Customs, Excise and Gold Tribunal - Delhi
M/S. Jyoti Overseas Ltd. vs Commissioner Of Central Excise, Indore on 24 April, 2001
Equivalent citations: 2001(75)ECC826, 2001(129)ELT432(TRI-DEL)
ORDER
K. Sreedharan
1. Issue to be considered in all these appeals are the same. So, we consider it advantageous to dispose of all the appeals by a common order.
2. M/s. Jyoti Overseas Ltd., appellant in appeal Nos. E/2037-2048/97 question the correctness of adjudication order No. 161-172/Commr/CEX/97 dated 16-7-1997 passed by the Commissioner of Cental Excise, Indore. M/s. Jagdish Silk Mills are aggrieved by adjudication order No. 35/CE/CHD II dated 4-1-99 passed by the Commissioner of Central Excise, Chandigarh, the adjudicating authority. The above mentioned appellants are engaged in the manufacture of cotton fabrics. The fabrics manufactured were heavily and thickly woven with multiple warp/weft/yarns. They cleared those goods without paying any duty on the belief that they fall under Chapter 52 of the Cental Excise Tariff Act and so not liable to duty. Department took up the stand that the goods manufactured are classifiable under Heading 59.09 or 59.11 of the Cental Excise Tariff Act. Thereupon, show cause notices were issued demanding huge amounts by way of differential duty and penalties for violation of the provisions of the Cental Excise Act, 1944 and the Rules framed thereunder. Manufacturers tried to substantiate their contention that the goods as cleared by them from their factory were classifiable under Chapter 52 of the Tariff Act only and that they are not classifiable under Heading 59.09. Since the goods are classifiable under Tariff heading 52.05, no duty was payable. This contention of the manufacturers was overruled by the orders impugned in these appeals. Hence, the matter is before this Tribunal.
3. At first, appeals preferred by M/s. Jyoti Overseas Ltd. came up before a Bench of two Members. The said Bench came across decisions of this Tribunal taking a view contrary to the one expressed by a coordinate Bench in Simplex Mills Co. vs. Collector of Central Excise, Nagpur, 1993 (49) ECR 147. Since coordinate Benches took conflicting views, appeals were referred to the President for being placed before a larger Bench. Accordingly the matter has come up before this larger Bench.
4. Before examining the decisions of this Tribunal wherein conflicting views are expressed, we consider it advantageous to examine the nature of the goods, which are involved in these appeals. Appellants are admittedly engaged in the manufacture cotton fabrics. We say 'admittedly' because the adjudicating authority has clearly stated "the fact which is not under dispute is that the notice is engaged in the manufacture of cotton fabrics..." Grey cotton fabrics so manufactured in running length was subjected to no further processing at the hands of these appellants. Such fabrics were cleared by the manufacturers from their factory. Dealers who cleared the goods used these fabrics for the purpose of making tarpaulin, tents, jeep covers, holdalls and bags. The use to which the fabrics can be put to technical use, the adjudicating authority took the stand that the woven fabric manufactured by the appellants should be classified under Tariff Heading 59.09. The adjudicating authority in the order dated 16-7-97 observed:
"Therefore, once the fabrics in question is of technical use irrespective of the fact processing is done or not, the same will go to Heading 59.09 and not under Chapter 52. It may be pointed out that even if the fabrics manufactured are processed, the same would be classifiable under respective headings of Chapter 52 only if they are not of technical use; and if the fabrics has technical use irrespective of the fact no processing is carried, same will be excluded from Chapter 52 and deserves to go to Chapter 59."
The correctness of this statement is in issue.
5. Section XI of the Central Excise Tariff Act, 1985 relates to textiles and textile articles. Chapter 50 to 63 fall under this Section. Note 6(a) to Section XI states that Chapters 50 to 55 and 60 and except where the context otherwise requires Chapters 56 to 59 do not apply to goods made up within the meaning of Note 5. Note 6(b) further states that Chapters 50 to 55 and 60 do not apply to goods of Chapters 56 to 59. From this provision it is clear that goods falling under Chapters 50 to 55 and 60 fall in one group and those under Chapters 56 to 59 in another group. Goods classifiable under Chapters 50 to 55 and 60 cannot be goods satisfying the description made up as stated in Note 5. Except where the context otherwise requires goods which are made up cannot fall under Chapter 56 to 59 Term "made up" has been defined by Note 5. They are:
(a) Cut otherwise than into squares or rectangles;
(b) Produced in finished state, ready for use (or merely needing separation by cutting dividing threads without sewing or other working (for example, certain dusters, towels, table cloths, scarf squares, blankets);
(c) Hemmed or with rolled edges, or with a knotted fringe at any of the edges, but excluding fabrics the cut edges of which have been prevented from unravelling by whipping or by other simple means;
(d) Cut to size and having undergone a process of drawn thread work;
(e) Assembled by sewing, gumming or otherwise (other than piece goods consisting of two or more lengths of identical material joined end to end and piece goods composed of two or more textiles assembled in layers, whether or not padded);
(f) Knitted or crocheted to shape, whether presented as separate items or in the form of a number of items in length."
Such made up articles can be classified under Chapters 56 to 59 only if the context otherwise requires. Such made up articles cannot be classified under Chapters 50 to 55 and 60. Department has no case that the cotton fabrics manufactured by the appellants are in any manner made up.
6. Appellants contend that the cotton fabrics manufactured by them fall under Heading 52.07. They pressed this contention because of the fact that it is woven fabric of cotton containing 85% or more by weight of cotton. The fact that the goods cleared by the appellants are woven fabrics of cotton containing more than 85% by weight of cotton is not in dispute.
7. Sample of the product manufactured by M/s. Jyoti Overseas Ltd. was sent to Central Revenue Control Laboratory for testing. Its report shows that the sample is a cut piece of thick grey plain weave cotton fabric having 2 ply yarns along warp and weft. The fabric so produced was in running length. It was not cut to size. It continued to be grey fabric. No processing was done on that fabric.
8. Department took the view that the cotton fabric manufactured by the appellants will fall under erstwhile Tariff suib-heading 5909.00 and the present Heading 59.11. What types of goods can fall under Chapter 59? Chapter 59 of the Central Excise Tariff Act deals with:
"Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use."
The product in question, as stated earlier, is textile fabric, It was not impregnated, coated, covered or laminated by the manufacturers. The goods manufactured, according to the Department, will fall within the category of textile articles of a king suitable for industrial use. To see whether this stand of the Department is tenable or not, one has to examine the nature of the goods with reference to Note 7 to this Chapter, namely, Chapter 59. The said Note begins by saying that Heading No. 59.11 (earlier 59.09) applies to the goods mentioned thereunder which do not fall in any other heading of Section XI. This means that if the goods manufactured by the appellants fall in any other heading of Section XI, It cannot be classified under Chapter heading 59.11. Further, for a particular product to be classified under Heading 59.11, it must be a textile product falling under clause (a) to Note 7 or a textile article contemplated by clause (b) to the Note. A textile product or a textile article cannot be textile fabric. Something made out of the fabric alone can be termed as textile product or textile article. Since no process has been undertaken by the appellants on the textile fabric manufactured by them, the goods manufactured cannot be termed as textile product or textile article.
9. Tariff Heading 59.11 reads.
"Textile products and articles, for technical uses, specified in Note 7to this Chapter."
While understanding the scope and ambit of the various sub-heading falling under 59.11, Chapter Note 7 should play a vital role. De hors the activities contemplated by Note 7 to Chapter 59, no article can be classified under Heading 59.11.
10. Sub-heading 5911.10 has been pressed into service by the learned Departmental Representative to show that the textile fabric in question is to be classified under that sub-heading. For a proper understanding of that sub-heading, we quote the same:
"Textile fabrics, felt-lined woven fabrics, coated, covered or laminated with rubber, leather or other material, of a kind used for card clothing, and similar fabrics of a kind used for other technical purposes including narrow fabrics made of velvet impregnated with rubber, for covering weaving spindles (weaving beams)."
A reading of this provision shows that it takes within its ambit textile fabrics, felt and feltlined woven fabrics. These three categories of fabrics by themselves cannot fall within this sub-heading unless they are coated, covered or laminated with rubber, leather or other material. It also takes within its scope fabrics of a kind used for other technical purposes including narrow fabrics made up of woven velvet impregnated with rubber, for covering weaving spindles. Department has no case that the textile fabric manufactured by the appellants underwent any process of coating, covering or lamination. In the absence of such activities being carried out on the textile fabric manufactured by the appellants, the goods cleared by them can, under no circumstance, be classified as an item falling under Chapter sub-heading 5911.10.
11. In Simplex Mills Co. vs. Collector of Central Excise, Nagpur, 1993 (49) ECR 147, this Tribunal interpreted the scope and ambit of Chapter Heading 59.09 as it stood at the relevant time. While analysing that Chapter Heading, this Tribunal lost sight of Note 7 to Chapter 59. Had the sub-heading 5909.00 been examined in the light of Note 7 to Chapter 59, the conclusion would have been entirely different. When the Chapter Heading 59.11 is examined in the light of Note 7 to Chapter 59 as has been done in the earlier paragraph, we are clear in our mind that the conclusion reached by the Bench in 1993 (49) ECR 147 is unsustainable. We accordingly hold that the said decision can never be treated as one laying down correct law. Two coordinate Benches of this Tribunal in Madura Coats Ltd. vs. Collector of Central Excise, Madras, 1999 (106) ELT 213 (decided on 1-7-98) and Simplex Mills Co. Ltd. vs. Collector of Central Excise, Bombay, 1998 (103) ELT 568 (decided on 6-7-98) took the view that grey cotton fabric is classifiable under the then Chapter Heading 52.05 and not under Heading 59.09.
12. Tarpaulins manufactured by processing cotton fabrics were sought to be classified under Chapter 59 of the Central Excise Tariff Act. That was challenged by the manufacturer of tarpaulins. That issue came up before this Tribunal in Binny Ltd. vs. Collector of Central Excise, Madras, 1986 (26) ELT 46. This Tribunal took the view that tarpaulin made from cotton fabrics continued to be classifiable as cotton fabric under item 19 of the then existing Central Excise Tariff Act. Same view was taken in Collector of Central Excise and Customs, Aurangabad vs. Ratan Tarpaulin Water Proof Industries, 1999 (35) RLT 821 and Ducksole (I) Ltd. vs. Commissioner of Central Excise, Bangalore, 200 (12%) 830. When tarpaulin, processed out of grey fabric has been classified under Chapter Heading 52.07, we fail to understand the logic adopted by the adjudicating authority in classifying the grey cotton fabric manufactured by the appellants as items falling under Heading 59.11.
13. Nowhere in the impugned orders the adjudicating authority came to the conclusion that the manufacturer carried out any processing activity on the fabrics and such processed fabrics were cleared by them. The goods cleared from their factory continued to be grey fabrics from the appellants, subjected them to further processing and thereby used it as tarpaulin, bags, jeep hoods, tents, etc. Subsequent use to which it was put by the dealer can have no relevance to the classification or for fixing assessable value to decide the duty payable on the goods. Value of the fabrics at the time of removal of the goods is to be assessed for the purpose of levying duty under the Central Excise Act. While valuing the goods, the nature of the goods at the time of removal of the goods from the factory alone is to be ascertained. Subsequent use to which the goods are put by the dealer can have no relevance to the valuation of the goods or assessment to duty. In view of this specific provision of the Central Excise Act, the adjudicating authority was clearly in error in classifying the goods based on the subsequent use to which it was put by the dealers.
14. The grey cotton fabrics manufactured by the appellants, which were cleared in running length, can never be classified as an item falling under Heading 59.11. The adjudicating authorities were clearly in error in classifying them as item falling under Heading 59.11. The goods cleared by the appellants were classifiable under heading 52.07. Goods falling under that Chapter Heading were not liable to any duty.
15. In the case of M/s. Jyoti Overseas Ltd., the adjudicating authority, after having found that they exported major portion of their products to foreign countries and sold less than 25% for domestic consumption, directed the appellant to pay the entire duty and to claim rebate. Such a course resorted by the adjudicating authority, to say the least, was oppressive. It was only an attempt to inconvenience the industry and to cause untold misery to it.
16. In view of what has been stated above, we set aside the adjudication orders passed in these appeals in toto and relieve the manufacturers of all the liabilities and penalties imposed by the said orders. Consequential reliefs, if any due to the appellants, must also be extended to them.