C.C.E., Bhubaneswar-1 vs M/S. Champdany Industries Ltd

heard together. There are some common

questions but factually this case is

different from other cases. So this

judgment will govern these two appeals.

1

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

2 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.

3

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.

4

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

5 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

6 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

7 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

8 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

9 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

1 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.

1

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.

1

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.

1

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;

1 (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.

1

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

1 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:

1

"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.

1

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

1 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

2 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):- 2

"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.

2

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.

2

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

2 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

2 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.

2

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

2 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

3 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

3 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

3 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)

3 September 8, 2009

3