when converted into cones is liable to Central Excise duty.

Hence, you are informed to instruct your members who are converting grey or dyed plain straight reel hanks into cones, to take out Central Excise licences and adhere all the Rules and Regulations under Central Excise Laws.'

5.Having failed to convince the Excise Authorities, that conversion of loose dyed yarn in hanks into cones will not attract excise duty, the petitioner has filed this petition under Art. 226 of the Constitution praying for the issue of a writ of declaration to the effect that item 18-A of the Central Excise Tariff in so far as it includes cones and the consequential steps taken by the second respondent for collection of excise duty under item 18-A of the Central Excise Tariff including prosecution asultra vires, unconstitutional, void, illegal and without jurisdiction in so far as they relate to the members of the petitioner-association.

6.Propounding the case of the petitioner, Mr. K. Doraiswami, learned Counsel argued that winding of yarn is restored to only to facilitate the manufacture of hosiery and as such, the dyed yarn does not undergo any change, when it is wound into cones and that no manufacturing process is also involved. He further argued that cones ought not to be included under item 18-A of the Central Excise Tariff. Consequently, the members of the petitioner-association cannot be called upon to pay excise duty on the cones wound by them. To evaluate the argument of Mr. Doraiswami, it is necessary to refer to item 18-A of the Central Excise Tariff. The relevant item reads thus:-" *

18.A. Cotton Yarn, all sorts -

Yarn, in which cotton predominates i