Full Judgment
2. In both the appeals the controversy relates to the classification of the processed knitted pile fabrics in running length at the hands of the appellants who are the processors.
3. The facts out of which this controversy has sprung up may briefly be stated as under : The appellants are processors of various textile fabrics. Besides this, they also undertake the job work pertaining to the processing of knitted pile fabrics. They receive this fabric in running length from M/s. Dhvani Terefab Exports P. Ltd. (Dhvani) who are manufacturer of the fabric. Thereafter, they subject the same to processing i.e. washing, dyeing, bleaching, hydro-extraction tumble dyeing and drying and for carrying out this processing, they cut the grey fabrics received, into convenient lengths i.e. 10 metres, 15 metres etc. They had been paying duty at the appropriate rates on such processed pile knitted fabric under Chapter 60 of the Central Excise Act. Till 23-7-96, this processed fabric, falling under Chapter 60 was chargeable to duty but, thereafter duty exemption was granted in respect thereof.
4. The Excise Department thereafter issued three Show Cause Notices to the appellants far classifying the processed fabric manufactured by them, under Heading 63.07 as "other made-up textile articles" and also raised demand for duty. The Asstt. Commissioner through Order-in-Original dt. 17-11-97 confirmed the duty by holding the classification under Heading 63.07 and that order, had been confirmed by the Commissioner (Appeals) through impugned order.
5. The plea taken up by the appellants is that the processed fabric manufactured by them, did not meet the statutory definition of 'made up' as given in Section Note 5 of Section XI, as they received the grey fabric in running length and they undertook the process of washing, dyeing, bleaching etc. and there was no knitting to shape involved in the process undertaken by them.
6. On the other hand, the Revenue has also placed reliance on the definition of 'made up articles' as set out in Note 5 of Chapter XI for classifying the product under Heading 63.07. The Asstt. Commissioner by placing reliance on Clause (f) of this Section Note, held the classification in favour of the Department, as prayed for by them in the SCN. The Commissioner (Appeals) however, had given good-bye to that clause and by placing reliance on Clause (b) of this Section Note, confirmed the order of the Asstt. Commissioner in respect of classification. Section Note 5(f) of Section XI reads as under : (f) Knitted or crocheted to shape, whether presented as separate Items or in the form of a number of items in the length".
"(b) Produced in the finished state, ready for use (or merely needing separation by cutting dividing threads) without sewing or other working (for example, certain dusters, towels, table clothes, scarf squares, blankets)." In the HSN Explanatory Note, the scope of Note 5(b) has been defined as under: "Produced in the finished state, ready for use (or merely needing separation by cutting dividing threads) without sewing or other working. Goods of this kind include products knitted or crocheted directly to shape and certain dusters, towels, table cloths, scarf squares, blankets, etc. with, threads along the warp left unwoven or the weft edges cut to form a fringe. Such articles may have been woven separately on the loom, but may also have been simply cut from lengths of fabric which have bands of unwoven threads (generally warp threads) at regular intervals. These lengths of fabric, from which ready made articles of the types described above may be obtained by simply cutting the dividing threads, are also considered as "made up" articles." 7. The law on the point as to whether the fabric when subjected to the process with reference to Note 5(b) or (f) of Section XI, would be classifiable under Chapter 63 of the CETA or not, so far propounded from the various benches of the Tribunal, is not consistent, rather contradictory. In the case of CCE, Coimbatore v. Terrytex - 1997 (91) E.L.T. 169, South Zonal Bench had taken the view that in case of terry towels - stitching being necessary after separation of towels from length by cutting through dividing threads, towels are not to be considered as 'made-up articles' in terms of Section Note 5(b) of Chapter XI, so as to disallow the benefit of exemption under Notification 65/87, by classifying under Chapter 63.
But in the case of this very assessee contrary view has been expressed regarding the same product i.e. terry towels, by South Zonal Bench presided over by different members by holding that terry towels despite cross border and even after cutting through dividing threads and stitching on hands, could not be taken away from the category 'made up articles' in terms of Section Note 5(b) of Chapter XI and were still classifiable under Chapter 63. This view has been, however, also adopted by Bench "D" of this Tribunal, in the case of CCE, Madras v.Binny Ltd. (B & C) Mill (decided vide Final Order No. E/402/98-D, dt.
12-5-98).
8. Faced with these contradictory judgments by this different Benches of the Tribunal, in our view in order to set the controversy at rest and to avoid multiplication of contradictory orders further, the matter deserves to be propounded by the Larger Bench of this Tribunal.
Therefore, we submit reference to the Larger Bench, of the following issue : Whether the processed knitted pile fabric at the hands of the processor would be classifiable under Chapter 63 as 'made-up article' i.e. towels or as processed fabric, under Chapter 60 of CETA.The papers be placed before the Hon'ble President for constituting the Larger Bench, for this reference.