M/S. C.T. COTTON YARN LTD. versus COMMISSIONER OF CENTRAL EXCISE, INDORE

Citation: [2006] SUPP. 6 S.C.R. 498 · Decided: 22-09-2006 · Supreme Court of India · Bench: ASHOK BHAN · Disposal: Appeal(s) allowed

Judgment (excerpt)

A 
B 
MIS. C.T. COTTON YARN LTD. 
v. 
COMMISSIONER OF CENTRAL EXCISE, INDORE 
SEPTEMBER 22, 2006 
[ASHOK BHAN AND P.K. BALASUBRAMANY AN, JJ.] 
Central Excise Tariff Act, 1985-Heading No. 52.02-/00% Export 
oriented unit manufacturing exportable yarn from domestically purchased 
cotton-Cotton waste generated during course of such manufacture earlier 
sold in Domestic Tariff Area without payment of duty-Later Tariff Heading 
52.02 introduced in First Schedule to the Tariff Act covering cotton waste-
Levy of duty on cotton waste-Validity-Held: Merely because a commodity 
is included in the Schedule, it will not be exigible to duty unless a process 
of manufacture was involved when that product emerges-Dispute whether 
process of manufacture was involved when cotton waste was generated-
Question if cotton waste dutiable as a manufactured product directed to be 
re-considered by the Tribunal. 
Soft cotton waste was generated during the course of manufacture 
undertaken by Appellant, a 100% Export Oriented Unit, when it manufactured 
yarn for export from cotton purchased from domestic market. 
The question which arose for consideration in the present appeal is 
whether manufacture.was involved when soft cotton waste was produced and 
it being regularly sold in the domestic market indicated that it was a 
marketable commodity and in the circumstances it was exigible to duty as 
held by the Commissioner and the Appellate Tribunal. 
Partly allowing the appeals, the Court 
HELD: I.I. It is clear that the product involved herein is not a left over 
after the end product is manufactured. Here the cotton waste is generated 
during the process of manufacture of yarn. In other words, when cotton 
purchased in the domestic market is used for manufacture or yarn, by 
initiating the process of manufacture, at an intermediate stage, the so called 
498 
CT. COTION YARN LTD." COMMNR. OF CENTRAL EXCISE, INOORE (P.K. BALASUBRAMANYAN: J.] 499 
cotton waste is produced, which is a marketable commodity and which is A 
regularly marketed. Therefore, one of the twin tests, namely, that the 
commodity which is produced is marketable and is regularly marketed as a 
product, is satisfied. It is by now established that merely because a commodity 
is included in the schedule, it will not be exigible to duty unless a process of 
manufacture is involved when that product emerges. Here, heading 52.02 has B 
been brought in the Schedule by the Finance Act, 1995. Though it is shown 
as an item bearing nil duty, since the appellant is a 100 per cent export oriented 
manufacturing entity itwill be liable to duty as provided in the proviso to 
Section 3(1) of the Tariff Act. Therefore, the question involved is whether a 
process of manufacture is involved when the cotton waste is generated during 
the process of converting domestically purchased cotton into exportable yarn C 
manufactured by the appellant. (503-A-G( 
1.2. The question whether cotton waste is dutiable as a manufactured 
product requires to be reconsidered by the Tribunal. The argument that it 
was only after the process of manufacture has started that the product has 
come into existence and it has marketability and hence, it is dutiable and the D 
counter argument that it was only impure cotton which has got separated from 
the cotton purchased from the open market so as to enable the appellant to 
manufacture the yarn intended for export and this product produced at the 
intermediate stage still remains cotton and it is not manufactured product 
have both to be considered in the light of the decided cases. In this situation, E 
it is appropriate to set aside the order. of the Tribunal and remand the appeals 
filed by the appellant to the Tribunal for a fresh decision. (504-E-G( 
State of Maharashira v. Pulgaon Cotton Mills Ltd, (1995) 77 ELT 790 
SC; State of Gujarat v. Raipur Manufacturing Company Ltd, (1967) 19 STC 
1 SC; Re; J.G. Glass Industries, (1998) 97 E.L.T. and Shyam Oil Cake Ltd. v. F 
Collector of Central Excise, Jaipur, (2004 (174) ELT 145 (SC)), referred to. 
CIVIL APPELLATE JURISDICTION: CivilAppeal Nos. 6451-6452 of 
2000. 
. 
From the Final Order No. 227-22812000-D dated 19. 7 .2000 of the Customs, G 
Excise and Gold (Control) Appellate Tribunal, New Delhi (Bench-D) in Appeal 
Nos. E'.11715-1716/97-D. 
Ravinder Narain, Sonu Bhatnagar, Ajay Aggarwal, Amrita Bhinder and 
Rajan Narain for the Appellant. 
H 
500 
SUPREME COURT REPORTS (2006] SUPP. 6 S.C.R. 
A 
Rajeev Dutta, K.

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