Collector
of Central Excise, Hyderabad Vs. Fenoplast (P) Ltd. [1994] INSC
135 (22 February 1994)
Jeevan
Reddy, B.P. (J) Jeevan Reddy, B.P. (J) Hansaria B.L. (J)
CITATION:
1994 SCC Supl. (2) 671 JT 1994 (2) 57 1994 SCALE (1)729
ACT:
HEAD NOTE:
ORDER
1.The
question in this appeal is whether 'rexine cloth' produced by the respondent
falls under Tariff Item 19-111 of the Schedule to the Central Excise Act, as it
obtained at the relevant time. The Tribunal has held, by a majority of 2:1,
that it does not. The Revenue is assailing the majority opinion in this appeal.
2.Initially,
the respondent had applied for classification of the said product under T.I.
19-111 but later by their letter dated 3-3-1981 they contended that their product
does not fall within the said tariff item.
When
the department did not agree with their contention, they submitted a
classification list under T.I. 19-111 under protest. In pursuance of certain
orders passed by the High Court in the writ petition filed by the respondent, a
proper show-cause notice was issued to the respondent and after hearing it, the
Assistant Collector affirmed the classification of the said product under T.I.
19-111. On appeal, the Collector (Appeals) allowed the respondent's appeal. He
held that the said product does not fall under T.I. 19-111 but he did not say
under which item does it fall. The department appealed to the Tribunal, which agreed,
by a majority that T.I. 19-111 is not applicable.
3.The
respondent purchases 100% cotton cloth and impregnates it with PVC resin and
other materials. The composition of the ultimate product rexine cloth - is to
the following effect:
"(1)
Cotton fabrics8.0% (2) PVC resin24.5% (3) Plasticizers (DIP/DIOP/BBP)13.0% (4)
Other [fillers, (Calcium Carbonate) secondary plasticizers, pigments, solvents,
thinners, foaming agents] 54.5% The above composition is by weight." 4.Shri
Gowri Sankaramurty, learned counsel for the Revenue, submits that the said
product squarely falls within Tariff Item 19-111. In the alternative, he submits,
it would fall under T.I. 22(B). The counsel complains that the Appellate
Collector as well as the Tribunal not only erred in not classifying the said
product under T.I. 19-111 but erred further in not specifying under which 673
tariff item does it fall if not under T.I. 19-111. Shri Soli J. Sorabjee,
learned counsel appearing for the respondent, clarified, in the first instance,
that the respondent's product has been classified under T.I. 68 and that he has
been paying duty thereunder. Counsel justified the opinion of the majority of
the Tribunal holding that the said product does not fall within T.I. 19-III. Shri
Sorabjee placed strong reliance upon the decision of this Court in Collector of
Central Excise, Calcutta v. Multiple Fabrics (P) Ltd. 1
5.
Tariff Items 19, 22 and 22(B) read as follows at the relevant time
------------------------------------------------------------ Tariff Description
of goods ------------------------------------------------------------- (1) (2)
------------------------------------------------------------- 19.COTTON FABRICS
'Cotton fabrics' means all varieties of fabrics manufactured either wholly or
partly from cotton and includes dhoties, sarees, chaddars, bed-sheets,
bedspreads, counter- panes, tablecloths, embroidery in the piece, in strips or
in motifs, fabrics impregnated, coated or laminated with preparations of
cellulose derivatives or of other artificial plastic materials and fabrics
covered partially or fully with textile flocks or with preparations containing
textile flocks, if (i) in such fabrics cotton predominates in weight, or (ii)
such fabrics contain more than 40 per cent, by weight of cotton and 50 per
cent, or more by weight of non-cellulosic fibres or yarn or both :
Provided
that in the case of embroidery in the piece in strips or in motifs, fabrics
impregnated, coated or laminated with preparations of cellulose derivatives or
of other artificial plastic materials and fabrics covered partially or fully
with textile flocks or with preparations containing textile flocks, such
predominance or percentages, as the case may be, shall be in relation to the
base fabrics which are embroidered or impregnated, coated or laminated or
covered, as the case may be- -------------------------------------------------
Rate of duty ------------------------------------------- Basic Special Excise
-------------------------------------------------------- nil 1(1987) 2 SCC 636:
1987 SCC (Tax) 228 674 ------------------------------------------- 1 2
-------------------------------------------- I.Cotton fabrics, other than (i)
embroidery in the piece, in strips or in motifs, (ii) fabrics impregnated,
coated or laminated with preparations of cellulose derivatives or of other
artificial plastic materials and (iii) fabrics covered partially or fully with
textile flocks or with preparations containing textile flocks- (a)cotton
fabric, not subjected to any process.
(b)cotton
fabrics, subjected to the process of bleaching, mercerizing dyeing, printing,
waterproofing, rubberizing, shrink-proofing, organdies processing or any other
process or any two or more of these processes. (Sub-item 11 omitted as
unnecessary) Ill. Cotton fabrics impregnated, coated or laminated with
preparations of cellulose derivatives of other artificial plastic materials.
(Sub-item
IV omitted as unnecessary) Explanation I.-'Base fabrics' means fabrics failing
under sub-item 1 of this Item which are subjected to the process of embroidery
or which are impregnated, coated or laminated with preparations of cellulose
derivatives or of other plastic materials or which are covered partially or
fully with textile flocks or with preparations containing textile flocks.
----------------------------------------------
3 4 ------------------------------------------------ 20% ad 10% of the valorem.
basic chargeable.
- do-
do- The duty for do- the time being leviable on the base fabrics, if not
already paid, plus 30% ad valorem.
675
----------------------------------------- 1 2
-----------------------------------------
22.
MAN-MADE FABRICS 'Man-made fabrics' means all varieties of fabrics manufactured
either wholly or partly from man-made fibres or yam and includes embroidery in
the piece, in strips or in motifs, fabrics impregnated, coated or laminated
with preparations of cellulose derivatives or of other artificial plastic
materials and fabrics covered partially or fully with textile flocks or with
preparations containing textile flocks, in each of which man-made (i) cellulose
fibre or yam, or (ii) non-cellulosic fibre or yam, predominates in weight:
Provided
that in the case of embroidery in the piece, in strips or in motifs, fabrics
impregnated, coated or laminated with preparations of cellulose derivatives or
of other artificial plastic materials and fabrics covered partially or fully
with textile flocks or with preparations containing textile flocks, such
predominance shall be in relation to the base fabrics which are embroidered or
impregnated, coated or laminated or covered, as the case may be.
[Sub-items
(1) & (2) omitted as unnecessary] (3) Fabrics impregnated, coated or
laminated with preparations of cellulose derivatives or of other artificial
plastic materials.
[Sub-item
(4) omitted as unnecessary] Explanation I. 'Base fabrics' means fabrics falling
under sub-item (1) of this item which are subjected to the process of
embroidery or which are impregnated, coated or laminated with preparations of
cellulose derivatives or other plastic materials or which are covered partially
or fully with textile flocks or with preparations containing textile flocks.
--------------------------------------
(3) (4) -------------------------------------- The duty for 10% of the the time
basic duty being chargeable.
leviable
on the base fabrics, if not already paid, plus 30% ad valorem.
676
-------------------------------------------- 1 2
-------------------------------------------- 22B. TEXTILE FABRICS IMPREGNATED,
COATED OR LAMINATED WITH PREPARATIONS OF
CELLULOSE DERIVATIVES OR OF OTHER ARTIFICIAL PLASTIC MATERIALS NOT ELSEWHERE
SPECIFIED.
---------------------------------
3 4 --------------------------------- 30% ad 10% of the basic valorem duty
chargeable."
6.
Since the language of Tariff Item-19 is rather involved, it would be
appropriate if we read the main limb of the item along with proviso and
Explanation 1 omitting unnecessary words. It would read :
"
'Cotton fabrics' means all varieties of fabrics manufactured either wholly or
partly from cotton and includes fabrics impregnated, coated or laminated with
preparations of cellulose derivatives or of other artificial plastic materials
if (i) in such fabrics cotton predominates in weight, or (ii) such fabrics
contain more than 40 per cent by weight of cotton and 50 per cent or more by
weight of non-cellulosic fibres or yarn or both:
Provided
that in the case of fabrics impregnated... etc. such predominance or
percentages, as the case may be, shall be in relation to the base fabrics which
are impregnated, coated or laminated or covered, as the case may be.
Explanation.-'Base
fabrics' means fabrics falling under sub-item (i) of this item which are
impregnated, coated or laminated with preparations of cellulose derivatives or
of other plastic materials."
7. It
would thus appear from the above entry that "cotton fabrics" include
fabrics impregnated, coated or laminated with the materials mentioned in the
entry provided (i) in such fabrics cotton predominates in weight, or (ii)
cotton content in such fabrics is more than 40 per cent by weight and the
content of non-cellulosic fibres or yarn or both is more than 50 per cent. The
precise question that arises herein is whether the words "such
fabrics" occurring in clauses (i) and (ii) refer to the base fabrics or to
the final (manufactured) product. The Appellate Collector and the Tribunal have
held that the said words refer to the final product and inasmuch as the content
of cotton in the final product is far less than 40 per cent, the product does
not fall within Tariff Item19. The counsel for the Revenue, however, says that
the words "such fabrics" are specifically explained in the proviso
and that the proviso places the matter beyond any doubt. The proviso expressly
says that is its only purpose that said words refer not to the final product
manufactured by the respondent but to the 'base fabric' which expression has in
turn been defined in Explanation 1. The learned counsel says that the proviso
expressly and exclusively deals with the predominance and percentages referred
to in clauses (i) and (ii), since it says that in the case of fabrics impregnated,
coated etc.
with
the aforesaid materials, such predominance or percentages, as the case may be,
shall be in relation to the base fabrics which are impregnated, coated or
laminated or covered, as the case may be. The counsel further says that Explanation
1 makes the matter still clearer by defining the basic fabrics to mean fabrics
falling under sub-item (i) 677 i.e., plain fabrics which are subjected to the
process of impregnation, coating etc.
8. The
learned counsel for the Revenue relies upon the language of T.I. 22 which is
more or less identically worded to emphasis his submission with the difference
that while clauses (i) and (ii) in Tariff Item 19 refer both to predominance
and percentages, clauses (i) and (ii) in Tariff Item 22 refer only to
predominance.
9.
According to Shri Sorabjee, however, what has been mentioned in the proviso
cannot override the main provision, which clearly militates against the
contention of the Revenue inasmuch as the expression 'such fabrics' cannot
refer to cotton fabrics for the simple reason that in that event the question
of predominance of cotton, of which reference has been made in clause (i),
would apparently be incongruous. It is because of this that the expression
'base fabrics' finding place in the proviso should be understood as the fabric
which comes into existence ultimately; otherwise, the proviso would make the
main provision nugatory, which would not be the reasonable way of reading the
proviso.
10. Shri
Sorabjee also contended that 'rexine cloth' would not come either Linder T.I.
19-111 or 22-B as it cannot be said to be of 'fabrics'; whereas the ultimate
product to attract any of the aforesaid items must retain the identity and
character of fabrics.
11. Shri
Sorabjee has placed strong reliance on the decision of this Court in Multiple
Fabrics (P) Ltd. I in support of his first submission. The question in that
case was whether "PVC conveyor belting" manufactured by the
respondents therein fell within T.I. 22 or under the residuary Tariff Item 68. It
was found therein that the product in question was "composed of synthetic
resin of PVC type, reinforced with textile fabric containing 42.3% by weight of
cotton and rest viscose (man-made filament yarns of cellulose origin)"
wherein the percentage of textile fabric was 42.3% and PVC Compound 56.7%. The
Tribunal had recorded a finding that "PVC Compounding was done
simultaneously with the weaving of the fabric from the yarn which clearly
indicated that the process of manufacture was conversion from yarn to fabric as
also the application of the PVC Compound carried on at the same point of
time".
Ranganath
Misra, J. (as he then was) speaking for the Bench comprising himself and G.L. Oza,
J., set out Entry 22 but not the proviso, (which proviso corresponds to the
proviso in T.I. 19) and held as follows : (SCC pp. 637-38, paras 4 and 5)
"4. It is accepted that yarn is woven into fabric. Item 19 deals with
cotton fabrics while Item 22 deals with man-made fabrics. On the footing
recorded by the Tribunal, it is claimed that there was no preexisting base
fabric and the manufacturing process simultaneously brought into existence the
commodity by weaving yarn into fabric and application of PVC Compound.
5. In
view of the higher percentage of PVC Compound in commodity, it becomes
difficult to treat the ultimate goods as man-made fabrics for holding that it
is covered by Item 22.
Upon
this analysis it follows that the Tribunal came to the correct conclusion when
it held that the goods were not covered by Item 22 and, therefore, the
residuary Item 68 applied. All 678 these appeals are without any merit and are
dismissed. Each of respondents should be entitled to its costs."
12. A
reading of the above paragraphs (4) and (5) indicates that the learned Judge
has given two reasons for his conclusion, namely, (1) since the PVC Compounding
was done simultaneously with the weaving of the fabric, there was no
preexisting base fabric and (2) having regard to the higher percentage of PVC
Compound in the ultimate product, it cannot be treated as a man-made fabric
within the meaning of T.I. 22. Though the learned counsel for Revenue sought to
distinguish the first ground given by the Bench saying that in that case the
PVC Compounding was done simultaneously with the weaving of the fabric, the
said distinction is, in our opinion, without a difference. It does not matter
whether the PVC Compounding is done simultaneously with the weaving or is done
on a preexisting fabric. Be that as it may, the more relevant aspect is the
second ground given by the Bench wherein they applied the test of predominance
to the final product and not to the base fabric. This was evidently done
because the attention of the Bench was not invited to the proviso. As indicated
hereinabove, while setting out T.I. 22, the proviso is omitted which, however,
has material bearing. It is not known what would have been the conclusion if
the proviso would have been noted.
13. We
would have given our views on the contentions advanced by the learned counsel
for both the sides but the aforesaid decision stands in our way, as to which we
would say that the correctness of the same is doubtful, because the conclusion
therein was arrived at without referring to the proviso which does have a
material bearing.
14. In
the above circumstances, it is but proper that the matter is placed before a
Bench of three Judges. Let the records be, therefore, placed before the Hon'ble
Chief Justice for doing the needful.
680
COLLECTOR OF CENTRAL EXCISE V. FENOPLAST (P) LTD.(II) (Jeevan Reddy, J.) The
Judgment of the Court was delivered by B.P. JEEVAN REDDY, J.- The
respondent-company manufactures coated fabrics, popularly known as "rexine
cloth" in the market. The question in issue in this appeal is whether the
said product falls within Tariff Item 19(III) of the Schedule to the Central
Excises and Salt Act, 1944 as it obtained at the relevant time. The Original
Authority held that it does but the Collector (Appeals) held to the contrary.
The Revenue's appeal before the Customs, Excise and Gold (Control) Appellate
Tribunal (CEGAT) was heard by a Bench of three Members. By majority, the
Tribunal affirmed the judgment of the Collector (Appeals). The appeal preferred
by the Revenue in this Court was heard in the first instance by a Bench
comprising one of us (B.P. Jeevan Reddy, J. and B.L. Hansaria, J.)+ Inasmuch as
the Bench entertained a doubt as to the correctness of an earlier decision of
this Court in Collector of Central Excise, Calcutta v. Multiple Fabrics Pvt. Ltd.1
, [a judgment rendered by a Bench comprising Ranganath Misra, J. (as he then
was) and G.L. Oza, J.] which constituted the sheet- anchor of the respondent
case, the matter was referred to a larger Bench. That is how the appeal is
before this Bench.
2. The
respondent purchases 100% cotton cloth and coats it with PVC resin and other
plasticizers. The product is popularly known in the market as "rexine
cloth". The composition of the rexine cloth manufactured by the respondent
is to the following effect :
"(1)
Cotton fabrics 8.0% (2) PVC resin 24.5% + 1994 Supp (2) SCC 671 1 (1987) 2 SCC
636: 1987 SCC (Tax) 228 681 (3) Plasticizers (DIP/DIOP/BBP) 13.0% (4) Others
[Fillers, (Calcium Carbonate) 54.5% Secondary Plasticizers, pigments,solvents,
thinners, foaming agents)] The above composition is by weight."
3. The
main contention of the respondent which found favour both with the Collector
(Appeals) and the majority of the Members of the CEGAT is that the rexine cloth
manufactured by the respondent cannot be called a 'cotton fabric' in view of
the fact that cotton fabric represents a mere 8% of the final product (by
weight) whereas the remaining 92% is represented by coating material. The
respondent's case which has been reiterated before us by its learned counsel, Shri
Soli J. Sorabjee is that in commercial or in common parlance, rexine cloth is
not understood or dealt with as a cotton fabric but as a distinct commodity.
It
cannot, therefore, be called a cotton fabric and even if it is treated as one
by virtue of Tariff Item 19, the predominance or percentages referred to in the
said Tariff Item should be applied in relation to the final product and not
with reference to the cotton cloth which represents a very minor portion of the
final product. The contention of the Revenue, on the other hand, is that coated
fabric (in the case of the respondent, rexine cloth) is expressly placed within
the purview of the cotton fabric by Parliament. In the face of such express
inclusion, there is no room for arguing that the rexine cloth or coated fabric
is not cotton fabric. May be that rexine cloth is not called or dealt with as a
cotton fabric in the commercial world or in common parlance but that does not
prevent Parliament from treating it as a cotton fabric for the purposes of the
Act and indeed Parliament has chosen to include it within the ambit of cotton
fabrics for the purposes of levying excise duty. Since the power of Parliament
to do so is unquestioned, the respondent's product is bound to be treated as
'cotton fabric' within the purview of Tariff Item 19 and subjected to duty
prescribed under subitem (III) thereof. So far as the predominance or
percentages referred to at the end of the first para of the Tariff Item is
concerned, they are wholly irrelevant in the case of the respondent's product inasmuch
as the said predominance or percentages are applicable in relation to the 'base
fabric' and the base fabric in the case of respondent's product is 100% cotton.
4. For
resolving the above controversy, it is necessary to turn to the Tariff Item itself.
It reads thus 682 "Tariff Rate of Duty Item Description of goods Basic
Special No. Excise
-------------------------------------------------------------
19.
COTTON FABRICS -------------------------------------------------------------
Cotton fabrics' means all varieties of fabrics' means all varieties offabrics
manufactured either wholly or partly from cotton and includes dhoties, sarees, chaddars,
bed-sheets, bedspreads, counter-panes, table-cloths, embroidery in the piece,
in strips and in motifs, fabrics impregnated, coated or laminated with
preparations of cellulose derive tives or of other artificial plastic materials
and fabrics covered partially or fully with textile flocks or with preparations
containing textile flocks, if (i) in such fabrics cotton predominates in
weight, or (ii) such fabrics contain more than 40 per cent, by weight of cotton
and 50 per cent, or more by weight of non-cellulosic fibres or yarn or both :
Provided
that in the case of embroidery in the piece in strips or in motifs, fabrics
impregnated, coated or laminated with preparations of cellulose derivatives or
of other artificial plastic materials and fabrics covered partially or fully
with textile flocks, such predominance or percentages, as the case may be,
shall be in relation to the base fabrics which are embroidered or impregnated,
coated or laminated or covered, as the case may be- I. Cotton fabrics, other
than (i) embroidery in the piece, in strips or in motifs, (ii) fabrics
impregnated, coated or laminated with preparations of cellulose derivatives or
of other artificial plastic materials and (iii) fabrics covered partially or
fully with textile flocks or with preparations containing textile flocks- (a)
cotton fabrics, not 20% ad 10% of the subjected to 20% valorem basic duty ad
10% of any process. chargeable 683 (b) cotton fabrics, subjected 20% ad -do-
process of bleaching merecer valorem deying printing waterproofing, rubberising,
shrink-proofing organdie processing or any process or any two or more of these
processes.
II.
Embroidery in the piece, in strips or in motif, in or in relation to the manufact-
The duty 10% of ure of which any process in for the basic duty ordinarily
carried on with time chargeable the aid of power. being leviable on the base
fabrics, if not already paid plus 20% ad valorem.
III.
Cotton fabrics impregnated, The duty do- coated or laminated with prepar- for
the ations cellulose derivatives or time being of other artificial plastic
materials. leviable on the base fabrics, if not already paid plus 30% ad valorem.
IV.
Cotton fabrics covered partia- lly or fully textile flocks The duty do- or with
preparations con- for the time containing textile flocks being such as flock
printed fabrics leviable on and flocks coated fabrics. the base fabrics, if not
already paid, plus 30% ad valorem.
Explanation
1.- 'Base fabrics'
means fabrics failing under sub-item 1 of this item which are subjected to the
process of embroidery or which are impregnated, coated or laminated with
preparations or cellulose derivatives or of other plastic materials of which
are covered partially or fully with textile flocks or with preparations
containing textile flocks.
Explanation
II.- Where two or
more of the following fibres, that is to say, 684 (a) man-made fibre of cellulosic
origin;
(b) cotton
(c) wool;
(d) silk
(including solk noil);
(e) jute
(including Bimlipatam jute or mesta fibre);
(f) man-made
fibre of non-cellulosic origin;
(g) flax;
(h) ramie.
if any
fabrics are equal in weight, then, such one of those fibres the predominance of
which would render such fabric fall under that Item (hereafter in this
Explanation referred to as the applicable Item) among the Items Nos. 19, 20,
21, 22, 22A and 22AA, which, read with the relevant notification, if any, for
the time being in force issued under the Central Excise Rules, 1944, involves
the highest amount of duty, shall be deemed to be predominant in such fabric
and accordingly such fabric shall be deemed to fall under the applicable item.
Explanation
III.- This Item does
not include floor coverings, falling under Item No. 22G."
5. The
Tariff Item deals with 'cotton fabrics', whether made wholly from cotton or
partially from cotton. It includes several other goods within the ambit of the
expression 'cotton fabrics'. The items so included are
(a) dhoties,
sarees, chaddars, bed-sheets, bedspreads, counter- panes, and table-cloths;
(b) embroidery
in the piece, in strips or in motifs;
(c) fabrics
impregnated, coated or laminated with preparations of cellulose derivatives or
of other artificial plastic materials; and
(d) fabrics
covered partially or fully with textile flocks or with preparations containing
textile flocks.
After
including the said four categories of goods within the ambit of the expression
"cotton fabrics", the Tariff Item proceeds to say that for being
called cotton fabrics
(i) the
cotton must predominate in such fabrics by weight or
(ii) such
fabrics must contain more than 40% cotton by weight and 50% or more of non-
cellulose fibre or yarn or both by weight. Now, if the Tariff Item had stopped
here, i.e., with the first para, a doubt could probably have arisen whether the
fabrics referred to in clauses (i) and (ii) mentioned above refer to cotton
fabrics simpliciter or to the other goods specifically brought within the ambit
of the Tariff Item.
In
short, in the case before us, a doubt could have arisen whether the
predominance of cotton or the requirement of 40% cotton by weight etc., is to
be applied to the 685 cotton cloth simpliciter upon which coating is done or to
the refine cloth manufactured by the respondent. Precisely, with a view to
obviate such doubt, has Parliament added the proviso as well as Explanation 1
to the Tariff Item. 'The proviso provides in clear words that in the case inter
alia of "fabrics impregnated, coated or laminated with preparations of
cellulose derivatives or of other artificial plastic material such predominance
or percentages, as the case may be, shall be in relation to the base fabrics
which are impregnated, coated or laminated Indisputably, when the proviso
speaks of predominance or percentages, it is referring to clauses (i) and (ii)
referred to above (which occur at the end of the first para of the Tariff
Item). The proviso makes it clear beyond any doubt that the predominance and
percentages referred to in the said clauses shall be in relation to the base
fabric which are impregnated, coated or laminated, as the case may be. The
proviso excludes any room for the argument that the predominance or percentages
referred to in the aforesaid clauses (i) and (ii) should be applied to the
impregnated, coated or laminated fabrics. Parliament did not even stop with
this. To make its meaning even more clearer, it appended Explanation 1 defining
the expression "base fabrics". The Explanation says that " 'base
fabrics' means fabrics falling under sub-item (1) of this item which are
impregnated, coated or laminated with preparations of cellulose derivatives or
of other plastic materials For a fuller appreciation of Explanation 1, it would
be appropriate to refer to sub-item (1) of the Tariff Item as also sub-items
(11), (111) and (IV). Sub-item (1) expressly speaks of " 'cotton fabrics'
other than ... (ii) fabrics impregnated, coated or laminated with preparations
of cellulose derivatives or of other artificial plastic materials The duty on
such cotton fabrics is 20% ad valorem and the special excise duty is 10% of the
basic chargeable duty irrespective of the fact whether such cotton fabrics fall
under clause (a) or clause (b) mentioned under the said sub-item. Sub-item (1)
may be contrasted with sub-item (III) which pertains to "cotton fabrics
impregnated, coated or laminated with preparations of cellulose derivatives or
of other artificial plastic materials", the rate of duty whereon is the
duty for the time being leviable on the base fabric, if not already paid, plus
30% ad valorem. (The special excise duty is retained at 10% of the basic duty
chargeable.) It may also be seen that sub-item (11) deals with "embroidery
in piece, in strips or in motifs in relation to the manufacture of which any
process is ordinarily carried on with the aid of power" while sub-item
(IV) deals with "cotton fabrics covered partially or fully with textile
flocks or with preparations containing textile flocks such as flock printed
fabrics and flock coated fabrics". Separate rates of duty are prescribed
for each of these sub-items. It would thus be clear that the cotton fabrics simpliciter
including dhoties, sarees, chaddars, bed-sheets, bedspreads, counter-panes and
table-cloths fall under sub-item (1), while the other three categories included
within the ambit of cotton fabrics fall within sub- items (11), (111) and (IV)
respectively.
6.
Now, coming back to Explanation (1), it says that "base fabrics",
defined by it and referred to in the proviso, means the cotton fabrics falling
under subitem (1) of this Item, i.e., cotton fabrics excluding inter alia
fabrics impregnated, coated or laminated with preparations of cellulose
derivatives or of other artificial plastic material; We are of the opinion that
in view of the clear language of the proviso read with Explanation 1, there
remains no room for the 686 argument that the predominance and percentages
referred to in clauses (i) and (ii) (occurring at the end of the first para of
the Tariff Item) must be applied not in relation to the base fabric but in
relation to the coated fabric or for that matter impregnated or laminated
fabric. Clauses (i) and (ii) were found necessary for the reason that
"cotton fabrics" means not only fabrics manufactured wholly of cotton
but also fabrics manufactured partly from cotton.
The
two clauses clarify what does the cotton fabric manufactured partly of cotton
mean.
7. Shri
Sorabjee cited several decisions of this Court holding that in interpreting the
meaning of the words in a taxing statute like the Excise Act, the meaning
assigned to the words by the trade and its popular meaning should be accepted
and that the test to be applied is to see how the product is identified by the
class or section of people who deal in the product or who use the product.
There can be no quarrel with the said proposition but it applies only when the
words in question are not defined in the Act. This is so held by this Court in
India International Industries v. CST, U.p.2 It says : (SCC p. 530, para 4)
"It is well settled that in interpreting items in statutes like the Excise
Tax Acts or Sales Tax Acts, whose primary object is to raise revenue and for
which purpose they classify diverse products, articles and substances, resort
should be had not to the scientific and technical meaning of the terms or
expressions used but to their popular meaning, that is to say, the meaning
attached to them by those dealing in them. 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." In this view of the matter, we do not think it necessary to deal
with the several decisions cited by Shri Sorabjee regarding the relevance of
commercial or common parlance test.
8. It
is next contended by Shri Sorabjee that the Government of India, acting as the
revising authority under the Act has also taken the view that if the end
product has lost its identity as a cotton fabric, it cannot be said to fall
within the expression "cotton fabrics" under Tariff Item 19. Reliance
is placed upon its decision in Dunlop India Ltd., Re3. We do not think that on
a question of interpretation of a Tariff Item, we should be bound by the view
taken by the Government of India in a particular case.
(The
said decision does not also pertain to refine cloth but to conveyor belt). This
Court is the final authority to interpret the Tariff Item and cannot be bound
by the interpretation placed by an authority under the Act.
9. It
is argued by Shri Sorabjee that after coating, the cotton fabric no longer
retains its identity as cotton fabric and that a new distinct commodity
emerges. It is submitted that if the degree and extent of lamination or coating
of fabric is such that it ceases to retain its identity as cotton fabric and a
new distinct commodity emerges as a result of such coating or lamination, the
resultant product cannot be regarded as cotton fabric within the meaning of
Tariff Item 2 (1981) 2 SCC 528: 1981 SCC (Tax) 130 3 (1982)1O ELT 634 687
9.
This argument does not take into account the fact that Parliament has chosen to
include the coated/laminated fabrics within the ambit and purview of
"cotton fabrics" and Parliament's power to do so is not questioned
and probably cannot be questioned. The fact remains that to start with it is a
cotton cloth upon which certain coating material is applied.
10. We
have already held that the predominance or the percentages referred to in
clauses (i) and (ii) (occurring at the end of the first para of the Tariff
Item) is applicable only in relation to the base fabric as clarified and
defined in the proviso and Explanation 1. It must follow therefrom that the
question of predominance or percentages is irrelevant in the case of
respondent's product inasmuch as the base fabric in the respondent's product is
100% cotton. The argument to the contrary is, however, based upon the decision
of this Court in Multiple Fabrics1. The said decision dealt with Tariff Item 22
and the product concerned was PVC conveyor belting manufactured by the
respondent therein. Tariff Item 22 deals with "man-made fabrics" and
the entry is substantially in the same terms as Tariff Item 19. Tariff Item 22
also contains a proviso and Explanation 1 corresponding to the proviso and
Explanation 1 in Tariff Item 19. But unfortunately the proviso was not brought
to the notice of the Court. Though Explanation 1, was noticed, its purport was
not given effect to while holding that "in view of the higher percentage
of PVC compound in commodity, it becomes difficult to treat the ultimate goods
as man-made fabrics for holding that it is covered by Item 22". Indeed,
the above reason is the second of the two reasons given for holding in favour
of the respondent-manufacturer. The first reason is that since the manufacture
of fabric and application of PVC compound is simultaneous, there is no
preexisting base fabric for the purposes of and within the meaning of Tariff
Item 22. Be that as it may, since the proviso was not brought to the notice of
this Court and for that reason the significance of Explanation 1 escaped the
Court's notice, it is difficult to hold that the said decision lays down the
correct interpretation of Tariff Item 22 or that it helps the respondent before
us in interpreting Tariff Item 19.
11. A
look at Tariff Item 19 before its amendment in 1969 confirms the correctness of
our interpretation. Prior to 1969, the only goods included within the
expression "cotton fabrics" were, what we called category (a) goods.
Goods in categories (b), (c) and (d) were not there. Yet the percentages were
there. Tariff Item 19 as it then stood and insofar as is relevant read thus "
19. COTTON FABRICS 'Cotton fabrics' means all varieties of fabrics manufactured
either wholly or partly from cotton and include dhoties, sarees, chaddars,
bed-sheets, bedspreads, counter-panes and table-cloths, but do not include any
such fabric-
(a) if
it contains 40 per cent, or more by weight of wool;
(b) if
it contains 40 per cent, or more by weight of silk; or
(c) if
it contains 60 per cent, or more by weight of rayon or artificial silk."
It may
also be mentioned that the proviso and Explanation 1 came in along with the
inclusion of the new goods, in particular, coated or laminated fabrics within
the ambit of "cotton fabrics", by virtue of the Finance Act, 1969,
which amended the Tariff Item.
688
12. Shri
Sorabjee lastly contended that the coating material employed by the respondent
in his product is not one of the impregnating, coating and laminating materials
referred to in Tariff Item 19. In other words, his submission is that the
coating material does not represent either "preparations of cellulose
derivatives" or "other artificial plastic materials". He
submitted that this submission wasq raised by the respondent both before the
Collector (Appeals) as well as before the CEGAT but was not pronounced upon
specifically in view of the fact that they held in favour of the respondent on
other grounds.
13. We
have seen the grounds of appeal preferred by the respondent before the
Collector (Appeals). It does not contain any ground to the above effect. The
order of the Collector (Appeal) refers to the argument of the respondent's
counsel that "the Assistant Collector has wrongly referred the
plasticizers and fillers as materials falling under the then Tariff Item 15-A,
i.e., plasticizers without any application of mind" and the further
argument that "in fact plasticizers are chemicals and fillers and other
goods which are not covered nor are assessed under Tariff Item 15-A not being
plastic materials". On the above basis, it was argued that the predominant
material in the refine cloth is not plasticizer inasmuch as the plastic content
is only 24.5%. For appreciating the said argument, one has to turn to Tariff
Item 15-A, which speaks of "artificial or synthetic resins and plastic
materials and cellulose esters and ethers, and articles thereof'. It may be
noticed that the goods referred to under Tariff Item 15-A and the coating
material referred to in Tariff Item 19 are not identical. Tariff Item 19 speaks
of impregnation, coating and lamination by "preparations of cellulose
derivatives or of other artificial plastic materials". So far as the
Tribunal is concerned, only one Member (Shri P.C. Jain), in his dissenting
opinion, deals with this aspect in para 16 of his judgment. He rejects the said
argument holding that "PVC formulation being used by the respondent
company is certainly governed by the expression 'other artificial plasticizers'
". For the said proposition, the learned Member relies upon the decision
in Chemicals and Fibers India Ltd. v. Union of India4, a decision of the Bombay
High Court wherein it was held that "whereas synthetic resin is a polymer
itself, plastic is polymer plus such additives as fillers, colorant
plasticizers etc.".
Pausing
here for a moment, we may say that even according to the respondent the coating
material is of three categories, viz., PVC resin 24.5%, plasticizers 13.0% and
other fillers, calcium carbonate, secondary plasticizers, pigments, solvents,
thinners and foaming agents 54.5%. Now, PVC resin is also a plastic as would be
evident from the meaning given to it in Encyclopedia Americana, Vol. 22, p. 375
(1988 Edn.). The following statement occurs therein:
"POLYVINYL
CHLORIDE (PVC) is a tough, strong thermoplastic polymer with an excellent
combination of physical and electrical properties. One of the leading plastics,
PVC is used in a wide variety of products, including coated fabrics for
upholstery and raincoats, garden hoses, pipes, phonograph, records,
floor-tiles, food-wrap films and insulation for wire and cable. PVC products
basically are made from a powdery PVC resin, which in turn is made from a gas
called vinyl chloride (VC). A large number of molecules of vinyl chloride
(CH2-CHCI) are linked like beads on a chain to form the PVC polymer (-
CH2CHCI-)." 4 (1982) 10 ELT 917(Bom) 689 To the same effect is the
statement in McGraw-Hill Encyclopaedia of Science and Technology, Vol. 14, p.
170 (1987 Edn.) :
"Polyvinyl
chloride (PVC) is a tough, strong thermoplastic material which has an excellent
combination of physical and electrical properties. The products are usually characterised
as plasticised or rigid types.
Polyvinyl
chloride (and copolymers) is the second most commonly used in polyvinyl resin
and one of the most versatile plastics."
14.
The second category is plasticizers (13%), which is undoubtedly one of the
basic materials of the plastics. (See Encyclopaedia Americana, Vol. 22 at p.
217). Even in the third category, there are plasticizers but we do not know to
what extent. It thus appears ex facie that the coating material employed by the
respondent is predominantly, if not wholly, "other artificial plastic
materials".
15.
The majority opinion, of course, does not refer to this aspect at all.
16. No
reasons are shown and no material is placed before us to show that the said
opinion of the Member of the Tribunal (Shri P.C. Jain) is not correct. The only
submission has been that the matter be remitted to the Tribunal for a decision
on this question. We are not inclined to do so, for if this were the case, the
respondent ought to have put forward this argument at the forefront and not
concern itself with the interpretation of the Tariff Item. It could have simply
said, "my coating material is not one contemplated by the Tariff
Item", and if it were so, no further question would have arisen. Instead,
it concentrated upon the applicability of the clauses relating to predominance
and percentages relying upon the decision of this Court in Multiple Fabrics1.
Before the Collector (Appeals) it relied upon Tariff Item 15-A and submitted
that since its coating material is not covered by Tariff Item 15- A, Tariff
Item 19 is also not attracted. For all the above reasons, we are not inclined
to accede to the request for remand of the matters to the Tribunal for deciding
the said question.
17.
The appeals are accordingly allowed and the orders of the CEGAT and Collector
(Appeals) are set aside. The order of the Original Authority is restored. No
costs.
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