Judgment:
1. The point for determination in the captioned appeal is the classification of unprocessed cotton/nylon woven Carcass containing 32% cotton and 68% nylon approx. The appellants claimed classification of the product under Chapter Heading 5408.00 whereas the Deptt. held that the product was classifiable under Chapter Heading 5909.00.
2. The facts of the case are that the appellants are manufacturers of PVC coated conveyor beltings called Fenaplast. For manufacture of these beltings, the appellants used unprocessed cotton/nylon woven fabrics which they call Carcass. With the introduction of new Tariff effective from 1-3-1986, the appellants filed C/List and claimed classification thereof under Chapter Heading 5408.00. Before the introduction of the new Tariff, the product was classifiable under T.I. No. 22 (1) (a) of the erstwhile Central Excise Tariff. This classification was approved by the Asstt. Collector. However, the Collector, Central Excise, Madurai issued a show cause notice on 27-3-1987 stating that the unprocessed cotton/nylon carcass manufactured by the appellants was a special type of fabric manufactured out of thick yarn consisting of nylon filament yarn, nylon spun yarn and cotton yarn twisted and doubled simultaneously in a special type of twisting-cum-doubling machine, that the fabric is woven in a special type of carded machine consisting of 3 sets of warp yarn, weft yarn and that the fabrics so woven were thick and were exclusively used for special industrial purposes that is for manufacture of fenaplast and therefore, the said carcass was classifiable under Chapter Heading 5909.00 "as all other textile products and articles of a kind suitable for industrial use".
Accordingly, appellants were asked to explain as to why the said product should not be classified under Chapter Heading 5909.00 and why the differential duty should not be demanded from them as also why penalty should not be imposed on them. In reply to the show cause notice, the appellants submitted that there was no misdeclaration or misstatement or any intention to evade payment of duty; that the goods were either not classifiable at all being goods in process or were classifiable under Chapter Heading 5408.00; that the extended period of limitation under Section 11A was not attracted; that reclassification cannot be applied retrospectively to a finally approved classification; that the issue of show cause notice Under Section 11A amounted to sitting in appeal over the decision of the Asstt. Collector to which the Collector has no jurisdiction; that the classification done by the Asstt. Collector cannot be reviewed by the Collector retrospectively; that the remedy of an appeal Under Section 35E has not been pursued by the deptt. within the time. After careful consideration of the submissions made by the appellants, the ld. Collector as adjudicating authority ordered reclassification of the goods described as 'carcass' under Chapter Heading 5909.00. Hence the appeal before us.
3. Shri V. Sridharan, the ld. Advocate appearing for the appellants submitted that the appellants had been describing the goods as "unprocessed cotton/nylon containing cotton 32% approx. and 68% nylon approx. specially manufactured in the course of producing the end product viz. 'Fenaplast'" in their earlier C/List for the year 1985-86; that with the introduction of new tariff effective from 1-3-1986, the appellants described the product in the C/List as "unprocessed cotton/nylon woven fabric with nylon content 68% approx. and cotton content 32% approx." 4. The ld. Counsel submitted that Chapter Heading 5408.00 reads : "Fabrics of man-made filament yarn (including fabrics obtained from materials of Headings 5406 & 5407) - (a) woven and (b) not subjected to any process - nil". The ld. Counsel submitted that tariff description of the goods during 1985-86 was man-made fabrics which described the goods as "man-made fabrics not subjected to any process"; that the new tariff under Chapter Heading 5408.00 described the goods as fabrics of man-made filament yarn woven and not subjected to any process which description is the same the as, under the erstwhile T.I. No. 22 (1) (a). The appellants therefore, claimed that the product in dispute was justifiably classifiable under Chapter Heading 5408 both on facts and in law. The ld. Counsel submitted that Chapter Heading 5909.00 reads: "All other textile products and articles of a kind suitable for industrial use etc."; that the Chapter Note 6 specified the goods that would be attracted under Chapter Heading 5909.00; that none of the descriptions of articles given under Chapter Note 6 applies to the carcass produced by the appellants; that the mere woven fabrics unprocessed cannot be considered as an article of a kind suitable for industrial use; that it is not the case of the deptt. that the said fabric is straightway used as fabrics for any industrial use; that Chapter Heading 5909.00 has not stopped with a mere description of the goods, but also furnished examples of goods that would be attracted by this Heading; that none of the examples mentioned therein would be applicable to the goods under dispute and therefore, the reclassification of the goods under Chapter Heading 5909 was not warranted.
5. The ld. Counsel also argued that the product was an in process material used as a raw material for manufacture of Fenaplast and therefore, it was not goods as it was not marketable nor could be used as it is, except for the purpose for which it is made; that carcass is not a trade name but is used for a raw material or base material.
6. On the question of disclosure of the identity of the goods after introduction of the new tariff, the ld. Counsel submitted that the appellants had used the expression 'carcass' in the C/List that existed prior to 1-3-1986; that the rest of the description namely, the goods being unprocessed cotton/nylon woven fabrics were employed in both the C/Lists submitted prior to 1-3-1986 and on or after 1-3-1986; that the respondents were aware of the facts relating to identical goods ever since the commencement of its manufacture and of the fact that this particular material was being used as base material for the purpose of manufacture of fenaplast and that the end product, namely, fenaplast was being manufactured for use in collieries as conveyor belts; that there was no suppression of any fact; that the Asstt. Collector after careful verification had approved C/List of the product in dispute under Chapter Heading 5408.00; that there is hardly any justification to sustain the finding of suppression of fact to justify a demand for duty for the period during which the finally approved C/List of the said goods was in force; that the provision of Section 11A are applicable only when there has been a short-levy, non-levy or an erroneous refund etc. and that said provisions cannot be pressed into service for the purpose of reclassification with retrospective effect or to make a demand on such reclassification. It was also argued by the ld. Counsel that the proviso to Section 11A cannot be invoked to review the final order of the competent authority; that the provisions of Rule 173B (5) do not vest any power in the Collector to receive any C/List and accord approval to it, as is clear from Sub-rule (1) (a) of Rule 173 B; that is only the proper officer who has jurisdiction and authority to act under Sub-Rule 5 of Rule 173B; that the Collector is not described as a proper officer for this purpose and therefore, he is not the competent authority to pursue any action under Sub-rule (5) of Rule 173B; that the charge of contravention of Rule 173B of the said Rules cannot be sustained because the classification was approved finally by the competent authority. Summing up his arguments, the ld.Counsel submitted that both on merits as well as on limitation, the case is in their favour.
7. Shri G.D. Sharma, the ld. DR appearing for the respondent Commissioner submitted that Chapter Heading 5408 covers "All types of fabrics of man-made filament yarn not subjected to any process". He submitted that to qualify for assessment under this Heading, the product should be acceptable in the trade as consumer textile fabrics; that the product described as carcass manufactured by the unit is of no use in the trade as consumer textile fabrics; that the terms 'carcass' is not a technical term; that the product is exclusively used in the manufacture of fenaplast which is a variety of flame proof colliery belting; that the fabric is used only as an industrial fabric and not as a consumer textile fabric; that the fabric is commercially not known in the common parlance as consumer textile fabric; that the item which equally attracts two different Chapter headings for classification, the classification under the most specific heading has to be preferred.
Taking into account its essential characteristic, the ld. DR submitted that after reading the description of the goods under the two different Chapter Headings, the classification of the product under Chapter Heading 5909.00 is more appropriate and more specific for fabrics of a special industrial use; that Chapter Heading 5408.00 is a general heading and that under Chapter Heading 59 there are two types of items and that textile products and articles of a kind suitable for industrial use are specifically included in the description of products under Chapter Heading 59. The ld. DR therefore, submitted that the product in dispute is classifiable under Chapter Heading 5909.
8. On the question of limitation, the ld. DR submitted that the description of the goods given in C/List No. 150/2/1985-86 was certainly misleading and therefore, the A.C. approved the C/List; that the brief description of the item given by the licensee was solely for the purpose of availing nil rate of duty and thus there was clearly an intention to evade payment of duty. He submitted that the intention of the party was clear inasmuch as C/List submitted prior to 1-3-1986 showed detailed description of the goods whereas the C/List submitted on 1-3-1986, certain portions of the description were not incorporated so as to mislead the approving officer and therefore the lower authorities have rightly invoked the proviso to Section 11A extending the period beyond six months.
9. On the question of reopening the approved classification, the ld. DR submitted that a demand of duty under proviso to Section 11A can be raised in the circumstances stated therein. He submitted that since the appellants had not furnished the detailed description of the goods in the C/List, there was suppression; that suppression was one of the ingredients for raising the demand beyond a period of six months. He submitted that in the instant case, there was suppression and that suppression was intentional and therefore, the approved classifications have been reopened rightly through the process of making demand, which is legal.
10. The ld. DR submitted that from judicial angle, the case is considered, the lower authorities have rightly demanded the money, invoked the proviso to Section 11A extending the period of demand beyond six months and reopening the already approved classification by raising the demand beyond a period of six months.
11. Heard the submission of both sides. We find that on merits, three issues arise. Number one issue is what is the correct classification of the product in dispute. Two entries are 5408 as claimed by the appellants and 5909 as held by the department. The two entries have been set out in the foregoing paragraphs. For determining the correct classification of the product, let vis fist examine what an industrial fabric is. According to ISI specification No. 2364-1979, Industrial Fabrics' has been defined as "Fabrics whose interstices in the yarn have been filled with chemical compound so as to cover the entire surface. Commonly used for leather bags, garments, insulation tapes etc." Further Industrial Fabrics means fabrics made from man-made or natural yarn which are commonly used on machine such as belting duck, filter cloth, sizing flannel etc." 12. The Dictionary of Textile Terms defines 'Industrial Fabrics' "As differentiated from consumer textiles products which are commonly used in the various manufacturing industries for factory purposes. Prominent in this group are such textile products as machine belting straps, pads and similar types of fabrics or yarns both man-made and natural." The new Encyclopedia of Textiles at page 495 defines 'Industrial Fabrics' as a large and important group of textiles which includes woven and nonwoven clothes vital to many industries, ranging from primitive agriculture to get transportation." Fairchild's Dictionary of Textiles, sixth edition by Dr. Isabel B. Wingate appearing at pages 307-308 defines Industrial Fabrics' as "A broad term for fabrics of any fibre(s) and sued for non-apparel or non-decorative uses. They either are used by themselves or treated for use in industrial products, as the base for other materials, or for marine uses. Outdoor fabrics such as awning, fabrics for use with plastics, the cord, are a few.
13. Glossary of Textile Terms issued by Bureau of India Standards defines 'Industrial Fabrics' at page 134 as "A variety of fabrics used for non-apparel purposes in industry." With the above background of what industrial fabrics are we find that industrial fabrics are non-consumer fabrics. We also find that these fabrics are used for industrial purposes. In the instant case, we find that the product described as 'carcass' is exclusively used in the manufacture of flame proof conveyor belts in collieries. Belting fabric is a specific item.
From the evidence on record, we find that carcass is not known as a consumer fabric. We also observe that carcass is solely used for manufacture of fenaplast. Now looking to the description of the Chapter Heading, we find that the more specific description is to be preferred to less specific. No doubt the description of the product in dispute is nearer and more specific under Chapter Heading 5909. We therefore, hold that the product shall be classifiable under Chapter Heading 5909.
14. The second issue is whether approved classification list can be opened under the provision of Section 11A. Section 11A is a provision for recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded. The proviso to this Section stipulates "provided that where any duty of excise has not been leied or short-levied or short-paid or erroneously paid by a reason of fraud, collusion or any wilful misstatement or suppression of facts or contravention of any of the provision of this Act or of the Rules made thereunder with intent to evade payment of duty by such person or his agent, the provision of this sub-section shall have effect, as if, for the words 'Central Excise Officers', the words 'Collector of Central Excise and' for the words 'six months', the words 'five years' were substituted. Now in case there has been suppression or misstatement, the demand of duty can be raised under the provisions of Section 11 A.This demand cannot be confined only to a particular aspect but can be extended to all aspects including the approved C/List or price list if the proviso/provisions are attracted.
15. Now coming to the third aspect, we find the allegation is that the appellants suppressed the detailed description of the goods. The appellants in this case submitted that they have been manufacturing fenaplast for a long time; that they have been submitting C/List from time to time. The deptt. alleged that the appellants had given detailed description of the goods in the price list submitted before 1-3-1986 but held back a part of the description of the goods with classified list submitted on 1-3-1986 to avail a lower rate of duty. On a scrutiny of the Classification prior to 1-3-1986 and on or after 1-3-1986, we find that the description as given earlier was partly given on or after 1-3-1986. The appellants contended that they had curtailed the description to suit the requirement of the tariff. We find that the appellants have been manufacturing fenaplast and furnishing C/List about carcass also and thus the entire position was known to the department. There was a difference in description of the same product as given in the C/List submitted before 1-3-1986 and on or after 1-3-1986, there was more reason to investigate the reasons before approval of the C/List filed on or after 1-3-1986. Since the C/List filed on or after 1-3-1986 were approved, we hold that the department was aware of the manufacturing process and the products. In this view of the matter, we hold that the demand beyond six months is not sustainable.
15A. Having regard to all the facts and circumstances of the case, penalty is reduced to Rs. 50,000/- (Fifty Thousands).