ORDER
Jyoti Balasundaram, Member (J)
1. The above mentioned appeals involve determination of the question of classification of cellulosic spun yarn manufactured out of synthetic waste of non-cellulosic origin and cellulosic fibre, in which cellulosic fibre predominates by weight The question arises in the context of TI 18 of the erstwhile First Schedule to the Central Excises and Salt Act, 1944. As all appeals involve common issues they are heard together by consent and disposed of by a common order.
2. Very briefly stated the facts in each of the appeals are as under:
2.1 E/3ft3/9O-fi–CCE. Nagpur v. M/s. Vardhan Svntex:In this appeal the respondents who are manufacturers of cellulosic spun yarn filed classification lists in respect of yarn which was made out of fibres falling under TI 181(ii) and waste falling under TI 18 IV, stating that viscose predominates and the yarn is manufactured by blending non-cel- lulosic waste. A show cause notice dated 28.12.1983 was issued to them proposing classification of the yam under TI 18 III(ii). The show cause notice stated as under:
Whereas M/s. Vardhan Syntex have filed a classification list No. 32/83 effective from 23.8.1983 the product they intend to manufacture is of combination of non-cellulosic waste (synthetic waste) and 85% cellulosic fibre. They have classified the product as falling under TI18 III(i) CET. Whereas the description of the yarn shown in Col. 2 of the classification list is yam as not containing any man-made fibre of non-cellulosic origin 15% non-ccllulosic synthetic waste 85% cellulosic and classified under TI 18 III(i). Whereas as per wording of TI 18 III(i) yarn should not contain man-made fibres of non-cellulosic origin. M/s. Vardhan Syntex are manufacturing yarn of blending of cellulosic with synthetic waste. Since the yam is manufactured from the blending with non-cellulosic synthetic waste containing synthetic waste which is apparently from non-cellulosic origin, as such this yarn will fall under TI 18 III(ii) and the duty leviable will be as per Notification 75/82 dated 28.2.1982.
2.2 The Assistant Collector by order dated 8.2.1984 classified the yarn under TI 18 Ill(ii). The respondents filed a writ petition and later on moved the Hon’ble Supreme Court which, by order dated 21.7.1986, directed the Assistant Collector to re-decide the issue on account of conflict of opinion between Khamgaon Collectorate and the Collector of Central Excise (Appeals), Calcutta. The Supreme Court clarified that for the correctness of either view the Court is not expressing any opinion and it would be open to the Assistant Collector to stick to the view already taken. A fresh order was passed by the Assistant Collector holding that the product will fall under TI 18 III(ii). The lower appellate authority i.e. the Collector of Central Excise (Appeals), Bombay by order dated 9.1.1989 set aside the order of the Assistant Collector and remanded the matter to Assistant Collector for de novo adjudication. The Assistant Collector passed a fresh order on 19.7.1989. He relied upon the test reports of 3 samples tested on 15.2.1985 in respect of the show cause notice dated 28.12.1983 and distinguished the orders of the Collector (Appeals), New Delhi and Calcutta on the basis that in those matters the composition of non-cellulosic waste was specifically declared in the classification list at the raw material stage itself while in the instant case, there was a dispute whether the product contains waste materials. The Collector (Appeals) passed the impugned order dated 20.12.1989 holding as under
The issue involved in the appeal is a question of law viz. the interpretation of the words in the erstwhile tariff item 18 III(i)–not containing any man-made fibres of non-cellulosic origin. That the interpretation had already been done critically in detail by the Collector of Central Excise (Appeals), Calcutta in the case of Eastern Spinning Mills, Calcutta wherein the Collector (Appeals) had held that the raw material being in the form of non-cellulosic waste and not non-cellulosic fibres, the two being different, the assessee was entitled to classification under TI 18 III(i). Similar view was taken by Shri Govindan Thampi, Collector of Central Excise (Appeals), Delhi in the case of New Gujarat Syntex, Ahmedabad, wherein it was observed as under:
Description under 18 III is specific and does not admit of any ambiguity. Since the cellulosic spun yarn manufactured by the appellants is not made from any man-made fibres of non-cellulosic origin, but only made out of non-cellulosic waste, the same is correctly classifiable under TI 18 III(i) CET and not under TI 18 m(ii).
2.3 Against this order the Department has preferred an appeal (E/333/90-D) on the ground, inter alia that a chemical test is the only way to determine the correct classification of the impugned products and not (a) the use and nature of raw materials (b) the ratio of raw materials in the manufacture of final product is not the criterion to determine the correct classification (c) the test report of Shri Ram Institute for Industrial Research cannot be considered as the test result of the Department Laboratory is binding on both the Department as well as the respondents. The respondents have filed cross objection to this appeal (CO/140/90-D).
3. Appeal No. E/2905/85-D–CCE. Calcutta v. M/sEastern Spinning Mills & Ind.”–The respondents filed classification lists of cellulosic spun yam under TI 18 III(i) showing non-cellulosic waste 15% to 48% and viscose 52% to 85%. A show cause notice was issued on the basis of chemical analysis proposing classification under TI 18 III(ii). By order dated 1.5.1984 the Assistant Collector classified the yarn under TI 18 III(ii). The Collector (Appeals) set aside the order and allowed the appeal. Hence this appeal by the Department
4. Appeal No. E/2425/90-D–M/s. Reliance Chemotex Ltd. v. CCE. Jaipur:The appellants filed a classification list effective from 1.3.1983 for spun yarn under TI 18 III(i). The Assistant Collector granted provisional clearance on 17.3.1983. On 26.3.1983 the Assistant Collector passed an ex pane order classifying the yarn under TI 18 III(ii) which was challenged in Writ Petition No. 1773/83 in the Hon’ble Rajasthan High Court. The High Court set aside the classification and ordered re-adjudication after granting adequate opportunity to the appellants. (The High Court passed common orders in 13 Writ Petitions filed by various manufacturers challenging identical orders of the Department). The appeals filed by the Department to the Division Bench of the Rajasthan High Court were dismissed on 17.9.1985. On 31.10.1985 a show cause notice was issued from which it is clear that the appellants filed classification list 109/83 for cellulosic spun yarn by blending non-cellulosic synthetic waste with viscose in predominance. On the basis of test results of samples which revealed content of non-cellulosic fibre, the Department proposed classification under TI 18 III(ii). The appellants filed reply to the show cause notice on 27.11.1985, pointing out that non-cellulosic synthetic waste used by them is the process waste obtained in the manufacture of man-made fibres and filament yarn and that the said waste falls under TI 18 IV and that the waste was neither processed further nor converted into fibre nor was it capable of being converted into fibre. The appellants also stated that the waste does not have the essential characteristics of man-made fibre i.e. uniform cross section, uniform staple length and properly set crimp. The appellants also requested for photostat copies of Chemical Examiner’s report along with data and also asked for cross-examination of the Chemical Examiner. The appellants also annexed various test reports of the Chief Chemist, Delhi wherein he had opined that non-cellulosic contents in the yarn were obtained from non-cellulosic fibres should be verified at the input stage and pointed out that the test results cannot constitute the basis for determining the classification of the yarn. The appellants also submitted that non-cellulosic waste falling under TI 18 IV cannot be equated to non-cellulosic fibre falling under TI 18 I.
4.1 The Assistant Collector by order dated 10.12.1985 classified the yarn under TI 18 III(ii) which was challenged before the Collector (Appeals) who by order dated 23.5.1990 confirmed the order of the Assistant Collector.
5. Appeal No. E/2426/90-D:Classification list 124/83 was provisionally approved on 12.4.1983 for yarn made by blending non-cellulosic waste in predominance with viscose. On 27.6.1983, the Assistant Collector changed the classification from TI 68 as claimed by the appellants to TI 18E. The appellants filed Writ Petition 1785/83 in the Rajasthan High Court and by order dated 14.5.1985 the High Court remanded the matter back to the Assistant Collector for de novo adjudication. The order of the Assistant Collector dated 19.3.1986 was challenged in appeal and by order dated 23.5.1990 the lower appellate authority confirmed classification under TI 18 III(ii).
6. Appeal No. E/222/90-D–M/s. Modem Threads India v. Collector of Central Excise. Jaipur: Appeal No. E/223/90-D–M/s, Super Syncotex (ind) v. Collector of Central Excise. Jaipur Appeal No. E/3093/90–M/s. Derby Textiles Ltd. v. CCE. Jaipur: Appeal No. E/2802/90-D–M/s. Jaipur Syntex Ltd. v. Collector of Central Excise. Jaipur. Appeal No, E/2820/90-D–M/s. Modern Syntex India Ltd. v. CCE. Jaipur: Appeal No. E/2843/90-D–M/s. Saraf Synthetics (Raj.) v. CCE. Jajpur: Appeal No. E/2856/90-D–M/s. Orient Syntex v. CCE. Jaipur:In all these appeals the facts are similar to those of the five appeals already discussed–classification lists were filed for spun yarn under TI 18 III(i) and showing non-cellulosic waste with viscose in predominance. The Department proposed classification under TI 18 III(ii) on the basis of chemical analysis of the yarn. Both the authorities below determined classification under TI 18 III(ii) and hence these appeals.
7. We have heard the learned Counsels in all the matters and Shri L.C. Chakravarti, learned DR for the Department
8. At the outset Dr. Devi Pal submitted that the issue is fully covered by the judgment of the Tribunal in case of Collector of Central Excise, Hyderabad v. Priyadarshini Spg. Mills Ltd. reported in 1990 (29) ECR 520. It was pointed out that in the said judgment the issue before the Tribunal was classification of identical yam under the 1985 Tariff. (The manufacturers had classified the yarn manufactured by blending synthetic waste under Heading 55.03. But the Department, after subjecting the yarn to chemical analysis, proposed classification under Heading 55.06 on the ground that chemical test revealed synthetic staple fibres). Our attention was drawn to Heading 55.03 and to TI 18 III(i) and 18 III(ii) of the erstwhile Central Excise Tariff and it was contended that the two are identical except that in the erstwhile Tariff, TI 18 dealt with man-made fibres while under the present Tariff the Chapter Heading is man-made staple fibres. The word “staple” is interchangeable with the word “man-made” and there is no change in the Tariff which is based on a system of Classification derived from the International Convention on Harmonised Commodity Description and Coding System. The other salient feature of the new Tariff is that it adopts principles of classifying all goods beginning with the raw materials and ending with finished product The system of numbering of Headings and sub-classifications follows the Harmonised Coding System. Dr. Devi Pal drew our attention to paragraphs 3, 4, 5 and 9 of the Interpretation to 1985 Central Excise Tariff and pointed out that even under Chapter Note 2(D) it is specifically mentioned that throughout this Schedule man-made fibres means staple fibres and filaments of organic polymers produced by the manufacturing process. To strengthen his arguments he also drew our attention to Notification 49/83 dated 1.3.1983 whereby while granting exemption from effective rates of duty on man-made fibres and filament yarn, the Legislature specifically mentioned under Sl. No. 2, staple fibres and tow of non-cellulosic origin–polyester fibres. He submitted that man-made fibres means staple fibres which is apparent from the above-mentioned Notification. He submitted that there has been no change subsequent to the introduction of the new Tariff. Tariff Item 18 I covers man-made fibres. It is divided into two parts–TI 18 I(i) covers man-made fibres of non-cellulosic origin whereas TI 18 (ii) covers man-made fibres of cellulosic origin. TI 18 III covers cellulosic spun yarn in which fibres of cellulosic origin predominate by weight Such yam can be manufactured either from fibres of TI 18 I(i) or TI 18 I(ii) and other fibres but not fibres falling under TI 18 I(i). If cellulosic spun yarn is made from fibres falling under TI 18 I(ii) and other fibres, the classification of such yarn would be under TI 18 III(i). However, if such yam is made from fibres falling under TI 18 I(i) and TI 18 I(ii) the said yam would be classified under TI 18 III(ii). Non-cellulosic waste has been distinguished from fibres in the Tariff itself and thus the Tariff accords recognition to the well-known scientific distinction between fibres and waste. While man-made fibre of non-cellulosic origin is classified under TI 18 I(i). non-cellulosic waste is classified under TI 18 IV. Classification lists filed by the assessee in respect of yarn made out of fibres falling under TI 18 I(ii) and waste falling under TI 18 IV have been accepted by various quasi-judicial authorities viz. the Collector of Central Excise (Appeals), Calcutta in the case of Eastern Spinning Mills and Industries Ltd., Collectors of Central Excise (Appeals), New Delhi, Bombay in the case of New Gujarat Synthetics Ltd., by the Assistant Collector of Central Excise in the case of East India Synthetics, Bhoruka Textiles. Dr. Devi Pal also pointed out that from the show cause notice it is an admitted position that non-cellulosic waste was blended with viscose in predominance. He pointed out the cross-examination of the Chemical Examiner and in particular he drew our attention to the answers to questions 3, 4 and 5 wherein the Chemical Examiner has stated that the “Laboratory is not equipped to measure uniformity, denier and crimp in the polyester strands. As the Laboratory was not adequately equipped, the necessary tests were not carried out It is correct that the inferior or sub-standard yarn can be spun from the so called waste”. The evidence of Dr. Nigam was referred to buttress the argument that yam made out of non-cellulosic fibres will have uniformity in deniers and crimp in the polyester strands and waste yarn will lack all these qualities and will also lack homogeneity. The Chemical Examiner has only examined the composition of cellulosic and non-cellulosic content whereas the length of fibres is relevant for determination as to whether the material is staple fibres or waste. The lack of homogeneity clearly indicates that the yarn was manufactured by blending wastes of varied lengths. Our attention was also drawn to Textile Dictionaries such as Encyclopaedia of Chemical Technology, Fairchild’s Dictionary of Textiles, etc. Dr. Pal highlighted paragraphs 6, 10 and 11 of the order of the lower appellate authority. He pointed out that in paragraph 10 the Collector (Appeals) has averred “that the contention of the appellants is that the raw material used by them is only non-cellulosic synthetic waste all sorts falling under TI 18 IV whereas the Department’s view is that the material used is man-made fibres of non-cellulosic origin. The fact remains that for the classification as non-cellulosic waste under TI 18 IV as per explanation thereto only such waste will cease to be classified under TI 18 IV if it is subjected to any further process such as cutting. I find that it is admitted by the appellants that non-cellulosic waste cannot be used for manufacture of yarn unless these are cut whereas the appellants do not have any machinery for cutting in their own factory”. Dr. Devi Pal submits that there is no such admission and this observation of the Collector (Appeals) is contrary to the records of the case. The learned DR also accepts that there was no such admission.
8.1 Shri Parasurampuria, the learned Advocate submitted that there is no dispute both from the classification list as well as from the show cause notice that yarn was manufactured by blending non-cellulosic waste. The Department has not produced any material contrary thereto except the gist of the test report and neither the full test report was made available to the assessees nor were they allowed to cross-examine the Chemical Examiner. He pointed out that it is the admitted position that CRCL is not equipped to determine uniformity in denier and crimp in the polyester strand and, therefore, none of the tests were carried out, and that it is also an admitted position that yarn can be spun from non-cellulosic waste.
8.2 He made the following propositions which according to him arise in the present appeal:
i) Legislature does not do any exercise in futility and words and expressions used must be given a meaning if it is possible;
ii) Applicability regarding aforesaid cardinal principles of interpretation in TI 18, fibre and waste must be held to be two different goods. See TI 18(i) and 18(iv) and explanation to TI 18(iv).
iii) TI 18 (iii)(i) applies where yarn is predominantly made out of man-made fibre of cellulosic origin provided it does not contain any non-cellulosic fibre. It has to be construed strictly, waste is not fibre. If such a yarn also contains synthetic waste in contra-distinction to synthetic fibre, it would still fall under TI 18 (iii)(i).
iv) To put such a yarn where it contains synthetic waste under TI 18 (iii)(ii) is to equate fibre with waste for which there is no warrant. In fact, it would render TI 18 (iv) meaningless.
v) In view of the decision of the Bombay High Court in the case of R.K. Synthetics & Fibres Pvt. Ltd. reported in 1990 (29) ECR 41, synthetic waste is not fibre and synthetic waste not being fibre does not fall under under TI 18-I(i). Accordingly, under TI 18-III(ii) what is stipulated is yarn made by blending 18-I(i) and not 18 IV and classification can only be under 18-III(i). According to Tribunal’s judgment being Order No. 395 to 459 of 1986 in the case of Collector of Customs, Chandigarh v. Punjab Processors and Ors., the Tribunal accepted the ratio of Bombay High Court decision in the case of RJC. Synthetics and Fibres and classification can only be under TI 18-III(i) as laid down by the Tribunal in its Order No. 396/84-D in the case of Oswal Woollen Mills Ltd. whereby the appeal of Oswal Woollen Mills was allowed and goods were held classified under TI 68 for the purpose of countervailing duty.
vi) Whether the Assistant Collector could travel beyond the show cause notice and input being admitted non-cellulosic waste, Revenue appeals are liable to be dismissed and appeals of assessees are entitled to succeed.
8.3 He submitted that the Tariff itself clearly recognises distinction between man-made fibres of non-cellulosic origin and non-cellulosic waste and moreover the Tariff clearly stipulates that it is the composition of the raw material that will decide the classification and not the nature of composition of the end product. The only question that the Assistant Collector was to decide was that the classification of a product whose composition has been clearly spelt out in the classification list It was never in dispute that the appellants had used non-cellulosic waste and synthetic fibres for making the spun yarn. The onus to classify the yarn under a particular heading has not been discharged by the Department and instead reliance has been placed on the Chemical Examiner who has admitted in cross-examination that he has not conducted the tests necessary to determine whether the material was waste or staple fibres. Therefore, his evidence does not support the case of the Department The cellulosic spun yam blended with non-cellulosic fibres falling under TI 18 I(i) has to fall under TI 18 III(ii)–where the material mentioned under TI 18 I(i) is not blended, such cellulosic yarn will only foll under TI 18 III(i) not containing any man-made fibres of non-cellulosic origin. This fact stands concluded by the order of the Collector (Appeals), Calcutta in the case of Eastern Spinning and Weaving Mills Ltd. wherein cellulosic spun yarn made by blending non-cellulosic waste has been held to fall under TI 18 III(i). In paragraph 3 of the order in the case (supra) the Collector (Appeals) has held that “from the chemical test report and the direction contained therein it would appear that fibres and waste are two different commodities. Since the product does not contain man-made fibres of non-cellulosic origin, the classification of this product under TI 18 III(ii) is not correct and the product is correctly classifiable under TI 18 III(i)”. Even the Collector of Central Excise (Appeals), New Delhi in the case of New Gujarat Synthetics Ltd. has held that once non-cellulosic waste is blended, the classification will be TI 18 III(i). He draws our attention to the order of the Assistant Collector, Rohtak in the case of East India Synthetics and Pasupati Spinning and Weaving Mills. He placed reliance upon the decision of the Tribunal in the case of Oswal Woollen Mills, Ludhiana versus Collector of Customs, Madras (Order No. 396/84-D dated 17.7.1984). This case related to the import of wool waste and the question was regarding levy of countervailing duty. The contention of the Department was that the waste will fall under TI 18 IV for the purpose of countervailing duty while the importers contended that it would fall under TI 68. The contention of the importers were upheld by the Tribunal. Shri Parasurampuria pointed out that following the Tribunal’s decision, the Bombay High Court in the case of R.K. Synthetics & Fibres P. Ltd., held that the waste (synthetic) is not fibres and hence it cannot fall under TI 18 I(i) and it is properly classifiable under TI 68. He also relied upon the judgment of the Tribunal in the case of Collector of Customs, Chandigarh and Bombay versus Punjab Processors Ltd. (Tribunal’s Order No. 395 to 459/86-D dt. 30.6.1986) where the issue was of levy of countervailing duty on non-cellulosic waste imported by the respondents. In paragraph 5 of that order the Tribunal relied upon the judgment of the Bombay High Court (supra) and in paragraph 6. it relied upon its own judgment of Oswal Woollen Mills (supra) and ultimately held in paragraph 11 that fibre is not the same thing as waste and waste is separately defined from fibre. Shri Parasurampuria submitted that in view of the aforementioned decisions recognising waste as a distinct and separate item in the excise tariff, it cannot be treated as fibre and TI 18 III(ii) will not be attracted in the case of non-cellulosic fibres falling under TI 18 III(i) blended in the production of yarn. In these premises, he submitted that the decisions of the Tribunal in the case of Collector of Central Excise, Hyderabad versus Priyadarshini Woollen Mills, clearly applies on all fours to the facts of these cases. The learned Advocate took us through the introduction to the 198S Central Excise Tariff notes 3 and 4 and the comparative chart annexed thereto wherein the erstwhile Tariff Item 18 corresponds to the new Chapter 54 and 55. He took us through Section 11 relating to textiles and textile articles. He also drew our attention to Notification 47/85-CE dated 17.3.1985 wherein under Sl. No. 2 covering staple fibres and tow of non-cellulosic origin polyester fibres is mentioned in the description Column (2). He submitted that, therefore, as laid down by the Hon’ble Supreme Court in the case of J.K. Steels (1978 ELT 355 : ECR C 281 SC) the Notification and the Tariff formed a complete scheme. He then invited our attention to Fairchild’s Dictionary of Textiles, Sixth Edition at page 583 wherein the word “staple” is defined as a synonym for fibres. The definition of “staple fibres” in Fairchild’s dictionary is as under. “A term widely misused to refer to staple or man-made staple rayon staple”. The earned Counsel also relied upon ASTM standards, page 6, 7 and 9 prescribing the standard of test methods for over-length fibres content of man-made staple fibres. The teamed Counsel also submits that even the duty structure for levy of excise duty on non-cellulosic fibres is several times greater than the duty payable on waste which would also establish that waste and fibres are two distinct commercial entities which cannot be equated with one another. The Counsel submitted that the issue is no longer res Integra in view of the Tribunal’s order in the case of Priyadarshini (supra). In view of the admitted position in the show cause notice that non-cellulosic waste was blended with viscose, the Department cannot travel beyond the show cause notice to hold that what was used was not waste but fibre. In support of his contention that the Department cannot travel beyond the show cause notice he relied upon the following judgments:
i)
Motilal Lalchand Shah v. Kaul and Anr.
ii)
Asapcs (India) Pvt. Ltd. v. Collector of Central Excise, Calcutta
iii)
Basheer Ahmed Patel v. Collector of Customs (Preventive)
iv)
Rajasthan Spinning & Weaving Mills Ltd. v. Collector of Central Excise
v)
Pradyumna Steels Ltd. v. Collector of Central Excise
vi)
Mahindra and Mahindra Ltd. v. Collector of Central Excise vii) .
Collr. of Cus. & CE v. Section Vallabh Bai Patel Khand Udyog Co.
8.4 Shri Ravinder Narain, the learned Advocate contended that even assuming that non-cellulosic waste falls under TI 18 IV (even though non-cellulosic waste has been held to be classifiable under TI 68) to argue that the input stipulated under TI 18 III(ii) was not only non-cellulosic fibres described in TI 18 I(i), but also non-cellulosic waste, will be doing violence to the legislative intent as the legislature has clearly carved out non-cellulosic waste as a distinct item under TI 18 IV. He canvassed the argument that while interpreting the legislative intention there is no scope for intendment. He pointed out several Notifications granting exemption to products manufactured out of non-cellulosic waste. He made a grievance of the casual manner in which the Collector (Appeals) by impugned order dated 23.5.1990 disposed of several appeals without even giving sufficient time to the appellants to represent their case. He pointed out that the Chemical Examiner admitted that once yarn is made it cannot be determined whether it contains fibres or waste and only non-cellulosic content can be determined. He submitted that the Assistant Collector’s finding that the material is staple fibres is not based on any facts and on the other hand the appellants have placed test reports from Shri Ram Institute for Industrial Research which is a well known Test House and the appellants had also produced vouchers and purchase bills for synthetic waste.
8.5 Shri Lakshmikurnaran, the learned Advocate took us through the legislative scheme of the entire Tariff regarding fibres, yarn and fabrics pointing out the various stages of the manufacture of fabrics. A specific rate of duty has been levied upon fibre, yarn and fabrics irrespective of quality and waste falling under TI 18 IV attracts a tower rate of duty and fabrics manufactured out of waste also attract lower rate of duty. He submitted that TI 18 has to be harmoniously construed. In addition to these arguments he adopted the arguments advanced by Shri Parasurampuria, Dr. Devi Pal and Shri Ravinder Narain. The other learned Counsels adopted the arguments earlier advanced.
9. Replying to the arguments of learned Counsels, the learned DR made the following propositions:
i) Waste gets converted into fibre in the process of spinning of yarn;
ii) Waste cannot be spun unless it gets converted into fibre;
iii) Short fibres are removed by the process of combing before blending for spinning yarn;
iv) A term in one enactment cannot be applied to interpret another enactment if the relevant provisions are not pari-materia;
v) An exemption Notification cannot be determined to a different scope of the Tariff entry;
vi) The observation regarding raw material in the Priyadarshini case is only
obiter dicta” and not binding.
9.1 Shri L.C. Chakravarti, the learned DR submitted that man-made fibre is different from staple fibre and, therefore, the decision in Priyadarshini case under the new Tariff cannot be made applicable to decide the issue under the erstwhile Tariff. In support of this argument he relied upon the decision in the case of Shri Baidyanath Ayurved Bhavan , Richardson and Hindustan Ltd. and State versus Laxminarain . He emphasised that waste yarn cannot be directly blended with good quality viscose fibres and waste has to be first converted into fibre before it is blended with good quality fibre to spin yarn. He submitted that a Notification cannot control scope or meaning of tariff entry and in this regard he relied upon the order of the Tribunal in the case of Kiran Spinning Mills versus Collector of Central Excise, Bombay , International Conveyors Ltd. versus Collector of Central Excise, Bombay 1983 ELT 1216 and Cougar International Pvt Ltd., New Delhi versus Collector of Customs, Cochin 1984 ELT 310 : 1984 ECR 670 (Cegat). He pointed out the explanatory notes to HSN dealing with man-made fibres under Chapter 55 and the distinction between synthetic staple fibres not carded, combed or otherwise processed under Heading 55.03 and synthetic staple fibres carded, combed or otherwise processed for spinning under Heading 55.06. His contention was that even waste of synthetic fibres after the process of carding and combing becomes fibres. Referring to extracts from the Encyclopaedia of Textiles, 3rd Edition page 288 and extracts from Materials and Technology by Longman, he argued that carding and combing processes are essential requirements before waste can be used to manufacture yarn by blending with viscose fibres. Regarding the observations of the Bench in the case of Priyadarshini (supra), he submitted that the observation was only obiter dicta not necessary for the decision of that case and, therefore, no advantage can be taken from it. He referred to various extracts from Stroud’s Judicial Dictionary of Words and Phrases and extracts from Black’s Law Dictionary defining the term “obiter dicta”. Regarding the citations relied upon by Shri Parasurampuria he submitted that those decisions which have been rendered in the context of Customs Act cannot be used to decide classification under the Central Excise Tariff. Finally he submits that the approach of raw material nexus is not warranted unless the Tariff itself stipulates a nexus between excisable goods and the materials out of which they are made. According to him the proper approach will be an analysis of the final product and to note various changes or transformations in the raw materials till the final stage of finished excisable product.
9.2 Finally he submitted that once long filaments or tow are cut to definite sizes they are excisable as staple fibres and, therefore, in the appeals in which there are allegations that the assessees cut long tow before blending, a different view should be taken from the other cases.
10. In rejoinder to the arguments of the learned DR, Dr. Devi Pal once again emphasised the interpretation of Tariff Item 18 and argued that in view of the clear language and expression used, the classification of the yarn should be held under TI 18 III(i). Shri Parasurampuria submitted that although Central Excise Tariff is based on the Harmonised Commodity Description and Coding System (HSN), each Member State was given the freedom to adopt the same with necessary modification and Parliament has not accepted the distinction between synthetic staple fibres not carded, combed or otherwise processed under Heading 55.03 and synthetic staple fibres carded, combed or otherwise processed for spinning under Heading 55.06. Instead Parliament has adopted only Heading for synthetic staple fibres in the new Central Excise Tariff and, therefore, Parliament can be said to have rejected Heading 55.06 of the HSN explanatory notes. Therefore, the explanatory note under Heading 55.06 cannot be taken into consideration for deciding the present issue. He submitted that in all the textile encyclopaedias combing is shown as a process employed for higher grade and finer yarn where the shorter fibres and remaining impurities are removed in the combing machines. However, in these appeals the yarn is not of higher grade or fine quality and, therefore, the arguments of the learned DR does not apply to coarse yarn. Combing is not an essential process preparatory to spinning and is only required for worsted suitings. At no stage did the Department make out a case that the assessees had carried out the combing process on combing machines and, therefore, at this second appellate stage, the lacuna in the case of the Department should not be permitted to fill up by advancing arguments which do not find a place either in the show cause notice or in the adjudication order or in the order of the lower appellate authority. According to the earned Counsel none of the Units in India have combing machines and according to him it is not permissible to argue that the waste gets converted into fibres in the process of manufacture of yarn as no such allegation appears either in the show cause notice of in the adjudication orders. He pointed out that the logical conclusion to be reached is, that in the case of coarse quality fibres, combing is not done. As far as the blending principle is concerned he submits that though the learned DR is correct in his submissions, the technical literature relied upon deal with good quality or prime yarn from different types of sources and emphasis is laid upon combing as the process in the manufacture of fine strong yam. Regarding the contention of the DR that an expression in a Notification cannot be used to determine the scope of a Tariff entry, the earned Counsel submits that this argument has been negatived by the Tribunal in the case of LML Ltd. versus Collector of Central Excise, Kanpur Order No. 28/90-D (sic) dt. 8.2.1990 : 1991 (32) ECR 63 (Cegat SB-D), wherein the Tribunal relied upon the judgment of the Supreme Court in the case of Orient Weaving Mills P. Ltd. and held that the Notification issued has the effect of being part of the Statute. Accordingly he submitted that the Notification 49/83 and Notification 47/85 read along with TI 18 would clearly indicate that “man-made fibre” means “staple fibre” and even the legislature understood this in the same sense. Shri Parasurampuria then submitted that the observations of the Tribunal in the case of Priyadarshini (supra) are not obiter dicta and they were necessary for the decision of the case. He referred to the Words and Phrases, Permanent Edition Vol. 29 at page 12 for the definition of “obiter”. He pointed out that the issue in Priyadarshini case was to consider blending of non-cellulosic waste with viscose and the Tribunal held that the two terms waste and fibre were two different commodities and merely because waste is of non-cellulosic origin it cannot be equated to non-cellulosic fibres. He submitted that the finding of the Tribunal in Priyadarshini case is a deliberate judicial determination of the questions directly involved and hence cannot be held as obiter dicta. In these premises the decision in Priyadarshini case clearly lays down that the yarn containing non-cellulosic waste can only fall for classification under TI 18 III(i) as it lacked homogeneity. The assessees herein do not cut synthetic staple fibres–they do not have any machinery for cutting nor do they hold a licence to cut staple fibres and the material used is also not synthetic staple fibres.
11. On the arguments of the learned DR that waste gets converted into fibres in the process of spinning, Shri Parasurampuria submits that this cannot be sustained as it has been admitted by the Chemical Examiner during the course of cross-examination that inferior quality of yarn can be spun by blending waste. The contention of the learned DR that waste yarn cannot be blended with viscose fibres has to be rejected as it was not the case of the Department that waste yarn was blended but what was blended was non-cellulosic waste. He then referred to the decision of the Collector (Appeals), Ahmedabad dated 31.8.1990 in the case of Arunodya Mills Ltd. in respect of identical yarn manufactured by blending non-cellulosic waste wherein the Collector considered the contention of the Department that non-cellulosic fibres is the same as non-cellulosic fibre waste and held that the two cannot be equated. Lastly the earned Counsel drew our attention to Circular No. 23/90 dated 1.11.1990 issued by the Ministry of Finance, Government of India wherein the Government directed all concerned Collectors of Central Excise and Customs that if non-cellulosic waste is blended, the decision of the Tribunal in the case of Collector of Central Excise, Hyderabad versus Priyadarshini Spinning Mills Ltd. would apply and the yarn would be classified under Heading 55.05. He submitted that the Government having accepted the said decision, it is not open to the Department now to make out a new case that waste gets converted into fibres prior to being blended for spinning yam.
12. Arguments advanced by various learned Counsels were an interesting interplay of different facets of forensic presentation. Broadly the central theme of the arguments were the same. The burden of the Department’s song is that non-cellulosic waste is nothing but non-cellulosic fibre and, therefore, use of non-cellulosic waste along with viscose would render the final spun yarn classifiable under TI 18 III(ii). We are not able to accept this contention. Waste is a specific entry in the Central Excise Tariff itself. Waste is treated differently both by the legislature as well as in the trade. A wealth of technical literature has been placed before us on what is meant by “staple” and “staple fibre”. At page 409 of Bernard Corbman’s Textiles–Fibre to Fabrics, 5th Edition, it is mentioned that “staple is produced in a wide range of deniers and lengths according to the desired end uses”, “Modern Texities” by Dorothy Lyle (at page 26) defines staple fibres, natural or man-made as “short lengths measured in inches or a fraction of an inch”. In Kirk Othmer’s Encyclopaedia of Chemical Technology, 3rd Edition, Vol. 16, staple fibres find a mention at pages 106 and 107 as of relatively uniform lengths (emphasis supplied). “Staple* is defined at page 29 of the Encyclopaedia of Textiles by the Editors of American Fabrics and Fashion Magazines, 3rd Edition as “fibre in short controlled lengths cut from continuous filaments. Yarns spun from it are known as ‘staple yarn'”. The Dictionary of Textile Terms at page 587 defines “staple” as from Anglo Saxon, meaning “fixed, not variable” and staple fibre as “filaments of the cellulosic or man-made groups of fabrics which have been cut to the length of the various natural fibres”. Marjory L-Joseph’s Essentials of Textiles at page 31 says that “man-made staple fibres are short fibres cut to the length required for the processing equipment and they are cut from filaments extruded in large bundles called tow”. R.W. Moncrieff’s “Man-Made Fibres” mentions that “chopped up fibre to be called staple fibres and staple fibres are very short nearly always just a few inches and same in length in a bale”. Para 3.2.1 of the ASTM standards (page 92 of the compilation in E/333/90-D) clearly stipulates that commercial shipments of staple or man-made fibre should not include cut waste or short fibres of variable length made by breaking a tow or top.
13. Waste is defined under TI 18 IV as “non-cellulosic waste all sorts” and under the explanation it includes only “waste arising in, or in relation to, the manufacture of man-made fibres (other than mineral fibres) and man-made filament yarns”. During the relevant period TI 18 read as under:
Item No. Tariff Description Rate of Duty
18. I. Man-made fibres, other than mineral fibres
(i) Non-cellulosic Eighty-five rupees per
kilogram
(ii) Cellulosic Ten rupees per kilo-
gram
II. Man-made filament yarn:
(i) Non-cellulosic--
(a) Other then textured One hundred and five
rupees per kilogram
(b) Textured One hundred and fif-
teen rupees per kilogram
Explanation--"Textured yarn" means yarn that has
been processed to introduce crimps, coils, loops
or curls along the length of the filaments and
shall include bulked yarn and stretch yarn.
(ii) Cellulosic Twenty-five rupees per
kilogram
(iii) Metallized One hundred and
fifteen rupees per kilogram
III. Cellulosic spun yarn:
Yarn, in which man-made fibres 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--
(i) not containing, any man-made fibres of non Eight paise per count
cellulosic origin per kilogram
(ii) containing man-made fibres of non-cellu Twenty-four rupees per
losic origin kilogram
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,
a) man-made fibre of cellulosic origin;
b) cotton;
c) wool or acrylic fibre, or both;
d) silk (including silk noil);
e) jute (including Bimlipatam jute or mesta fibre);
f) man-made fibre of non-cellulosic origin, other
than acrylic fibre;
g) flax;
h) ramie:
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, 18A, 18B, 18C, 18D, 18E,
18F-I and 18F-II, which read with the relevant
notifications, 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.
IV. Non-cellulosic wastes, all sorts Twelve rupees per
kilogram
Explanation--This Item includes only wastes arising
in, or in relation to, the manufacture of man-made
fibres (other than mineral fibres) and man-made
filament yarns.
14. The language of TI 18 III is clear and explicit. What is stipulated under TI 18 III(i) is cellulosic spun yarn not containing any man-made fibres of non-cellulosic origin. Man-made fibres of non-cellulosic origin under TI 18 III means man-made fibres of non-cellulosic origin mentioned in TI 18 I(i). Under TI 18 III(ii) the legislature has clearly stipulated “containing man-made fibres of non-cellulosic origin”. This sub-item can apply only if fibres of non-cellulosic origin mentioned in TI 18 I(i) are blended. It is not the case of the Department that non-cellulosic fibre was the input which was blended with viscose in predominance. The Collector of Central Excise (Appeals ) in his order dated 20.12.1989 (in the case of M/s. Vardhan Syntex) has fully considered the issue involved i.e. whether yarn manufactured by blending waste with viscose in predominance falls under TI 18 III(i) or under TI 18 III(ii). In paragraph 8 of the order, the Collector has considered the duty structure and wording of TI 18 in its entirety and come to the conclusion that the tariff has treated non-cellulosic fibres and non-cellulosic waste as two entirely different commodities. In paragraph 10 of the order the Collector has gone into the question of raw material composition and in paragraph 13 he has held as follows: “Thus there is no substance in the Assistant Collector’s observation that the use of non-cellulosic waste is a mere claim by the assessee as against the Department’s proof of waste on laboratory test. The Departmental laboratory tests referred to was only of the finished yarn and not of its raw materials as to whether it was non-cellulosic fibre or waste. Further it has already been seen that a mere chemical analysis of the yarn cannot help the Department the nature of the raw material composition, whether non-cellulosic fibre or non-cellulosic waste”. In these cases the composition of the raw materials has never has been questioned at any time by the Department. At no stage in the proceedings has the Department questioned the factual basis of the assessees’ claim that they are blending non-cellulosic waste and cellulosic fibres. The only objection of the Department throughout has been that the end product, cellulosic yam, contains non-cellulosic fibres according to chemical analysis. This is evident from the show cause notice dated 28.12.1983. The admitted position therein is that the product (cellulosic yarn) is a combination of non-cellulosic waste 15% and cellulosic fibres 85%. In appeal No. E/333/90-D (CCE, Nagpur versus Vardhan Syntex) paragraph 11, 12 and 13 of the impugned order of the Collector (Appeals) which are relevant run as under:
Thus it is clear from the show cause notice that there was no dispute about the yarn being derived from a blend of non-cellulosic waste and cellulosic fibre. The impugned proceedings are based on this show cause notice of 28.12.1983. After the first and second remands, no further show cause notice was issued and Assistant Collector has based his order on the same show cause notice. The order has to be confined to the issue raised in the show cause notice. As such, it is patently bad-in-law to raise an altogether new point in the order-in-original and base the order on that. Thus this allegation at this stage is not sustainable, even if it had substance. However, even on its merits, the allegation does not seem to bear substantiation.
For, apart from the show cause notice, the classification lists and the Department’s this allegation of the Assistant Collector. In the classification lists No. 32/83-84, 35/83-84, 21/84-85, 23/84-85, 21/85-86, 23/85-86 and 25/85-86 (Annexures E, F, I, J, K, KK and 1 to the appeal petition), the Appellant has clearly declared that the cellulosic yarn contains cellulose fibre and non-cellulosic waste in major and minor proportions respectively. As already mentioned, the show cause notice also confirms such declaration by the assessee in the classification list. All the three Test Memos dated 15.2.1985, (Annexures Q. 1, Q. 2 and Q. 3 to Appeal petition) under which samples have been sent for test as well as the Sector Officer’s communication C. No. CE 18/85/197 dated 14.5.1985 communicating the test results to the Appellant (copy on record), describe the samples as follows:
St. No. Description of Samples
1. 2/5s dyed waste 48/52 i.e. 48% non-cellulosic blend
52% cellulosic fibre.
2. 32s dyed 48/52(W) i.e 48% non-cellulosic waste and
52% cellulosic fibre.
3. 2/40s 15/85 waste i.e 15% non-cellulosic waste and
85% cellulosic fibre.
Further, if the Department had suspected that the appellant’s above declaration about composition was not correct, they would have tested the samples of the raw material and if non-cellulosic fibre was found instead of non-cellulosic waste, they would have proceeded against the appellant for mis-declaration, which has not been the case anywhere in the proceedings, which are only demand proceedings. Further, the factory being under production based control, the process and the raw material formula cannot remain unknown to the Department for years together.
Thus there is no substance in Assistant Collector’s observation that the use of non-cellulosic waste “is a mere claim by the assessees as against the Department’s proof based on laboratory test” The Departmental laboratory test referred to was only of the finished yarn and not of its raw material as to whether it was non-cellulosic fibre or waste,. Further, it has already been that a mere chemical analysis of the yarn cannot help determine the nature of the raw material composition, whether non-cellulosic fibre or non-cellulosic waste. Only the report by Shri Ram Institute for Industrial Research has ventured to express an inconclusive opinion about the raw material (in favour of the appellant) apparently on the basis of the totality of factors including the length of non-cellulosic fibres and the diameter of non-cellulosic fibres and this opinion has been justifiably rejected by the Assistant Collector as “not categorical and specific.” On the other hand, it is the questioning by the Assistant Collector, suddenly in order stage, of the raw material composition, which looks like a mere allegation in the light of the history of the proceedings above detailed, Assistant Collector appears to have made this effort only to artificially distinguish the instant case from the two appellate decisions of Collector (Appeals), Calcutta and Collector (Appeals), Delhi which he had been directed to critically examine, as factually different and thus by-pass the ratio of those decisions. It is clear that the facts and circumstances of this case are materially identical with those involved in those two decisions and, therefore, the ratio therein, with which I fully concur, would apply on all fours to the instant case.
15. The Department’s case is clear from the position emerging from the show cause notice issued to Vardhan Syntex, which is reproduced below:
Whereas M/s. Vardhan Syntex, Khamgaon have filed a classification list No. 32/82 effective from 23.8.1983. The product they intend to manufacture is of combination of 15% non-cellulosic waste (synthetic waste) and 85% cellulosic fibre. They have classified their product as falling under tariff item No. 18 III(i) of Central Excise Tariff.
Whereas the description of yarn shown in col. No. 2 of the classification list is yarn as not containing any Man-made fibre of non-cellulosic origin 15% non-cellu-losic synthetic waste 85% cellulosic and classified under tariff item 18III(i).
Whereas as per wording of tariff item No. 18 III(i) yarn should not contain man-made fibre of non-cellulosic origin. M/s. Vardhan Syntex, Khamgaon are manufacturing yarn of blending of cellulosic with synthetic waste. Since the yarn is manufactured from the blending with non-cellulosic synthetic waste containing synthetic waste which is apparently from non-cellulosic origin, as such this yarn will fall under tariff item No. 18 III(ii) and the duty leviable will be as per Notification No. 75/82 dated 28.2.1982.
16. Thus it appears that because synthetic waste is apparently of non-cellulosic origin the Department wanted to classify it treating it as non-cellulosic fibres. In view of the decision of the Hon’ble Bombay High Court in the case of R.K. Synthetics and Fibres P. Ltd. 1990 (29) ECR 41, synthetic waste cannot be treated as non-cellulosic fibres and it cannot fall under TI 18 I(i). In the case of Collector of Customs versus Punjab Processors P. Ltd. (Order No. 395 to 459/86-D dated 30.6.1986 the Tribunal laid down in paragraph 11 of the order that “fibre is not the same thing as waste. Otherwise there was no need to carve out a separate entry 18 IV to cover waste. Our attention was drawn to Heading 56.01/04 of the Import Tariff Schedule (Schedule I to the Customs Tariff Act 1975) which describes waste separately from fibre (man-made fibres and waste). Item 18 IV covers non-cellulosic waste all sorts i.e. of wastes of fibres and filament yarn of Item 18. This position is so despite the explanation to Item 18 IV. Notification 49/83 dated 1.3.1983 and 47/85 dated 17.3.1985 (reproduced below) are to be read as part of the Statute as laid down by the Supreme Court in the case of JJC. Steels. ECR 281 Section C. (supra).
Notification No. 49/83–Man-made fibres and filament yarns 49/83 dt. 1.3.1983. Effective rates of duties on man-made fibres and filament yarns are prescribed:
GSR: In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules. 1944, the Central Government hereby exempts man-made fibres and yarns, other than textured, falling under Item No. 18 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) and specified in column (2) of the Table hereto annexed, from so much of the duty of excise leviable thereon under the said Act at the rate specified in the said First Schedule, as is in excess of the amount calculated at the rate specified in the corresponding entry in column (3) thereof.
M.M. Fibres--18
The Table
S. No. Description Rate
1. 2. 3.
Rupees per kg.
1. Staple fibre and tow of cellulosic origin-- 4.00
2. Staple fibre and tow of non-cellulosic origin
(a) Polyester fibre 36.00
(b) acrylic fibre 24.00
(c) others 30.00
Provided that acrylic fibre shall be exempted from so much of the duty of excise leviable thereon under the said Act as is in excess of rupees fourteen per kilogram if such acrylic
fibre has been manufactured from acrylonitrile produced in India.
1. 2. 3.
3. Man-made filament yarn, consisting entirely of cel-
lulosic derivatives or regenerated cellulose or both--
(a) Acetate yarn
(i) below 75 deniers 12.45
(ii) 75 deniers and above but below 100 deniers 9.35
(iii) 100 deniers and above but below 120 6.95
deniers
(iv) 120 deniers and above but below 150 4.80
deniers
(v) 150 deniers and above but below 350 4.45
deniers
(vi) 350 deniers and above but not above 1100 3.65
deniers
(vii) above 1100 deniers 2.55
4. Other synthetic yarn-- NIL
(a) Man-made metallic yarn
Provided that this exemption shall be applicable only to such man-made metallic yarn in the manufacture of which polyester film or metallised polyester film on which the appropriate duty of excise under the said Act, or as the case may be, the additional duty leviable under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), has already been paid, is used.
Explanation:For the purpose of this proviso, appropriate duty of excise or additional duty leviable on such film, shall be deemed to have been paid if it has been purchased from the market.
(b) Polyamide (nylon) yarn–
(i) below 35 deniers 64.80
(ii) 35 deniers and above but below 80 deniers 57.80
(iii) 80 deniers and above but below 110 deniers 44.80
(iv) 110 deniers and above but below 150 37.80
deniers
(v) 150 deniers and above but not above 750 19.60
deniers
(vi) above 750 deniers 6.50
(c) Polyester yarn--
(i) below 30 deniers 83.00
(ii) 30 deniers and above but below 75 deniers 76.00
(iii) 75 deniers and above but below 100 deniers 69.00
(iv) 100 deniers and above but not above 750 55.00
deniers
(v) above 750 deniers 15.00
(d) Others
(i) below 30 deniers 56.00
(ii) 30 deniers and above but below 75 deniers 49.00
(iii) 75 deniers and above but below 100 deniers 35.00
(iv) 100 deniers and above but not above 750 28.00
deniers
(v) above 750 deniers 5.00
Provided that split yam shall be exempt from the whole of the duty of excise leviable thereon, if such split yarn has been produced from mother yarn for split yarn on which the appropriate duty of excise under the said Act, or, as the case may be, the additional duty leviable under Section 3 of the Customs Tariff Act, 1975 (51 of 1975) has already been paid.
Explanation.–For the purposes of this notification, in the case of mother yarn for split yarn the denier shall be the denier of the single mono-filament yarn (of the lowest denierage) comprising the mother yarn
Notification No. 47/85-CE dt. 1.3.1983–.Item No. 18 Man-made fibres
Effective rates of duties on man-made fibres and yarns: In exercise of the powers conferred by Sub-rule (1) of Rule 8 of the Central Excise Rules, 1944, read with Sub-section (3) of Section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), the Central Government hereby exempts man-made fibres and yarns, other than textured, falling under Item No. 18 of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) and specified in column (2) of the Table hereto annexed, from so much of the duty of excise leviable thereon under the said Acts, as is in excess of the amount calculated at the rate specified in the corresponding entry in column (3) of the said Table:
Provided that the amount of duty so levied shall be apportioned in the ratio of 110:15 between the duty leviable under the Central Excises and Salt Act, 1944 (1 of 1944), and the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978), respectively.
THE TABLE
SI. No. Description Rate
1. 2. 3.
Rupees per kg.
1. Staple fibre and tow of cellulosic origin 5.00
2. Staple fibre and tow of non-cellulosic origin
(a) Polyester fibre 45.00
(b) acrylic fibre 17.50
(c) others 37.50
3. Man-made filament yam, consisting entirely of cel-
lulosic derivatives or regenerated cellulose or both--
(a) Acetate yam
(i) below 75 deniers 15.60
(ii) 75 deniers and above but below 100 deniers 11.70
(iii) 100 deniers and above but below 120 de 8.70
niers
(iv) 120 deniers and above but below 150 de 6.00
triers
(v) 150 deniers and above but below 350 deniers 5.60
(vi) 350 deniers and above but not above 1100 4.60
deniers
(vii) above 1100 deniers 3.20
(b) Others--
(i) below 75 deniers 21.40
(ii) 75 deniers and above but below 100 deniers 13.90
(iii) 00 deniers and above but below 120 deniers 9.95
(iv) 120 deniers and above but below 150 de 8.25
niers
(v) 150 deniers and above but below 350 de 7.05
niers
(vi) 350 deniers and above but not above 1100 4.75
deniers
(vii) above 1100 deniers 3.10
4. Other synthetic yarn--
(a) Man-made metallic yam NIL
in the manufacture of which polyester film or metallised
polyester film on which the appropriate duty of excise
under the Central Excises and Salt Act, 1944, or as the
case may be, the additional duty leviable under section
3 of the Customs Tariff Act, 1975 (51 of 1975), has
already been paid, is used.
Explanation:For the purposes of item (a) of SI. No. 4, appropriate duty of excise or additional duty leviable on such film, shall be deemed to have been paid if it has been purchased from the market.
(b) Man-made metallic yarn 106.25
(c) Polyamide (nylon) yam--
(i) 750 deniers and below 70.00
(ii) above 750 deniers
(d) Polyester yarn-- 83.75
(e) Others--
(i) below 30 deniers 70.00
(ii) 30 deniers and above but below 75 deniers 61.25
(iii) 75 deniers and above but below 100 deniers 43.75
(v) 100 deniers and above but not above 750 de 35.00
niers
(vi) above 750 deniers 6.25
Provided that split yarn shall be exempt from the whole of the duty of excise leviable thereon, if such split yam has been produced from mother yarn for split yarn on which the appropriate duty of excise under the Central Excises and Salt Act, 1944 (1 of 1944) or, as the case may be, the additional duty leviable under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), has already been paid.
Explanation:For the purposes of this notification, in the case of mother yarn for split yarn the denier shall be the denier of the single mono-filament yarn (of the lowest denierage) comprising the mother yarn.
17. In the case of LML Ltd. versus Collector of Central Excise, Kanpur Order No. 78 to 80/90-D dated 8.2.1990 : 1991 (32) ECR 63 (Cegat SB-D) the same view has been echoed viz. that Notification should be read along with the Act and exemption Notification must be read as a whole in the context of the relevant provisions. In paragraph 14 of the order (supra) the Tribunal observed as follows:
The appellants have contended that the mother yarn cannot be held to be dutiable merely by virtue of Notification 47/85 dated 17.3.1985 since the exemption Notification cannot override the provisions of charging Section 3 of the CESA, 1944….As against this the learned DR has argued that the Notification and the provisions of the Act have to be read together and the Notification is a part of the Statute. Examining these contentions we find that in the judgment of the Hon’ble Supreme Court in the case of Collector of Central Excise versus Parle Exports–, the Supreme Court has laid down the law in respect of the interpretation of a Notification….The Supreme Court noted the submissions made before it to the effect that how the Government understood the matter at the time of issue of the Notification is a relevant factor and is one which should be borne in mind in view of the principles enunciated by the Supreme Court in K.P. Verghese versus Income Tax Officer– and observed that it is a well settled principle of interpretation that the Court in construing the Statute or Notification will give much weight to the interpretation put on it at the time of enactment or issue and by those who have to construe, execute and apply the said enactment. The Supreme Court thereafter observed that expressions in the schedule and in the Notification for expressions should be understood by the language employed therein keeping in mind the context in which the expression occur, and further observed that the Notification in that case was issued under Rule 8 of the Central Excise Rules and should be read along with the Act and that the Notification most be read as a whole in the context of the relevant provisions. ‘When a Notification is issued in accordance with the powers conferred by the Statute it has statutory force and validity and, therefore, the expression under the Notification is, as if it were contained in the Act itself.
In view of the two Notifications mentioned above we have no hesitation in coming to the conclusion that “man-made fibre is synonymous with “staple fibre” and, therefore, the decision of the Tribunal in the case of Collector of Central Excise, Hyderabad versus Priyadarshini Spinning Mills Ltd. applies squarely to these appeals.
18. The contention of the learned DR that the decisions of the Tribunal in the case of CCE, Chandigarh versus Punjab Processors and Oswal Woollen Mills versus Collector of Customs (Order No. 396/84 dated 17.7.1984) were rendered under the Customs Act and, therefore, not applicable to decide an issue under the Central Excise Tariff is to be stated only for rejection. In the said decisions, the issue considered was of levy of Central Excise duty on non-cellulosic waste–whether under TI 18 I(i) as of non-ccllu-losic fibres or under 18 IV as non-cellulosic waste all sorts or under TI 68. Section 2 of the Customs Tariff Act 1975 says that rates at which duties of customs shall be levied under the Customs Act, 1962 are specified in the First and Second Schedule of the Tariff Act. Section 3 of the Tariff Act deals with levy of additional duty equal to excise duty. Sub-section 1 of Section 3 and explanation to that Section which are relevant for our purpose read as under:
Levy of additional duty equal to excise duty:(1) Any article which is imported into India shall, in addition be liable to a duty (hereafter in this Section referred to as the additional duty) equal to the excise duty for the time being leviable on a like article if produced or manufactured in India and if such excise duty on a like article is leviable at any percentage of its value, the additional duty to which the imported article shall be so liable shall be calculated at that percentage of the value of the imported article.
Explanation:In this Section the expression “the excise duty for the time being leviable on a like article if produced or manufactured in India” means the excise duty for the time being in force which would be leviable on a like article if produced or manufactured in India or, if a like article is not so produced or manufactured which would be leviable on the class or description of article to which the imported article belongs, and where such duty is leviable at different rates, the highest duty.
19. The Supreme Court in the case of Khandelwal Metal and Engineering Works versus Union of India– considered the issue of levy of countervailing duty as leviable equivalent to excise duty payable in India on a like product manufactured in India. In the cases of Oswal Woollen Mills, Punjab Processors and R.K. Synthetics, the Tribunal and the Bombay High Court considered the entire scheme of Tariff Item 18 and 68 and the Tribunal came to the conclusion that synthetic waste is not non-cellulosic staple fibres and it cannot fall under TI 181(i). No other judgment either of the Tribunal or of any other High Court has been placed before us indicating a contrary view. To equate waste with fibres would be to do violence to the legislative intent. Waste is a well known marketable commodity both of Indian and foreign origin. Non-cellulosic waste is imported regularly. The duty structure both under the Customs and Central Excise Acts is vastly different in respect of non-cellulosic fibres and non-cellulosic waste. Therefore, we are unable to persuade ourselves to equate non-cellulosic waste with non-cellulosic fibres in view of the decisions referred to above. The Central Excise Tariff 1985 was introduced with a view to review the erstwhile Tariff and to rationalise it. As mentioned in the introduction the study group recommended avoiding classification dispute, minimising multiplicity of effective rate and providing for the issue of administrative rulings on classification of goods. The erstwhile Tariff contained a bare Schedule without any clarificatory notes or rules and the new Tariff is to render valuable assistance to restrict the area of dispute in classification matters. The extracts from the comparative chart of the erstwhile Tariff and the current Tariff are reproduced below:
OLD TARIFF NEW TARIFF GUIDELINE UNDER
NEW TARIFF
ITEM No. 18--MAN CHAPTER 55 MAN-MADE SECTION XI TEXTILE
MADE FIBRES, FILA STAPLE FIBRES & TEXTILE ARTICLES
MENT YARNS AND
CELLULOSIC SPUN
YARN
18 III Cellulosic spun NOTES
yarn:
Yarn, in which man-made 55.05 Yarn (including sewing 2. (D) Throughout this
fibre of cellulosic origin thread) of artificial staple fi Schedule, 'man-made fi
predominates in weight bres, not containing synthetic bres' means staple fibres
and, in or in relation to the staple fibres and filaments of organic
manufacture of which any polymers produced by
process is ordinarily car manufacturing process
ried on with the aid of
power--
(i) not containing, any
man-made fibres of
non-cellulosic origin
(ii) containing man-made 5506.21 Containing artificial
fibres of non-cellu staple fibre and polyester sta-
losic origin pie fibre (not containing any
other textile material) and in
which the proportion of
polyester staple fibre is more
than 40% by weight of the to-
tal fibre content
IV. Non-cellulosic wastes, 55.03 Waste (including noils, "Waste" of sub-heading
all sorts waste yarn and garnetted Nos. 5302.10 and 5607.11
stock) of man-made fibre shall mean--
Explanation: This item - Of synthetic staple fibre and (i) a tangled mass of short
includes only wastes aris tow: length not capable of be-
ing in, or in relation to, the ing disentangled without
manufacture of man-made considerable labour, or
fibres (other than mineral (ii) short lengths not ex-
fibres) and man-made ceeding 1.8 metres, even
filament yarns. if they are not in the form
of a tangled mass and not
capable of being used in
the manufacture of rope
or cord.
20. The comparative chart of the erstwhile tariff and the current tariff mentions TI 18 against Chapter 54 and 55 of the new Tariff. The wording of Heading 55.05 is identical to the wording of TI 18III(i) if the aid of Notification 49/183 and 4/185 is pressed into service. Even under the new Tariff Note 2(D) makes it clear that “man-made fibres” means “staple fibre”. Therefore, reading erstwhile TI 18 III(i) and Heading 55.05 harmoniously, we have no hesitation in coming to the conclusion that man-made fibres mentioned in TI 18 are staple fibres falling under Heading 55 of the New Tariff.
21. Waste is nothing but a tangled mass of short lengths not capable of being disentangled without considerable labour. Even under Note S to Chapter 54 of the new Tariff waste means wastes arising in or in relation to manufacture of (i) filaments (ii) strips and -the like of synthetic or artificial textile materials of an apparent width not exceeding 5 mm. In the Priyadarshini case, the learned DR. argued that the final yarn is to be taken into consideration to decide classification and not the raw material components. The Tribunal went into the question and decided that the raw material test is relevant. Heading 55.03 of the new Tariff covers synthetic waste. Heading 55.05 deals with yarn of artificial staple fibres not containing synthetic staple fibre and Heading 55.06 deals with yarn of artificial staple fibres containing synthetic staple fibres. The decision of the Tribunal went into the question as to whether or not staple fibre was used as input in the final yarn.
22. In CCE, Hyderabad versus Priyadarshini Spinning Mills (supra) the Tribunal had occasion to consider classification of yarn of artificial staple fibre not containing generated synthetic staple waste and the Tribunal classified the yarn under Heading 55.05. The relevant paragraphs of the order are reproduced below:
A wealth of technical literature has been placed before us on what is meant by “staple” and “staple fibre”. At page 409 of Bernard Corbman’s “Textiles–Fibre to Fabric (5th edition) it is mentioned that ‘staple is produced in a wide range of de-niers and lengths according to the desired end uses. ‘Modern Textiles’ by Dorothy Lyle (at page 26) defines staple fibres, natural or man-made as “short lengths measured in inches or a fraction of an inch”. In Kirk Othmer’s Encyclopaedia of Chemical Technology 3rd edition Vol. 16 staple fibres find a mention at pages 106 & 107 as of relatively uniform length. “Staple” is defined at page 29 of the Encyclopaedia of Textiles by the Editors of American Fabrics and Fashions Magazine (3rd edition) as “fibre in short, controlled lengths cut from continuous filament Yarns spun from it are known as ‘staple yarns’. The Dictionary of Textile Terms (at page 587) defines “staple” as “from Anglo-Saxon, meaning fixed, not variable” and staple fibre as “filaments of the cellulosic or man-made groups of fibres which have been cut to the length of the various natural fibres”. Marjory L. Joseph’s “Essentials of Textiles” at page 31 says that “man-made staple fibres are short fibres cut to the length required for the processing equipment and they are cut from filaments extruded in large bundles called tow”. R.W. Moncrieff s “Man-Made Fibres” mentions that “chopped up fibre to be called staple fibre and staple fibres are very short nearly always just a few inches and same in length in a bale”. Heading 55.03 at page 760 & 761 of the Explanatory Notes to the Harmonized Commodity Description & Coding System which covers “Synthetic staple fibres, not carded, combed or otherwise processed for spinning” sets out that ‘synthetic staple fibres are generally of uniform length which distinguishes them from the waste material of heading 55.05’.
The note on waste in the HSN is with reference to length of the fibre and length of the fibre is nowhere mentioned in the test reports of samples not containing either the characteristics of homogeneity indicates that the fibres are waste. At this juncture it would be pertinent to note that there is no allegation that waste has not been used in the blended yarn and in fact the show cause notice itself mentions that the goods in question contained imported and generated synthetic waste.
As per the definition of “staple fibre” as quoted in paragraph 13, a staple fibre is a fibre of uniform length and denier. Test reports of the samples mentioned at SI. No. 6,10,11,13.17,18,19,21,24,25,27,30,31 and 32 of Annexure ‘A’ enclosed to the Collector’s authorisation clearly state that the fibres in the samples were of varying lengths. Paragraph 2(9) of the order No. 9/89 (HC ROA No. 217/89 dated 24.7.1989 passed by the Collector of Central Excise, Hyderabad under Section 35B(2) of the Central Excises and Salt Act says that:
On physical examination of the samples of synthetic waste, it is seen that it is a mixture of staple fibre of different lengths and thickness. The assessees have used such synthetic waste to the extent of 48% in the manufacture of disputed yarn as described in the classification lists filed by them.
The above facts clearly establish that the raw materials used in the disputed yarn were not staple fibre. Still the chemical examiner, vide his test reports at Annexure ‘B’ to the authorisation, has reported that the yarn contained synthetic staple fibre. Obviously, therefore, his reports are based on misconception of the definition of
staple fibre” and consequently these test reports cannot be reliable basis for determining the classification. The Revenue’s appeal is based on these test reports. The Revenue has not produced any material, except these test reports, to prove that the yarn in dispute contained synthetic staple fibre. On the other hand, the Collector (Appeals) has given convincing reasons to hold the classification of the yarn under heading 55.05.
In the light of the above discussion, classification under heading 54.00 is ruled out. The yarn also does not fall within the ambit of heading 5504.31 as it is not yarn containing other synthetic staple fibre in the form of waste or in the form of fibre produced out of such wastes, in which acrylic or modacrylic staple fibre predominates by weight The yarn is rightly classifiable under heading 55.05.
23. We see no force in the arguments of the learned DR that the observation in the Priyadarshini case are mere obiter.
24. Stroud’s Judicial Dictionary of Words and Phrases, 4th Edition at page 1802 defines obiter dicta as “obiter dicta are what the words literally signify viz. statements by the way. If a Judge thinks it desirable to give his opinion on some point which is not necessary for the decision of the case, that of course has not the binding weight of the decision of the case, and the reasons for the decision.” Blaok’s Law Dictionary, 5th Edition at page 967 defines obiter dicta as “words of an opinion entirely unnecessary for the decision of the case”. Words and Phrases (Permanent Edition) Vol. 29 defines obiter as “useless chatter of Judges indulged in for reasons known only to them to be printed at public expense”. The issue in Priyadarshini’s case was to consider the classification of the yarn manufactured by blending cellulosic waste with viscose and in paragraph 14 of the judgment it was held that merely because waste is of non-cellulosic origin it cannot be equated with non-cellulosic fibre and this question was not a collateral or incidental one and it was the issue directly involved in the case. As stated in Words and Phrases, Permanent Edition “when a Court bases its decision on two or more distinct grounds, each is as authoritative as the other and neither is obiter dictum”. A distinct ruling on any question arising for determination is not obiter dictum. There is a distinction between obiter dictum and judicial dictum–latter constitutes as emanating from judicial conscience and the responsibility that goes with it The Supreme Court in the case of Anil Kumar Neotia versus Union of India– considered the binding nature of the judicial pronouncement and observed that law declared by it in Doypack Systems Pvt. Ltd. versus Union of India– is binding and the question is no longer res integra in view of the Article 141 of the Constitution. The Court further observed that to contend that the conclusions therein apply only to the parties before the Court, was to destroy efficacy and integrity of the judgment and to made the mandate of Article 141 illusory. In paragraph. 18 the observations in the case Smt. Somawanti versus State of Punjab– were quoted.–‘The binding effect of a decision does not depend upon whether a particular argument was considered therein or not, provided that the point with reference to which an argument was subsequently advanced was actually decided.
25. The full Bench of the Patna High Court in the case Ramkhelawan Sahu versus Bir Surendra Sahi and Ors. AIR 1938 Patna 22 observed that the legal decision on one point (if decided after the argument) does not become obiter dictum merely because the decision on the other points was sufficient to decide the case. Therefore, we have no hesitation in holding that the observations in paragraph 14 of the order in Priyadarshini’s case are not obiter dicta but a decision necessary to the issue involved in that case. As we have already held that “staple fibre” and man-made fibres are synonymous terms the decision in Priyadarshini’s case applies on all fours to the facts.of these appeals.
26. We, therefore, hold that the yarn manufactured by the assessees falls for classification under TI 18 III(i).
27. It is settled law that an adjudication order cannot travel beyond the show cause notice. There is no dispute that non-cellulosic waste was blended with viscose to manufacture spun yam. No material has been placed by the Department before us to support its stand that non-cellulosic waste was in fact non-cellulosic fibre.
28. We have perused the text books on Textile Technology relied on by both sides, summary of which is given below:
(i) In Encyclopaedia of Textiles, 3rd Edition by the authors of American Fabrics and Fashion Magazines the basic steps in commercial spinning have been enumerated as follows:
a) Opening…
b) Blending…
c) Picking and Lapping…
d) Carding…
e) Combing–For higher grade and finer yarns the shorter fibres and remaining impurities are removed in the combing machine. The combing also makes the fibres much more parallel, giving much better luster to the yams.
f) Drawing…
g) Roving…
h) Spinning…
i) Twisting…
(ii) In Materials and Technology, Vol. 16 by Longman–JH Debussy at page 349 dealing with the general Princples of yarn preparation it is set out as follows:
The first stage in preparing the raw fibres for spinning is to pass them through a series of preparative processes which loosen the mass and make it possible to extract at least those impurities which would interfere with the spinning process. These two objectives are not achieved in one single process, but in a series of processes which are complementary to each other. Experience gained over the long period since spinning was mechanised has shown that the individual fibres must be as it were coaxed into their correct positions relative to each other if the best yarns and it follows the best fabrics are to be produced. A whole range of processes are involved in preparing a textile yam and even today an individual spinner will have his own ideas of the best combinations of processes he should use to produce a yarn which he considers to be satisfactory.
The object of the the preparative processes is to deliver the fibres in the form of a clean fluffy mass ready for the actual spinning treatments. The first of these is the carding process which removes any traces of impurity which may still remain in the mass of fibres and at the same time, the very short fibres which would detract from the strength and appearance of the final yarn. If the fibres are to be spun into very strong, fine yarns then they must be arranged accurately parallel to one another and a combing treatment is given to the fibre arrangement, in which fine needles are passed along it: this treatment also makes sure that the short fibres are removed.
In the same encyclopaedia, page 359 dealing with combing action it is set out that to obtain fine smooth strong yarn such as are used in the manufacture of worsted suitings for instance, it is necessary to short fibres and arrange the longer ones in an orderly manner parallel to each other so that when twist is inserted maximum binding power will be obtained and no fibre ends will protrude from the body of the yarn. Such conditions are not provided by the card process, the sliver of fibre material which it delivers being a loosened one but still a jumbled mass of fibre. A further process is necessary, therefore, to achieve the required objective, this being known as combing.
28.1 The argument of the learned DR is that waste gets converted into fibre in the process of spinning i.e. yarn cannot be spun unless it gets converted into fibres or short fibres are removed, loses its force in the light of the cross-examination of the Chemical Examiner, Shri J.M. Gupta. Questions 3, 4, 5 and 6 the answers thereto which are material run as under
Q. 3 Do you have any instrument to measure uniformity of length, denier and crimp in the polyester strands in your laboratory?
A. Our laboratory is not equipped to measure the same.
Q. 4 Do you confirm that the length, denier and crimp of the polyester contained in the sample relating to the test report were not tested by you at your Laboratory?
A. Since the laboratory is not adequately equipped for measuring the same, these were not tested.
Q. 5 Is it correct that inferior quality of yarn can be spun from waste used by the assessee in the test sample?
A. It is correct that inferior/sub-standard yarn can be spun from so called waste,
Q. 6 Mr. Gupta, I suggest to you that the process of manufacture of fibre which imparts the fibre with its essential characteristics is the passing of polymer through spinnerrete, the heated strand rollers for drawing the strands the crimper and the cutter. Do you agree with it?
A. The fibre attains these characteristics only at the final stage of manufacture.
29. Dr. J.K. Nigam, Director, Shri Ram Institute for Industrial Research, Delhi has filed an affidavit on 20.9.1987 and paras 2, 3, 4, 5, 6 and 7 which are relevant for this issue are as under:
That it is essential to have the characteristic of uniform staple length, permanent crimp, uniform diameter and cross-section and without these properties polymer strands cannot be classified as fibre.
That in the manufacture of fibre the above given properties are imparted in various processes. However, these processes are in a continuous sequence and cannot be carried out individually. During these processes, at various stages because of interruptions like mechanical failures, electrical failures, etc. etc. some material is rejected and removed as process waste. Such material does not possess the requisite properties and characteristics of fibre.
That in man-made textiles, waste which is obtained in the process of manufacture of fibre is different than the waste which is obtained when the fibres are used. It is possible to get the process waste only in man-made fibres whereas in natural fibres it is only the waste which is obtained in the use of such fibres. This is the important distinction between the natural fibres and man-made fibres.
Without the requisite properties of uniform staple length, uniform denier and cross Section and permanent crimp, it is not possible to carry out the spinning processes like carding, parallelisation of fibres on draw frames and draftings on ring times. Though waste is incapable of being spun into yarn by itself and does not possess the characteristics of man-made fibre, yet some kinds of waste can still be used along with man-made fibre in the process of spinning. In such cases, it is such fibre which is essentially used and spun into yarn and since such fibre predominates in weight, they retain their spinnable capabilities despite being blended with some such waste.
In other words it is not the waste which becomes spinnable but that man-made fibres continue to remain spinnable even though blended with some such waste.
That it is not possible to recover fibre from aforesaid process waste by some mechanical process. The only method is to subject the process waste to a chemical process where the polymer is depolymerised and basic raw material is obtained. In such process it is not possible to get the same quantity of raw material equivalent to the quantity of process waste. The recovered raw material is required to be again polymerised and pass through various processes to obtain the characteristics and properties of fibre.
30. Dr Nigam, was examined and cross-examined by the Assistant Collector. Question 11 and the answer thereto are hereunder:
Q, 11 If such so called waste is subjected to cutting manually or by a mechanical cutter will it not obtain uniform length?
A. It is not possible to cut ‘fibrous’ material to uniform length as achieved on the cutter in a ‘fibre line’ by manual or alternative means within the same levels of variations as obtained in a continuous process.
31. It is not the case of the Department that the assessees have mechanical cutter machines in any of their Units. According to Dr. Nigam it is not possible to cut fibrous material to uniform length manually. In response to the question in cross examination as to whether each strand of the so-called non-cellulosic synthetic waste will meet individually the requirement of fibre, his answer is as follows:
No, because as ‘staple fibre’ the requirements are very specific in terms of the three earlier discussed characteristics. NCSW is an undefined mass of fibrous nature’ which may include polymer chips adhering to fibres, partially molten, fused fibres, varying lengths, varying diameter, varying crimp frequency and stability, varying orientation and structuring which cannot be called fibre’ even in broad sense.
32. The learned DR raised the new ground that non-cellulosic waste gets converted into fibres before it is blended with viscose. This new case sought to be made out at the stage of argument does not find a place either in the show cause notice or before the adjudicating authorities below. The Tribunal has clearly laid down in several judgments that an order is not sustainable if none of the ingredients which formed the basis of the order were mentioned in the show cause notice. This was so laid down by the Tribunal in the case of Asapcs India P. Ltd. v. Collector of Central Excise. Calcutta . Therefore, the order of the Assistant Collector and the Collector (Appeals) cannot be sustained as the authorities took into consideration extraneous factors for coming to a decision which did not form part of the show cause notice. The Department has not discharged its burden to prove that yarn manufactured by the assessees contained man-made fibres of non-cellulosic origin and, therefore, we have no alternative but to hold that classification can only be under TI 18 III(i).
33. In the appeals of Modem Syntex India Ltd. and Jaipur Syntex Ltd., we have on record that non-cellulosic waste used by them for manufacture of yarn was cleared by the selling units to these appellants after payment of excise duty thereon under TI 18 IV. That being the position it will not be permissible to treat waste and fibre as equals. In view of the fact that the legislature itself has made a distinction between the two and the duty structure on these two items are also totally different we find that by all standards the item in dispute has a reasonable claim to be classified under TI 18 III(i), in the light of the various decisions of the Tribunal and the Bombay High Court, and technical literature on Textiles. On a plain reading of TI 18 if synthetic waste is blended for manufacture of yarn, such yarn cannot fall under TI 18 III(ii). In the light of the above discussions we hold that spun yam manufactured by the assessees is classifiable under TI 18 III(i), excepting E/2426/90-D where admittedly the yarn will be classified under TI 68.
34. As a result we allow the appeals filed by the assessees and dismiss the appeals filed by the Revenue. Accordingly appeals No. E/333/90-D and E/2905/85-D are dismissed. The Cross Objection No. 140/90-D does not survive and is hereby dismissed. Appeals No. E/222/90-D, E/223/90-D, E/3903/90-D, E/2425/90-D and E/2426/90-D, E/2802/90 and E/2820/90-D, E/2821/90-D, E/2843/90-D & E/2856/90-D are allowed.
Sd/- (Jyoti Balasundaram)
Member (Judical) 3.5.1991
I agree with the above order. However, I have
added a few points vide paragraphs–35 to 42.
Sd/- (D.C. Mandal)
Member (Technical) 16.3.1991
Sd/- (G.P. Agarwal)
Member (J) 25.3.1991
35. Per Shri D.C. Mandal, Member.–While agreeing with the order written by the learned Judicial Member Ms. Jyoti Balasundaram, I would like to add a few points as in the following paragraphs.
36. Item 18 of the erstwhile Central Excise Tariff has made clear distinction between “Fibre” and “Waste”. Legislature has used the expression “Man-made Fibre” in the Tariff Item 18-I and “non-cellulosic waste, all sorts” in Tariff Item 18-IV. The two products are different and one cannot be equated with the other. If “Waste” is to be treated as fibre as sought to be done by the Department, then Sub-Item (IV) of the Tariff Item-18 becomes redundant and all “Wastes” would fall under Tariff Item-18-1. The Assistant Collector of Central Excise and Customs Division, Jaipur in his order-in-original No. 32/89 (Valuation) dated 26.5.1989, which is at pages-74 to 143 of the appeal file in Appeal No. E/2820/90-D, has gone by the definition of fibre given in Fairchild’s Dictionary of Textiles, according to which the ratio of the length and diameter of fibre is not less than 100. See paragraph-85 (v) of the said order-in-original. During the cross-examination before the Assistant Collector on 2.7.1987, Shri J. N. Gupta, Chemical Examiner of the Department, stated as follows:
Q. Can you describe the essential physical and chemical characteristics of the polyester fibre?
Ans. I am giving the essential characteristics of polyester fibre on the basis of definition as down in an internationally known book ‘Fairchild’s DICTIONARY of TEXTILES’ i.e. the ratio of length and diameter in any fibre should not be less than 100.
Q. What does test/criteria applied by you for concluding that polyester contents of the test sample was fibre or did you take into consideration any other characteristics or criteria also?
Ans. By miscroscopic examination I found that the fibre satisfy the diameter and length ration i.e. more than 100. Secondly, the sample on implying was found to be fibre only. The sample was partly found soluble in hot phenol which is polyester and thus determined its composition. The insoluble portion was Viscose.
A copy of the proceedings of cross-examination held on 2.7.1987 before the Assistant Collector is at pages-70 to 78 of Paper-Book No. II filed by the appellants in Appeal No. E/2820/90-D and the aforesaid two questions and answers are available at pages-74 to 75 of the said Paper-Book. Apparently, it is on the basis of the ratio of 1:100 of diameter and length of fibre that Shri J.N. Gupta reported in his test reports that the samples contained polyester fibre.
37. The Department has not placed on record any evidence that the spun yarn of these assessees contained polyester fibre as commercially understood. There is also no material or evidence on the basis of which the Assistant Collector could establish that the blended spun yarn can only be made out of “Fibre” and not from “Waste”. The Books on which reliance has been placed by Shri L.C. Chakravarti, learned Departmental Representative, during the hearing before us do not specifically say that yarn cannot be spun out of wastes also. These books only indicate that yarn is spun ordinarily out of fibre, but they do not deal with the circumstances under which yarn can be spun out of “Wastes” also, particularly in Indian context where yarn of inferior quality is manufactured by utilising wastes. On the contrary, the Departmental Chemical Examiner Shri J.N. Gupta and Dr. J.K. Nigam, Director of Shri Ram Institute for Industrial Research, in their depositions before the Assistant Collector, have admitted that yarn can be spun out of waste material though such yarn may be of inferior quality. The extracts of the relevant portion of their deposition/affidavit have been given in paragraphs-28 and 29 (supra).
37.1 Further, Section 3(29) of the Textile Control Order, 1986 issued by Government of India defines “yarn” as follows:
Yarn with its grammatical variations means manufactured predominantly from cotton, wool or man-made fibre (continuous), man-made fibre (discontinuous) or natural silk or any other natural or mineral fibre or waste of any of these materials….
An extract from Textile Control Order, 1986 was filed by the earned Counsel Dr. Devi Pal during the hearing on 9.11.1990.
37.2 This definition recognises that yarn is also manufactured from “waste”. Thus, the Department’s theory that yarn cannot be manufactured from the waste is negatived both by the evidence of the two experts referred to above and also by legislative recognition of the factual position that yarn can be manufactured out of waste.
38. The learned Departmental Representative has argued before us that spun yarn can be made only out of fibre. That waste cannot be spun into yarn unless it is first converted into fibre and then spun into yarn, was not alleged in the show cause notice. The Department cannot make out a new case not covered by the show cause notice. Factually also this stand of the Department is not sustainable. If waste is to be first converted into fibre, as argued by the learned Departmental Representative, then the entire waste could not be converted into fibre. A part of the waste only could be converted into fibre which could have been blended with cellulosic fibre. There is no mention of any residue waste in the show cause notice or in the orders of the lower authorities. This implies that the entire waste was spun into yarn in those cases. The Department has not produced any evidence to establish that a part of the waste was thrown away and not used for the purpose of spinning yarn by these assessees. This nullifies the stand of the learned Departmental Representative that waste was first converted into fibre for the purpose of spinning yarn.
39. In paragraph-41 of the Assistant Collector’s order-in-original No. 32/89 (Valuation)(supra) the Assistant Collector has stated that the assessee placed on record four affidavits which try to distinguish non-cellulosic synthetic waste and fibre. In his affidavit, Dr. J.K. Nigam, Director of Shri Ram Institute for Industrial Research has stated that is not the waste which becomes spinnable but that man-made fibre continues to remain spinnable even though blended with some such waste. In such cases, it is such fibre which is essentially used to be spun into yarn and as such fibres predominate in weight, they retain their spinnability despite being blended with the waste. He has also stated that in other words, it is not the waste which becomes spinnable but the man-made fibre continues to remain spinnable even though blended with some such wastes. In his affidavit, Shri N.S. Kothari, Deputy Quality Control Manager of M/s. J.K. Staple and Tows, has explained the essential properties and characteristics of fibre and he has stated that the uniform staple length and uniformity of denier are two such properties. Shri D.N. Pato-dia, in his affidavit has also stated that polyester fibre is marketed with specific cross-section (denier) and specific cut length, and that the fibre and waste are distinct commercial commodities. The Assistant Collector has ignored the above affidavits on the ground that the chemical examiner stated in reply to questions No. 6 & 7 during cross-examination that to become fibre, uniformity of length, denier and crimp is not necessary. But the facts remain that in reply to question No. 6 during the cross-examination on 13.8.1987, the chemical examiner Shri J.N. Gupta stated that the essential characteristics of fibre are length, strength, flexibility and spinnability. In reply to question No. 7 of the said cross-examination Shri Gupta said that uniformity of length, denier and crimp are attained by fibre at the final stage of manufacture. In this connection, questions No. 6 & 7 and the replies thereto are reproduced below:
Q. 6.Mr. Gupta, I suggest to you that the process of manufacture of fibre which imparts the fibre with its essential characteristics is the passing of polymer through spinncrate, the heated; stretch rollers for drawing the strands the crimper and the cutter. Do you agree with it?
Ans. The fibre attains these characteristics only at the final stage of manufacture.
Q. 7. Mr. Gupta, you, therefore, confirmed that at the stage when the fibre strands fully manufactured, the fibre contains the characteristics of uniformity of denier, and cross-section, properly imparted set crimps and uniformity of length?
Ans. Yes, the fibre attains these characteristics at the final stage of manufacture as I told you earlier.
Copy of the proceedings of cross-examination of the Chemical Examiner before the Assistant Collector held on 13.8.1987 was filed by the appellants at pages-6 to 8 of the Paper-Book No. III in Appeal No. E/2820/90-D. Assistant Collector of Central Excise was not, therefore, correct in ignoring the affidavits reproduced in paragraph-41 of his order.
40. The appellants in appeal No. E/2820/9-D relied on two test reports of Shri Ram Institute for Industrial Research and Northern India Textile Research Association. The test reports have been reproduced by the Assistant Collector of Central Excise and Customs, Jaipur in paragraphs-35 and 39 of his ordcr-in-original No. 32/89 (Valuation) dated 26.5.1989. The remarks given at the end of the test results reported by Shri Ram Institute for Industrial Research read as follows:
The variation in length and Diameter of non-cellulosic strands shows that the sample is blend of non-cellulosic waste with Viscose.
There is a similar note at the end of the test results of samples reported by Northern India Textile Research Association. The note is reproduced below:
The above results show that the sample is blend of non-cellulosic synthetic waste and Viscose.
During the cross-examination before the Assistant Collector held on 29.3.1988, Dr. J.K. Nigam, Director of Shri Ram Institute for Industrial Research, in his reply to question No. 10, said that the samples were tested to determine the variation of properties in the non-cellulosic contents of yarn. On the analysis of the cross-section and individual fibre strand length, it was found that the diameter of strands varied from 10 to 24 microns and length from 3.0 cms to 4.8 cms. He stated that both the parameters showed extremely high levels of variations much beyond the permissible and imaginable limits in fibre characteristics as compared to prevalent specifications. He had no doubt that the sample contained 47% non-cellulosic waste. These facts have been discussed by the Assistant Collector in paragraph-36 of his order.
41. In paragraph-74 and 75 of the order-in-original No. 32/89 (Valuation) dated 26.5.1989, the Assistant Collector has reproduced the extracts from two test reports of the Chemical Examiner of the Department. These, inter alia, say as follows:
(i) It is not possible to state by the Chemical whether NCSW has been used in the manufacture of yarn” and
(ii) It is not possible for this Laboratory to state by test if the non-cellulosic man-made fibre in the yarn are non-cellulosic synthetic waste or derived from NCSW and used in the manufacture of above yarn.
These indicate that the samples were not tested by the Chemical Examiner to ascertain whether the yarn was manufactured from non-cellulosic waste nor the tests were conducted to determine the uniformity of length, denier and crimp of the fibre. In paragraph-58 of the order-in-original, the Assistant Collector has observed, “while it is correct to say that the material is the waste material generated from the fibre manufacturing unit yet each individual filaments satisfies the definition of fibre except that it is not in spinnable length/form”. In paragraph-37 of his order, the Assistant Collector has given some flimsy grounds for not accepting the test report of Shri Ram Institute for Industrial Research. The reasons shown by him are not convincing. In the case of Collector of Central Excise, Hyderabad \:Priyadarshini Spinning Mills 1990 (29) ECR 520 (Tri), this Tribunal has made clear distinction between “waste” and “staple fibre” and has held that “waste” is of varying length and is characterised by absence of homogeneity. The Hon’ble Bombay High Court and this Tribunal, in the judgments relied upon by the learned Counsels for the assessees, have held that the waste is distinguishable from fibre and the two are distinct and separate commodities. We are to follow these judgments. Following the ratio of these judgments and also in view of the fact that the Chemical Examiner of the Department and the Assistant Collector have gone by the wrong criteria for fibre, i.e. the ratio of denier and fibre to be 1 :100 and the fact that the Chemical Examiner did not examine the samples to determine the length and denier of the fibre and also whether the yarn was manufactured from waste or not and also in view of the test reports of Shri Ram Institute for Industrial Research and the Northern India Textile Research Association and the deposition of Dr. J.M. Nigam to the effect that wide variations in lengths and diameter beyond permissible limit were found, it should be held that the approach of the Assistant Collector in holding that the yarn of the assessees was classifiable under Tariff Item 18 III(ii) of the Tariff is totally incorrect.
42. Agreeing with the learned Judicial Member Ms. Jyoti Balasundaram, I also dismiss the appeals of the Revenue and allow the appeals of these assessees. Cross-objection No. E/00/140/90-D gets disposed of by these orders.
Sd/-D.C.Mandal
Member (Technical)
16.3.1991
