http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

CASE NO.: Appeal (civil)  1751-1752 of 1997

PETITIONER: Ugam Chand Bhandari

RESPONDENT: Commissioner of Central Excise, Madras

DATE OF JUDGMENT: 05/05/2004

BENCH: CJI & G.P. MATHUR.

JUDGMENT: JUDGMENT

(with Civil Appeals Nos. 1778/1997, 1795-1796/1997)

RAJENDRA BABU,  CJI  :

       These appeals arise out of an order made on  3.8.1996 by the Customs, Excise and Gold (Control)  Appellate Tribunal (for short the Tribunal) in which  questions that arise for consideration are (i)  whether  the water-proofed fabrics are classifiable under Heading  52.07 of the  Central Excise Tariff Schedule as claimed  by the appellant or under Heading 59.06 as held by the  Tribunal, and (ii) whether the extended period of  limitation under proviso to Section 11A of the Central  Excise Act, 1944 is invokable in the present case and  consequently  whether penalty under rule 173Q of the  Central Excise Rules, 1944 is imposable on the  appellant.   

       The two competing entries are as under :-

"Heading 52.07.   Cotton fabrics (including fabrics covered under Heading  Nos. 52.09, 52.10 and 52.11), - (a)     woven on looms other than handlooms, and (b)     subjected to the process of bleaching,  mercerizing, dyeing, printing, water-proofing,  shrink-proofing, organdie processing or any other  process or any two or more of these processes  without the aid of power of steam"

"Heading 59.06. Textile fabrics, otherwise impregnated, coated or  covered (including fabrics covered partially or fully with  textile flocks or with preparations containing textile  flocks)."

       The Tribunal took note of the prospectus issued by  the appellants in which equity was sought to be raised  from general public which described the process as  under :-

"Grey cotton canvas for CPT is processed through  application of a common proofing mixture and dried in  a drying range.  The common proofing mixture is  prepared with ingredients consisting mainly of wax of  different grades, aluminum stearate and copper

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

napthanate (and colouring agents, if required)."

       It was stated that the process carried out by the  appellants is held out as of impregnation to make the  fabric water proofed.  Whereas the fabrics  manufactured by the appellants were tested and it was  found on test by the chemical examiner to be an  impregnated/coated fabric with the layer of coating  visible to the naked eye.  They noticed that even  rubber coated or plastic coated fabrics will be water  proof;  that if the appellant’s plea is accepted,  then the  scope of tariff items in Chapter 59 will become  restricted to the extent that even if the cotton fabric is  coated and impregnated so long as it was water proof,   it will fall under tariff heading 52.07 or 52.06, as the  case may be.  After anaylsing various headings, the  Tribunal took the view that fabric manufactured by the  appellants is impregnated one and the same, therefore,  has to be considered as fabric impregnated with  materials other than those mentioned under tariff  59.02 and 59.05;  that fabrics also passes the muster  of note 4 of Chapter 59  which note was at serial No. 5  after coming into force of the new tariff subsequently  during the relevant period as being coated with  materials other than materials under Heading 59.01 to  59.05 with coating visible to the naked eye.  On  analysing Chapter 59,  it was noticed that the Chapter  covers impregnated cotton and textile fabrics among  other things.  The Tribunal, in particular, noticed that  process as applicable to any textile and does not  change the texture of the fabric nor add to its weight.   After referring to some text books, the Tribunal noticed  that interpretation has to be made on the basis of  Chapter notes and, therefore, the Tribunal was of the  view that the impregnated fabrics with a coating visible  to the naked eye have been correctly held to be  assessable under tariff heading 59.06.

       Next, contention put forth on behalf of the  appellants that their plea for re-testing their fabrics was  not accepted by the Tribunal on the basis that nothing  prevented the appellants from asking for re-test of the  samples as provided for under the rules  at an  appropriate stage of the proceedings.  This contention  has been rightly dealt with by the Tribunal and calls for  no interference.

The next contention advanced before us is that  when the impregnation or coating could be seen with  the naked eye, then only the product can merit  classification under Heading 59.06 and on the other  hand, if the impregnation or coating cannot be seen  with the naked eye and the fabric could be seen with  the naked eye, then Heading 59.06 would not cover  than product.   They rely upon a circular issued on 11th  April 1991 to the effect that while determining whether  the deposit on the surface is a visible layer or not, a   layer should be distinguished from mere presence of  residues in uneven patches.  It is submitted that in the  present cases,  the test report of the samples of the  product merely state that the impregnation and coating  is visible to naked eye and there is no mention about  visible layer formation of the coating or impregnation  and hence, the product cannot be classified under  Heading 59.06.   It is also submitted that since the test

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

report of the chemical examiner was not correct and  was not clear,  the appellants sought re-test of the  samples drawn or in the alternative cross-examination  of the chemical examiner, but no re-testing as provided  in Rule 56 was allowed by the Commissioner on the  ground that the request was made beyond 90 days.   In  any case, it is submitted,  the sealed samples are still  available and the same can be got tested even now for  the test of presence of visible layer formation.

       On behalf of the respondents it is contended that  a finding recorded by the authorities being one on fact  and that conclusion having become final by conclusions  reached by the Tribunal, this matter should not be re- examined by us.    

       As stated earlier, finding recorded by the Tribunal  as to the nature of the product is after examining   relevant material with reference to relevant entries.   The denial of cross-examination was due to the lapse of  the appellant and cannot take advantage of the same in  these proceedings.  The Tribunal held that the fabric  manufactured by the appellants is impregnated and,  therefore, has to be considered as fabric impregnated  with materials other than those mentioned under Tariff  59.02 and 59.05. Such impregnation clearly indicated  that under the scheme of the Central Excise Tariff the  impregnated fabrics with a coating and which is visible  to the naked eye on the material on record being one  of the finding of fact, we cannot interfere with it.   Hence, all the contentions of the appellants stand  rejected.

       In so far as the contention raised by the  appellants whether the extended period of limitation  under proviso to Section 11-A of the Central Excise Act  could be invoked in the present cases is concerned,    what is to be seen is whether there was no deliberate  intention on the part of the appellants to have  suppressed any material information.  The plea taken  by them is that under bona fide belief that the fabrics  are classifiable under heading 52.07 they classified the  same and the authorities had been visiting the  appellants from 1986 onwards and they were aware of  the process adopted in manufacturing the end product  by them.   The Tribunal rejected this contention.  Apart  from the fact that there was difference of opinion even  in the Department, the fact remains that the  department officials had been regularly visiting the  factory of the appellants and were in the know of the  process of manufacture adopted by the appellants and  to state that the appellants had played fraud on the  department is difficult to sustain.  In the circumstances,   we think, the application of the extended period of  limitation as provided under Section 11A of the Act is  not correct.  Therefore,  that part of the order where  the Tribunal has rejected the prayer of the appellants  not to invoke Section 11A is set aside and in other  respects  the order made by the Tribunal is maintained.

       We may state that the contention advanced on  appellants that whether the Tribunal was correct in  charging the excise duty on the price of the product  without treating the same as cum-duty price need not  be examined in these cases as these contentions had

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

not been specifically raised before, or considered by the  Tribunal.

       The appeals stand partly allowed to the extent  indicated above and in other respects the appeals stand  dismissed.