ORDER
A.C.C. Unni, Member (J)
1. The above mentioned appeals were taken up for hearing together since they raised a common issue for consideration. The issue relates to classification of carpets/floor coverings covered by Chapter 57 of Schedule to the Central Excise Tariff Act, 1985.
2. S/Shri L. P. Asthana, ld. Advocate and R. Swaminathan, ld. Consultant appeared for the appellants and Shri K. Swamy, Senior Advocate and Shri A. K. Prasad, SDR appeared for the Revenue.
3. The assessees, contention in both cases was that the goods were classifiable under Chapter sub-heading 5703.20 of the Schedule to the Central Excise Tariff Act,. 1985 whereas the Department has taken the view that the item was classifiable under Chapter sub-heading 5703.90.
4. Appeal No. E/784/98-D Uni Products (I) Ltd. v. CCE, New Delhi
Appellants are manufacturers of carpets/floor coverings of jute. They sell these carpets under different names like Umang, Utsav, Tarang, Divine, Expo and Pragati. All the varieties of these carpets, according to the appellants, have one basic feature viz., the basic fabric used was made of hessian cloth. The appellants have explained the process of manufacture and the composition of the fibres used in the manufacture of their floor coverings as under:
Depending upon the variety of floor coverings, either pure synthetic fibres such as Polypropylene, polyester or blends thereof or even a mixture of jute and synthetic fibres are fed to the opening and blending equipment from where it is transported pneumatically to hopper feeder and then on the cards. The batt of textile fibre fed to the cards is made into a uniform web which is then cross-lapped on an apron. This web is fed to the tacker for the first stage of needle punching (mild punching). The tacker employed uses barbed needles to interlock the fibres together during the penetration of needle. This mild punching is done for the purpose of achieving a degree of integrity in the material that would permit easy handling. The tacker web is then fed into a needle punching machine along with a layer of jute fabric, the latter carrying on its top an additional layer of cross-lapped web jute fibres blended with waste textured polyester/polypropylene materials. These three layers are then firmly punched together. After needle punching, the floor coverings are finished by coating the exposed jute surface of the jute fabric with the binder suspension of styrene acrylate, chalk powders and fillers covering over a padder which contains the binder suspensions. The floor covering is finally dried and cured.
Umang Jute, Fiber & Hessian Cloth 483.00 gms. per sq. meter Synthetic Fibre 238.00 gms. per sq. meter Adhesives and chalk powder 245.85 gms. per sq. meter Utsav Jute, Fibre & Hessian Cloth 499.00 gms. per sq. meter Polypropylene Fibre 218.00 gms. per sq. meter Adhesives and chalk powder 281.54 gms. per sq. meter Tarang Jute, Fibre & Hessian Cloth 528.00 gms. per sq. meter Synthetic Fibre 462.00 gms. per sq. meter Adhesives and chalk powder 129.89 gms. per sq. meter Divine Jute, Fibre & Hessian Cloth 704.50 gms. per sq. meter Synthetic Fibre 682.50 gms. per sq. meter Adhesives and chalk powder 286.26 gms. per sq. meter Expo Jute, Fibre & Hessian Cloth 354.00 gms. per sq. meter Synthetic Fibre 203.00 gms. per sq. meter Adhesives and chalk powder 245.81 gms. per sq. meter Pragati Jute, Fibre & Hessian Cloth 354.00 gms. per sq. meter Synthetic Fibre 238.00 gms. per sq. meter Adhesives and chalk powder 245.85 gms. per sq. meter
5. The appellants were issued a SCN dt. 5.5.1997 proposing classification of their floor coverings as ‘other textile floor coverings’ under heading 5703.90 of the Central Excise Tariff Act which attracted a higher rate of duty instead of as ‘Floor coverings of Jute’ under heading 5703.20 as claimed by the appellants entitling them to a much lower rate of duty.
6. The matter was adjudicated by the Commissioner Central Excise, New Delhi who passed the impugned Order-in-Original dt. 6.1.1998 holding that the goods in question are classifiable under the residuary chapter sub-heading 5703.90 as floor coverings of polypropylene and not as ‘floor coverings of jute’ classifiable under sub-heading 5703.20 on ground that the textile material contained in the top layer in the carpet alone can be taken into account for purposes of determining the classification of the product. It was also held that the appellants had not properly determined the assessable value of the carpets for the period after 28.9.1996 when Section 4 of the Central Excise (Act) was amended.
7. Arguing the case of the appellants, Shri R. Swaminathan, ld. Consultant submitted that the very same issue of classification of floor coverings or carpet containing jute fabric with polypropylene surface for the period after 16.3.1995 was considered by the Tribunal in the case of Bajaj Carpet Industries Ltd. v. CCE, Meerut reported in 1998 (27) RLT 342 (CEGAT) in which the Tribunal, after referring to the judgment of Hon’ble Andhra Pradesh High Court in the case of Charminar Nonwovens Ltd. v. CC and CE, Hyderabad and Ors. 1998 (25) RLT 445 (A.P.) held that the carpet containing jute and polypropylene should be classified as cloth coverings of jute even though the exposed surface contained predominantly polypropylene fibre. The appellants contend that for purposes of determining the classification, the jute contained in the basic fabric should also be taken into account. He drew attention to the Hon’ble Andhra Pradesh High Court judgment in Charminar Nonwovens Ltd. case (supra) for the period after 16.7.1993 on the very same issue. According to the appellants, since there is no contrary decision, as per the settled legal practice that when there is a High Court decision on the very same issue and there is no contrary decision of any other High Court, the Tribunal should follow the said High Court decision. He therefore prayed for classification of the goods under sub-heading 5703.20
8. As regards valuation for the period after 28.9.1996, it is urged that the duty payable in terms of Section 4(4)(d)(ii), would be only Rs. 4,60,484.00, even if the classification of the product as held by the Commissioner was upheld. On the other hand, if the classification of the products in question was held to be floor coverings of jute, the differential duty on the ground of under-valuation would work out only to Rs. 1,71,248.97 which amount had already been paid by the appellants.
9. On behalf of the Respondent Collector it is submitted that the floor coverings manufactured by the appellants would not be classifiable as “floor coverings of jute” under Chapter sub-heading 5703.20 since jute was mostly non-existent in the top layer in any of the varieties of floor coverings manufactured by the appellants. Therefore the said items would be more appropriately classifiable under Chapter sub-heading 5703.90 as “floor coverings of other textile material”. Ld. Advocate referred to the findings of the Commissioner in the impugned order. The floor coverings in question were manufactured by assembling layer of non-woven material on the jute fabric. They were therefore covered by the category of products “consisting of two or more textile fabrics of different composition assembled in layers by sewing, gumming etc.” as described in the H.S.N. Explanatory Notes. The only difference in the instant case was that the layers are punched by needle instead of being joined together by sewing, gumming etc. As per Rule 3(b) of the Rules for the Interpretation of the Schedule to the Central Excise Tariff Act, 1985 (interpretative rules) mixtures, composite goods consisting of different materials or made up of different components and goods put up in sets, which cannot be classified by reference to Rule 3(a), shall be classified as if they consisted of the material or component which gave them their essential character. The question that had to be decided was: which and what was the ‘part’ of the floor coverings which gave them their ‘essential character? In terms of Chapter Note 1 to Chapter 57 carpets and other textile floor coverings meant floor coverings in which textile materials serve as the exposed surface of the article when in use includes articles having the characteristics of textile floor coverings but intended for other purposes. Since the essential character of floor coverings was to be determined on the basis of exposed surface and since in the case of floor coverings manufactured by the appellants, the exposed surface was not made of jute, the carpets in question cannot be classified as ‘floor coverings of jute’ classifiable under Chapter sub-heading 5703.20. He submitted that the appellants’ claim for classification of the floor coverings on the basis of the material predominating by weight cannot be accepted in view of the clear wording in Chapter note 1 of Chapter 57 which would govern the determination of classification of items under that Chapter. Ld. Counsel further submitted that the identity of the carpets in question and their classification has to be determined with reference to Chapter note 1 of Chapter 57. There is no dispute in the case of items under consideration that the exposed surface of the said items were not of jute. In fact it served only as the backing material. The test was to see the material used for the exposed surface and not the material used in the backing surface. The jute fabric had been used in the case of appellants only as backing which was coated with binder suspension. Therefore, according to the ld. Counsel for the Revenue, the classification dispute had been correctly decided by the Commissioner and it called for no interference.
10. As regards invoking extended time limit under proviso to Section 11 A(1) of the Central Excise Act, the Commissioner had accepted the assessee’s contention against invoking the extended time limit in terms of proviso to Section 11A(1). However, as regards the contention of the appellants that the demand can be raised only prospectively from the date of SCN, the said plea had not been accepted by the Commissioner relying on the Supreme Court judgment in Ballarpur Industries wherein the Apex Court had held that the Department had the statutory power for raising demand for the said period. Ld. Counsel therefore submitted that the demand of duty for the period of six months prior to the issue of the SCN was perfectly valid and the confirmation of duty demand for the period October 1996 to February 1997 amounting to Rs. 1,28,17,462.00 was valid and sustainable The said findings did not call for any interference, contends the Ld. Counsel.
11. We have considered the submissions and have perused the records and the case law. We find that the classification dispute about jute floor coverings having jute fabric with polypropylene surface has been held to be classifiable under Chapter subheading 5703.20 and not under residuary heading 5703.90 by the Hon’ble Andhra Pradesh High Count in Charminar Nonwovens Ltd. case (supra). The Hon’ble High Court had in para 5 of the judgment dealt with the question as under:
The first question is whether the product has been properly classified earlier. The Tariff Act gives the rate at which the goods are to be taxed for the purpose of Excise Duty and the schedule to the tariff contain several chapters grouped into several sections. Section 11 contains textiles and textile articles and one of the Chapters in this section refers to carpets and other textile floor coverings. Note 1 in Chapter 57 reads as follows:
For the purpose of this Chapter, the term ‘Carpets and other Textile Floor Coverings’ means floor coverings in which textile materials serve as the exposed surface of the article when in use and includes article having the characteristics of textile floor coverings but intended for use for other purposes.
As can be seen from this Note at the top of the Chapter 57 it defines only the term ‘carpets and other textile floor coverings’ and does not deal with the manner in which a carpet made out of different textiles are to be classified. This situation is dealt in Note 2(A) in the section itself. Section 2(A) states as follows:
Products of Chapters 56 to 63 containing two or more textile materials are to be regarded as consisting wholly of that textile material which would be selected under Note 2 above for the classification of a product of Chapters 50 to 55 consisting of the same textile materials.
This criterion, however, does not apply to a case where the textile product consisting of ground fabric and piled or looped surface in which case no account is to be taken of the ground fabric. The petitioner has specifically alleged in the affidavit filed in support of the writ petition that the product manufactured is not of a piled or looped surface and this fact has not been denied in the counter affidavit. Therefore, Note 2(A) applies to the present case. We have to turn to the classification of products under Chapters 50 to 55 for ascertaining the correct position. Note 2(A) at the beginning of the section states as follows:
Goods classifiable in Chapters 50 to 55 or in heading No. 68.09 or 59.02 and of a mixture of two or more textile materials are to be classified as if consisting wholly of that one textile material which predominates by weight over any other single textile material.
When no one textile material predominates by weight, the goods are to be classified as if consisting wholly of that one textile material which is covered by the heading which occurs last in numerical order among those which equally merit consideration.
According to this criteria, where two textile materials are mixed to produce the goods in question, the textile material which predominates by weight over the other textile material has to be taken as the proper classification of the goods. This is the manner in which the appellate authority also decided the issue in the order made on 16.7.1993 which reads as under:
Situations of this type are envisaged in the section notes and guidelines have been provided in the matter of classification of goods. Chapter 57 Note 1 only clarifies the type of goods that fall under this Chapter and Note 2 speaks of the goods which do not fall under it. To use that definition (wrongly at that) to sub-classify goods under the Chapter when the section notes are clear as to the manner in which goods consisting of more than one material should be classified is erroneous. The Assistant Collector is directed to classify the type of goods in question after taking note of the chemical examiner’s report in accordance with the section Note 14(A) read with 2A of Section XI.
That appellate order became final. We are entirely in agreement with this approach of the Appellate Collector and we are of the opinion that as the section and Chapter Notes stand, this is the correct position and the goods of the petitioner have been rightly classified as the jute carpet falling under item No. 5703.20 by the Appellate Authority.
12. We further find that the Tribunal as in Bajaj Carpet Industries Ltd. v. CCE, Meerut 1998 (27) RLT 342 (CEGAT) has followed the ratio of the Hon’ble Andhra Pradesh High Court in Charminar Nonwovens Ltd. and held that non woven carpet having exposed surface of polypropylene fibre manufactured by needle punching process would be classifiable as jute floor coverings under heading 5703.20 and not under the residuary heading of 5703.90.
13. Following the aforesaid decisions, we hold that the floor coverings of jute manufactured by the appellants would be correctly classifiable under Chapter sub-heading 5703.20 and not under 5702.90.
14. Accordingly, we allow this Appeal and set aside the impugned order since the other allegations against the appellants will not survive if the classification issue is decided in favour of the appellants.
Appeal Nos. E/1358 to 1360/98-D
Tri Star Industries Felting (P) Ltd. v. CCE
Kanak Fibre Fabs (P) Ltd. v CCE; and
Shri Rajeev Khattar v CCE, New Delhi.
15. The main issue raised for consideration in these three Appeals is in relation to the correct classification of textile floor covering. By the impugned order which disposed of two show cause notices, the Commissioner had held that the essential character of floor covering is derived from their exposed surface and not from the material that constitutes the ground surface of the carpet/carpet backing. It was held that the item was classifiable as “other textile floor covering” covered under Heading 5703.90 and leviable to duty at 30% ad valorem with effect from 22.7.1996 though during the period 16.3.1995 to 22.7.1996, they were classifiable under heading 5704.00. As regards the applicability of Andhra Pradesh High Court judgment in Charminar Non-woven case, (supra) to the items in dispute, Ld. Commissioner observed that in the said case attention of the Hon’ble Court had not been drawn to the new sub-heading to Note 2(B)(i) to Section XI to CETA which had been incorporated in the Tariff with effect from 16.7.1995
16. Brief facts: The three instant appeals filed by M/s. Tristar Industries Felting (P) Ltd., M/s. Kanak Fibre Fab (P) Ltd. and Shri Rajiv Khattar of M/s. Kanak Fibre Fab arise from a common Order-in-Original passed by the Commissioner Central Excise, Delhi. By the said order duty demands of Rs. 34,33,557/- in respect of M/s. Kanak Fibre Fab (P) Ltd., and Rs. 4,60,400/- in respect of M/s. Tristar Industries Felting (P) Ltd. for six months was confirmed on account of the classification dispute. Further demand of Rs. 21,990/- leviable on the raw material allegedly clandestinely removed was confirmed. Goods valued at Rs. 1,49,447/- and inputs valued at Rs. 95,609/- were ordered to be confiscated with an option to redeem the same on payment of redemption fine of Rs. 1,50,000/- on M/s. Kanak Fibre Fab (P) Ltd. penalties of Rs. one lakh (under Rule 173Q) on M/s. Kanak Fibre Fab (P) Ltd. and Rs. 50 Lakhs on Shri Rajiv Khattar (under Rule 209A) were imposed. Premises of M/s. Tristar Industries Felting (P) Ltd., and M/s. Kanak Fibres Fab (P) Ltd. who had their common factory for manufacture of textile floor and covering of felt of jute, were visited by the Central Excise Officers on receipt of Intelligence report to the effect that they were evading the Central Excise duty by mis-classifying their goods under subheading 5703.20. On physical verification 1589.87 sq. m. of floor coverings valued at Rs. 1,49,447.78 were found to be in excess of the recorded balance which were seized.
17. On adjudication, the Commissioner distinguished the findings of the Andhra Pradesh High Court in Charminar Non-woven case relied on by the assessees by observing that the judgment of the Hon’ble High Court did not indicate that its attention had been drawn to the new sub-heading Note (2) B(i) incorporated in 16.7.1995 in the Section Note to Section XI.
18. Ld. Counsel for the appellants has argued before us that the Commissioner has failed to appreciate the meaning of the opening words “where appropriate” in Note 2(B)(i) of Section XI. He contends that section note 2(B)(i) which was meant to clarify section Note 2(A) had provided that only “where appropriate” Rule 3 of Interpretative Rule to the Schedule of the Central Excise Tariff Act shall be resorted to. This meant that the principle of classification under Rule 3 of the General Interpretative Rules is to be applied only “where appropriate” and not in all cases, that is, only when circumstances so warranted. It did not mean that in all cases Rule 3 was to be applied. If Rule 3 was to be applied to all products of Chapters 56 to 63, as referred to in Section Note 2(A), it would not have been necessary to insert Note 2(B) at all. On the other hand, if Interpretative Rule 3 and Section Notes 2(A) and 2(B) were read together, it would be clear that Interpretative Rule 3 will become relevant for classification only where it is not possible to arrive at a classification by applying the criterion of weight. In the fact of the instant case, there was no need to apply the weight criterion. The carpets/floor covering were made up of jute and the classification dispute had been fully settled in view of the Andhra Pradesh High Court judgment in Charminar Non-woven case. In view of the fact that the classification issue has been fully settled by the aforesaid Andhra Pradesh decision, the impugned order may be set aside and the order relating to duty demands on the appellants, confiscation and penalty imposed on M/s. Kanak Fibres Fab and Shri Rajiv Khattar may be set aside, pleaded the ld. Counsel for the appellants.
19. Ld. Senior Advocate for the Revenue submitted that the impugned order calls for no interference. He supported the findings of the Commissioner in the Order-in-Original. He submitted that the floor covering under dispute was admittedly a non-woven fabric which was punched on to the jute fabrics. He referred to Section Note 2(A) to Section XI of the CETA which provided that goods classifiable under Chapters 50 to 55 or in heading No. 58.09 or 59.02 and of a mixture of two or more textile materials are to be classified as if consisting wholly of that one textile material which predominates by weight over any other single material. Where one textile predominates by weight, the goods are to be classified as if consisting wholly of that one textile material which is covered by the heading which occurs last in numerical order along with those which equally merit consideration. However in the 1995-96 Budget changes were made in the Notes to Section XI to the Central Excise Tariff Act. After the amendment in cases where the product consisted of two or more textile fabrics of different composition assembled in layers by sewing/gumming, classification had to be determined in accordance with the Rule 3 of the Interpretative Rules and Section Note 2 to Section XI which meant that for determination of the textile material which predominates by weight has to be taken into consideration for the classification of the product as a whole. In the instant case the floor covering in question had been manufactured by assembling layers of non-woven material on jute fabrics. They were thus clearly in the category of products “consisting of two or more textile fabrics of different composition assembled in layers by sewing, gumming, etc.” which has been described also in the HSN Explanatory Notes. The only difference was that in the instant case the layers were punched with needle instead of being joined by sewing, gumming etc. The Commissioner had therefore, correctly applied Rule 3 of the Interpretative Rules to arrive at the classification of the item under dispute. Since the floor covering in question was mixed and consisted of different material, it was clearly covered by Rule 3 of the Rules of Interpretation and it was not a case where one heading provided a mere specific description as compared to another providing a mere general description. The essential character of the floor covering in terms of Chapter Note 1 to Chapter 57, was to be decided on the basis of the exposed surface of the article. In the case of the floor covering manufactured by M/s. Kanak Fibre and Tristar, the exposed surface was not made of jute. As a result, it will not come within the description of floor covering of “felt of jute”. He therefore, contended that the impugned order had correctly classified the item under dispute. As regards limitation, the Commissioner had restricted the demand for six months and had not accepted the Department’s invoking of the extended period under proviso to Section 11A (1) of the Central Excise Act proviso. Since the seized goods were not recorded in the RG I register, the confiscation thereof was also fully justified and the penalties imposed were also in order. The ld. Counsel for the Department therefore pleaded for upholding of the aforesaid order.
20. We have considered the submissions. On the question of classification of the goods in dispute we find that the Andhra Pradesh High Court judgment in Charminar Non-woven case fully covers the issue. We are unable to agree with the distinction sought to be made by the Commissioner in the impugned order on the ground that the new Section Note 2(B)(i) incorporated in the Tariff with effect from 16.11.1995 would make any difference in the matter. The said Note clearly provides that its application will be subjected to the condition “where appropriate”. We agree with the contention of the ld. Counsel for the appellants that Interpretative Rule 3 will not be attracted in all cases and such cases will be where the Chapter sub-headings are not explicit enough. For the reasons explained in paragraph 5 of the Andhra Pradesh judgment (supra) we hold that the impugned goods are classifiable under Chapter sub-heading 5703.20. The duty demand based on classifying the aforesaid goods under 5703.90 and confiscation of the goods on that basis and imposition of penalty on the appellants are accordingly set aside with consequential benefits to the appellants.
21. The aforesaid three appeals are disposed of in the above terms.
Pronounced today (11.2.2000).
