K.L. Rekhi, Member (T)

1. The appellants are aggrieved of the central excise duty amounting to Rs. 72,33,577.20 demanded from them under Rule 9(2) of the Central Excise Rules, 1944 and the penalty of Rs. 75,000.00 imposed on them under Rule 173-Q by the Collector in the impugned order.

2. Brief facts of the matter are that during the course of investigation in the case made against M/s. Swastik Investment Company, Bombay, the central excise officers found that some of the consignments of the material described in the documents as crimped uncut waste and cleared from M/s Swadeshi Polytex Ltd., Ghaziabad, during the period from January, 1974 to December, 1977, were purchased by the appellants and utilised in the manufacture of polyester staple fibre. Shri S.N. Kabra, Sales Manager and Authorised Representative of the appellants, furnished particulars of their purchases and gave a statement under Section 14 of the Central Excises and Salt Act, 1944 saying that the material purchased by them was in running length and that after manually sorting and straightening the said material they cut it into staple fibre with the help of five power-operated fibre cutting machines installed in their factory. On adjudication of the matter, the Collector held that the so-called crimped uncut waste purchased by the appellants was in fact polyester fibre tow, that tow and staple fibre were commercially two distinct products, that they had carried on manufacture of polyester staple fibre from tow without making any declaration to the Department and without obtaining the requisite central excise licence and that they were liable to pay the duty on the staple fibre manufactured by them less the duty already proved to have been paid on the so-called crimped uncut waste. The appellants filed an appeal before the Central Board of Excise Customs against the Collector's order. The said appeal was transferred by the Board to this Tribunal in pursuance of Section 35P and is now the subject-matter of these proceedings before this Bench.

3. During the hearing before us, both sides placed material to show the distinction between tow and staple fibre. We reproduce below an extract from the Ministry of Finance (Department of Revenue's) own circular on the subject which was relied on by the appellants :-

"Tow is a collection of many parallel continuous filaments without twist which are grouped together in rope like form.

Tow is used for the same purpose for which staple fibre is used. Tow is mainly converted into staple fibre, and only a negligible quantity is converted directly into yarn. It has been therefore decided that duty should be levied on Tow at the rate applicable to staple fibre [M.F. (D.R. I) F. No. 50/7/71-CX. 2, dated 22-12-72]."

To put it in simple words, tow is fibre in running length while staple fibre is obtained by cutting tow into required short lengths (1" to 6").

4. During the material period, polyester fibre waste was chargeable to duty at the rate of Rs. 5.00 per kg. under exemption Notification No. 53/72-C.E., dated 17-3-72. The same notification defined waste as "a tangled mass of short lengths not capable of being disentangled without considerable labour". With effect from 12-8-77, the rate of duty on waste was increased to Rs. 9.00 per kg. The rate of duty for staple fibre and tow, during the material period, was Rs. 40.00 per kg. under exemption Notification No. 47/73-C.E., dated 1-3-73, later reduced to Rs. 36.00 per kg. under the successor Notification No. 28/75-C.E., dated 1-3-75. However, both these notifications contained a proviso to the effect that where staple fibre was made out of tow which had already paid the appropriate amount of the duty of excise or the countervailing duty, the duty payable on such staple fibre was nil.

5. The appellants put forth the following arguments in support of their case : -

(1) There was no evidence that the material purchased by the appellants from the Bombay market was tow and not waste. No s