Union of India & Ors Vs. Garware
Nylons Ltd.  INSC 1090 (9 September 1996)
Bharucha, K.S. Paripoornan Paripoornan, J.
APPEAL NO. 11644 OF 1996 (Arising out of S.L.P. (C) Nos. 11008 of 1988 AND
CIVIL APPEAL NO. 7564 OF 1996
leave granted in S.L.P. (C) No. 11008 of 1988.
above three appeals involve a common question of law, namely, whether
"Nylon Twine" can be considered as "Nylon Yarn" so as to be
covered by Item 18 of the First Schedule to the Central Excises and Salt Act,
1944 (hereinafter referred to as "the Act") as it stood prior to the
Amendment of 1977.
RAYON AND SYNTHETIC FIBRES AND YARN
------------------------------------------------------------ Tariff Item
Description of goods Rate of duty Basic
RAYON AND SYNTHETIC FIBRES AND YARN INCLUDING TEXTURED YARN, IN OR IN RELATION
TO THE MANUFACTURE OF WHICH ANY PROCESS IS ORDINARILY CARRIED ON WITH THE AID
and Yarn other than Rs. 85.00 per kg. Textured Yarn.
Textured Yarn produced out of The duty for Base Yarn. the time being leviable
on the base yarn, if not already paid plus Rs. 20/- per kg.
Other Textured Yarn Rs. 105.00 per kg.
Explanation-I "Fibres and Yarn, other than Textured
yarn", shall be deemed to include –
(discontinuous yarn containing not less than ninety per cent by weight of
man-made fibres calculated on the total fibre content; and
filament (continuous) yarn that has not been processed to introduce crimps,
coils, loops or curls along the length of the filaments, but does not include
bulked yarn and stretch yarn.
Explanation-II "Textured Yarn means yarn that
has been processed to introduce crimps, coils, loops or curls along the length
of the filaments and shall include bulked yarn and stretch yarn.
Explanation-III "Base Yarn" means yarn
falling under sub-item (i) of the this Item from which the Textured Yarn has
Explanation-IV - This item does not include
mineral fibres and yarn."
will be useful to note that from 1st March, 1977 a new item i.e. Item 68 was introduced to the first
schedule to the Act which is to the following effect.
Item Description of goods Rate of duty Basic
ALL OTHER GOODS, NOT ELSEW HERE 1% Adv.
MANUFACTURED IN A FACTORY BUT EXCLUDING -
all sorts including alcoholic liquors for human consumption;
Item 18 was also amended int he following manner:
Man-made filament yarns- (i) Non-cellulosic - (a) other than textured (b)
textured Explanation: "Textured Yarn" means yarn that has been
processed to introduce crimps, coils, loops or curls along the length of the
filaments and shall include bulked yarn and stretch yarn.
this group, the main appeal is Civil Appeal No.715/81. It is an appeal
preferred by the Union of India (Revenue) against the judgment and order of the
High Court of Bombay dated 9.4.1980 rendered in Special Civil Application No.
2974/78. In the other two cases, the judgment in special civil application No.
2974/78 was followed. The judgment in the said special civil application is
reported in 1980 (6) E.L.T. 249 (Bom.).
respondents-assessees manufacture "Nylon Yarn" and "Nylon
Twine". They are doing so eversince 1962. Under first schedule, Item 18 of
the Act excise duty is payable in respect of "Nylon Yarn" as
specified therein. The notification issued under Rule 8 of the Excise Rules
provided that "Nylon Yarn", which is meant for use int he manufacture
of fishing nets and parachute cords is exempt from the payment of so much of
excise duty leviable under Item 18 as is in excess of Rs.4/- per kg. The assessees
contended that "Nylon Twine" manufactured by them is used for the
purpose of making fishing nets. Prior to 1975 they were allowed to clear Nylon
Twine manufactured by them on payment of excise duty as specified under the
above exemption notification. Thereafter, when the new item, viz Item 68
(residuary entry) was introduced in the Act, it was contended by the Excise
Authority that Nylon twine manufactured by the assessees was not covered by
to the Revenue Nylon twine and Nylon yarn are two different items and Item 18
takes within its fold Nylon yarn only and not Nylon twine. The authorities
claimed excise duty on "Nylon twine" under Item 68. The assessees
paid such duty under protest. Thereafter, the application filed by the assessees
for refund before the Assistant Collector failed.
passed an order to that effect on 28.5.1976. The appeal filed was rejected by
Appellate Collector on 28.9.1976.
the Central Government rejected the revision by order dated 31.10.1979. It is
thereafter the assessees approached the High Court of Bombay for refund of the
amount paid under protest. A Division Bench of the High Court heard and
disposed of the petition by judgment and order dated 9.4.1980. Sujata Manohar,
J. delivered the leading judgment and Masodkar, J., though for different
reasoning, agreed with the conclusion of Sujata Manohar, J.
Manohar, J., after referring to the following materials - viz. - Encyclopaedia Britennica,
Vol.X (abridged version), the Indian Standards Indstitution Standard bearing
No. AIS 332 of 1967 wherein the expressions "Twine and Yarn" were
dealt with, the Indian Standards Institution Standard bearing No. IS 1402-767
relating to "netting for fishing", the Manual called "Netting
Materials for Fishing Gear" the manual published by the Food and
Agriculture Organisation of the United Nations, the orders received by the assessees
from the Director of Fisheries, Madras, two affidavits, one from the Managing
Director of Maharashtra Rajya Machimar Sekhari Sangh Limited and another from a
Partner of Maharashtra Fishing Material Company, concluded thus, in paragraph
14 of the judgment:
There is, however, sufficient material on record which goes to show that nylon
twine manufactured by the petitioners has been treated as a kind of nylon yarn
by the people in the trade. It is commonly considered as yarn. Hence it can be
classified under Item 18. The respondents have failed to establish that nylon
twine must be taxed under Item 68, as it is not covered by Item 18 of the First
Schedule. The respondents are the taxing authorities, and they must show that
the item in question is taxable in the manner claimed by them. the burden is on
the taxing authorities to show that the item in question is taxable in the
manner claimed by them." (Emphasis supplied) The learned Judge, therefore,
directed the Revenue to refund to the assessees the excess amount collected
from them as Central Excise Duty on the basis that "Nylon Twine"
falls under Item 68 of the First Schedule to the Act.
P.A. Chaudhary, Senior Advocate, appearing for the Union of India - appellant,
contended that Nylon Twine is different from Nylon Yarn, that Item 18 of the
Act would cover only "Nylon Yarn" and not Nylon Twine; that a mere
look of Nylon Twine will go to show that it is different from Nylon Yarn,; that
in commercial different physical characteristics. He stressed that Nylon Twine
-- the commodity involved int e instant case is not known as "Nylon
Yarn" and so, the same is outside the purview of Item 18 of the Act.
Certain decisions of general application were also cited. Counsel for the
respondents - assessees contended that the Nylon Twine is nothing but Nylon
Yarn, other than textured yarn and referred to the Encyclopaedia Britennica, Vol
X (abridged version), and the literature issued by the Indian Standards
Institution and others, the trade inquiries and the affidavits filed by persons
in the particular trade, would conclusively show that Nylon Twine is considered
as a kind of Nylon Yarn by the traders and persons dealing with the subject
matter and the High Court had abundant material to substantiate the above
do not think it is necessary, especially in this batch of cases, to refer in
detail to the decisions cited by the Revenue or the text-books and the
literature of the Indian Standards Institution and the Manual published by the
Food and Agriculture Organisation, United Nations, as to what is meant by
"Twine", "yarn", "netting twine" etc. referred by
the High Court. In this case, clinching evidence is afforded to demonstrate
that trade and industry which deals with the goods, consider "Nylon
Twine" as a kind of "Nylon Yarn".
Thee are innumerable decisions of this Court which have laid down the test or
the principles to be borne in mind in construing the Items or Entries in Fiscal
Statutes. In recent decision in Indian Cable Company Ltd., Calcutta v. Collector
of Central Excise, Calcutta and Others, [(1994) 6 SCC 610 - at page 615] a
three-member Bench stated the law thus:
in construing the relevant item or entry, in fiscal statutes, if it is one of
every day use, the authority concerned must normally, construe it, as to how it
is understood in common parlance or int he commercial world or trade circles.
It must be given its popular meaning. The meaning given in the dictionary must
should the entry be understood in any technical or botanical or scientific
sense. In the case or technical words, it may call for a different approach. The
approach to be made in such cases has been stated by Lord Esher in Unwin v. Hanson
the Act is directed to dealing with matters affecting everybody generally, the
words used have the meaning attached to them in the common and ordinary use of
language. If the Act is one passed with reference to a particular trade,
business, or transaction, and words are used which everybody conversant with
that trade, business or transaction knows and understands to have a particular
meaning in it then the words are to be construed as having that particular
meaning, though it may differ from the common or ordinary meaning of the
words." We would only add that there should be material to enter
appropriate finding in the case. The material may be either oral or documentary
evidence." (Emphasis supplied)
a subsequent decision in Collector of Central Excise, Chandigarh v. Steel Strips Ltd., Sangrur,
[(1935) 4 SCC 241 - at pages 243-24], another three-member Bench stated the law
We find no evidence upon the record in regard to what happens to hot-rolled
steel strips before cold-rolled steel strips are produced." It cannot be
sufficiently emphasised that when it is the case of the Excise authorities that
an article is the result of a process of manufacture and it is commercially
distinct and known as such, it is for the Excise authorities to lay evidence in
this behalf before the first adjudicating authority regardless of the fact that
he is an officer of the Excise Department. There should, ordinarily, be article
is the result of a process of manufacture; in the event of difficulty, it would
be open to the Excise authorities to seek a direction requiring the assessee to
set out in writing what it does to obtain the article. Too often, as our experience
in this Court and in the High Courts, before the Tribunal was established,
shows, lack of evidence has led to the failure of the case of the Excise
authorities and, consequently, to the loss of revenue to the State.
to lay the requisite evidence cannot be made up by reference to authoritative
publications unless the Excise authorities inform the assessee that they
propose to rely upon the same before the adjudicating authority ...........
Technical evidence and authoritative publications must, therefore, be placed in
the first instance before the adjudicating authority and the Tribunal. They
have the requisite technical expertise to evaluate the same." (Emphasis
The law on the point as laid down by this Court (in various decisions) has been
summarised int he book "Principles of Statutory Interpretation"
(Sixth Edition - 1996) by Justice G.P. Singh, at pages 67, 70, 72 and 73, thus:
So in construing entries of goods in Excise, Customs or Sales Tax Acts resort
should normally be had not to the scientific or technical meaning but to their
popular meaning viz. the meaning attached to the expressions by those dealing
The popular meaning int he context of a Sales Tax Act is that meaning which is
popular in commercial circles for the Act essentially, in its working, is
concerned with dealers who are commercial men." "The justification of
the rule that the words are to be understood in their natural, ordinary or
popular sense is well expressed by JUSTICE FRANKFURTER: "After all
legislation when not expressed in technical terms is addressed to common run of
men and is therefore to be understood according to sense of the thing, as the
ordinary man has a right to rely on ordinary words addressed." In determining,
therefore, whether a particular import is included within the ordinary meaning
of a given word, one may have regard to the answer which everyone conversant
with the word and the subject - matter of statute and to whom the legislation
is addressed, will give if the problem were put to him." xxxx xxx xxx xxx
"As a necessary consequence of the principle that words are understood in
their ordinary or natural meaning in relation to the subject- matter, in
legislation relating to a particular trade, business, profession, art or
science, words having a special meaning in that context are understood in that
sense. Such a special meaning is called the technical meaning to distinguish it
from the more common meaning that the word may have.
The Supreme Court "has consistently taken the view that, in determining
the meaning or connotation of words and expressions describing an article in a
tariff Schedule, one principle which is fairly well settled is that those words
and expressions should be construed in the sense in which they are understood
in the trade by the dealer and the consumer. The reason is that it is they who
are concerned with it, and, it is the sense in which they understand it which
constitutes the definitive index of legislative intention". "
Stated briefly, we should understand, the expression occurring in Item 18 of
the Act, in the sense, in which the persons who deal in such goods understand
this case, apart from the meaning given to the words "Yarn",
"Twine" etc., in the standard works referred to by the High Court,
two items of evidence stand out prominent and clinch the issue. The first is,
an order received by the assessee from the Director of Fisheries, Madras which goes to show that Nylon Twine
is considered as a type of Nylon Yarn used for making fishing nets. The second
is, two affidavits filed by the assessees before the authorities - one from the
Managing Director of Maharashtra Rajya Machimar Sekhari Sangh Limited and
another from a Partner of Maharashtra Fishing Material Company, wherein it is
stated that "Twine" is a category of "Yarn"> What is
more - the assessees made available the above persons who have sworn to the
affidavits for cross-examination at the time of the hearing of the applications,
but the Revenue did not cross- examine them. The trade inquiry received by the assessees
and also the affidavits conclusively point out that Nylon Twine is considered
as a kind of "Nylon Yarn" in the particular trade by persons
conversant with the subject- matter. The revenue has not let in any material to
our view, the conclusion reached by the High Court is fully in accord with the
decisions of this Court and the same is justified in law. The burden of proof
is on the taxing authorities to show that the particular case or item in question,
is taxable in the manner claimed by them. Mere assertion in that regard is of
no avail. It has been held by this Court that there should be material to enter
appropriate finding in that regard and the material may be either oral or
documentary. It is for the taxing authority to lay evidence in that behalf even
before the first adjudicating authority. Especially in a case a this, where the
claim of the assessee is borne out by the trade inquiries received by them and
also the affidavits filed by persons dealing with the subject matter, a heavy
burden lay upon the revenue to disprove the said materials by adducing proper
evidence. Unfortunately, no such attempt was made. As stated, the evidence led
in this case conclusively goes to show that Nylon Twine manufactured by the assessees
has been treated as a kind of Nylon Tarn by the people conversant with the
trade. It is commonly considered as Nylon Yarn.
it is to be classified under Item 18 of the Act. The Revenue has failed to
establish the contrary. We would do well to remember the guidelines laid down
by this Court in Dunlop India Ltd. v. Union of India (AIR 1977 SC 597 - at page
607), in such a situation, wherein it was stated:- "......... 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." (Emphasis supplied)
concur with the reasoning and conclusion of the High Court. There is no
substance in these appeals. The judgment s appealed against in this batch of
appeals are affirmed.
appeals are dismissed with costs, including Counsel's fee of Rs.5,000/- in each