SUPREME COURT OF INDIA

Before:- Ruma Pal, Arijit Pasayat and C.K. Thakker, JJ.

Civil Appeal No. 8675 of 2002 with No. 8574 of 2002, D/d. 24.2.2005.

Madura Coats LTD. - Appellant

Versus

Commissioner of Central Excise, Kolkata - Respondent

Central Excise Act, 1985 - Tariff Headings 59.02, 59.08, 59.09 and Section XI Short notes 5 and 6, Chapter 90 Chapter Note 1 - Circular No. 22 of 1988-CX 1 dated 10.8.1988 - Textile products are different from textile fabrics - Section Note 1 may not be relevant in interpreting Tariff Heading 59.09 - Tariff Heading 59.09 applies to "made-up fabrics" and not "fabrics" which have been processed in some fashion - Therefore the unprocessed fabric would not be classifiable under Tariff Heading 59.09.

[Paras 2, 5, 9, 11 and 12]

ORDER

Ruma Pal, J. - The appellant weaves grey tyre cord fabrics in running length after obtaining nylon yarn from tyre companies. It cleared the goods manufactured by it as tyre cord fabric of high-tenacity yarn of nylon or other polyamides, polyesters or viscose rayon under Tariff Heading 59.02 of the Schedule to the Central Excise Tariff Act, 1985. At that point of time the goods classifiable under Tariff Heading 59.02 were exempted from payment of basic duty by virtue of Notification No. 63/87 dated 1-3-1987 as amended. The assessee, however, was still liable to pay additional duty which was duly paid.

2. On the allegation that the goods were classifiable under Tariff Heading 59.09 a show-cause notice was issued to the appellants by the respondent authority seeking to levy Central excise duty amounting to Rs 17,88,76,842 comprising of basic duty of Rs 15,55,45,080 and special duty of Rs 2,33,31,762. Penalty was also sought to be imposed under Section 173-Q. During the pendency of the matter before the Commissioner, a sample of what was stated to be the respondent's goods was sent to the National Test House. The test report showed that the sample received by them was tested against the value as specified in p. 348 of the Encyclopaedia of Textiles, Fibres and Non-Woven Fabrics and found it to have less than the high tenacity prescribed. Accordingly, it was submitted that the sample was made of filament yarn and normal tenacity. The appellant had contended:

(i) As per CBEC Circular No. 22 of 1988-CX 1 dated 10-8-1988 their fabrics are to be classified under Heading 54.08 attracting "NIL" duty. Even otherwise it cannot be classified under Tariff Heading 59.09.

(ii) Proof of customer's letter was produced to show that the yarn were of high tenacity.

(iii) Such fabrics were always classified under Tariff Heading 59.02 in their Madurai factory.

(iv) HSN states that yarn at warp stage should be of high tenacity.

(v) The observation that tenacity of 0.5/CN/Tex does not prove that it was 0.55/CN/Tex or lesser.

(vi) Test result on viscose yarn cannot be applied to fabrics made of polyamides.

(vii) The test result stated that it was a non-woven fabric. Hence, it cannot be classified under Chapter 59.

(viii) The test result applied to the lot from which the samples were drawn.

(ix) Extended period not applicable.

3. The Commissioner rejected the submissions of the assessee and confirmed the demand as raised in the show-cause notice and imposed penalty of the equivalent amount. The appellant preferred an appeal before the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT). CEGAT remanded the matter to the Commissioner being of the view that the appellant had not been provided with sufficient opportunity to produce documents before the adjudicating authority in support of its submission that it was using high-tenacity yarn in the manufacture of its fabrics.

4. When the matter came back to the Commissioner the appellant reiterated the points noted earlier. Relying solely on the test report, the Collector again rejected the appellant's submission and reaffirmed the order passed by him earlier. When the matter came up before the Tribunal, the Tribunal also relied upon the test report in rejecting the appellant's appeal. It does not appear from the reasoning of the Tribunal that the several points raised by the appellant before it, particularly the one relating to the classification of the goods under Tariff Heading 54.08, were at all considered. The appellant made an application before the Revenue to rectify what according to the appellant was obviously an oversight. The rectification application was also rejected. Two separate appeals have been preferred by the appellant, the first from the original order of the Tribunal rejecting the appeal and the second from the order rejecting the rectification application.

5. Before us, the appellant had submitted that the sole piece of evidence on which the Commissioner and the Tribunal had classified the appellant's goods as under Tariff Heading 59.09 (as it then stood) was the test report. The test report was patently wrong inasmuch as it applied the standard applicable to non-woven fabrics whereas textile fabrics under Chapter 59 had to be woven. In fact, the appellant's goods were also woven textile fabrics. The appellant has also relied upon circular dated 10-8-1988 to contend that the Revenue Department had itself made it abundantly clear that tyre cord fabric which was unprocessed would not be classified under Tariff Heading 59.09. It was also made clear that tyre cord fabrics would, before processing be appropriately covered by Tariff Heading 52.04. Applying the same reasoning, it is contended that the appellant's fabrics being also unprocessed should be classified under Tariff Heading 54.08 since the yarn with which the fabric was woven was not cotton but nylon. It is submitted that Tariff Heading 59.09 does not in any event cover unprocessed fabric. It is pointed out that the appropriate heading should have been Tariff Heading 54.08 which at the relevant time prescribed a nil rate of duty. Finally, it is submitted that the claim of the respondent authority was time-barred.

6. Learned counsel appearing on behalf of the respondent authority has submitted that the appellant had not produced adequate evidence in support of its claim that the yarn used by it was high tenacity despite having been given an opportunity to do so. It is further submitted that the basis of the criticism of the test report was incorrect insofar as Tariff Heading 59.09 is concerned. It is submitted that Tariff Heading 59.09 referred only to textile products and textile articles which were different from textile fabrics.

7. Before considering the relevant entries, it is necessary to consider Chapter Note 1 of Chapter 59. It reads as follows:

"1. Except where the context otherwise requires, for the purposes of this Chapter the expression ?textile fabrics? applies only to the woven fabrics of Chapters 50 to 55 and gauze (Heading 58.03), narrow woven fabrics (Heading 58.06), braids and ornamental trimmings in the piece, and the knitted or crocheted fabrics of Chapter 60."

8. Tariff Heading 59.09 as it stood at the relevant period of time read as follows:

"59.09. All other textile products and articles of a kind suitable for industrial use (for example, textile fabrics, combined with one or more layers of rubber, leather or other material, bolting cloth, endless felts of textile fabrics, straining cloth) ? 12%."

9. If one were to accept the respondent's arguments that textile products are different from textile fabrics, which we do, then it might be that Section Note 1 may not be relevant in interpreting Tariff Heading 59.09. However, in that event it cannot be disputed that textile products referred to in Tariff Heading 59.09 are different from textile fabrics because they would by definition be the product of textile fabrics and not the fabrics themselves. Furthermore, if one reads Section Notes 5 and 6 of Section XI as they then stood along with Tariff Heading 59.09 it is clear that Tariff Heading 59.09 applies to "made-up fabrics" and not "fabrics" which have been processed in some fashion. Therefore, the unprocessed fabric, as the appellant's goods admittedly are, would not be classifiable under Tariff Heading 59.09.

10. Additionally, the appellant had claimed the classification under Tariff Heading 59.02 which reads as follows:

"59.02. Tyre cord fabric of high-tenacity yarn of polyamides, polyesters or viscose rayon."

11. Assuming that the tyre cord fabric was not made out of high-tenacity yarn of polyamides, polyesters or viscose rayon, there appears to be force in the appellant's submission that it would then be covered by Tariff Heading 54.08 which read as:

"54.08. Fabrics of man-made filament yarn (including fabrics obtained from materials of Headings 54.06 and 54.07),?

(a) woven, and

(b) not subjected to any process."

This view finds support from the CBEC circular dated 10-8-1988.

12. However, it is not necessary for the Court to determine this issue finally. It is sufficient for our purpose to hold that the goods were not classifiable under Tariff Heading 59.09.

13. The appeal is accordingly allowed and the demand against the assessee is quashed. The decision of the Commissioner, as affirmed by the Tribunal, is also set aside. No order as to costs.

In CA No. 8574 of 2002

14. It is not necessary for us as to whether rectification application is maintainable or not in view of the fact that we have allowed the appeal from the original order. This appeal is disposed of as infructuous.

.