V.T. Raghavachari, Member (J)

1. The appellants M/s Lal Woollen and Silk Mills (Private) Limited are engaged in dyeing of Worsted Woollen Yarn falling under Tariff Item No. 18-B, C.E.T. They have been receiving duty paid grey yarn, under permission granted under Rule 51A, and have been giving intimation in Form D 3 as and when such receipts took place. They had been paying differential duty on the dyed yarn at the time of clearance, taking set off of duty already paid on the grey yarn. They had been purporting to do so under notifications 235/76 and 236/76-Central Excise in that connection.

2. Under notice dated 24-8-1977 the appellants were informed that no such set off was admissible as the same was not provided in the notifications abovesaid. It was pointed out that woollen yarn is notified in the Schedule to Rule 56A of the Central Excise Rules for grant of proforma credit and not for set off of duty. Pointing out that no permission had been obtained from the Assistant Collector under Rule 56A, the appellants were directed to show cause why Central Excise duty of Rs.4,08,787.96 should not be recovered from them under Rule 10 of the Central Excise Rules.

3. The appellants in reply traced the background, pointing out that initially there was no difference in duty between dyed yarn and grey yarn and permission under Rule 51A had been obtained in 1960 and that it was in 1966 that, for the first time, separate rates of duty were imposed for grey yarn and dyed yarn and thereafter differential duty was being paid in view of notifications issued also for that purpose. It was further pointed out that even after different tariff values and separate rates of duty were notified in 1976 the appellants continued to pay differential duty in view of the earlier practice and notifications and that the same had not been ever objected to by the department. It was contended that dyeing of yarn was not covered by Rule 56A and that the demand raised by the department would amount to double taxation which was not permissible. It was also contended by a supplemental reply that a part of the demand was time barred.

4. On adjudication the Assistant Collector of Central Excise, Amritsar, under order dated 24-4-1983, overruled the above objections, as also the further argument raised that dyeing of yarn did not amount to manufacture of a new commodity. Under the said order the demand was confirmed. The said order was confirmed in appeal under order dated 30-9-1984 of the Collector of Customs and Central Excise (Appeals), New Delhi. It is against the said order that the present appeal has been preferred.

5. We have heard Sarvashri Harbans Singh, B.S. Ahuja and I.S. Ahuja, Advocates for the appellants and Shri N.V. Raghavan Iyer, Joint Chief Departmental Representative for the respondent Collector.

6. Shri Harbans Singh contended that the conversion of grey yarn into dyed yarn did not amount to manufacture as would invite imposition of excise duty and hence no duty at all was payable by the appellants. He further contended that to accept the contention of the department would amount to permitting double taxation of the same goods which was not permissible in law. He also contended that in any event credit under Rule 56A should be allowed and that part of the demand was in any event barred by time. Shri Raghavan Iyer on the other hand contested all these submissions and claimed that as the Tariff entry stood, dyed yarn was also liable for payment of excise duty apart from grey yarn and that even on general principles dyeing of woollen yarn amounted to manufacture as would attract imposition of excise duty and that this conclusion is fortified by the recent judgment of the Supreme Court dated 6-5-1985 in Empire Industries Limited and Ors. v. Union of India and Ors. MANU/SC/0186/1985 : 1985 (20) E.L.T. 179 (S.C.). He also contended that there is no question of double taxation involved on the facts of the present case and that while it had been open to the