Customs, Excise and Gold Tribunal - Delhi
Garden Silk Mills Ltd. vs Collector Of Central Excise on 16 January, 1995
Equivalent citations: 1995(78)ELT580(TRI-DEL)
ORDER G.R. Sharma, Member (T)
1. This appeal has been filed by M/s. Varelli Textile Industries Ltd. (Now Garden Silk Mills Ltd.) against the order of Collector of Central Excise, Baroda. The Collector in his order had held :-
"I demand duty amounting to Rs. 19,87,122.70 on 80,502.460 kgs. of Taspa Yarn valued at Rs. 1,65,59,336/- and Rs. 33,792/- on 1,000 kgs. of fancy yarn valued at Rs. 2,81,600.00 under Rule 9(2) read with provisions of Section 11A of Central Excises and Salt Act, 1944."
"I also impose a penalty of Rs. 6,50,000/- under Rule 173Q(1)(a), (b) and (c) of CE Rules, 1944."
2. Shri K.S. Nanavati, the ld. Advocate appearing for the appellants submitted that the present appeal pertains to M/s. Starlight Silk Mills Pvt. Ltd. which came to be amalgamated with the appellant company. M/s. Starlight Silk Mills and was engaged in the business of processing the manmade fila- ment yarn. The company was amalgamated with M/s. Vareli Exports Pvt. Ltd. under an order dated 7-8-1986 passed by the Gujarat High Court. The name of M/s. Vareli Exports Pvt. Ltd. was changed to M/s. Vareli Textile Industries Ltd. This company became a deemed Public Ltd. company and was amalgamated with the appellant company namely M/s. Garden Silk Mills Ltd. under the order passed by the Hon'ble High Court of Gujarat with effect from 1-4-1988; that it was by reason of the aforesaid sequence of events that though originally it was the Starlight Silk Mills Pvt. Ltd. which was concerned in the present proceedings, the appeal is filed by the present company.
3. Briefly stated the facts of the case are that the appellants are engaged in the processing of man-made filament yarn. The dispute before us is whether the product called Taspa Yarn is classifiable under Central Excise Tariff Chapter Heading 56.06 as held by the department or under Chapter Heading 5403.20 as claimed by the appellants and whether the demand beyond six months is barred by limitation.
4. Shri K.S. Nanavati, the ld. Advocate appearing for the appellant submitted that the appellants are engaged in carrying out various processes such as texturising, crimping, twisting and sizing of man-made yarn (fila-ment/POY) since 1982; that the Show Cause Notice was issued on 5-4-1988 and the period covered was from 1-3-1986 to 31-5-1987.
5. The ld. counsel submitted that from 1-3-1986, the new Central Excise Tariff under Central Excise Tariff Act, 1985 came into force; that under the belief that Taspa Texturised yarn which was classified under Tariff Item 18-n(i)(b) would fall under Chapter 54 and continued to be exempt from duty under Notification No. 79/86; that under this belief the appellant did not file any fresh classification list; that the activity of manufacturing Taspa yarn was within the knowledge of the department; that the appellants had filed Classification List No. 33/83, dated 16-3-1983 which was approved by the department; that a sample of the yarn was drawn by the department and was examined and the relevant test report dated 12-4-1983 did not show that Taspa yarn was a fancy yarn and that its classification under the then Tariff Item 18-II(i)(b) was not correct prior to 1-3-1986; that fancy/special yarn was classifiable under the then Tariff Item 68 pursuant to Tariff Advice No. 29/80, dated 25-4-1980 and since Taspa yarn was not classified tinder the then Tariff Item 68, it was presumed by the appellants that Taspa yarn was not a fancy/special yarn.
6. The ld. counsel submitted that the arguments are being broadly advanced on three issues namely (a) Classification of Taspa Yarn under new Tariff effective from 1-3-1986 and (b) whether the extended period beyond six months can be invoked under proviso to Section 11A of the Central Excises and Salt Act, 1944 and (c) whether in view of the evidence and facts of the case, penalty can be imposed.
7. On the question of classification of Taspa Yarn before 1-3-1986, the ld. counsel submitted that the appellants had submitted classification list No. 33/83, dated 16-3-1983 which was approved by the department after taking into consideration the test report on the same; that the appellants had submitted RT 12 return for June, 1983 making a mention of Taspa slub texturised yarn in the Assessment Memorandum making it clear that Taspa yarn was classifiable under the then Tariff Heading 18-II(i)(b); that Trade Notice No. 229/88, dated 25-11-1988 issued by the CCE, Vadodra clarified that single, doubled yarn, multiple (folded) and cabled yarns would be classifiable in Chapters 50-55 of the new Central Excise Tariff depending upon the predominance of textile material; that there did not appear to be any dispute in classification of Taspa yarn under Chapter Heading 5403.20 of the new Central Excise Tariff; that the dispute arose only when Trade Notice No. 23/89, dated 14-2-1989 was issued by CCE, Vadodra clarifying that taspa yarn (which consists of a core yarn) is a special yarn which would be classifiable under Heading 56.06; that it was presumed that the concept of core yarn came from the HSN notes under the nomenclature Entry No. 56.06; that the appellants immediately adduced certificates from MANTRA and SASMIRA, two reputed research institutions showing that taspa yarn was not consisting of core yarn; that in addition affidavits of S/Shri S.Z. Naik, J.V. Shah, K Gupta and R.S. Gandhi experts in the line of textiles technology were filed; that in these certificates and affidavits it was clearly brought out that taspa yarn was only a textured yarn and did not have a core; that the test results on the samples of taspa yarn communicated to the appellant under Superintendent, Central Excise letter no. IV/6-Supdt/GR-l/121/87/4120, dated 27-7-1987 conducted by the Chemical Examiner gets nullified when examined in the light of the results of the cross-examination of the said Chemical Examiner, when the Chemical Examiner clearly stated that Taspa yarn did not have any core; that the Department had clarified "Doubled/folded yarns would be classifiable in one of the chapters of Central Excise Tariff from Chapter 50 to 55 depending upon the pre-dominance of any particular textile material; that Taspa yarn could not be classifiable as a special yarn under Heading 56.06 or articles of yarn under Heading 56.08; that in spite of adducing this overwhelming evidence, the lower authorities have chosen to classify the taspa yarn under Central Excise Chapter Heading 56.06.
8. Arguing further, the ld. counsel submitted that the admitted position is that Classification List No. 33/83, dated 16-3-1983 was approved by the'department in which Taspa yarn was classified under the then Tariff Item 18-II(i)(b) as texturised yarn and not as a special/fancy yarn under the then tariff item 68; that there is a catena of judgments by various judicial forums holding that classification lists once approved cannot be amended with retrospective effect; that any amendment in the classification list shall be effective prospectively only; that classification list cannot be made retrospectively applicable.
9. Elaborating on the question of affidavits, the ld. counsel submitted that the affidavit of Shri S.Z. Naik provides an opinion by an expert showing "One yarn is passed through these rollers and the other yearn is passed through tensioner, to create deliberate irregularities in construction of yarn which produced the effect and is termed as taspa type yarn.
10. Referring to the affidavit filed by Shri K. Gupta, the ld. counsel submitted that Shri K. Gupta certified that taspa yarn does not have a core yarn and therefore cannot be marketed as special yarn. The ld. counsel further submitted that Shri R.S. Gandhi in his affidavit testified to the fact that taspa yarn does not have a core and is not known in the market as special yarn or fancy yarn; that for classification the trade/commercial parlance test is a very important requirement; that according to this requirement, taspa yarn is not known in the market as special/fancy yarn.
11. On the question of cross-examination dated 23-11-1990, of the Chemical Examiner who had given the test report on the sample of Taspa yarn which was communicated to M/s Varelli Textile Industries (now Garden Silk Mills) on 27-7-1987 by the Superintendent of Central Excise stating "Sample is in the form of white two-ply twisted polyster textured yarn having knops at regular intervals along its length produced by feeding two yarns (components) at different speeds. The sample has the characteristic of fancy yarn (special yarn) as described in the technical literature in view of the deliberately produced irregularities in its construction. The ld. counsel submitted that though the Chemical Examiner had given a report that taspa yarn was a fancy yarn or a special yarn, he has not cited any technical literature on the basis of which he formed this opinion and thus the test report is a bald statement only.
12. The ld. counsel submitted that in reply to a question on core yarn, the chemical examiner during cross-examination, had replied that there was no core yarn in taspa yarn.
13. Referring to Fairchild's Dictionary of Textile Terms, the ld. counsel submitted that definition of core yarn as per textile terms and definitions, it has been mentioned that where there is no central yarn around which the other yarn is spirally wound; that according to this definition also taspa yarn does not qualify to be classified under Chapter Heading 56.06 as it does not have a core.
14. The ld. counsel in support of his argument on the question of approval of classification list cited and relied on the Tribunal's judgment in the case of Airconditioning Corporation v. CCE, Calcutta reported in 1985 (19) E.L.T. 206 in which the Tribunal had held that classification list once approved cannot be attacked for alleged mis-statement, if any, as it was the duty of the approving authority under Rule 173-B(2) of the Central Excise Rules, 1944 to approve the list after such inquiry as he deems fit with such modifications as are considered necessary.
15. That HSN notes under Chapter 56.06 read : "These products are composed of a core usually of one or more textile yarns around which other yarns are wound spirally. Most frequently the covering threads completely cover the core, but in some cases, the turns of the spiral are spaced; in the latter case the product may have somewhat the appearance of certain Multiple (folded), Cabled or Fancy yarns of Chapters 50 to 55 but may be distinguished from them by the characteristics of gimped yarn that the core does not itself undergo a twisting with the cover threads; that gimp according to Shorter Oxford English Dictionary means "Silk, worsted or cotton twist with a cord or wire running through it. Now, chiefly, a kind of trimming made of this. The ld. counsel, therefore, concluded that as taspa yarn did not have any core and therefore according to the above quoted HSN notes and Oxford English Dictionary the yarn manufactured by them is neither a fancy yarn nor the special yarn.
16. Referring to an article on the question of retrospective amendment of classification list, the ld. counsel submitted that classification list cannot be made retrospectively applicable. Such amendment can be effective prospec-tively only. In support of this contention, the ld. counsel relied on the case law in the case of Foods, Fats and Fertilisers v. CCE reported in 1987 (30) E.L.T. 538 (Tri.); that in the case of classification list being approved, the principles of natural justice should be followed. In support of this contention, the ld. counsel relied on the report in 1983 (13) E.L.T. 1238 (Tri.)
17. Referring to the ratio of the judgment in the case of Elgi Polytex Ltd. v. CCE reported in 1988 (34) E.L.T. 404 the ld. counsel submitted that the Tribunal had held that Harmonised Commodity Description and Coding Sys-tem-the explanatory notes have the persuasive value though not statutory force in deciding classification of goods under the Central Excise Tariff. In this view of the matter, the ld. counsel submitted that taspa yarn did not have a core and therefore even according to the HSN Notes, taspa yarn manufactured by them will not be classifiable under Central Excise Tariff Chapter Heading 56.06.
18. It was also argued by the ld. counsel that other special yarns are covered under Chapter Headings 56.04 and 56.05 and that the yarns classifiable under 56.06 which is a residuary entry will only cover yarn not elsewhere specified; that the product manufactured by the appellants is covered by the specific description in Chapter Heading 54.03 and therefore the same product cannot be classified under a residuary heading i.e., Central Excise Tariff Chapter Heading 56.06; that interpretative rules of the Tariff were very clear on the subject; that Rule 3 provides that "The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or the part only of the items in a set, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods". The ld. counsel argued further that textured yarn is known as textured yarn in the trade and market parlance; that examining their product taspa yarn from the trade/market parlance test, it would be seen that it is known in the market as textured yarn and that textured yarn has a specific entry under Chapter Heading 54 of the new Central Excise Tariff and therefore its classification under Chapter Heading 56.06 was not justified at all. In support of this contention, the ld. counsel cited and relied on the judgment in the case of Smt. Singhu Ganeshbali and Ors. v. CCE reported in 1985 (22) E.L.T. 242. The ld. counsel also derived support for his contention from the judgment of the Hon'ble Supreme Court in the case of Akbar Jiwani reported in 1990 (47) E.L.T. 161 in which the Hon'ble Supreme Court had held :-
"It is well settled that in taxing statute the words used are to be understood in the common parlance or commercial parlance but such a trade understanding for commercial nomenclature can be given only in cases where the word in the Tariff entry has not been used in a scientific or technical sense and where there is no conflict between the words used in the Tariff and any other entry in the Tariff Schedule."
19. Relying on the judgment in the case of National Textile Mills v. CCE reported in 1988 (35) E.L.T. 681, the ld. counsel submitted that in this case, the Tribunal had held that Explanation 2 of Item 18 covers only products of processing of filament yarns and not of spun yarns. Textured yarn figures clearly and only under the main heading 'Man-made Filament Yarn.' This is a clear indication of the position that the term Textured yarn' is meant to cover only processed filament yarn. Therefore the classification of special yarn is under Tariff Item 18-1 of CE Tariff as it stood at relevant time. The ld. counsel therefore submitted that the yarn manufactured by them was textured yarn known as such in the market and specified in the Tariff and therefore should be classified as textured yarn.
20. The ld. counsel also argued that the burden of proof that the goods fall under a particular item of Tariff is on the department. In support of this contention, the ld. counsel cited and relied upon the ratio of the decision of the Hon'ble Bombay High Court in the case of Navin Chimanlal Sutaria v. UOI reported in 1981 (8) E.L.T. 913; that the department had not discharged its burden and therefore no case for classification of taspa yarn under C.E. Tariff Chapter Heading 56.06 has been made out by the department.
21. On the question of submission of a fresh classification list, the ld. counsel submitted that Trade Notice No. 148/79 dated 18-7-1979 issued by the Collectorate clearly provided that if there has been no structural change in the product and there is no change in the Tariff Entry, it was not necessary to file a classification list. The ld. counsel therefore submitted that with the coming into force of the new Central Excise Tariff from 1-3-1986 it was not necessary for them to file a fresh classification list as there was no structural change in the product.
22. On the question of limitation, the ld. counsel submitted that this Tribunal in the case of Indian Granite Ltd. v. CCE reported in 1987 (31) E.L.T. 847 had held that extended period of five years will not be invokable in the absence of evidence of fraud or suppression of facts; that in the case of Sundaram Industries v. CCE reported in 1987 (32) E.L.T. 212, this Tribunal had held that production process and manufacturing technique were furnished by appellants, therefore, there was no suppression and hence extended period of five years cannot be invoked; that in the case of Phoolsons Foundry Works v. CCE reported in 1989 (42) E.L.T. 654, this Tribunal had held : The appellants have been manufacturing the products even from 1977 and the department admittedly classified those products under Tariff Item 26 AA(ii). Later the question of classification was referred to higher authorities. The appellants have been making representations to the department. The Tribunal held that as the department is aware of the nature of the products, mere absence of classification list will not be sufficient to hold suppression or clandestine removal.
23. On the question of levy of penalty, the ld. counsel cited and relied upon the ratio of the judgment of this Tribunal in the case of Indian Handicrafts v. CC reported in 1990 (45) E.L.T. 503 in which the Tribunal had held that:
"On mere venial breach or clerical error such penalty cannot be imposed as has been observed in the ruling of the Hon'ble Supreme Court relied by the appellants in the case of Hindustan Steels Ltd. (Supra). There is no misdeclara-tion in this case and the department has not proved its charges. The contentions of the appellants that there was a clerical error in filing the Shipping Bill is acceptable in view of the overwhelming other supporting documents produced by them. Therefore, the impugned order is liable to be set aside by allowing this appeal. The appeal is allowed and the appellants are entitled to refund of penalty paid by them. The same should be refunded within three months of the receipt of this order by the respondents."
Supporting his contention that penalty was not leviable on the appellants, the ld. counsel submitted that the Hon'ble Supreme Court in the case of CC, Madras v. D. Bhoormull reported in 1983 (13) E.L.T. 1546 had held :
"Since the penalty of confiscation is a penalty in rem which is enforced against the goods and the second kind of penalty is one in personam which is enforced against the person concerned in the smuggling of goods, therefore, in the case of the former, it is not necessary for the customs authorities to prove that any particular person is concerned with their illicit importation or exportation. It is enough if the department furnishes prima facie proof of the goods being smuggled goods. In the case of the latter penalty, the department has to prove further that the person proceeded against was concerned in the smuggling."
24. The ld. counsel also argued that the appellants had not withheld any information from the beginning and that there was no evidence to prove that the appellants had suppressed any facts from the department. The ld. counsel, therefore, pleaded that no penalty was imposable on the appellants. In support of this contention, the ld. counsel relied upon the ratio of the decision of the Tribunal in the case of Vischem Corporation v. CC, Bombay reported in 1985 (19) E.L.T. 251.
25. It was also argued on behalf of the appellants that they had the bona fide belief that taspa yarn was exempted under Notification No. 178/83, dated 18-7-1983 under the old Tariff prior to 1-3-1986 and under Notification No. 79/86, dated 10-2-1986 under the new Tariff and under this belief there was no question of evading payment of duty and hence there was no mens rea and therefore no penalty was imposable on the appellants. The counsel for the appellants referred to the following reports :-
1. Judgment of Hon'ble CEGAT in the case of Narender Kumar H. Patel v. CCE & C reported in 1986 (26) E.L.T. 108.
2. Judgment of Hon'ble CEGAT in the case of Raman Kishore v. CCE reported in 1986 (26) E.L.T. 120.
3. Hon'ble Supreme Court in the case of CC, Madras v. D. Bhoormull reported in 1983 (13) E.L.T. 1546 (S.C.)
4. Hon'ble Supreme Court in the case of Balumal Jamnadas Batra v. State of Maharashtra reported in 1983 (13) E.L.T. 1558 (S.C.)
5. Hon'ble Bombay High Court in Navin Chimanlal Sutaria v. UOI reported in 1981 (8) E.L.T. 913 (Bom.)
6. Hon'ble Bombay High Court in Hellemic Lines and Ors. v. UOI reported in 1981 (8) E.L.T. 918 (Bom.)
7. Hon'ble Delhi High Court in Bengal National Textiles reported in 1988 (35) E.L.T. 681.
8. Hon'ble CEGAT in Bakelite Hylam Ltd. v. CC, Bombay in 1986 (25) E.L.T. 240.
9. Hon'ble Supreme Court in Akbar Badruddin Jiwani v. CC reported in 1990 (47) E.L.T. 161 (S.C.)
10. Hon'ble CEGAT in Indian Handicrafts v. CC reported in 1990 (45) E.L.T. 503.
11. Hon'ble CEGAT in Smt. Singhu Ganeshbali and Ors. v. CCE reported in 1985 (22) E.L.T. 242.
12. Hon'ble CEGAT in Vischem Corpn. v. CC, Bombay reported in 1985 (19) E.L.T. 257.
26. Shri. M.K. Jain, the ld. SDR appearing for the respondent submitted that with effect from 28-2-1986, new Central Excise Tariff was introduced tinder the CETA, 1985. With the introduction of this new Tariff, the entire pattern of commodities and their classification was either modified or altogether changed. With the change in the tariff, the appellant did not submit any classification list claiming classification under Chapter 54 as required under Rule 173B(4)(c) specifically. In the absence of this claim they were not entitled to any exemption; that in the absence of the submission of the classification list their reference to the Collectorate Trade Notice No. 148/79, dated 18-7-1979 is futile as Rule 173B requires that in case there is a change in the Tariff description of the goods, new classification list shall be necessary; that responsible officers of the appellant company confirmed manufacture of taspa yarn even after 28-2-1986; that the chemical report dated 3-7-1987 clearly shows that the Chemical Examiner had given the opinion that "The sample appears to satisfy the requirement of the definition of fancy yarn (special yarn) as given in the Standard Technical Literature"; that the technical literature relied upon by the Chemical Examiner while giving the test report appears to be Textile-Terms and Definitions compiled by Larolyn A. Farnfield which defines fancy yarn as "A yarn that differs from the normal construction of single and folded yarn by way of deliberately produced irregularities. These irregularities relate to an increased delivery of one or more of its components or to the inclusion of periodic effects such as knops, curls, slubs and the like"; that all the affidavits and technical literature furnished by the appellant supports the view that taspa yarn is fancy yarn; that looking to the process of manufacture of Taspa yarn, it cannot be termed as doubled yarn but is specifically a special yarn. He also referred to S.B. Sarkar's Words and Phrases on Central Excise and Customs and submitted that taspa yarn has been mentioned as a special yarn.
27. The ld. SDR argued that the appellants have heavily relied on the certificates given by MANTRA and SASMIRA and the four affidavits filed by experts, but the fact remains that they have to be read with caution; that certificates given by MANTRA and SASMIRA admit that Taspa yarn comprises of two yarns moving at different speeds to produce deliberately irregularities; that the four affidavits also show that irregularities are produced deliberately to give the yarn a special effect known as Taspa effect and thus the yarn was special yarn, classifiable under Chapter Heading 56.06. It was argued that though HSN was not fully aligned to 1st Schedule to Central Excise Tariff Act, 1985, however, the explanatory notes can be read and have a persuasive value. Reiterating the findings of the lower authorities, the ld. SDR submitted that taspa yarn is special yarn and has rightly been classified under Chapter Heading 56.06 of the Schedule to Central Excise Tariff Act, 1985.
28. On the question of limitation, the ld. SDR submitted that the appellants did not file any classification list nor did they submit RT-12 returns specifically indicating the new classification of the taspa yarn manufactured by them. He, therefore, submitted that there was deliberate suppression of facts by the appellants in so far as taspa yarn was concerned. A stray reference of taspa slub in the RT-12 Returns in June, 1983 cannot absolve the appellants from their responsibility of filing a new classification list under Rule 173-B of the CE Rules, 1944 when the old tariff was replaced by the new tariff and therefore, the ld. SDR submitted that the department has rightly invoked the longer period beyond six months.
29. On the question of imposition of penalty, the ld. SDR submitted that it was deliberate intention to evade payment of duty on the part of the appellants not to declare their product properly by submitting revised classification list when the new Central Excise Tariff was introduced which became effective from 1-3-1986. This deliberate attempt was with the intention to evade payment of duty. The ld. SDR therefore, submitted that there does not appear to be any other intention not to submit the revised classification list and therefore Mens rea on the part of the appellants is proved beyond doubt. He, therefore, submitted that imposition of penalty was legal and fully justified.
30. Heard the submissions of both sides and considered them. We find that the admitted position by both sides is that prior to 1-3-1986, Taspa yarn was classified under the then Central Excise Tariff Item 18-II(i)(b). There was no entry in the Tariff introduced with effect from 1-3-1986 which was pari materia to the then Tariff Item No. 18-II(i)(b). There were seven chapters in the new Central Excise Tariff which covered the items classified under Tariff Item 18 earlier. These seven chapters were from Chapter 50 to Chapter 56.
31. For proper appreciation of the classification of goods, we reproduce Chapter Headings 50, 51, 52, 53 and 55 in general and Chapter Headings 54.03 and 56.06 in particular.
CHAPTER 50 - SILK
CHAPTER 51 - WOOL; FINE OR COARSE ANIMAL HAIR
CHAPTER 52- - COTTON
CHAPTER 53- - OTHER VEGETABLE TEXTILE FIBRES; PAPER
YARN, WOVEN FABRICS OF SUCH YARNS
CHAPTER 55- MAN-MADE STAPLE FIBRES
CHAPTER 54 - MAN-MADE FILAMENTS
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Heading Sub-Hea- Description of goods Rate of No. ding No. duty
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54.03 5403.00 Synthetic filament yarn including Rs. 100
synthetic mono-filament of less per kg.
than 60 deniers, textured
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CHAPTER 56 - WADDING, FELT AND NONWOVENS; SPECIAL YARNS; TWINE, CORDAGE, ROPES AND CABLES AND ARTICLES THEREOF
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Heading Sub-Hea- Description of goods Rate of No. ding No. duty
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56.06 5606.00 Other special yarns including 12% gimped yarn, and strip; chenille yarn (including flock chenille yarn)
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32. Chapter 54 covers man-made filament yarns whereas Chapter 56 covers special yarns among other things. The appellants' thrust of arguments was that the goods described as Taspa yarn manufactured by them remains textured filament yarn and that though there has been a change in the Tariff effective from 1-3-1986, the character of the yarn did not change and it remained textured yarn even with the introduction of the new tariff. It was argued by them that there was a particular chapter namely, Chapter 54 which covers textured filament yarn and that Chapter Sub-Heading 54.03 covers synthetic filament yarn including Synthetic Mono-Filament of less than 60 deniers textured and that sub-heading 5403.20 covered yarns of polyster. The main controversy was on the HSN notes under Chapter Heading 56.06 which stated that special yarn consisted of core yarn and other surrounding yarns. The arguments of the appellants were that taspa yarn did not consist of core yarn to qualify for being treated as a special yarn classifiable under Central Excise Tariff Chapter Sub-Heading 56.06. The appellants buttressed their arguments by citing the Collectorate Trade Notices, Certificates of Research Institutes, Affidavits of experts, Cross-examination of the Chemical Examiner who had earlier opined that taspa yarn was a fancy or special yarn and technical literature. As against this, we observe that the appellants while giving the facts of the case, have stated "The process undertaken by Starlight Silk Mills was basically the process of doubling two yarns on pin type texturising or crimping machine having two threads of yarns but with varying speed with the result that one thread will be passing at a slower speed than the other resulting in fold or knop at regular intervals. This was known as taspa effect and the yarn known as taspa texturised yarn." The ld. SDR referred to the technical literature cited and relied upon by the appellant and submitted that the admitted position was that taspa texturised yarn consisted a minimum of two yarns and one of the yarns acted as a core yarn and other yarn was having gimps to produce folded knops and curls at regular intervals. Thus the yarn which was moving at a slower speed, according to the position admitted by the appellants, the ld. SDR submitted that it was factually the core yarn.
33. We observe that core yarn has been defined in the Fairchild Dictionary of Textile Terms. The effect of producing certain folds or curls mechanically by over-feeding one additional yarn during texturising has been admitted by both sides. This fact has further been testified by the persons who furnished the affidavits and the certificate given by MANTRA and SASMIRA. A scrutiny of the certificates shows that "Taspa yarn does not contain such core type configuration and therefore it cannot be termed as core yarn"; and further that "Taspa yarn is entirely different yarn and cannot be called as core yarn". As against this, Technical Literature on Textile Terms and Definitions compiled by Carolyn A. Farnfield defines fancy yarn as "A yarn that differs from the normal construction of single and folded yarn by way of deliberately produced irregularities. These irregularities relate to an increased delivery of one or more of its components or to the inclusion of periodic effects such as knops, curls, slubs and the like." On a careful study of the affidavits filed by the experts and technical literature cited and referred to by both sides, we observe that fancy yarn is a yarn that differs from the normal construction of single and folded yarn. Farnfield goes a step further and defines special yarn as different from normal construction produced deliberately by irregularities because of increased delivery of one or more of its components. The experts as well as the research institutions testify to the fact that these deliberate irregularities are noticeable in taspa yarn. We also observe that the characteristics of special yarn are (a) deliberately produced irregularities and (b) these deliberate irregularities are produced by increased delivery of one or more of its components. Examining these qualities, we find that the experts fully testify to this view.
34. The facts that are brought out clearly are that the yarn contains two filaments; that the yarn is subjected to texturising and is given a special effect known as taspa effect. The definition of texturised yarn shows that the yarns that have been altered by mechanical or physical process, e.g., twisting, untwisting, false twisting, compression, ruffling, heat setting or a combination of several of these processes which result in individual fibres being set with introduced curls, crimps, loops etc. Seen in the light of the above definition of textured yarn, we observe that taspa yarn is not an ordinary texturised yarn as the two yarns giving it 'taspa effect' are moved at different speeds at different levels. We also observe that consumption of the two yarns producing the taspa effect is more or less in the ratio of 2 : 1. Thus taspa yarn is not ordinary texturised yarn and taspa effect comes only when these loops, curls, knops and slubs are deliberately produced in the yarn by feeding the two yarns at different speeds. This fact, we find, has also been supported by Shri Harish Nivritti Zope, a highly qualified Engineer and Shri Shah, Director of the appellant company.
35. Another point that was emphasised by the appellants was that in the market, taspa yarn was not known as a special yarn, and that the affidavits produced by them support this contention. On this issue, we find that the admitted position was that during the material period, there was no sale of taspa yarn to the market or the sale was negligible but the entire product was utilised in the units of the appellants and therefore the argument that in common parlance it was known only as textured yarn is not supported by facts of the case.
36. Having regard to the above facts and circumstance and the discussions on the various issues raised by both the sides, we find that taspa yarn is a special yarn.
37. It is a fact that man-made filament textured yarn falls under Chap- ter 5403. However, having regard to the discussion that taspa yarn actually is not ordinary man-made filament textured yarn classifiable under Chapter 54, it was a special yarn as held above. We also observe that there is a special Chapter for special yarns. That Chapter is Chapter 56 and therefore, having regard to the facts and circumstances of the case we hold that even in spite of the arguments of the appellant about the classification prior to 1-3-1986, taspa yarn was special yarn classifiable under Central Excise Tariff Chapter sub-heading 56.06.
38. For classification of special yarn, under Central Excise Tariff Chapter Heading 56.06, HSN Explanatory notes define "These products are composed of a core, usually of one or more textile yarns, around which other yarn or yarns are wound spirally. Most frequently the covering threads completely cover the core but in some cases, the turns of the spiral are spaced; in the latter case, the product may have somewhat the appearance of certain multiple (folded), cabled or fancy yarns of Chapters 50 to 55 but may be distinguished from them by the characteristic of gimped yarn; that the core does not itself undergo a twisting with the cover threads. Now reading from para 2 of SAS-MIRA certificate we observe that "Taspa yarn is a textured yarn in which curls are incorporated mechanically lengthwise on the yarn by overfeeding alongwith one additional yarn during texturising. The curls form knops over the yarn surface and give a fancy effect". Further in the certificate given by MANTRA, we find that "Taspa yarn does not contain such core type configuration or a real twist in the yarn. Therefore, it cannot be termed as core yarn". Thus we find that the above two certificates support the view that the curls form knops over the yarn surface and that the filament coming from the tensioner does not undergo twisting. In this view also we find that Taspa yarn is fancy yarn classifiable under Chapter Heading 56.06. Though the description of the goods under Central Excise Tariff Chapter Heading 56.06 is not pari materia with the description of goods under Chapter Heading 56.06 of the Explanatory notes of HSN, however, as Chapter 56 of the Central Excise Tariff speaks of special yarns and, therefore, the description in the Explanatory notes on HSN becomes relevant. This description clearly shows that for a product to be classified under this heading should be composed of a core around which other yarn or yarns are wound spirally. Now examining the process of manufacture of taspa yarn, we notice that there is a yarn which moves at a slower speed. There is another yarn which moves at a faster speed to deliberately create irregularities. This yarn moves at a faster speed over the first yarn. The consumption of the faster moving yarn is higher than the consumption of the slower moving yarn and therefore the yarn which moves at the slower speed can be termed as a core yarn and the yarn which moves at the higher speed is the yarn which covers the slow moving yarn by producing curls and knops. Thus, examining the process of manufacture of taspa yarn in the light of the Explanatory notes on HSN under the relevant chapter, we find that taspa yarn is not ordinary textured yarn but a special yarn.
39. Now, going through the various entries of Chapter 56 of the Central Excise Tariff, we find that Heading No. 56.01 does not cover the product. Heading No. 56.02 and 56.03 also do not cover the product under Chapter 56. Heading No. 56.04 also does not cover the product. So also can be said of Chapter Sub-heading 56.05. Sub-Heading 56.06 covers special yarns other than those specified under the other sub-headings.
40. Having regard to the above findings, we hold that taspa yarn shall be classifiable under 56.06 of the Central Excise Tariff Chapter 56.
41. During the course of arguments, the ld. counsel also submitted that the dispute arose with the issue of Trade Notice No. 23/89 dated 14-2-1989. This argument of the ld. counsel appears to be fallacious in as much as the Show Cause Notice in the instant case was issued on 5-4-1988. It was also argued that any amendment in the classification list can be prospective only and cannot be retrospective. This argument was adduced by the ld. counsel on the ground that they had submitted their classification list sometimes in 1983 which was approved by the department and therefore any amendment in this classification list can be only from the date the case was adjudicated or at the most from the date of issue of the Show Cause Notice. This argument of the ld. counsel is not relevant to the present proceedings in as much as no classification lists were submitted by the appellant when there were major structural changes in the Central Excise Tariff effective from 1-3-1986 and no classification list consequent upon the changes was submitted by the appellants. The ld. counsel also argued that the department was fully aware of the nature of the product namely texturised taspa yarn and mere absence of classification list, therefore, was not sufficient ground to hold that there was suppression of facts. On an examination of this plea, we find that Rule 173-B of Central Excise Rules provides that when there is a structural change in the Tariff, new classification list shall be submitted by the assessees. As in this case, no classification list consequent upon the major changes in the Central Excise Tariff was submitted, therefore, it was a major lapse on the part of the appellants.
42. On the question of limitation, we find that the appellants have heavily relied on the fact that their classification lists submitted in 1983 were finally approved by the department and that the report of the Chemical Examiner on the sample then drawn did support the content of the classification list. It was also argued that the nature of the yarn remained the same and all the facts were known to the department. It was, therefore, emphatically argued that the demand cannot be raised beyond a period of six months from the date of issue of show cause notice, as there was neither any suppression nor willful mis-statement of facts or contravention of Rules with the intention to evade payment of duty. A lot of case law was referred to as has been mentioned in the preceding paragraphs was cited and relied upon by the appellants. The ld. Counsel for the appellants submitted that there was absolutely nothing suppressed or mis-stated to the department nor was anything held back with the intention to evade payment of duty so as to attract the Proviso to Section 11A of the CESA, 1944 for extending the period beyond six months.
43. The department had argued that with the introduction of new Central Excise Tariff effective from 1-3-1986, there was wholesale change in the description of goods and their classification etc., the appellants were required to file revised classification list as required under Rule 173-B(4)(c) of the Central Excise Rules, 1944 and that the appellants if they thought that they were eligible for an exemption, they should have claimed that exemption by filing the requisite classification list as required under the law; that the appellant did neither submit the revised classification list as required under the Central Excise Rules nor did they claim the exemption under the Notification and therefore the department had rightly invoked the proviso to Section 11-A of the Act ibid. On careful examination of the submissions of both sides and the case law referred to by the appellants, we find that there has been a suppression of facts in as such as revised classification was not submitted when the structure of the Central Excise Tariff underwent a complete change with effect from 1-3-1986. We also observe that there has been a suppression in as much as the appellants did not claim exemption when the new Notification in 1986 was issued. On the question whether these things were done with the intention to evade payment of duty, the only answer could be in the affirmative. No evidence has been brought on record to show that the appellant had a bona fide belief and were ignorant to that extent. The appellant company being a substantially large company cannot take the plea that they were not conversant with the Central Excise Rules and were not required to submit revised classification list and claim exemption under the relevant exemption notification. On the question whether there was an intention to evade payment of duty, we can only say that intention can be there to evade payment of duty because no mitigating circumstances have been brought out to explain bona fide belief. Their entire belief is based on the classification list approved in 1983 which is not at all relevant to the present proceedings. Having regard to all the facts and circumstances of the case, we hold that the proviso to Section 11A of the CESA, 1944 was correctly invoked by the department and is legally maintainable.
44. On the question of imposition of penalty, it was argued that taspa yarn was exempted under the old tariff as textured yarn and the bona fide belief of the appellants was that taspa yarn was classifiable as textured filament yarn under the new tariff also and was exempt under the new tariff. As against this it was argued by the department that the old tariff was not a detailed one and did not provide a separate heading for special yarn and therefore the same did not necessarily qualify taspa yarn for classification under the new tariff when detailed listing of different types of yarn was available in the new tariff. On careful consideration of the pleas of both the sides, we find that the appellant had not submitted the classification list. The appellant had also not claimed the exemption and had not provided any material document to the department to classify the goods properly and therefore, we hold that there was mens rea having regard to the fact that these documents were not submitted to the department with a view to evade payment of duty. This non-submission of the classification list and the non-claiming of the exemption certainly shows the state of mind and therefore penalty has rightly been imposed.
45. However, there is a mitigating circumstance in the case in as much as prior to 1-3-1986, taspa yarn was manufactured by the appellants and was classified as textured filament yarn which was exempt from duty. We also observe that textured filament yarn was exempt from duty even after 1-3-1986. Having regard to this fact, we hold that the penalty is on the higher side. We, therefore, reduce the penalty to Rs. 3 lakhs.
46. In view of the above findings, we order as under :-
(a) Taspa yarn is classifiable under Central Excise Tariff Chapter Heading 56.06;
(b) The demand of duty amounting to Rs. 19,87,122.70 is confirmed;
(c) The amount of penalty is reduced to Rs. 3 lakhs.
47. But for the above modifications, the impugned order is upheld and the appeal is disposed of accordingly.