Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 7075-7076 OF 2005
The Commissioner of Central Excise, ...Appellant(s)
Bhubaneswar-I
- Versus -
M/s. Champdany Industries Limited ...Respondent(s)
J U D G M E N T
GANGULY, J.
1. Along with this appeal other appeals were
heard together. There are some common
questions but factually this case is
different from other cases. So this
judgment will govern these two appeals.
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2. The respondent in these two appeals are
manufacturers of carpets by interlacing
yarns of three different types, namely,
jute, cotton and polypropylene. It is the
case of the respondent-company that in the
carpets which it manufactures jute always
predominates by weight over each of the
other single textile material.
3. In the case of M/s. Champdany Industries
Limited, at an earlier stage of the
proceedings an order was passed by the
Commissioner (Appeals) on 27.06.1995,
whereby the Commissioner (Appeals)
remanded the matter to the original
adjudicating authority to decide whether
the carpets manufactured by M/s. Champdany
Industries Limited have separate base
fabric. The Commissioner found that the
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said question is technical in nature and
in order to remove any doubt, matter was
referred to an expert body like Jute
Commissioner Office for its opinion.
4. Pursuant to the said remand order, the
Department drew samples of the carpets
manufactured by the respondent and sent
the same to the Jute Commissioner’s
office. The Jute Commissioner got these
samples tested by the expert body of the
Jute Industry, namely, Indian Jute
Industries Research Association and the
report of the said association shows that
jute predominates by weight over each
other single textile material in the said
carpets and the said carpets did not have
any base fabric.
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5. In the show-cause notice, which has been
issued in this case, these facts are
admitted. In the adjudication order
passed in this case by Assistant
Commissioner of Central Excise and
Customs, Bhubaneswar, this fact has also
been noted and from the said adjudication
it will appear that the jute content in
those carpets is 51.45% in B.L. and 52% in
S.M. Those B.L. and S.M. are the varieties
of carpets manufactured by the respondent-
company and in these two Civil Appeals,
namely C.A No. 7075-7076 of 2005 we are
concerned with those two varieties of
carpets.
6. Despite the said report, the Revenue’s
case is that the surface of the carpet
being entirely of polypropylene, the same
cannot be classified as jute carpet.
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7. Apart from the aforesaid opinion of the
expert, the Deputy Commissioner of Central
Excise as well as Department’s Chemical
Examiner also visited the respondent’s
factory and examined its process of
manufacture and tested the samples drawn
on the spot. The Department’s Chemical
Examiner also found that those carpets do
not have any base fabric and the jute
predominates by weight over each other
single textile material and the percentage
of jute was more than 50%. This also
appears from the adjudication order of the
Assistant Commissioner of Central Excise
and Customs, Bhubaneswar.
8.
The Revenue even after accepting those
reports issued a show-cause notice, inter
alia, on the ground that the surface of
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the jute carpets was entirely of
polypropylene and therefore, as per Note 1
of Chapter 57 of the First Schedule to the
Central Excise Tariff Act, 1985 those
carpets cannot be classified as jute
carpets but are classifiable as
polypropylene carpets. The said notice
related to the period from December 1991
to May 1999.
9. Respondent-company, however, disputed the
said contention of the Revenue and an
adjudication order was passed on
26.11.1999 by the Assistant Commissioner.
In the said order, the Assistant
Commissioner accepted the reports referred
to hereinabove and also accepted the
position that in those carpets jute
predominates by weight over each other
single textile material and those carpets
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do not have any base fabric. In spite of
the aforesaid position, the Assistant
Commissioner relying on Chapter Note 1 of
Chapter 57 held that those carpets cannot
be classified as jute carpets but they are
polypropylene carpets.
10. Against the said order dated 26.11.1999
the respondent-company filed an appeal
before the Commissioner (Appeals) and the
Commissioner (Appeals) by an order dated
13.03.2000 allowed the appeal. In the
said order, the Commissioner (Appeals)
held that the interpretation of the
Assistant Commissioner of Chapter Note I
of Chapter 57 was not correct and the
Commissioner (Appeals) came to a
conclusion that as per the Section Notes
any product which contains two or more
textile materials are to be classified as
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consisting of that textile material which
predominates by weight over similar
textile materials. It may be noted that
following the classification order dated
26.11.1999 the Assistant Commissioner
passed a quantification order dated
30.03.2000, but since the appeal of the
respondent-company in respect of the
classification order of Assistant
Commissioner dated 26.11.1999 was allowed,
the appeal against the quantification
order was also allowed by the Commissioner
(Appeals) on 25.08.2000 by following order
dated 13.03.2000 in the classification
proceedings.
11. Against those orders dated 13.03.2000 and
25.08.2000 the Revenue filed two appeals
before the Customs, Excise and Service Tax
Appellate Tribunal (hereinafter referred
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to as “the Tribunal”). Thereafter, the
Tribunal by an order dated 26.09.2000
dismissed both the appeals filed by the
Revenue.
12. It may be noted in this connection that
before the Hon’ble Andhra Pradesh High
Court petitions were filed in relation to
classification at the stage of show-cause
notice. The High Court of Andhra Pradesh
interfered in those show-cause
proceedings. As the Revenue filed their
appeal against those show-cause
proceedings, this Hon’ble Court held by a
judgment and order dated 05.05.2004 that
the High Court ought not to interfere in
matters of classification at the show-
cause stage. Thus, the judgment of the
High Court was set aside and the matter
was remanded to the authority for
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adjudication. Thereafter, the Tribunal
heard the matter afresh and dismissed the
appeal of the Revenue by an order dated
05.04.2005. Against the said order of the
Tribunal this appeal has been filed by the
Revenue.
13. The order of the Tribunal which has been
impugned herein has been reported in 2006
(193) ELT 295. In paragraph 9 at page 299
of the report, the Tribunal held that in
the carpets manufactured by the
respondent-company jute predominates by
weight over each of the other single
textile material. The Tribunal found that
this has been admitted by the Assistant
Commissioner in its order dated 26.11.1999
in view of the tests done by the
Departmental Chemical Examiner on the spot
and during the visit to the factory of the
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respondent-company which has also been
admitted from the reports of Indian Jute
Industries Research Association.
Therefore, this factual position is
admitted by the Revenue.
14. In view of such admitted factual position,
the Tribunal held that such carpets were
clearly classifiable as jute carpets as
the test of predominance of jute over
other single textile material is the
deciding factor for classification
purposes.
15. Admittedly, the case of the Revenue is
that the product falls under Chapter 57
and it contains two or more textile
materials. In fact that is the case of the
Revenue in the Show-cause notice and in
the order of the Assistant Commissioner.
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16. The necessary corollary from the aforesaid
stand of the Revenue is that once the
goods are falling under Chapter 57,
Chapter Note 1 to Chapter 57 becomes
relevant. The said Chapter Note is set out
below:
“For the purposes 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.”
17. The Revenue also placed reliance on the
said Chapter Note. In fact the Revenue
wanted to classify the said carpets as
otherwise than jute carpets by relying on
the said Chapter note.
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18. In our view the said stand of the Revenue
is not correct. A perusal of the said
Chapter note makes it clear that the same
merely defines the term carpet and other
floor coverings “for the purposes of this
Chapter”, namely, Chapter 57.
19. Here we must be conscious of the limited
role played by Chapter Note. It is only
to decide whether the goods in question
are carpets and other textile floor
coverings for the purposes of Chapter 57
or not. Once the goods are carpets and
falling under Chapter 57, the role of
Chapter Note 1 comes to an end. It is also
the case of the Revenue that the Chapter
Note 1 cannot be pressed into service for
the purpose of classification.
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20. Reference in this connection may be made
to the relevant statutory provisions laid
down in Section 2(A) and 14(A) of Section
XI of the Central Excise Tariff Act, 1985.
Those provisions are set out below:-
“2(A) Articles classifiable in Chapters
50 to 55 or in Heading No. 58.06 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.”
“14(A) 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.
(B) For the application of this rule:
(i) In the case of textile
products consisting of a base
fabric and a pile or looped
surface, no account shall be
taken of the base fabric;
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(ii) In the case of embroidery,
only the base fabric shall be
taken into account.”
21. The classification thereafter has to be
covered under one heading or sub-heading of Chapter
57. The question of classification of such carpets
under one or other heading or sub-heading of
Chapter 57 has to be decided on the basis of
description of such heading/sub-heading read with
the relevant Section Notes and Chapter Notes. This
also flows from Rule 1 of the “General Rules for
the Interpretation of the said Schedule” and these
Rules are part of the Central Excise Tariff Act,
1985.
22. Rule 1 of the said Rules provides that
classification shall be determined according to the
terms of the Headings and any relative Section or
Chapter Notes.
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23. In the instant case as per Section Notes
2(A) and 14A for the period between 1994-1995 and
Section Note 2(A) read with sub-heading Note 2(A)
thereafter, the inter-se classification has to be
done under different headings and sub-headings.
24. Since the goods admittedly fall under
Chapter 57 and consist of more than two or more
textile materials, it has to be classified on the
basis of that textile material which predominates
by weight over any other single textile material.
As in the goods in question jute admittedly
predominates by weight over each other single
textile material, the said Carpet could only be
classified as jute carpets and nothing else.
25. This Court finds that this logic and
reason is in consonance with the interpretation of
the Chapter Note, Section Note and the sub-
headings. The contrary interpretation given by the
Revenue is not correct. In fact the Revenue wanted
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to classify the carpets under the residuary sub-
heading 5702.90 of Heading 57.02. Both Headings
57.01 and 57.02 are set out below:
“57.01 Carpets and other textile floor
coverings, knitted, woven, tufted,
or flocked, whether or not made up
(excluding dari, sataranji,
namdahs, jute carpets and coir
carpets)
- In or in any relation to the
manufacture of which any process
is ordinarily carried on with the
aid of machines:
5701.11 - Not embossed 30%
5701.12 – Embossed 30%
5701.90 – Other Nil
57.02 Carpets and other textile floor
coverings (other than those of
heading No.57.01) including floor
coverings of felt, whether or not
made up
5702.10 – Floor coverings of Coir Nil
5702.20 – Floor coverings of jute 10%
5702.90 – Other 30%”
26. The relevant entries from the Central
Excise Tariff 1997-98 are extracted below:
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“57.02 Carpets and other textile floor
coverings (other than those of
heading No.57.01) knotted, woven,
tufted or flocked, whether or not
made up
- In or in
relation to the manufacture of
which any process is ordinarily
carried on with the aid of
machines:
5702.11 - Of coconut fibres (coir)
Nil
5702.12 - Of jute Nil
5702.19 - Other 25%
5702.90 - Other
Nil”
“57.03 Other Carpets and other textile
floor coverings, whether or not
made up
5703.10 - Of coconut fibres (coir)
Nil
5703.20 - Of jute Nil
5703.90 - Other
25%”
27. The aforesaid tariff has come into effect
on 23.07.1996.
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28. In this connection we may refer to
Notification No.50/90-CE dated 20.03.1990. From the
aforesaid Notifications it would appear that the
total exemption was granted in respect of jute
blankets, jute felt, jute mats and mattings, jute
carpets and bleached, dyed or printed jute fabrics
falling under Chapter 53, 56, 57 or 63 of the
Schedule to the Central Excise Tariff Act, 1985
with the condition that exemption shall not be
available if the jute content is less than 50% in
the aforesaid commodities.
29. Later on by a subsequent Notification No.
93/94-CE dated 25.4.1994, the said 50% has been
lowered to 30%. By a subsequent Notification
No.29/95-CE dated 16.03.1995, total exemption was
granted in respect of floor coverings of jute.
30. On a conjoint reading of the aforesaid
Tariff and the exemption Notifications issued by
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the Government, the stand of the Revenue cannot be
sustained.
31. Apart from that the revenue’s stand in
this case is contrary to the decision of this Court
in HPL Chemicals Ltd. Vs. Commissioner of Central
Excise, Chandigarh – (2006) 5 SCC 208. Commenting
on the reliance placed by the Revenue on the
residuary item in Heading 38.23 (renumbered 38.24),
this Court observed that the CEGAT erred in relying
on the residuary article by reading the residuary
heading as if it was specific heading. This Court
observed as under:-
“31. ...In the present case since
the goods were covered by a specific
heading i.e. Heading 25.01, the same
cannot be classified under the
residuary heading at all. This
position is clearly laid down in Rule
3( a ) of the Interpretative Rules set
out above. As per the said
Interpretative Rule 3( a ), the heading
which provides the most specific
description shall be preferred to the
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heading providing a more general
description...”
32. In coming to the said conclusion, this
Court relied on an earlier three-Judge Bench
decision of this Court in Dunlop India Ltd. Vs.
Union of India and others – (1976) 2 SCC 241, para
35. In the said paragraph this Court very elegantly
clarified the position in the following words:-
“35. ...When an article has, by
all standards, a reasonable claim to
be classified under an enumerated item
in the Tariff Schedule, it will be
against the very principle of
classification to deny it the
parentage and consign it to an
orphanage of the residuary clause....”
33. That principle has also been upheld by
another three-Judge Bench decision of this Court in
M/s Bharat Forge and Press Industries (P) Ltd. Vs.
Collector of Central Excise, Baroda, Gujarat –
(1990) 1 SCC 532 (at page 534 para 4):-
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“4. The question before us is whether
the department is right in claiming
that the items in question are
dutiable under tariff entry 68. This,
as mentioned already, is the residuary
entry and only such goods as cannot be
brought under the various specific
entries in the tariff should be
attempted to be brought under the
residuary entry. In other words,
unless the department can establish
that the goods in question can by no
conceivable process of reasoning be
brought under any of the tariff items,
resort cannot be had to the residuary
item....”
34. It is, thus, clear that the aforesaid
principle has virtually been hardened into a rule
of law by reason of the consistent view taken by
this Court. The Revenue’s stand in this case in
purporting to justify the classification of the
goods manufactured by the respondent company under
a residuary heading, therefore, cannot be
appreciated.
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35. Learned Counsel for the Revenue argued
that in a case where there is some doubt relating
to classification of the goods, the essential
characteristic of the goods will have to be looked
into. Relying on this concept of essentiality test
the learned counsel argued as the exposed surface
of the carpet is polypropylene fiber and not jute,
these goods cannot be classified as jute carpets.
It was also argued if these goods are to be
classified as jute carpets, then the exposed
surface of the carpets must be of jute.
36. This argument is contrary to the principle
discussed above, namely, the predominance test. It
is not disputed by the Revenue that by the
predominance test the content of the jute in the
carpet is highest and more than 50%. Polypropylene
fiber has also been accepted by the Revenue as a
textile material falling under Chapter 55.
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37. Therefore, the mere fact that the surface
of the carpet is polypropylene fiber, it does not
cease to become jute carpet. So this Court is
constrained to hold that this argument by the
Revenue on the basis of surface or essentiality
test is erroneous.
38. Learned counsel for the Revenue also
argued that the common parlance test should be
applied for classifying the carpets as the carpets
to the common man would not appear to be jute
carpet but polypropylene carpet.
39. In Collector of Central Excise, Hyderabad
Vs. Fenoplast (P) Ltd. (II) - 1994 (72) ELT 513
(SC), a three-Judge Bench of this Court held that
while interpreting statutes like the Excise Tax
Acts or Sales Tax Acts where the primary object is
to raise revenue and for such purpose the various
products and goods are classified, the common
parlance test can be accepted, if any term or
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expression is not properly defined in the Act “if
any term or expression has been defined in the
enactment then it must be understood in the sense
in which it is defined but in the absence of any
definition being given in the enactment the meaning
of the term in common parlance or commercial
parlance has to be adopted”.
40. Going by the aforesaid principle, we
cannot hold that common parlance test has any
application here.
41. In laying down this preposition, the Court
relied upon a decision of this Court in M/s Indo
International Industries Vs. Commissioner of Sales
Tax, Uttar Pradesh – (1981) 2 SCC 528.
42. Learned counsel for the Revenue argued
that for the purpose of classification in this case
Rule 3 of the ‘Rules for the Interpretation of the
2
Schedule to the Act’ should be applied and by
applying the said Rule the goods manufactured by
the respondent Company should be covered under the
heading “others”.
43. This Court is unable to accept the said
submission for the following reasons.
44. In order to appreciate the said
submission, the said Rule 3 (a) (b) and (c) is
quoted below:-
“3. (a) The heading which provides the
most specific description shall be
preferred to headings providing a more
general description. However, when two
or more headings each refer to part
only of the materials or substances
contained in mixed or composite goods
or to part only of the items in a set,
those headings are to be regarded as
equally specific in relation to those
goods, even if one of them gives a
more complete or precise description
of the goods.
(b) Mixtures, composite goods
consisting of different materials or
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made up of different components, and
goods put up in sets, which cannot be
classified by reference to ( a ), shall
be classified as if they consisted of
the material or component which gives
them their essential character,
insofar as this criterion is
applicable.
(c) When goods cannot be classified by
reference to ( a ) or ( b ), they shall be
classified under the heading which
occurs last in the numerical order
among those which equally merit
consideration.”
45. From a perusal of the said Rules it
appears that the dominant intention in the said
Rule, especially clause (a) thereof is that the
heading which provides the most specific
description shall be preferred to the heading
providing a more general description.
46. In the case in hand, following the said
interpretation, the goods manufactured by the
respondent-company are to be classified as jute
carpet or jute floor coverings.
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47. Clause (b) and Clause(c) of the said Rule
3 will apply only in those cases which cannot be
classified under clause (a). Since in the instant
case following the dominant intention of clause
(a), the goods manufactured by the respondent-
company can be classified, clause (b) and clause(c)
of the said Rule need not be pressed into service.
48. Reference in this connection may be made
to a three-Judge Bench decision of this Court in
Commissioner of Central Excise, Nagpur Vs. Simplex
Mills Co. Ltd. – (2005) 3 SCC 51. In paragraph 11
of the said report, the purport of the said Rule
has been discussed. While discussing the said Rule,
this Court held that the Rule having been framed
pursuant to the powers under Section 2 of the
Central Excise Tariff Act, 1985 is statutory in
nature. Learned Judges also made it clear that for
the purposes of classification primacy should be
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attached to the section and chapter notes along
with terms of the headings. If on application of
Section and Chapter Notes, ‘no clear picture
emerges’ then only can one resort to those rules.
49. In the instant case from the above
discussion, it is clear from a perusal of the
Chapter and Section Note, that the goods
manufactured by the respondent-company can be
classified as jute carpets/jute floor coverings.
Thus, the argument on behalf of the Revenue cannot
be accepted.
50. Apart from that, the point on Rule 3 which
has been argued by the learned counsel for the
Revenue was not part of its case in the show-cause
notice. It is well settled that unless the
foundation of the case is made out in the show-
cause notice, Revenue cannot in Court argue a case
not made out in its show-cause notice. {See:
2
Commissioner of Customs, Mumbai Vs. Toyo
Engineering India Limited – (2006) 7 SCC 592,
para 16}.
51. Similar view was expressed by this Court
in the case of Commissioner of Central Excise,
Nagpur Vs. Ballarpur Industries Ltd. – (2007) 8 SCC
89. In paragraph 27 of the said report, learned
Judges made it clear that if there is no invocation
of the concerned rules in the show-cause notice, it
would not be open to the Commissioner to invoke the
said Rule.
52. Learned counsel for the Revenue also
relied on some judgments.
53. It relied on the case of Oswal Agro Mills
Ltd. and Ors. Vs. Collector of Central Excise and
Ors. – 1993 Supp. (3) SCC 716. In that case the
Court allowed the appeal filed by the assessee and
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did not accept the interpretation of the Revenue on
‘Toilet Soap’. Learned judges relied on the age old
principle that where the words of the statute are
plain and clear, there is no room for applying any
of the canons of interpretation which are merely
presumption in cases of ambiguity in the statute.
54. Applying the said principle in the present
case, we hold that the ratio in Oswal Agro (supra)
does not at all advance the case of the Revenue.
Apart from that the said decision was rendered
under the old Tariff Act when there was nothing
like Chapter Note and Section Note. Oswal Agro
(supra) has no application here.
55. Learned counsel relied also on the
decision of this Court in Novopan India Ltd,
Hyderabad Vs. Collector of Central Excise and
Customs, Hyderabad – 1994 Supp. (3) SCC 606. In
that case, the Court interpreted the provision of
Old Tariff Act with regard to exemption and held in
3
paragraph 16 that a person invoking an exemption
provision must establish clearly that he is covered
by the said provision. In case of doubt or
ambiguity, the benefit of exemption cannot be
claimed by the assessee.
56. In the present case, those questions are
not at all relevant as we are concerned with the
provisions of the new Central Excise Act of 1985
which came into force on 22.2.1986 with Section
Notes, Chapter Notes, Headings and sub-headings.
Therefore, the ratio in Novopan (supra) has no
relevance in the facts of the present case.
57. Learned counsel also relied on the
decision of this Court in Hindustan Poles
Corporation Vs. Commissioner of Cental Excise,
Calcutta – (2006) 4 SCC 85. In fact the judgment in
that case does not at all advance the case of the
respondent. In paragraph 39 of the judgment it has
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been held that the residuary entry is meant only
for those categories of goods which clearly fall
outside the ambit of specified entries and unless
the Department can establish that the goods in
question can, by no conceivable process of
reasoning, be brought under any of the tariff
items, resort cannot be had to the residuary item.
58. Following the said principle, as we must,
in the instant case, the goods manufactured by the
respondent-company fall clearly under the specified
items as discussed above.
59. Revenue also relied on another decision of
this Court in Kemrock Industries & Exports Ltd. Vs.
Commissioner of Central Excise, Vadodara – (2007) 9
SCC 52, for the purpose of essentiality test. As
noted above, there is no whisper of the
essentiality test in the show-cause notice. As no
case of essentiality test has been made out in the
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show-cause notice, the same cannot be argued for
the first time before this Court. As such the
judgment in Kemrock (supra) on essentiality test is
of no avail.
60. For the reasons aforesaid and in view of
the consistent finding on fact and law by the
Commissioner (Appeals) and the Tribunal, this Court
does not find any reason to upset such concurrent
findings which are neither perverse nor can they be
said to be based on no evidence. Therefore, the
appeals filed by the Revenue are dismissed as being
devoid of merit. In the facts and circumstances of
this case, there will be no order as to costs.
.......................J.
(D.K. JAIN)
.......................J.
New Delhi (ASOK KUMAR GANGULY)
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September 8, 2009
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