S. Duggal, Member (J)

1. The proceedings in this case emanated from a notice to show cause bearing date 29-7-1976, having been issued by Superintendent, Central Excise, Chandernagore I Range (Annexure 'B') whereby the appellant company was called upon to show cause as to why central excise duty was not payable at all the three stages of manufacture of yarn, produced at their factory, namely, (i) cotton yarn (ii) staple yarn and (iii) the process of twisting or doubling these two yarns into a multiple fold yarn.

2. The facts, as revealed by the show cause notice, indicate that the appellant viz. a Company under name and style M/s. The General Industrial Society Limited (hereinafter referred to as the Appellant), manufactured separately cotton yarn of tariff item 18A, and staple yarn falling under Tariff entry 18, and used these two yarns as constituents, to produce a multiple-fold yarn, by the processing of doubling and twisting. During the period from October, 1975 to June, 1976, the appellant cleared this final product, by paying duty at the 3rd stage by treating it to be: "yarn, all sorts, not elsewhere specified", as contemplated by entry 18E of the Central Excise Tariff, as then prevailing. They availed of benefit of exemption of notification No. 30/75-C.E,, dated 1-3-1975, which pertained to tariff item 18E.

3. The Department tentatively took the view that the central excise duty was payable at all the three stages, namely, on the two constituent yarns separately, and finally on the multiple fold yarn. Accordingly show cause-cum-demand notice was issued, requiring the appellant to show cause as to why the amount of duty on these constituents, namely, cotton yarn and staple yarn on the basis of the production and clearances, be not recovered in accordance with the rates prescribed for these items. The total amount of duty was quantified, for the aforesaid period, to be Rs. 1,38,573.94. They were also informed that their act was tantamount to removal of the goods without payment of central excise duty, in clear violation of the provisions of Rule 9(1) 'read with Rule 173-F of the Central Excise Rules, 1944 punishable under Rule 9(2) read with Rule 173Q.

4. In the reply, which the appellant filed (annexure 'C') against this notice, it was contended that they had not produced any multiple fold yarn, as alleged, and that the process consisted only of doubling of single thread yarns, which process according to them, did not and could not amount to manufacture. Since in their view the doubling of the already manufactured yarns would not again attract any of duty, they were entitled to refund of the amount of duty already paid, on such yarn which amount was asserted to be Rs. 2,27,500.80, in respect of 11849 kgs., and not Rs. 2,22,636.20 as conveyed by the Department. This payment was contended to have been made under the mistake of law and/or fact. Consequently they staked their claim for refund of this amount. They controverted Department's stand that the provisions of Rule 9(1) read with Rule 173F of the rules, and that the provisions of Rule 9(2) read with Rule 173Q, were attracted, exposing them to liability or punishment with reference to the aforesaid rules, were emphatically controverted. They pleaded, at the end, that in case duty was sought to be levied on the constituent yarns, namely, the cotton yarn as well as the staple yarn, that could be levied only after they had been granted refund of the amount of duty, they had paid on the doubled yarn. They reiterated their stand that no duty was leviable on this doubled yarn and consequently the duty which was according to them not due ought to be refunded before any further claim of payment of central excise duty on other two yarns was pressed. They thus repudiated Department's claim to the recovery of duty on these yarns; in any case, without first refunding back the duty already paid at third stage. It was also contended that for the manufacture of yarn, the process of s