K.L. Rekhi, Member (T)

1. The point at issue in this appeal is whether Central excise duty was payable on jute pack sheets and jute twine used in the factory of their production for packing of other jute manufactures which were exported out of India under bond.

2. The jute manufactures exported were classifiable under Item 22A of the Central Excise Tariff. So too were the pack sheets used for their packing. The stitching twine, although made of jute also, was classifiable under Item 18D. However, Notification No. 56/72-C.E., dated 17-3-72 fully exempted from payment of duty such jute twine as was consumed within the factory of its production "for the manufacture of jute manufactures falling under Item 22A".

3. During the period from 24-2-79 to 31-7-79, the respondents used, without payment of duty, some quantity of jute pack sheets and stitching twine for the packing of jute manufactures for export as well as for the packing of jute manufactures cleared for horns consumption. The Department issued a show cause notice on 17-8-79 demanding from them total duty of Rs. 36,952.02 on the pack sheets and twine so used. On adjudication, the Asstt. Collector confirmed the demand. The Appellate Collector, by his order dated 9-12-80, sustained the demand for Rs. 126.63 which related to the duty on the twine used for home consumption goods but set aside the remaining demand holding that since the goods were exported under Bond/under Rule 13 of the Central Excise Rules, 1944 without payment of duty, no duty could be realised on the packing material also. The Central Government tentatively held the view that the order of the Appellate Collector was not legal, correct and proper because the packing materials were not covered by the Bond under Rule 13 and as such duty should have been paid thereon Accordingly, the Central Government issued the subject show cause notice on 18-11-81 under the then Section 36(2) of the Central Excises and Salt Act, 1944. The proceedings initiated by this show cause notice have, on transfer to this Tribunal, been taken up the subject appeal of the Department.

4. The respondents stated before us that the sole ground taken in the Government's show cause notice that the packing materials were not covered by a Bond under Rule 13 was not correct because the respondents had executed a B-l (General Security) Bond on 26-6-74 for export of jute manufactures without payment of duty. They submitted a photostat copy of this Bond. They added that the pack sheets used for export goods were themselves jute manufactures and were, therefore, covered by the same Bond whereas the jute twine used by them was fully exempt under Notification No. 56/72-C.E., dated 17-3-72 as it had been used for the jute manufactures exported and was, further, covered by Explanation 2(ii) to Rule 13 which read as under :-

"(ii) The term "goods" includes excisable goods used in the manufacture of the goods which are exported."

That the Department itself regarded baling of jute manufactures as a process of manufacture was evident from the fact that the R.G. 1 stage for accounting the production of jute manufactures had been fixed by the Department after baling. It was true that the Collector issued a Trade Notice on 29-11-79 stating that duty would have to be paid on jute packing materials used for packing of jute manufactures for export but this Trade Notice could apply only prospectively as had been held by the Central Board of Excise Customs in its Order-in-Appeal dated 31-3-81 in the case of M/s. Megna Mills Company Ltd. To the respondents' knowledge, this order had now become final. The Appellate Collector in allowing their appeal, had followed this order of the Board. He had passed similar favourable orders in the case of seven other jute mills also. The respondents produced photostat copies of these orders and stated that to their knowledge these orders too had become final.

5. The Department's representative stated that the basic issue in this ca