Customs, Excise and Gold Tribunal - Delhi
Cargo Tarpulin Industries vs Collector Of Central Excise on 16 November, 1994
Equivalent citations: 1995(75)ELT654(TRI-DEL)
ORDER
S. Kalyanam, Vice President
1. This is an application for waiver of predeposit of total duty amount of Rs. 64,67,092.77 and a penalty of Rs. 5,45,000/- levied on the petitioner under the impugned order dated 14-12-1993. Shri Laxmi Kumaran, ld. counsel for the appellants submitted that the petitioner is manufacturing wax treated cotton canvas cloth and the proceedings were initiated by the department by issuing a show cause notice dated 2-3-1993 invoking the longer period in terms of Section 11A of the Central Excises and Salt Act, 1944 alleging that the goods cleared by the petitioner during February, 1988 to March, 1992 would be classifiable under Heading 59.06 resulting the impugned order. It was urged that in respect of Tarpaulin the department levied the duty on the ground that the petitioner was using power in the manufacture of the same using 1/2 H.P. operated machines for stitching and exemption is available only for the goods manufactured without using power.
2. Learned counsel further contended that in terms of chapter note to Heading 59.06 it would be clear that any fabric in which the impregnation, coating or covering cannot be seen with the naked eye would not be classifiable under Heading 59.06 but would fall under Chapter 50 to 55, 58 or 60 of the Central Excise Tariff. In this connection the department drew representative samples and sent it for opinion of the Dy. Chief Chemist who by his opinion dated 18-9-1992 stated that "The coating/impregnation can be seen with the naked eye". On further representation the department sent the representative sample for re-testing to the Chief Chemist at Delhi who by his letter dated 13th September, 1993 gave his opinion that "interstices between the yarns were not completely filled and that light passes through the interstices and warp and weft yarns of the fabrics in each of the sample are visible with naked eyes". It was submitted that along with the representative sample, similar goods belonging to other manufacturers were also sent for analysis to the Chief Chemist. It was urged that the opinion of the Chief Chemist is clearly in favour of the assessee and for this reason the goods would not be classifiable under Heading 59.06. The learned counsel further submitted that in respect of indentical goods of different manufacturers the department has taken the view that the goods would not be classifiable under Heading 59.06 and places reliance in this connection on the adjudication order of the Collector of Central Excise, Aurangabad (Order No. COLLR. No. 46/92) and order of the Collector of Central Excise, Bombay dated 23-8-1991 in Order No. V-Adj (Ch. 59) 15-265/90. The learned counsel further urged that in consistent with the practice of the department in not classifying the goods in question under Heading 59.06, the petitioner would also be entitled to similar relief and cannot be discriminated against for levy of duty. The learned counsel, therefore, pleaded that prima facie the impugned order is not sustainable either on facts or on law. The ld. counsel further urged that a plain reading of chapter note to Heading 59.06 and literal interpretation thereto would bear out that it is only in circumstances where the impregnation, coating or covering is visible to the naked eyes, the goods in question would attract Heading 59.06. In other words the layer formation on the goods is sine qua non for bringing the goods within the mischief of Tariff Heading 59.06. The ld. counsel also referred to the clarification of the Board dated 11-4-1991 which emphasises that if the manufacturing process of waterproofing is such that there is formation of a visible layer on the surface of the fabric, then only the classification will be in [Heading 59.06]. Reference was also made to the Fairchild's Dictionary of Textiles with reference to the meaning of the word 'Impregnated Fabric' and urged that a fabric in which the interstices between the yarns are completely filled with an impregnating compound throughout the thickness of the material, rendering the fabric invisible, as distinguished from sized or coated materials where the material is applied to the surface and these interstices are not completely filled should be borne in mind to understand the connotation of impregnated fabric. Finally the learned counsel pleaded financial hardship with reference to the petitioner's balance sheet for the year ending 31st March, 1993 and urged that the unit is a partnership firm with a number of partners and the firm has made only a meagre profit of Rs. 78,000/-.
4. Shri M.K. Jain, ld. SDR opposing the application submitted that the opinion of the Dy. Chief Chemist referred to the impugned order clearly shows that the impregnation or the layer formation is clearly visible. Ld. SDR also referred to the impugned order where the process of manufacture is referred in details and contended that mere coating on the fabric would attract the Heading 59.06 of the Tariff. Ld. SDR further submitted that in the present case the petitioner is also prima facie guilty of suppression of facts inasmuch as no classification list or price list was filed much less any licence taken out by the petitioner. Ld. SDR further submitted that the petitioner did not give any reply to the show cause notice. Ld. SDR further urged that the two orders of the Collector relied upon by the ld. counsel do not clearly bring out the facts as to whether the goods therein and the goods in the present case are identical. In regard to the financial hardhsip the ld. SDR urged that the sales turnover of the petitioner for the year ending 31st March, 1993 is of the order of more than 1 crore and the substantial amount is due to the petitioner from Sundry Debtors.
4. Shri Lakshmi Kumaran, ld. counsel in his rejoinder also indicated that the computation of the duty is incorrect and explained by stating that even if the entire case of the department is accepted the total liability even for the longer period would only work out to Rs. 15,21,3247- for the fabrics and so far as the Tarpaulin is concerned it would come to Rs. 12,085/-. Ld. SDR in reply to this urged that since the party did not reply to the show cause notice it would not be possible for him to go into the details of computation given by the ld. counsel.
5. We have given anxious consideration to the pleas urged before us. In the impugned order reference is made to the opinion of the Dy. Chief Chemist as well as to the Chief Chemist and the ld. adjudicating authority in dealing with the issue in Para 5 has observed as under :-
"As per Chapter Note 5(a) under Chapter 59, the Heading 59.06 does not apply to fabrics in which the impregnation, coating or covering cannot be seen with the naked eye. In other words, fabrics, where impregnation, coating or covering cannot be seen with the naked eye, as per the abovesaid note, fall under Chapter 50 to 55, 58 or 60. As is evident from the report of the Chemical Examiner, Custom House, Madras, and also the Chief Chemist Central Revenues Control Laboratory, New Delhi, referred to the above impregnation, coating or covering are visible with the naked eye."
We note that Dy. Chief Chemist by his report, dated 18-9-1982 on analysis of representative sample of the goods has observed as under :-
"The sample is green coloured woven fabric. It is composed of base cotton fabric coated/impregnated with a preparation of waxy matter. The coating/impregnation can be seen with the naked eye.
Remnant sample sealed with the seal of the Chemical Examiner, Custom House, Madras, returned to the Asstt. Collector (Preventive) Hqrs. Central Excise, Office of the Collector of Central Excise, Queens Road, Bangalore."
The Chief Chemist by his report, dated 13th September, 1993 in respect of goods in question has observed as under :-
"CLR/SB-9/64 (Cargo tarpaulin):- The sample is in the form of cut-piece of green coloured woven fabric, made of two ply yarn along warp and single ply yarn along weft and is composed of all cotton, Wt. per Sq. metre of the sample = 849.3 gm.
Each of the three samples is treated by impregnation with the preparation of waxy matter and Aluminium stearate. However, interstices between the yarns are not completely filled, light passes through the interstices, warp and weft yarns of the fabrics in each of the three samples are visible with naked eyes".
Chapter Note of 5 of Heading 59.06 reads as under :-"5. Heading No. 59.06 does not apply to :
(a) Fabrics in which the impregnation, coating or covering cannot be seen with the naked eye (usually Chapter 50 to 55,58 or 60): for the purpose of this provision, no account should be taken of any resulting change of colour;
(b) Fabrics painted with designs (other than painted canvas being theatrical scenery, studio back-cloths or the like);"
The Board also issued a clarification on the doubt raised on the question of classification of Tarpaulin/processed water-proofed canvas cloth on 11-4-1991 in F. No. 59/4/90-CX. 1, which reads as under :-
"Classification of Tarpaulin/processed water-proofed canvas cloth -Clarification - Regarding.
A doubt has been raised regarding the classification of Tarpaulin/ processed water-proofed canvas cloth whether under Central Excise Tariff Chapter 59 or in Chapter 52.
2. The process of manufacture of the said fabrics is reported as under :-
"This process is known as Chemical proofing process. In this first grey fabrics are washed and dyed in jigger and then passed through Mangle containing water proofing solution. The water proofing solution here, consists of wax, waxol-PA, Aluminium Sterate, Maize Starch, Gungum etc, in which Waxol-PA, in the form of paste sets evenly in the pores of fabrics. Therefore, the fabrics are passed through a stanter having 24 cylinders and heating of stanter is done with the help of LPG. This stantering process facilitates evenly settling/filling of pores of the fabrics in an also drying of fabrics. The fabrics are again passed through the mangle containing a solution of Aluminium and Lead Acetate known as acetating solution and the process is known as Acetating process. This process gives final finishing to the donvers cloth which is then passed through the heated stanter to make finished goods."
3. The matter was referred to Chief Chemist, CRCL, New Delhi, for ascertaining his views regarding the classification of the subject goods. The Chief Chemist after examining the samples has opined that wax-coated canvas and Tarpaulin fabrics would be classifiable in Chapter 59. Going by the criterion of visible layer formation, he has further opined that these wax-coated canvas cloth can only be classified in sub-heading 59.09 of the Central Excise Tariff as there was no visible formation of layer. As regards Tarpaulin fabrics, the Chief Chemist has opined that the said Tarpaulin fabric can be classifiable under 59.06 of the Central Excise Tariff as there was a visible layer formation on the said fabric.
4. The issue has been further examined in the Board. Water proofing is one of the processes specifically mentioned in Chapter 52 whereas Chapter 59 refers to impregnated/coated fabrics. The possible sub-heading for classifying the said fabric in Chapter 59 is 59.06 i.e., textile fabrics, otherwise impregnated/ coated or covered. For classifying a product as otherwise impregnated/coated fabrics falling under sub-heading 59.06, there should be a visible formation of layer on the surface of the fabrics as per Note 4 to 59. If the manufacturing process of water proofing is such that there is formation of a visible layer on the surface of the fabric, then the classification will be in sub-heading 59.06 despite the mention of water proofing as one of the processes in Chapter 52. This view gets support from the interpretative rules that if goods merit consideration for classification equally in more than one headings, such goods should be classified under the heading which occurs last in the numerical order. However, if there is no visible layer formation, then the said wax proofed/Tarpaulin cloth should be classified in Chapter 52 of the Central Excise Tariff as water-proofed cloth, provided the base fabrics are cotton fabrics. While determining whether the deposite on the surface is a visible layer or not, a layer' should be distinguished from mere presence of residues in uneven patches.
5. This may be brought to the notice of the field formations and trade interest."
We also note that the Collector of Central Excise, Aurangabad in the order supra in regard to the classification of Tarpaulin has observed as under :-
"In this case the process employed for water-proofing as not disputed but instead of water proof cloth it is treated as impregnated textile fabrics. The main question is whether by the process of water-proofing or impregnating there is layer formation on the surface of the fabrics so that the weaving construction of the cotton fabrics is not visible. The party at the time of personal hearing producing the samples of the said product demonstrated that if formation of material is visible the fabrics cannot be visible then such fabrics would merit classification under Chapter 59 but if formation of material is not visible then the fabrics could be visible and in that case there being no layer formation the fabrics would be classifiable under Chapter 52.1 have myself seen the samples of the waterproof textile fabrics manufactured by the party and I did not find any layer formation but the basic structure of the fabrics is quite visible."
In view of the above facts and particularly water-proofing is one of the processes specifically mentioned in Chapter 52 whereas Chapter 59 refers to impregnated/coated fabrics which excludes the fabrics in which impregnation, coating or covering cannot be seen with naked eye from the scope of Heading 59.06 and the fact that it is only in the case of manufacturing process of water-proofing is such that there is formation of a visible layer on the surface of the fabrics, in other words there is continuous layer coverage on the surface of the fabrics and basic characteristic is not visible with naked eye then only it will be classifiable under Chapter 59.06 otherwise not. However, when there is no visible layer formation, then such water-proofed cotton fabrics would be classifiable under Chapter 52."
The Collector of Central Excise, Bombay by his order dated 23-8-1991 cited supra while dealing with an identical issue in regard to the classification of similar goods has observed as under :-
"Classification of Tarpaulin cloth : Whether under sub-heading No. 5207 or under sub-heading No. 5906.90. The Show Cause notice proposed classification under 5906.90. The sole reason to such classification is that the Tarpauline cloth produced by the assessee was manufactured by common proofing process and it appears that the same would appropriately fall under sub-heading 5906.90. This by itself cannot be a substantive ground. The Notice is not positive in its allegation. As for the classification of the product Tarpaulin Cloth, I find that the foregoing explanation stands good in this connection also. Heading No. 5906.00 covers textile fabrics otherwise impregnated, coated or covered (including fabrics covered partially or fully with the textile flocks or with preparation of containing textile flocks). Note No. 5 to Chapter 59 takes out from the ambit of Heading No. 5906, fabrics in which the impregnation, coating or covering cannot be seen with the naked eye. This makes it clear that for classifying a product under Heading 5906, there should be a visible formation of layer on the surface of the fabrics. From the sample of the product, I find that no such layer could be seen. Therefore, the impugned product viz. Tarpaulin cannot be classified under sub-heading 5906 and the appropriate classification is 5207. The allegation in the Notice with regard to classification of Tarpaulin cloth also does not sustain."
6. Taking all these facts into consideration and keeping in mind the pleas urged by the ld. SDR we are of view that the issue is contentious one and warranting critical scrutiny and indepth analysis of all the pieces of evidence vis-a-vis the wording of Chapter Note etc., which otherwise is not practicable or permissible at this interlocutary stage and therefore, we reserve for consideration all these pleas at the time of final hearing of the appeal on merits. We have gone through the balance sheet of the petitioner firm and also taken note of financial position as reflected in the balance sheet under the "assets" and "liabilities" column. We have noted that the petitioner has not filed any balance sheet for the subsequent year after 1992-93. Taking note of all the above facts and also plea in regard to the error in computation of duty and in the facts and circumstances of the case we are of the view that interests of justice would be met if the petitioner is directed to deposit a sum of Rs. 15 lakhs. We, therefore, direct the petitioner to deposit Rs. 15 lakhs and grant waiver of predeposit of the balance amount of duty and the entire amount of penalty pending disposal of the appeal. We also grant stay of recovery of balance amount of duty subject to compliance with this order. The petitioner is granted time till 28th February, 1995 for reporting compliance.
7. Call on 13th March, 1995, for passing suitable order after ascertaining compliance of this order.