Full Judgment Text
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CASE NO.:
Appeal (civil) 1476-1493 of 1999
PETITIONER:
Comm.of Central Excise,Goa and Chennai.
RESPONDENT:
M.R.F. Ltd., Chennai
DATE OF JUDGMENT: 25/01/2005
BENCH:
S.N. VARIAVA,Dr. AR. LAKSHMANAN & S.H. KAPADIA
JUDGMENT:
J U D G M E N T
AND
CIVIL APPEAL Nos.1087-1088 OF 1999
Commissioner of Central Excise,
Chennai. \005 Appellant
Versus
M.R.F. Ltd., Chennai \005 Respondent
KAPADIA, J.
The main question which arises for determination in this
set of Civil Appeals is \026 whether Dipped Nylon Tyre Cord
Warp Sheet (hereinafter referred to as the "Dipped Tyre Cord
Fabric") is a High Tenacity Yarn in terms of Tariff Heading
59.02.
The facts giving rise to these civil appeals filed by the
department under Section 35-L (b) of the Central Excise Act,
1944 are as follows:
M/s M.R.F. Ltd., Goa are manufacturers of tyres
excisable under chapter 40 of the Schedule to the Central
Excise Tariff Act, 1985. M/s MRF Ltd buys Grey Tyre Cord
Warp Sheet (hereinafter referred to as the "Grey Tyre Cord
Fabric") which is passed through rollers into a tank containing
Dip solution of Latex, which covers the said Grey Tyre Cord
Fabric. The Dip solution consists of chemicals. After dipping,
the Tyre Cord Fabric is heat stretched and lifted to a height of
15 ft. by small rollers through heat chambers and then brought
down for calendering, which is the second stage of the process.
Twelve show-cause notices were issued to M/s MRF Ltd. by
the Commissioner of Central Excise, Goa under which
additional duty of excise was demanded on the ground that the
assessee was manufacturing an excisable product, namely,
Dipped Tyre Cord Fabric, falling under Tariff Heading 59.02.
By common written reply, the assessee contended that
they did not manufacture Dipped Tyre Cord Fabric; that they
manufacture only tyres; that in the course of manufacture of
tyres, they use Grey Tyre Cord Fabric as a reinforcing material
and before it is so used, the Grey Tyre Cord Fabric is dipped in
a solution of Latex and thereafter rubberised on both sides. It
was submitted that no manufacture is involved as the Dipped
Tyre Cord Fabric is sticky to touch. It was further submitted
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that the Dipped Tyre Cord Fabric was not marketable.
The main question before the Commissioner
(Adjudication) was \026 whether the assessee was liable to pay
additional excise duty on Dipped Tyre Cord Fabric, which was
captively consumed in the manufacture of tyres. By order dated
31.10.1997, the Commissioner (Adjudication) found that
Dipped Tyre Cord Fabric was neither Grey Tyre Cord Fabric
nor a Rubberised Tyre Cord Fabric. According to the
Commissioner, Dipped Tyre Cord Fabric was an independent
product which came into existence out of a process incidental to
the manufacture, namely, dipping. The Commissioner held that
Tariff Heading 59.02 refers to Tyre Cord Fabric of High
Tenacity Yarn of Nylon whereas Tariff Heading 59.06 refers to
Rubberised Textile Fabric. It was observed in the impugned
order that in order to be categorized as Rubberised Textile
Fabric, the product should have a predominance of rubber in
proportion to the fabric. According to the Commissioner, the
process of dipping did not bring about a predominance of
rubber in the product. According to the Commissioner, dipping
was a process ancillary to manufacture. According to the
Commissioner, dipping was a stage prior to rubberising. It was
a stage prior to coating of compounded rubber on both sides of
the tyre cord. Consequently, it was held that Dipped Tyre Cord
Fabric was an independent product classifiable under Tariff
Heading 59.02, on which additional excise duty was payable by
the assessee. It was further held that Dipped Tyre Cord Fabric
was capable of being marketed and, therefore, additional excise
duty could be levied thereon.
Being aggrieved by the order dated 31.10.1997, M/s
M.R.F. Ltd. went in appeal to Customs, Excise and Gold
(Control) Appellate Tribunal (hereinafter referred to as "the
Tribunal"). At this stage, it may be noted that the assessee
challenged similar orders passed by the Commissioner
(Adjudication), Goa, dated 15.12.1997 and 20.2.1998 along
with the above order dated 31.10.1997. The assessee also
preferred appeals against the orders passed by the
Commissioner of Central Excise (Adjudication), Chennai, on
classification of Rubberised Nylon Tyre Cord Warp Sheet
(hereinafter referred to as Rubberised Tyre Cord Fabric), which
will be dealt with separately by us.
By impugned judgment dated 20.7.1998, the Tribunal
held that Dipped Tyre Cord Fabric was classifiable under Tariff
Heading 59.05 (now 59.06). The Tribunal equated Rubberised
Tyre Cord Fabric with Dipped Tyre Cord Fabric and placing
reliance on the judgments in Falcon Tyres Limited v. Collector
of Central Excise, Bangalore reported in [1996 (88) ELT 450]
and Vikrant Tyres Limited v. Collector of Central Excise,
Bangalore reported in [1997 (90) ELT 178], allowed the
assessee’s appeals, holding Rubberised Dipped Tyre Cord
Fabric as a product falling under Tariff Heading 59.05 (now
59.06).
Being aggrieved, the department has come to this Court
against the three orders passed by the Commissioner, Goa dated
20.2.1998, 31.10.1997 and 15.12.1997.
Mr. R. Mohan, learned Additional Solicitor General
submitted that Grey Tyre Cord Fabric (base fabric) after
dipping was classifiable under Tariff Heading 59.02 as
Processed Tyre Fabric. He further submitted that in terms of
Tariff Heading 59.06, Rubberised Textile Fabric other than
those falling under Tariff Heading 59.02 alone would fall under
Heading 59.06. He submitted that because of this exclusion,
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Dipped Tyre Cord Fabric would fall under Tariff Heading
59.02 which referred to Tyre Cord Fabrics of High Tenacity
Yarn. In this connection, learned counsel for the department
placed reliance on the description of the product under HSN
Heading 59.02 read with the Note appended thereto, which
specifies that HSN Heading 59.02 covered Tyre Cord Fabrics,
whether or not dipped in rubber or plastics. He further
submitted that as per rule (1) of the Interpretation Rules
appended to the Schedule to the Central Excise Tariff Act,
1985, classification of the product has to be decided according
to the terms of the Heading. According to the learned counsel,
the Heading 59.02 covered Tyre Cord Fabric of High Tenacity
Yarn and, therefore, Dipped Tyre Cord Fabric was rightly
classified by the department under Tariff Heading 59.02.
Learned counsel for the department further submitted that in the
present case, the Tribunal has not examined the "process of
dipping" and it has merely followed the previous judgments
which do not have any application to Dipped Tyre Cord
Fabrics.
Mr. F.S. Nariman, learned senior advocate appearing on
behalf of M/s M.R.F. Ltd. submitted that Dipped Tyre Cord
Fabric was not an independent product in terms of manufacture
and marketability. He submitted that the assessee did not
manufacture Dipped Tyre Cord Fabric. He submitted that
Dipped Tyre Cord Fabric was similar to friction cloth. He
submitted that there is no evidence of Dipped Tyre Cord Fabric
being marketable. He submitted that in order to determine \026
whether the product was excisable or not, it was necessary to
familiarize oneself with the product as well as with the
manufacturing process. He contended that Grey Tyre Cord
Fabric after going through the process of dipping loses its
identity and becomes a different product commercially. He
submitted that the product under Chapter Heading 59.02 was
the basic product and when dipped it gets shifted from textile to
rubber. He submitted that Chapter Heading 59.02 did not use
words, such as, "Impregnated, coated, covered and laminated",
whereas these words have been used under other Heading in the
same Chapter. He submitted that the reliance placed by the
department on the Explanatory Note to HSN was erroneous.
He submitted that Chapter Heading 59.02 in the HSN has only
persuasive value while reading the Tariff Chapter Heading
59.02. He further submitted that Dipped Tyre Cord Fabric was
not marketable as it was made according to MRF specifications.
He submitted that in the show-cause notices, there was no
allegation to the effect that Dipped Tyre Cord Fabric was
marketable. Learned senior counsel further submitted that
Dipped Tyre Cord Fabric was classifiable under Chapter
Heading 59.06 of Central Excise Tariff Act, 1985, as held in
Falcon Tyres (supra) and Vikrant Tyres (supra).
Mr. Nariman further submitted that the burden was on
the department to prove that Dipped Tyre Cord Fabric was an
independent product both in terms of manufacture and
marketability. He submitted that no such finding has been
recorded by the Commissioner (Adjudication).
In order to appreciate the rival contentions, we quote
herein below the relevant provisions:
I. HEADINGS 59.02 AND 59.06 OF 1985 ACT.
Heading No.
Description of Goods
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59.02
Tyre cord fabric of high tenacity yarn of nylon
or other polyamides polyesters or viscose
rayon.
59.06
Rubberised textile fabrics, other than those of
Heading No.59.02.
II. HEADINGS 59.02 OF HSN
Heading No.
Description of Goods
59.02
Tyre Cord Fabric of High Tenacity Yarn of
Nylon or other Polyamides Polyesters or
Viscose Rayon.
This heading covers tyre cord fabric, whether or not dipped or
impregnated with rubber or plastics.
III. NOTE\0264 OF SECTION-XI \026 TEXTILES AND
TEXTILE ARTICLES.
For the purposes of this Section, ’high tenacity yarn’
means yarn having a tenacity, expressed in cN/tex
(centinewtons per tex), greater than the following:
Single yarn of nylon or other polyamides or of
Polyesters \005 60cN/tex
Multiple (folded) or cabled yarn of nylon or
Other polyamides or of polyesters \005 55cN/tex
Single, multiple (folded) or cabled yarn of
viscose rayon. \005 27cN/tex
IV. NOTE\0264 OF CHAPTER-59 \026 IMPREGNATED,
COATED, COVERED OR LAMINATED TEXTILE
FABRICS; TEXTILE ARTICLES OF A KIND SUITABLE
FOR INDUSTRIAL USE.
For the purposes of heading No.59.06, the expression
’rubberised textile fabrics’ means:
(a) Textile fabrics impregnated, coated, covered
or laminated with rubber,
(i) weighing not more than 1,500 g/m2;
or
(ii) weighing more than 1,500 g/m2 and
containing more than 50 per cent by
weight of textile material;
(b) Fabrics made from yarn, strip or the like,
impregnated, coated, covered or sheathed
with rubber, of heading No.56.04;
(c) Fabrics composed of parallel textile yarns
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agglomerated with rubber, irrespective of
their weight per square metre.
This heading does not, however, apply to plates,
sheets or strips of cellular rubber, combined
with textile fabric, where the textile fabric is
present merely for reinforcing purposes
(Chapter 40), or textile product of heading
No.58.10."
On reading above provisions, we find that it is the rubber
content of the product, which is the main determinative test to
decide whether Dipped Tyre Cord Fabric is classifiable under
Chapter Heading 59.02 or 59.05 (now 59.06). To be
categorized as Rubberised Tyre Cord Fabric, the product must
have pre-dominance of rubber in proportion to fabric. It is for
this reason that Note-4 of Chapter 59, quoted above, indicates
the requisite parameters. Tariff Heading 59.02 is found in
section XI of 1985 Act, which has caption "Textiles and Textile
Articles". The Heading of Chapter 59 refers to lamination and
coating of Textile Fabrics. If the parameters mentioned in
Note-4 of Chapter 59 are satisfied then the product in question
would fall under Chapter Heading 59.06 which uses the
expression "Rubberised Textile Fabrics", failing which the
product will fall under Chapter Heading 59.02. Similarly, one
has to keep in mind the specifications given under Note-4 to
section XI, which defines "High Tenacity Yarn". If the product
in question, namely, Dipped Tyre Cord Fabric comes within the
specifications prescribed in Note-4 to section XI, then the
product may fall under Chapter Heading 59.02 We may
further point out that the classification of Dipped Tyre Cord
Fabric was not in issue in any of the earlier judgments, referred
to above. The Tribunal was wrong in equating Dipped Tyre
Cord Fabric with Rubberised Tyre Cord Fabric. The judgments
in Falcon Tyres (supra) and Vikrant Tyres (supra) dealt with
classification of Rubberised Tyre Cord Fabric with reference to
Chapter Heading 40.05 vis-‘-vis Chapter Heading 59.05 (now
59.06). Therefore, the abovementioned prior judgments have
no application to the controversy in hand. Lastly, the Tribunal
has not examined the scope of HSN Heading 59.02. Moreover,
the Adjudicating Authority has not examined the matter in the
light of Note-4 to Chapter 59. It has not examined the problem
in the context of Note-4 to section XI and there is no evidence
of marketability of Dipped Tyre Cord Fabric. Although, the
adjudication order is a well reasoned order, we want the
Adjudicating Authority to also examine the matter in the light
of the above Note-4 to Chapter 59 and Note-4 to section XI.
We have also given an opportunity to the department to lead
evidence, both on the process as well as on marketability. The
basic question which the Adjudicating Authority is required to
decide is \026 whether Dipped Tyre Cord Fabric is an independent
product in terms of manufacture and marketability?
Accordingly, the question of excisability and the
questions of classification of Dipped Tyre Cord Fabric are
remitted to the Commissioner (Adjudication), Goa for a fresh
determination in accordance with law.
Now coming to the question of classification of
Rubberised Tyre Cord Fabric, we may point out that the
Superintendent of Central Excise having jurisdiction over M/s
M.R.F. Ltd., Arkonam issued two show-cause notices dated
3.12.1996 and 3.6.1997 proposing to levy additional excise
duty on Rubberised Tyre Cord Fabric captively consumed in
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manufacture of tyres during the period May, 1996 to October,
1996 and during the period November, 1996 to April, 1997
respectively. By the said show-cause notices, the department
sought to classify Rubberised Tyre Cord Fabric under Chapter
Heading 59.02. M/s M.R.F. Ltd., however, contended that
Rubberised Tyre Cord Fabric was classifiable under Chapter
Heading 40.05. According to the assessee, on rubberization,
the content of rubber in the product exceeded the prescribed
limit vis-‘-vis the fabric and, therefore, it was classifiable under
Chapter Heading 40.05. However, the Commissioner, Chennai
came to the conclusion that Rubberised Tyre Cord Fabric was
classifiable under Chapter Heading 59.05 (now 59.06). He
placed reliance on the judgments in Falcon Tyres (supra) and
Vikrant Tyres (supra). This order was passed by the
Commissioner, Chennai on 25.9.1997. By the said order, the
proceedings against the assessee were dropped. This order has
been confirmed by this Court vide order dated 27.9.2001 in
Civil Appeal Nos.1494-1495 of 1999. However, in conjoint
proceedings, the Commissioner (Adjudication) took a contrary
view, vide order dated 24.10.1997, that Rubberised Tyre Cord
Fabric was classifiable under Chapter Heading 59.02 and,
therefore, the assessee was liable to pay the additional excise
duty thereon. The said order was challenged by the assessee
before the Tribunal. By the impugned judgment dated
20.7.1998, the said order is set aside, following the judgments
in Falcon Tyres (supra) and Vikrant Tyres (supra).
In short, the controversy regarding classifiability of
Rubberised Tyre Cord Fabric is no more res integra. The said
product is classifiable under Chapter Heading 59.06. We do
not find any infirmity in the impugned judgment of the Tribunal
on this point.
Accordingly, Civil Appeal Nos.1479 to 1481 of 1999 and
Civil Appeal Nos.1087-1088 of 1999, filed by the department
relating to classification of Rubberised Tyre Cord Fabric are
dismissed.
Civil Appeal Nos.1476 to 1478 of 1999 and Civil Appeal
Nos.1482 to 1493 of 1999, filed by the department relating to
classification of Dipped Tyre Cord Fabric are allowed; the
impugned judgments and orders of the Tribunal as well as of
the Commissioner are set aside; and the matters are remitted to
the Commissioner (Adjudication), Goa for a fresh disposal in
accordance with law.
In the facts and circumstances of this case, there will be
no order as to costs in all the civil appeals.