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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.