Y.S. Enterprises vs Cc, Delhi-Iii

Date of Hearing: 18.12.2014

Date of Pronouncement: 09.02.2015

(Arising out of OIO NO.8-9/JM/Cus/08 dt.31.7.2008 and OIO No.6/JM/Cus/08 dt.3.7.08 passed by the CCE, Delhi-II), Gurgaon)

1. Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether their Lordships wish to see the fair copy of the order?

4. Whether order is to be circulated to the Department Authorities?

Y.S. Enterprises Appellant

Vs.

CC, Delhi-III Respondent

Present for the Appellant: Shri L.P.Asthana & Ms.Tuhina Sinha,

Advocates

Present for the Respondent: Shri B.B.Sharma & Sh.Sanjay Jain,DRs

Coram: Honble Mr.Ashok Jindal, Member (Judicial)

Honble Mr.R.K.Singh, Member (Technical)

FINAL ORDER NO.50279/2015

PER: R.K.SINGH

Appeal has been filed against Order- in-Original No.8-9/JM/Cus/08 dated 31.7.2008.

2. The facts, briefly stated are as under:-

The appellant imported polyester bonded fabrics and sought its classification under CTH 59070099 attracting basic customs duty of 12.5% ad valorem. The sample of the goods was drawn and sent to CRCL which gave following report:-

The samples are in the form of cut piece of black/brown coloured woven fabric having soft surface on one side. It is made of polyester spun yarns on one side and polyester filament yarns on the other side. It is bonded on one side with knitted fabric made of polyester filament yarns with adhesive material.

Woven fabric = 64.5%, 58.08% and 57.71% by weight

Knitted fabric with adhesive material= Balance

GSM (Woven fabric)= 122.7,118.4 and 120.74

GSM (Knitted fabric)=70.0,84.6 and 87.72

It is not possible to ascertain the nature of the yarns whether textured or non textured in the bonded fabric.

Polyester Filament yarns  47.8%, 48.3% and 46.74%

Polyester Spun Yarns - Balance

Acetone extracted residue (including adhesive material, colouring matter and some fibres is less than 1% actual being 0.5% by weight)

3. The adjudicating authority classified the goods under CTH 55151230 and also enhanced the value from US$ 0.025 per meter to US$ 0.55 per meter and as a result confirmed the customs duty demand of Rs.49,85,178/- and also imposed penalty of Rs.6 lakh. The impugned goods were also confiscated for misdeclaration under section 111(m) of the Customs Act, 1962 and as they were already provisionally released redemption fine of Rs.6 lakh was imposed.

4. The appellants have contended that (i) They submitted the test report of IIT Delhi and their request for retest and cross examination of the CRCL authority has not been acceded to (ii) The Fabrics being covered fabrics, it is classifiable under CTH 5907 by virtue of section Note 8(b) to section XI of Customs Tariff which clearly, provides that chapters 50 to 55 and 60 do not apply to goods of chapters 56 to 59 (iii) The value has been enhanced in an arbitrary manner. (iv)HSN Explanatory Note to Section XI which explains the scope of Note 2 to Sec. XI is not applicable as that note applies to products of two or more textile materials while the impugned goods are made out of single textile material, that is polyester.

While in their appeal, the appellants have contested both the classification and the valuation, during personal hearing, the contention was confined only to classification dispute and not to valuation aspect and they also did not bring up the issue of cross examination. They only and repeatedly stressed that in view of Section Note 8(b) to section XI of Customs Tariff, the goods being covered Fabrics would merit classification under heading 59.07.

5. Learned AR, on the other hand, essentially contended that the goods are not covered fabrics as the goods are not covered by any other material and therefore as per HSN explanatory Notes, the said goods will not be classifiable under chapter heading 59.07.

6. We have considered the contentions of both sides. It is seen that CRCL report clearly brings out the nature of the goods which is woven fabrics of polyester spun yarn bonded (with adhesive material) with knitted fabric of polyester filament yarn. While in the appeal papers, the appellants have contended that their request for retest and cross examination has not been acceded to, we find that this point was not at all pressed during hearing before CESTAT. Further, we find that is their (written) appeal, the request for retest and cross examination was made on the ground that the report obtained from IIT Delhi was at variance with the CRCL report.

7. We have perused the IIT Delhi report and find that the same is not at all is disharmony with the CRCL report as far as their applicability for the purpose of classification of the impugned goods is concerned. The IIT Delhi test report essentially concludes that it can be stated that knitted fabric is completely covered with the woven fabric. This point is not being disputed by the Revenue and therefore their request for retest or cross examination loses the very basis on which it was made. Possibly for this reason this point was not pressed during hearing before Cestat. As a matter of fact vide their letter dated May 3, 2008, they advised the Commissioner (Adjudicating Authority) to decide the matter on merits by dispensing with the opportunity for any further personal hearing.

8. Chapter Heading 5907 is reproduced below:-

5907 00 Textile fabrics otherwise impregnated, coated or covered; painted canvas being theatrical scenery, studio back-cloths or the like

Thus it is seen that CTH 5907 covers textile fabrics which are otherwise impregnated, coated or covered. It is obvious that for the purpose of classification the scope of the words, impregnated, coated or covered need to be interpreted by keeping in view their company with one another adopting the principle of noscitur sociis. In other word covered is to be interpreted in the context of words impregnated and coated. Thus it can scarcely be gainfully stressed that the fabrics covered by another layer of textile fabrics that too of the identical material would be covered under the scope CTH 59.07 as impregnated, coated or covered fabrics. The appellants have laid tremendous amount of stress on Section Note 8(b) to section XI which is reproduced below:-

8.For the purpose of Chapters 50 to 60

(a) .. 55 and

(b) Chapters 50 to 55 and 60 do not apply to goods of Chapters 56 to 59.

Thus, Chapter 55 will not apply only if the impugned goods fall under chapter 59 (CTH 59.07). In other words, if it is held that the goods do not fall under CTH 59.07 then the chapter note 8(b) loses all its relevance for the purpose of this case. The I.I.T. Delhi report essentially concludes that the Knitted fabrics is completely covered with woven fabrics which is in no way at variance with the fact that the impugned goods are two layers of polyester textile fabrics (one woven and the other knitted) stuck together by gumming/adhesive. A perusal of the various heading of Chapter 59 reveals that it covers textile fabrics covered with amylaceous substances (CTH 59.01) tyre cord fabrics (CTH 59.02), textile fabrics impregnated/coated/covered with plastics (59.03), Rubberized fabrics (59.06) and CTH 59.07 covers textile fabrics otherwise impregnated/coated/covered. Thus, it is contextually clear that this chapter is not to apply to two layers of textile fabrics (that too of the same material) on the ground that woven textile fabrics of polyester is covering knitted textile fabrics of polyester. A material can not be said to covering itself to be called covered material.

Thus, it can not be said that the impugned goods are covered textile fabrics. The Section Note 8(b) ibid may come into play in situations e.g. when textile is covered with plastic, then as per the said note, it will get covered under Chapter 59 even if say textile material pre- dominates by weight. Once goods are held to be not covered under CTH 59.07, their classification under CTH 55.15 is too obvious to need even a line of discussion.

9. It is well known that the Customs Tariff is based on Harmonized System of Nomenclature (H.S.N.) developed/approved by the World Customs Organization (WCO) The H.S.N. has Section Notes and chapter Notes which are found in the Indian Customs Tariff too and they have a binding legal force. It is also well understood/accepted that H.S.N. Explanatory Notes (which have been framed by W.C.O. keeping in view the description of Customs Tariff Headings and the Section/Chapter Notes) are universally regarded as authentic guide to classification. A relevant portion of an Explanatory Note to Sec XI of H.S.N. is reproduced below:

In the case of products (other than those of heading 58.11) consisting of two or more textile fabrics of different composition assembled in layers by sewing, gumming, etc. classification is, determined in accordance with Interpretative Rule 3. Accordingly, Note 2 to Section XI applies only where it is necessary to determine the textile material which predominates by weight in the fabric taken into consideration for the classification of the product as a whole.

12. It is seen that the above-quoted Explanatory Note directly applies to this case even if the goods in question are treated as consisting of two or more textile fabrics of different composition (one woven and one knitted) which have been assembled in layers by gumming etc. and therefore its classification will be determined in accordance with Interpretative Rule 3 which is reproduced below:

When by application of Rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be affected as follows:

(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 put up for retail sale, 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) Mixture, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(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 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration (emphasis supplies)

In the present case, the only material is polyester and therefore there is no ambiguity requiring predominance test. In case it is contended that the impugned goods are not consisting of two or more textile fabrics of different composition as they are made of only polyester, even then it would suffice to say that as per the said Explanatory Note, when a textile fabrics layered with another textile fabrics of a different material (by sewing gumming etc.) is not to be covered under the scope of covered fabrics (CTH 59.07), then a textile fabrics covered by another textile fabrics of the same material will be (even more) not covered under the scope of covered fabrics of CTH 59.07. Thus the appellants contention that the said H.S.N. Note is not applicable for the purpose of classification in their case as there is only one material (Polyester) involved in their goods is totally untenable; indeed existence of only one material, as stated earlier, obviates the need to carry out the predominance test. Having thus analyzed, it may be reiterated that once the impugned goods are not held to be classifiable under CTH 5907, then even the appellants do not contend that in that case too they would not be classifiable under CTH 55151230.

14. As stated earlier during the hearing before CESTAT the appellants did not take up the issue of valuation but they have mentioned in the appeal papers that in spite of their request, copies of alleged contemporaneous evidence for raising the value had not been given to them. We find that the Commissioner has clearly noted in the impugned order that they were informed vide letter dated 2.2.2007 to inspect/procure copies of desired documents and the same were supplied on 22.2.2007 under proper acknowledgment. After that the appellants did not desire personal hearing and categorically wrote that the issue may be decided on merit. Thus appellants contention in this regard in their appeal papers is untenable and that may be the reason why the issue of valuation was not raised by them during hearing before Cestat. Suffice therefore to say that the adjudicating authority has recorded reasons for enhancing the value which essentially remain unchallenged/uncontested and also do not suffer from any apparent disability and therefore we are not required to dwell on this issue any further.

15. In view of foregoing, we do not find any infirmity in the impugned order and the appeal is therefore dismissed.

(Pronounced in the open court on 09/02/2015)

(R.K.SINGH) (ASHOK JINDAL)

MEMBER (TECHNICAL) MEMBER (JUDICIAL)

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