Per J.H. Joglekar :

The assessees were manufacturing cotton yarn, acrylic yarn and polyester cotton yarn. They were also engaged in doubling and/or multi-folding of the yarn. However, in each case of such doubling or multi-folding, the basic single yarn fell under the same tariff item and, therefore, the resultant doubled yarns were not separately excisable. The assessees were paying duty on the yarn arising at spindle stage. The basis for assessment of such yarns changed from specific rates to Adv. rates in April, 1984. The assessees started paying duty on such yarn deemed to have been removed for captive consumption on the basis of cost plus notional profit. On 7.6.94, Trade Notice No. 70/CE/94 was issued by the Chandigarh Collectorate vide which all assessees were informed that the various yarns were required to be entered in the R.G. I register of the spindle stage. This Trade Notice was later modified vide Trade Notice No. 112/CE/94 dt. 15.12.94. In the Trade Notice the distinction was made between the R.G. I stage and stage at which duty was required to be paid. The relevant portion of the Trade Notice is reproduced below :

"As regards other yarns, the R.G. I stage for accountal of production not necessarily be the stage at which duty is payable in terms of Rule 9 or 49 of the Central Excise Rules, 1944. RG-I stage is for the purpose of accounting of production under Rule 53, while the duty is to be paid when removal in terms of Rule 9 or 49 takes place. In case of single cotton yarn subjected to dutiable processes mentioned in Chapter note 1 of Chapter 52, the duty is leviable at the single yarn stage as well as on the resultant yarn. However, the single yarn subjected to these processes within the factory will get the benefit of exemption of notification No. 121/94-CE dated 11.8.94 and duty will be payable only on the resultant yarn at the time of its removal. In case of other yarn, since removal in terms of Rule 9 is not taking place when single yarn is taken for subjecting it through the processes of doubling, mercerising, etc. within the factory of production, no duty is payable at the single yarn stage and duty is to be collected only at the time of removal of resultant yarn in terms of Rule 9. Where single cotton yarn is removed from the factory on payment of duty and subjected to the processes of doubling/Multifolding, etc. outside, exemption under Notification No. 26/94-CE dt. 1.3.94 will be available to such resultant cotton yarn. In case of duty paid yarn falling under chapter 54 & 55 on being subjected to these processes outside after clearance, no duty is attracted."

2. On 23.2.95, a show cause notice was issued to the present appellants. In the show cause notice, it was alleged that whereas the assessees were required to pay the duty on the assessable value applicable and determined at the time of removal from the factory premises, but had paid the duty on the value determined on the basis of costing of single yarn at off spindle stage, short levy had occurred to the extent of Rs. 76,80,056.30. The demand for this duty was made and it was alleged that the assessees were liable to penalty. Before the Collector, the assessees relied upon the judgement of the Supreme Court in the case of C.C.E., Jaipur Vs. Banswara Syntex Ltd. reported in 1996 (17) RLT 583 (S.C.) = 1996 (88) E.L.T. 645 wherein it was held that yarn at spindle stage was fully manufactured and dutiable. The Collector held that the ratio of this judgement did not apply in view of the subsequent change from levy at specific rates to levy at Adv. rates. He relied upon the Supreme Court judgement in the case of N.B. Sanjana, Asstt. Collr., C.E., Bombay & Ors. Vs. Elphinstone Spg. & Wvg. Mills Co. Ltd. reported in 1990 (28) ECR 582 (SC) to hold that the law acknowledges two stages, one at which the liability to duty arises and the other at which the duty is required to be paid i.e. at the time of removal of the goods. The assessees also cited the S