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CASE NO.: Appeal (civil)  2816-2818 of 2002

PETITIONER: Commissioner of Central Excise, Nagpur.

RESPONDENT: M/s. Simplex Mills Co. Ltd.

DATE OF JUDGMENT: 01/03/2005

BENCH: Ruma Pal, Arijit Pasayat & C.K. Thakker

JUDGMENT: J U D G M E N T  

WITH C.A. No.1694/2003, C.A. Nos.5039-40/2003, C.A. Nos. 5455-5458/2003

RUMA PAL, J.

The respondent is engaged in the manufacture of  Textiles, namely; grey cotton canvas cloth, hundred percent  cotton/grey cotton, belting and duck.  The issue to be  resolved is whether these goods are classifiable under Tariff  Headings (TH) 52.02, 54.08 or 59.09 of the Schedule to the  Central Excise Tariff Act, 1985.  The appellant contends that  they are classifiable under TH 59.09.  The respondent on the  other hand cleared the goods classifying them either under  TH 52.02 or 54.08.  Consequently on 23rd September, 1992   24 show cause notices were issued by the Excise Authorities  to the respondent to show cause why differential duty  amounting to Rs. 545,10,838 should not be recovered  against the clearances effected during the period 20.7.1987  to 13.8.1992. The respondent showed cause. The Assistant  Collector confirmed the demand on the basis of an earlier  decision of the Central Excise and Gold Control Appellate  Tribunal (CEGAT)  in the respondent’s own case reported as  Simplex Mills Co. Ltd. vs. CCE Nagpur in 1993 (49) ECR  147 (referred to as ’Simplex I’).  

Simplex-I had rejected the respondent’s submission  that grey belting cloth or  canvas cloth which were  manufactured by it were classifiable under TH 52.05 or  54.08. These two headings read:

Chapter 52                              Cotton                                       52.2

Head           Sub-            Description of                Rate of duty Ing No. heading goods                             Basic Additional                 No. 1               2                     3                             4                   5 _____________________________________________________________

52.05        5205.00        Cotton fabrics,-                          Nil               Nil

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                           a) woven, and                             b) not subjected to any process              

Chapter  54                    Man-made filaments                            54.2

Head            Sub-            Description of                Rate of duty Ing No. heading goods                             Basic Additional                 No. 1               2                     3                         4                       5 _____________________________________________________________

54.08           5408.00      Fabrics of man-made             Nil                        Nil                                  filament yarn (including                                 fabrics obtained from                     materials of heading Nos.                   54.06 and 54.07).                                          a) woven, and                                  b) not subjected to any process                 

 It was held that fabrics for industrial use fall only  under TH 59.09. TH. 59.09 reads:

Chapter 59    Impregnated, coated and laminated fabrics, etc.       59.6

Head            Sub-            Description of                Rate of duty ing No. heading goods                             Basic Additional                 No. 1               2                     3                            4                    5 _____________________________________________________________

59.09         5909.00         All other textiles products            12%                               and articles of a kind suitable                               for industrial use (for example,                               textile fabrics, combined with                               one or more layers of rubber,                               leather or other material,                               bolting cloth, endless felts                               of textile fabrics, straining                                cloth)                                    

The conclusion in Simplex I was arrived at on the  basis that TH 59.09 referred to fabrics for industrial use and  that fabrics for industrial use was a specific description and  applying Rule 3(a) of the Interpretation Rules, TH 59.09  would prevail over general description of the fabrics as grey  cotton fabrics or man made fabrics under TH 52.05 or 54.08.   It was held that TH 59.09 was a specific entry which dealt  with fabrics for industrial use and since the respondent  marketed their products admittedly for industrial use, the  other entries in Chapters 52 and 54 would not apply.  It was  further held construing CN-6 that if the article is covered by  59.09 then it was excluded from Chapters 52 to  56. A  number of authorities were referred to for coming to the  conclusion that the items manufactured by the respondent  were industrial fabrics.  Reference was also made to the HSN  explanatory notes which, according to the Tribunal  supported their view.

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In the meanwhile, not only had the respondent  challenged the decision of CEGAT in Simplex I before this  Court but also on 5th November, 1993, an order was issued  by the Central Board of Excise and Customs under Section  37-B of the Central Excise and Salt Act, 1944 (as it stood  then) clarifying that grey cotton canvas, cotton ducks,  cotton tyre  cord fabrics and cotton belting fabrics would  thenceforth be classified under TH No.52.05. According to  the respondent in view of this circular it did not press its  appeal before this Court which was accordingly dismissed for  non-prosecution on 3rd November, 1995.  This prompted the  Central Board of Excise in Customs to examine the  matter  afresh and issue an order  on 30th June, 1997 in  supersession of the 37-B circular dated 5.11.1993 that :-  A.      grey cotton tyre cord fabrics, grey,  belting cloth, grey filter cloth/straining  cloth and grey belting cloth and belting  duck, generally having technical uses  and generally not used for making  clothing, household linen, bedspreads,  curtains, other furnishing articles, etc.  shall henceforth be classified under  heading No.59.11 of the CET;

B.      the grey cotton canvas and grey cotton  duck, not having technical uses, shall  henceforth be classified under chapter  52 of CET; and

C.      the grey cotton belting shall henceforth  be classified under heading 59.10  subject to note 6 to Chapter 59."

The 1997 Circular virtually reproduced the decision in  Simplex I which had held that the respondents’ goods were  correctly classifiable under TH 59.09.(subsequently  numbered as 59.11).  Relying on Simplex-I, the Commissioner (Appeals)  dismissed the respondents’ appeal and  the demand for  differential duty was confirmed.  Subsequent to this, the  decision in Simplex-I was overruled by a larger bench of  CEGAT in Jyoti Overseas Limited Vs. CCE, Indore 2001  (130) ELT 446. The larger bench decision in Jyoti  Overseas Limited Vs. Commissioner of Central Excise,  Indore (supra) in overruling Simplex-I held (1) only "made  up" articles can be classified under Chapters 59.09. The  department’s case there as well as in the case before us was  not that the cotton fabrics manufactured by the  respondent/assessee were in any manner made up, nor was  it in dispute that the goods were woven fabrics of  more  than 85% by weight of cotton.  The goods were in running  length not cut to size or processed; 2) Tariff heading 59.09   was a residuary heading so that if goods manufactured by  appellants fall in any other heading of Section XI it cannot  be classified under Chapter heading 59.09;  3) textile  products or  textile articles as referred to in 59.09 were not  textile fabrics.  Only something made out the fabrics would  be termed as textile products or textile articles.  Therefore,  unprocessed textile fabrics do not fall within 59.09 (now  59.11); 4) De hors the items contemplated by Chapter Note  6 (now 7) to Chapter 59, no articles could be classified  under heading 59.09.  Following the decision in Jyoti  Overseas the CEGAT by the order impugned in this appeal  set aside  the order of the Commissioner (Appeals). The

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question is was Jyoti Overseas right in overruling Simplex  I ? The three Chapters, namely; Chapters 52, 54 and 59  are contained in Section XI of the Central Excise Tariff.  At  the relevant time, Section Note 5 defined the word "made  up" for the purposes of the entire Section as meaning:-

(a)     Cut otherwise than into squares or  rectangles;

(b)     Produced  in the finished state,  ready for use (or merely needing  separation by cutting dividing  threads) without sewing or other  working (for example, certain  dusters, towels, table cloths, scarf  squares, blankets);

(c)     Hemmed or with rolled edges, or  with a knotted fringe at any of the  edges, but excluding fabrics, the  cut edges of which have been  prevented fr5om unraveling by  whipping or by other simple means;

(d)     Cut to size and having undergone a  process of drawn thread work;

(e)     Assembled by sewing, gumming or  otherwise (other than piece goods  consisting of two or more lengths of  identical material joined end to end  and piece goods composed of two  or more textiles assembled in  layers, whether or not padded);

(f)     Knitted or crocheted to shape,  presented in the form of a number  of items in the length".

"Non made up" goods would, therefore, cover running  lengths of textiles, unprocessed in the manner specified in  the Section Note.  Section Note (SN) -6 specifically provides  that Chapter 52 to 55 would not apply to "made up" goods.  It would logically follow that they would therefore apply to  non-made up goods  According to SN-6 Chapters 56 to 60  unless the context so required would also not apply to  "made up " goods and Chapters 50 to 55 would not apply to  goods of Chapters 56 to 59.  Chapter Note (CN)-6 of  Chapter 59 clarifies that Heading No.59.09 applies to specific  goods as enumerated in paragraphs (a) and (b) thereof,  which do not fall in any other heading of Section XI. It  follows that (1) unless the goods fall under paragraphs (a)  or (b),  they would not be covered by TH 59.09 and (2) that  TH 59.09 is the residuary heading to cover all the  enumerated goods provided they do not fall in any other  heading of Section XI.  Paragraph (a) of CN-6 deals with  "textile products in the piece, cut to length or simply cut to  rectangular (including square) shape (other than those  having the character of the products of heading numbers  59.07 and 59.08)".  From this, read with SN-5 and 6, we  may infer that the context of TH 59.09 requires that it apply  to ’made up’ goods. Running lengths of unprocessed textiles

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or non made up goods therefore would not be covered by  this paragraph. Paragraph ’b’ of SN-6 also pertains to "textile articles  (other than those of heading principles 59.07 and 59.08) of  a kind used for technical purposes [for example textile  fabrics and felts, endless or fitted with linking devices, of a  kind used in paper making or similar machines (for example,  for pulp or asbestos cement), gaskets, washers, polishing  discs and other machinery parts]". This paragraph of CN-6 also indicates that it refers to  ’made up’ or processed goods and therefore running lengths  or bolts of unprocessed fabric are not covered by TH 59.09.  "Endless felts" contrary to what was assumed in Simplex I is  not a running length of fabric, but a product with no end  such as a completed circular length which being without an  end or beginning would be endless. TH 59.09 deals with  textile ’articles’ and not textile fabrics as wrongly assumed in  Simplex I. Examples of textile articles may be found in TH  59.07 and 59.08 such as textile hose-piping, transmission or  conveyor belts or belting.  The language of TH 59.09 itself  shows that it refers to articles and products other than  articles referred to in the Chapter. There is a distinction  between articles and products on the one hand and textile  fabrics on the other hand as held in Jyoti Overseas.   The rules for the interpretation of the Schedule to the  Central Excise Tariff Act, 1985 have been framed pursuant  to the powers under Section 2 of that Act.  According to Rule  1 titles of Sections and Chapters in the Schedule are  provided for ease of reference only.  But for legal purposes,  classification "shall be determined according to the terms of  the headings and any relevant section or Chapter Notes".  If  neither the heading nor the notes suffice to clarify the scope  of a heading, then it must be construed according to the  other following provisions contained in the Rules. Rule-I  gives primacy to the Section and Chapter Notes along with  terms of the headings. They should be first applied.  If no  clear picture emerges then only can one resort to the  subsequent rules.  The appellants have relied upon Rule 3.  Rule 3 must be understood only in the context of sub-rule  (b) of Rule 2 which says inter alia that the classification of  goods consisting of more than one material or substance  shall be according to the principles contained in Rule 3.   Therefore when goods are prima facie, classifiable under two  or more headings, classification shall be effected according  to sub-rules (a), (b) and (c) of Rule 3 and in that order. The  sub rules are quoted:- (a)     The heading which provides the most  specific description shall be preferred to  heading 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 made up of  different components, and goods put up  in sets, which cannot be classified by  reference to (a), shall be classified as if

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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."    Applying the Rules of interpretation particularly Rule 1,  we are of the opinion that the reasoning of the Tribunal in  Jyoti Overseas is unexceptionable  and in our opinion the  decision in Simplex-I was correctly overruled. Finally it appears that in respect of other years, the  Tribunal had taken the same view as has been taken by it in  the order impugned in these appeals and classified the  respondent’s products under Chapters 52 and 54.  No appeal  has been preferred from those decisions by the Revenue and  the finding for those years remain unchallenged. For these reasons, the appeals are dismissed without  any order as to costs.