ORDER
G.A. Brahma Deva, Member (J)
1. This appeal arises out of and is directed against the Order-in-Original dated 8-11-1991, passed by the Collector of Central Excise, Delhi.
2. Facts of the case in brief are that the appellants had applied for and obtained permission for the clearance of semi-finished goods i.e. floor coverings of felt falling under sub-heading 5702.20 and 5702.90 CET from their factory for the purpose of latexing at the factory premises of M/s. A.V. Laminates at Faridabad, under Rule 56B of the Central Excise Rules. According to department on scrutiny, it was found that the item being cleared by the party was not floor coverings of felt as such but was in fact ‘felt’ itself. After considering the reply and on hearing the party, it was held by the Collector in the impugned order that the so-called semi-finished floor coverings felt manufactured and cleared by the party for latexing was felt falling under sub-heading 5602.90 and, accordingly, he confirmed the demand made in the show cause notice under Section 11A and also imposed penalty of Rs. one lakh on the appellants under Rule 173Q and Rule 209 of the Central Excise Rules.
3. Shri V. Laxmikumaran, learned counsel argued the matter on classification, on time barring issue and also on valuation. On merits, he said that appellants have manufactured floor coverings of felts viz., floor coverings of felt used for making car mattings and floor coverings felt meant for domestic use. The dispute is only in respect of floor coverings of felt meant for domestic use. Manufacturing process of the item in question was explained as “Opened polypropylene fibre is fed into feed hopper and web of required weight is formed with the help of cross lapper. This fibre web is passed through the needle loom and rolled alongwithgrey hessian cloth on wind up machine. The above roll is then given dry punch on the needle loom. No fibre is laid on the (reverse) side. This semi-finished material is then sent for latexing on the hessian cloth side. After latexing it is received back for despatch to the parties.”
4. He said that to become a finished product i.e. felt, it involved four stages of process but show cause notice was issued demanding the duty on third stage at the point when the tacked web and hessian cloth punched together (fully needle punched) but not latexed. In fact this was being sent out for latexing under Rule 56B procedure. He said that the impugned goods in this case are the fibres needled through base fabrics is sent for latexing on the underneath of base fabric. But the Collector had held that these goods are ‘felts’ as per the Chapter Note 2 of the Chapter 56 and are not semi-finished floor coverings on the ground that the term felt as per the said note includes needle loom felt and fabric consisting of a web textile fibres the cohesion of which has been enhanced by stitch bonding process using fibres from the web itself. He said that felt as such has not been defined in Chapter 56, and, accordingly, H.S.N. explanatory notes are the guidelines in determining classification of the goods. He referred to the H.S.N. notes, wherein it was stated that “Felt is usually obtained by superimposing, one on the other, a number of layers of textile fibres (usually the laps as produced by carding or by air-laying) these are then moistened (generally with steem or hot soapy water) and subjected to heavy pressure and a rubbing or heatine action. These cause the fibres to interlock and produces sheets of even thickness, much more compact and difficult to disinter than wadding, and quite distinct from felted woven fabric (generally Chapters 50 to 56)”. He said as per H.S.N. Notes the felt must be either of ‘needle loom felt’ or of stitch bonded fabrics. It cannot be said as needle loom felt since both the ends are not covered by fibres as per explanation but it is covered one side nor stitched bonded fabrics as it is” merely stitched but not bonded. He referred to the Hand Book on Glossary of Textile Terms to show that the term ‘stitch bonding’ was explained as the conversion of abatt of fibres into a fabric by closely arranged parallel rows of stitches, using externally supplied threads. He said that one of the basic characteristic of a felt is fibres therein are more compact and difficult to disintegrate. The fibres in the impugned goods are admittedly easy to peel off. Hence the goods in question do not satisfy the definition of felt and accordingly it cannot be classified as needle loom felt under Chapter Heading 56.02. He said that process of manufacturing was submitted by the party with reference to both the items in the letter dated 21-1-1989 but the Collector adopted the manufacturing process of floor coverings of felt used for making carmattings instead of manufacturing process of floor coverings of felt meant for domestic use while arriving at the conclusion that the item is a ‘felt’. The latexing is the last process in the entire process of manufacture of floor coverings. The latexing is done to provide strength and fineness to the floor coverings. Even without the latexing, the fibres needled to the fabrics in roll form have attained the essential characteristics of floor coverings and accordingly the pre-latexed floor coverings cleared under Section 56B to outside for latexing are semi-finished goods. These goods are not bought and sold as felt and no evidence was brought on record by the department to prove that it is known as felt in the commercial parlance and the same is bought and sold as felt. On the other hand, the appellants have submitted the opinion given by Bombay Textile Research Association on the samples of pre-latexed floor coverings. It has been opined that pre-latexed floor coverings cannot be characterised as felt and appellants have also produced letters from the dealers of carpets to show that the impugned goods are not known and used as felt. Hence, these are semi-finished goods and are not known as felt in the market. He said that apart from the merits of the case portion of demand was barred by time. Period of dispute in this case is 23-12-1988 to 27-12-1989 and whereas show cause notice was issued on 13-3-1990, and accordingly, demand for a period beyond six months prior to show cause notice was clearly barred by time. Larger period was invoked on the allegation of suppression of facts. There is no suppression of facts as there was a total disclosure of facts to the department. Appellants have filed an application to the Collector seeking his permission to remove the semi-finished goods for latexing outside, under Rule 56B by producing samples of the semifinished goods to be removed under Rule 56B and also the goods which would be received by them after latexing. Since permission was granted on application of mind and on knowing the manufacture process of the product and activity of the appellants invoking larger period under Section 11A is not correct and demand for the period beyond six months is not sustainable. He said that notwithstanding the above issues, the Collector has not taken the correct value for determining the quantum of duty. He has taken the value of latex floor coverings (finished floor coverings) while department wanted to levy the duty on the semi-finished goods as ‘felt’ at that stage. He requested to set aside the penalty as there was no intention to evade payment of duty.
5. While countering the arguments Smt. J.M.S. Sundaram, learned SDR submitted that it is not the case of the department to treat the item in question as stitch bonded fabrics to classify the item as ‘felt’ but nevertheless it is felt as felt includes needle loom felt. It is needle loom felt since it is made by needling such fibres and finally more or less hidden by the fibres as explained in H.S.N. Notes. Both ends need not be covered by fabrics and covering one is sufficient since there is no such stipulation either in the Tariff Entry or in H.S.N. Explanatory Notes. She said that H.S.N. Explanatory Notes are guiding factors in classifying the item and rest of the Notes is more relevant to decide the issue and she referred to the relevant portion which reads as under. However, the heading does not cover the following products which fall under in Chapter 39 or 40:-
(a) “Felt impregnated, coated, covered or laminated with plastics or rubber, containing 50% or less by weight of textile material or felt completely embedded in plastics or rubber.”
(b) “Plates, sheets or strips of cellular plastics or cellular rubber com- bined with felt, where the textile is present merely for manufacturing purposes.”
Since this item is not excluded even with reference to H.S.N. Explanatory Notes it falls under the Heading 56.02. She argued that it is not correct to say that Collector has mistaken the process of manufacture with reference to the item coverings of felt used for making carmattings while deciding the issue with reference to the item in question as it is argued by the other side. In fact in the 1996]UNITED FELTS & CARPETS v. COLLECTOR OF CENTRAL EXCISE, DELHI 613 letter dated 21-1-1989 while explaining the process of manufacture even in the case of floor coverings of felt meant for domestic use, it was clearly stated that the above roll is then given dry punch on the needle loom. They are neither carpets/floor coverings nor semi-finished goods of floor coverings but ‘felt’ as described in the Tariff Entry 56.02. She referred to the put note in the opinion given by the Bombay Textile Research Association wherein it was mentioned that “The information contained in this letter and/or enclosed Report is/are purely meant for your guidance and should not be used for litigation/evidence/advertisement”. She said that opinion and letters given by the experts are not relevant to decide the issue in this case and there was no necessity for the department to go into commercial parlance since the nature and description of the product manufactured by the appellants is same as that of item specified in the Tariff Entry 56.02. On time barring issue, she said that she has nothing to add further except reiterating the reasons given in the impugned order. As regards valuation she fairly conceded that value of pre-latexed material is to be taken for the purpose of computation and not the latexed material.
6. We have carefully considered the matter. It was claimed by the appellants that the goods in question are semi-finished coverings of felt and not felt as such. The main point to be considered in this case is whether stage at which the goods were manufactured’ by the appellants were semi-finished floor coverings of felt as claimed by the apellants or felt as held by the Department. As per Chapter Notes to Chapter 57 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. It was submitted by the appellants that latexing is last process in the entire process of manufacture of floor coverings and even without latexing the fibres needled to the fabrics in roll form have attained the essential character of the floor coverings but the same was not substantiated. Heading 56.02 read as under-
“56.02. Felt, whether or not impregnated,
coated,covered or laminated.
5602.10 Of Wool
5602.90 Other."
Accordingly, felt whether or not coated or laminated falls under Tariff Entry 56.02. As per Note 2 of Chapter 56 of the Central Excise Tariff, felt has been denned that “the term ‘felt’ includes needleloom felt and fabrics consisting of a web of textile fibres the cohesion of which has been enhanced by a stitch-bonding process using fibres from the web itself. In the letter dated 21-1-1989 the party had admitted that product is given dry punch and, accordingly, Collector was right in observing that after dry punch it becomes the finished products. There is no stipulation in the H.S.N. Notes that both ends should be covered by fibre to treat the item as ‘felt’ as it was rightly pointed out by the Departmental Representative. On going through the detailed manufacturing process of the product in question with reference to the description in the Tariff entry and taking into consideration of the explanation given in the H.S.N. Notes, we do not find any infirmity in the impugned order in holding the item as ‘felt’. Accordingly, we are of the view that Collector was right in classifying the item in question under sub-heading 5602.90.
7. On time-barring issue since the appellants have filed an application to the Collector seeking his permission to remove semi-finished goods for latexing outside under Rule 56B on showing a sample of the goods in question to be removed and also samples of goods which would be received by them after latexing and the Collector has granted for such procedure, we are of the view that Department was not right in raising demand beyond six months prior to the issue of show cause notice. Accordingly, we concur with the argument advanced by the appellant’s counsel that portion of the demand was barred by time.
8. As regards valuation, we find that Department was not correct in raising duty on the value of latexed materials since duty was chargeable on the pre-latexed goods. Hence the value of pre-latexed material is to be taken into consideration while determining value of the goods for the purpose of charging duty. Taking over all facts and circumstances of the case particularly with reference to the fact that the appellants were under bonafide impression that the goods in question are semi-finished goods, we do not find any justification to impose penalty, on the appellants. With this modification this appeal is disposed of accordingly.