Per J.H. Joglekar:

The appellants were engaged in the activity of crimping/texturising of duty-paid man-made and synthetic yarn. They were manufacturing yarn commercially known as "Taspa yarn". At the material time, crimped textured yarn falling under chapter 54 was fully exempted provided the base yarn was duty-paid. In the years 1986, 1987 and 1988, the appellants had filed declarations claiming exemption from licensing control stating that the yarn manufactured by them was not leviable to further duty. The process of manufacture declared in all the three statements was identically worded and read as under :

"The filament or POY yarn is feeded to rotating shaft (Over feed or underfeed) at a constant tention with extra device (tention device) at a different speed. Either it is single end or two ends together into one spindle assembly into magnetic spinner. The yarn is heated into heater before it is going to spinner. This spinner is rotating in between two rollers of spindle assembly. In the spinner yarn is CIMPED. This gives crimp or other special visual effects depending upon the speed of the spinner. This spinner can also develop fancy yarn like slub crimped yarn, when two ends at different speed is feeded in on spinner. This yarn then travels to another shaft which is rotating at constant speed. Then final produce is wound on the paper tube spool."

2. In June, 1987, the jurisdictional officers paid a visit to the appellants' unit. On examination of the process of manufacture, they formed the opinion that the yarn manufactured was classifiable under heading 5606.00. A sample of the yarn was drawn. The Chemical Examiner, Central Excise, Baroda, under his office letter No. BD/54/Yarn/87-88 dated 19.10.87 communicated the test result of the sample as under :

"The sample is in the form of combination of two polyester filament yarns combined in such a way as to produce uniform slubs along its length by increased delivery of one of its components, such yarns are described in technical literatures under "Fancy Yarn".

3. On the basis of the report cited above, show cause notice dated 9.6.88 was issued demanding duty as leviable under T.I. No. 68 under the old tariff and under heading 5606 of the CET, 1985 on the texturised yarn cleared during the period Jan., 84 to March, 87. The proposal of imposition of penalty was also made. The Collector, after hearing the assessees and after permitting the assessees to cross-examine the Chemical Examiner, who had given the technical opinion, upheld the allegations in the show cause notice. He confirmed the demand amounting to Rs. 27,80,004.60 and also imposed a penalty of Rs. 10 lakh on the assessees. The appeal before us arises out of this order.

4. Shri Willingdon, ld. Advocate stated that it was his case that "Taspa yarn" produced by his clients was a fancy yarn classifiable under T.I. 18 II (b) under the old tariff, whereas the department claimed it to be classifiable under T.I. 68. Under the new tariff, his claim is that it is classifiable under heading 5403 as `fancy yarn' as against the department's case of its being a `special yarn' under heading 5606. In reply to a query, the ld. Advocate clarified that the term "Taspa yarn" was a local name for a fancy yarn with slubs. He argued that the mere presence of slubs does not classify the yarn as a special yarn. Quoting from the HSN, he claimed that the presence of a core yarn was a must for classification as a special yarn. He stated that the Chemical Examiner in his cross-examination had specifically deposed that the contested goods were manufactured without a core yarn. In this connection, he relied upon the Board's clarification issued under F.No. 56/2/88 CX-I dt. 19.10.88. He cited the case law to the effect that the Board's instructions were mandatorily to be followed by the officers subordinate to the Board. He stated that in the advice, the Board has clearly laid down that where core yarn did not exist, the resultant yarn could not