Judgment:
1. The appellant is a manufacturer of various varieties of yarn. It had been clearing yarn after paying excise duty in accordance with the classification approved by competent excise officers. Rates of duty was part of the approved classification list. Three such classification lists were dated 17.5.83, 17.2.84 and 1.3.84. One variety of yarn covered by the classification lists was Cellulosic Spun Yarn.
2. The appellant had sought classification of Cellulosic Spun Yarn under Tariff Heading 18III(i) and the classification was approved also.
We may note here the relevant tariff heading: Yarn, in which man-made fibre of cellulosic origin predominates in weight and, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power - Explanation I - "Count" means the size of grey yarn (excluding any sizing material) expressed in English Count.
Explanation II - For multiple fold yarn, "count" means the count of the basic single yarn.
Explanation III - Where two or more of the following fibres, that is to say, f) man-made fibre of non-cellulosic origin, other than, acrylic fibre; in any yarn are equal in weight, then, such one of those fibres, the predominance of which would render such yarn fall under that sub-item or item (hereafter in this Explanation referred to as the applicable sub-item or item), among the sub-items and item Nos.
18-III, 18B, 18C, 18D, 18E, 18F-I and 18F-II, which, read with the relevant notification, if any, for the time being in force issued under the Central Excise Rules, 1944, involves the highest amount of duty, shall be deemed to be predominant in such yarn and accordingly such yarn shall be deemed to fall under the applicable sub-item or item, as the case may be.
As already noted clearances of yarn consignments took place based on the approved classifications 3. Subsequently, a SCN was issued alleging that yarn consignment already cleared were liable to be classified under heading 18III(ii) and were liable to pay duty at a higher rate. The amount of short levy on account of the wrong classification was worked out around Rs. 74 lakhs. The SCN proposed to recover that amount.
4. In adjudication the aforesaid demand was confirmed. The appellant filed an appeal before Commissioner (Appeals) against that order and the matter was remanded to the original authority for a fresh decision under a order dt. 15.7.85. The direction was that copies of test reports shall be furnished to the appellant and the appellant allowed cross examination of the Examiner who carried out the test of the samples. Pursuant to this order, the case was adjudicated a second time under order dt. 12.7.99 by the Dy. Commissioner of Central Excise, Gurgoan-II. On the issue of supply of copies of test reports, the adjudication order noted as under: In view of the Commissioner (Appeals) Order-in-appeal No. 115-CE/DLH/85. The party were supplied with the copies of relevant documents viz. Test memo No. 3/85, 2/85, 9/85 and 5/85 on 23.6.98.
The party's representative cross-examined the Deputy Chief Chemist of CRCL, New Delhi on 14.10.98.
The appellant contested the classification on several grounds in the remand proceedings but failed. Its first appeal before Commissioner (Appeals) also failed. Hence, the present appeal.
6. The submission of the Ld. Counsel for the appellant is that the test reports did not justify change of the original classification. It is being pointed out that out of the four test reports supplied, test report No. 9/85 is not relevant at all since the sample for test was drawn on 3.4.84, subsequent to the period of dispute. Ld. Counsel points out that test report 2/85 is also not relevant as it relates to polyester fibre.
7. The submission of the Ld. Counsel in regard to other reports is that both these reports are in regard to the test of non-cellulosic synthetic waste, one of the raw-materials used in the manufacture of yarn. It is being emphasized that the test reports are not in regard to the test of yarn in question. It is also being pointed out that the test reports clearly bring out that 'man-made fibre' is not the raw-material used in the manufacture of the yarn in question. Instead, it was non-cellulosic synthetic waste. It is being pointed out that test report 3/85 mentioned that the sample is "a mixture of different coloured fibrous mass" while test report 5/85 mentioned the sample as of fibrous mass. The submission of the Ld. Counsel is that it is well settled that a yarn would be treated as containing man made fibre only if the yarn is produced from such fibre and not from fibrous waste.
Reliance in this connection is being placed of the decision of this Tribunal in the case of CCE v. Vardhan Syntex reported in 1991 (37) ECR. 542. It is being pointed out that the Hon'ble Supreme Court has upheld the judgment in the case of Kerala Spinners, which was based on the decision in the case of Vardhan Syntex. It is his contention that yarn produced out of waste, cannot fall under 18 III(ii).
8. It is also being pointed out that in regard to classification of yarn, there have been different decision of the Tribunal both in favour and against the appellant. Appeal E/2116/91-D and E/2348/91-D were decided in favour of the appellant vide Final Order No. 567-68/98-D dt.
16.7.98. Following the decision in the case of Pasupati Spg. & Wvg.
Mills Ltd., another appeal (E/574/93-D) was decided in favour of the Revenue vide final order No. 209/2000-D dt. 8.6.2000 .
The submission of the Ld. Counsel is that since classification is to be determined strictly in terms of the heading as well as evidence on record, one order cannot be treated as binding in regard to other cases. Reliance is being placed on the judgment of the Hon'ble Supreme Court in the case of H.P.L. Chemicals Ltd. v. CCE, Chandigarh in support of the contention, that it is for the revenue to adduce evidence and establish that a particular classification is appropriate. Para 29 & 30 of the judgment is specifically referred to. The paragraphs may be read 29. This apart, classification of goods is a matter relating to chargeability and the burden of proof is squarely upon the Revenue.
If the Department intends to classify the goods under a particular heading or sub-heading different from that claimed by the assessee, the Department has to adduce proper evidence and discharge the burden of proof. In the present case the said burden has not been discharged at all by the Revenue. On the one hand, from the trade and market enquiries made by the Department, from the report of the Chemical Examiner, CRCL and from HSN, it is quite clear that the goods are classifiable as "Denatured Salt" falling under Chapter Heading 25.01. The Department has not shown that the subject product is not bought or sold or is not known or is dealt with in the market as Denatured Salt. Department's own Chemical Examiner after examining the chemical composition has not said that it is not denatured salt. On the other hand, after examining the chemical composition has opined that the subject matter is to be treated as Sodium Chloride.
30. It has been held by this Court in number of judgments that burden of roof is on the Revenue in the matter of classification. In UOI and Ors. v. Garware Nylons Ltd. and and Ors. , in para 15 this Court held as under: 15. In our view, the conclusion reached by the High Court is fully in accord with the decisions of this Court and the same is justified in law. The burden of proof is on the taxing authorities to show that the particular case or item lit question is taxable in the manner claimed by them. Mere assertion in that regard is of no avail. It has been held by this Court that there should be material to enter appropriate finding in that regard and the material may be either oral or documentary. It is for the taxing authority to lay evidence in that behalf even before the first adjudicating authority. Especially in a case as this, where the claim of the assessee is borne out by the trade enquiries received by them and also the affidavits filed by persons dealing with the subject matter, a heavy burden lay upon the Revenue to disprove the said materials by adducing proper evidence. Unfortunately, no such attempt was made. As stated, the evidence led in this case conclusively goes to show that Nylon Twine manufactured by the assessee has been treated as a kind of Nylon Yarn by the people conversant with the trade.
It is commonly considered as Nylon Yarn. Hence, it is to be classified under item 18 of the Act. The revenue has failed to establish the contrary. We would do well to remember the guidelines laid down by this Court in Dunlop India Ltd. v. UOI AIR 1977 SC 597 at page 607. In such a situation, wherein it was stated AIR P.607 SCC P.254, para 35: When an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, idt will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause.
9. Ld. DR would point out that the decision of this Tribunal in the case of Pasupati Spg. and Wvg. Mills Ltd. v. CCE, New Delhi has attained finality as the appeal in the said order was rejected by the Supreme Court. To this Ld. Sr. Counsel 's reply is that order was upheld only because the required factual foundation had not been laid. According to the Ld. Counsel that order had not application to other classification proceedings and this is made clear by the second para of the order.
10. Since the revenue is relying on this judgment of the Supreme Court, we may read the judgment: The appellant, being aggrieved, has filed this appeal against the final judgment and Order No. 209/2000-D dt. 8.6.2000 passed by the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi (for short "the Tribunal") in Appeal No. E/574/93-D. The Tribunal by the impugned order has dismissed the appeal filed by the appellant and confirmed the demand of duty and penalty imposed on the appellant.
Ld. senior counsel appearing for the assessee-appellant has made submissions based on certain facts of which no factual foundation wad laid either in the reply to the show cause notice issued to it or before any of the authorities below. It has also not led any evidence in support of those facts.
Under the circumstances, we are not inclined to interfere with the impugned order which is based mainly on facts except to the extent that it is not a case for levy of penalty as the classification list filed by the assessee-appellant had already been approved as 'Cellulosic Spun Yarn' containing 'Non-cellulosic waste" by the Department.
Accordingly, we dismiss the appeal but, in the circumstances of this case, penalty imposed by the Collector. Central Excise and confirmed by the Tribunal, is waived. No costs.
The point made by Ld. DR is that since the goods in dispute and its manufacturing process are the same, in the earlier and present cases, there is no reason to take a contrary view in the present appeal. Ld.
DR also would point out that the present objections were not taken before the lower authorities and therefore, they cannot find acceptance at the appeal stage. He would further point out that the factual observations made in our Misc. order No. 474/06 dt. 2.7.06 made it clear that the factual position in the present case is the same as the ones constituting the basis for Tribunal's final order of 2004 in the appellant's case.
Ld. DR would also point out that it is erroneous to state that the test reports found the sample to be fibrous mass, composed wholly of man-made fiber of non-cellulosic origin (Polyester). The contention is that a consignment has to be treated as fiber, even if it is existing in fibrous condition.
As already noted, different orders have been passed in different record. Present appeal also is to be decided accordingly. A classification dispute has to find its solution based on the facts ascertained and the relevant entry in the tariff. This position remains settled by the aforesaid judgment of the Supreme Court in the case of the HPL Chemicals etc.
11. We may now proceed to consider the facts of the case. Revenue's case is based on the test reports referred to in the impugned order. We may note these.
Test report 2/85 - The sample is lustrous white coloured agglomerate mass of crimped fibres of length composed wholly of man-made from of non-cellulosic origin (Polyester).
Test report 3/85 - The sample is a mixture of different coloured (pink, light green and white) fibrous mass and containing fiber dirt particles. Some of the fibres are crimped. It is composed wholly of man-made fibers of non-cellulosic origin (Polyester).
Test report 5/85 - The sample is a mixture of lustrous white and white coloured fibrous mass. It is composed wholly of man-made crimped fibres of non-cellulosic origin (polyester).
These reports state that the samples are 'fibrous mass'. A fibrous mass can not be of fibres of uniform length. Fibres are understood in textile parlance as of specific length. This position remains settled by the decision of the Tribunal in the case of Vardhan Synthex.
Therefore, there is no merit in the revenue's contention that the yarn in question was manufactured out of the fibres. Test report 9/85 is not relevant as the sample for it was drawn on 4/85 and there is no evidence on record to show that the goods formed part of the lot manufactured during the relevant period.
12. In the above state of evidence on the factual (composition of the yarn) aspects of the case, we hold in favour of the assessee. Duty payment initially made was correct and there was no short levy.
13. In view of what is stated above, the impugned order is set aside and the appeal is allowed with consequential relief, if any, to the appellant.