K.L. Rekhi, Member (T)

1. When the case was called, the Department's Representative submitted that there was a delay of about one month in filing their appeal. He prayed that this delay be condoned. The respondents had no objection to the delay being condoned. We condoned the delay on the oral application of the Department's Representative. The hearing of the case was then proceeded with.

2. The facts of the case, in brief, are that Item 18A of the Central Excise Tariff read as under :-

"18-A Cotton yarn, all sorts."

There was an Explanation below this item which read as under :-

"Explanation.-

(1) 'Cotton yarn' shall include cotton twist and thread.

(2) Cotton yarn, twist or thread, all sorts, whether sized or unsized, in all forms including skeins, hanks, cops, cones, bobbins, pirns, spools, reels, cheeses, balls or on warp beams shall be deemed to be included under this Item.

(3) Explanation I, II and III under sub-item III of Item No. 18 shall, so far as may be, apply in relation to this Item as they apply in relation to that Item."

Explanation II under sub-item III of Item No. 18, referred to in Explanation (3) above, read as under :-

"Explanation II.-For multiple fold yarn, "count" means the count of the basic single yarn."

Notification No. 131/77-Central Excises, dated 18-6-1977 fully exempted "single yarn and multiple fold yarn in plain (straight) reel hanks" while for cotton yarn in other forms the said notification fixed a concessional rate of duty. The appellants manufactured multiple fold cotton yarn in plain (straight) reel hanks. The process of manufacture of such hanks, from the stage of coming into existence of cotton yarn, is as under, sequence-wise ;-

(i) Bobbins on ring frames.

(ii) Cones/cheeses,

(iii) Doubling bobbins.

(iv) Multiple fold yarn in plain (straight) reel hanks.

There is no dispute that the hank yarn manufactured by the respondents was fully exempt from duty. The dispute is whether the respondents should pay duty at the pre-hank stage, that is, the cone stage or not. The Collector of Central Excise (Appeals) accepted the respondents' submission that coning was an intermediary stage of production of cotton yarn in hanks and that since the cotton yarn remained cotton yarn even after reeling into hanks and there was no transformation of the cotton yarn into any different product, therefore, the provisions of Rules 9 and 49 of the Central Excise Rules, 1944 were not applicable. The Collector (Appeals) set aside the demand for duty made on the respondents by the Assistant Collector and allowed their appeal. The Department is in appeal against this order of the Collector (Appeals).

3. The Department's plea is two-fold :-

(1) 'Cone' is included specifically in Explanation (2) below Item 18A and hence it is a dutiable form of cotton yarn.

(2) By virtue of the expanded definition of Section 2(f) (winding, reeling, etc of cotton yarn included in the definition of 'manufacture'), doubled yarn or multiple fold yarn was a different commodity from single yarn. Further, by virtue of Rules 9 and 49, as amended in 1982 with retrospective effect, internal removal of cones for manufacture of multiple fold yarn in hanks amounted to 'removal' of excisable goods and duty had to be paid at the time of such removal.

We put it to the Department's Representative that if duty was charged at the intermediary stage of cones, the exemption given to hanks in Notification No. 131/77-C.E., dated 18-6-1977 would become meaningless and that part of the notification would be rendered nugatory. The Department's representative replied saying that under the scheme of Rules 9 and 49, extended definition of 'manufacture' which included winding, reeling, etc., of cotton yarn and Explanation (2) below Item 18A, taken together, the effect was that duty had to be paid at every stage of change in the form of cotton yarn in the respondents' factory.

4. The respondents stated that they did not seek any further relief in the Cross Objection filed by them si