Cargo Tarpaulin Industries vs Commr. of C. Ex., Bangalore>2003(02)LCX0076

2003(02)LCX0076

IN THE CEGAT, NORTHERN BENCH, NEW DELHI

S/Shri S.S. Kang, Member (J) and V.K. Agrawal, Member (T)

CARGO TARPAULIN INDUSTRIES

Versus

COMMR. OF C. EX., BANGALORE

Final Order No. 139/2003-NB(B), dated 24-2-2003 in Appeal No. E/1226/94-D

CASE CITED

Ducksole (I) Ltd. v. Commissioner — 2000(01)LCX0163 Eq 2000 (125) ELT 0830 (Tribunal) — Referred..... [Paras 2, 5]

DEPARTMENTAL CLARIFICATIONS CITED

C.B.E. & C. Circular No. 6/91-CX-1, dated 11-4-1991................................................... [Paras 2, 5]

C.B.E. & C. Circular No. 254/88/96-CX., dated 18-10-1996............................................... [Para 4]

REPRESENTED BY : Shri B.L. Narasimhan, Advocate, for the Appellant.

Shri Vikas Kumar, SDR, for the Respondent.

[Order per : V.K. Agrawal, Member (T)]. - The issues involved in this appeal, filed by M/s. Cargo Tarpaulin Industries, are whether Tarpaulin Cloth is classifiable under Heading No. 52.06 of the Schedule to the Central Excise Tariff Act as claimed by them or under Heading No. 59.06 as confirmed by the Collector in the impugned order and whether Tarpaulins were manufactured by them without the aid of power.

2. Shri B.L. Narasimhan, learned Advocate, submitted that the Appellants are engaged in the manufacture of wax treated cotton canvas cloth and tarpaulins stitched therefrom; that the wax is melted and mixed with other raw materials and then is shifted to the wax dipping machine; that the grey cloth is passed through the mix and the cloth picks up the wax; that the Collector has classified the tarpaulin cloth under Heading 59.06 holding that cloth is nothing but a coated/impregnated cloth which is evident from the process of manufacture undertaken by the Appellant and the impregnation/coating or covering is visible with the naked eye. The learned Advocate, further, submitted that Note 4 to Chapter 59 provides that Heading 59.06 does not apply to “fabrics in which the impregnation, coating or covering cannot be seen with the naked eye (usually Chapters 50 to 55, 58 or 60)”; that thus for a product to be classified under Heading 59.06 it is essential that the impregnation, coating or covering should be such that it can be seen with the naked eye; that the Chief Chemist on re-test has opined that the interstices between the yarns are not completely filled; light passes through the interstices and wrap and weft yarns of the fabrics are visible with naked eye; that thus it is apparent that there was no visible layer formation which is necessary to classify the fabrics under Heading 59.06; that the Central Board of Excise & Customs has clarified vide Circular No. 6/91-CX. 1, dated 11-4-1991 that “For classifying a product as otherwise impregnated/coated fabrics falling under sub-heading 59.06, there should be a visible formation of layer on the surface of the fabric...”; that as there is no visible layer formation, the impugned product cannot be classified under Heading 59.06. He also mentioned that the Chief Chemist has given the test report dated 13-9-1993 in respect of three units namely Ducksole (India), Nandi Tarpaulin and the Appellants; that the Appellate Tribunal in the case of other assessees has held their product classifiable under Heading 52.06 - Ducksole (I) Ltd. v. C.C.E., Bangalore - 2000(01)LCX0163 Eq 2000 (125) ELT 0830 (T). The Tribunal has held as under :-

“No doubt the sample was drawn of the fabric and got tested from the Chemical Examiner who opined that it was yellow colour woven fabric composed of cotton base fabrics coated/impregnated with the preparation of waxy matter and the coating/impregnation could be seen with the naked eyes. But his report was admittedly not accepted by the appellants and retesting of the samples drawn was got made from the Chief Chemist, Central Revenues, Delhi. He examined three samples and opined that each of the three samples, was treated by impregnation with the preparation of waxy matter and aluminium stearate but interstices between the yarn were not completely filled, light could pass through interstices wrap and weft yarns of the fabrics in each of the samples were visible with naked eyes. He did not endorse the opinion of the Chemical Examiner that coating or impregnation could be seen with naked eyes. His report thus superseded the report of the Chemical Examiner and the Revenue could not doubt its correctness having been given by the Head of Central Revenue Control Laboratory, Government of India. Therefore, in view of his report and the process adopted by the appellants referred to above, their product Tarpaulin cloth did not fall within the ambit of Heading 59.06 of the Tariff in view of Section Note 5 appended to this heading and the Board’s circular issued thereunder referred to above. It is covered only by Chapter 52 (Heading 52.06.)”.

3. The learned Advocate, further, mentioned that as regards the tarpaulin, the Collector has proceeded to confirm the demand on the entire quantity when only occasionally power was used for stitching; that at the very first day of investigation, the Appellants had clearly indicated that generally the tarpaulins were stitched without the aid of power; that as such the impugned order demanding duty on the entire quantity of tarpaulin is liable to be set aside. Finally he submitted that the benefit of small scale exemption would be available to them as their clearances had not exceeded the limit of value of clearances specified in the SSI exemption Notification; that for the same reason no penalty is imposable on them.

4. Countering the arguments, Shri Vikas Kumar, learned SDR, submitted that the Board has mentioned in the Circular No. 254/88/96-CX., dated 18-10-1996 that the classification of the Tarpaulin cloth may be decided on the basis of facts and circumstances of each case keeping in view the visibility criteria; that as per the process of manufacture, the cloth is not only dipped in the tank but passed through two rollers and squeezed to the required thickness; that the coated fabric thus obtained is having a layer which is visible to the naked eye; that even Chief Chemist had opined that the sample was treated by impregnation with the preparation of waxy matter; that Chemical Examiner had stated in his report dated 18-9-92 that the coating/impregnation can be seen with the naked eye; that thus the tarpaulin cloth is appropriately classifiable under Heading 59.06 of the Tariff. The learned SDR, further, submitted that during the visit of the officers to the Appellants’ premises, Shri G.N. Durgoji Rao of the appellants had admitted the fact of use of power by them in the manufacture of tarpaulin; that the officers also found them using electric power in the manufacture of tarpaulin. He finally mentioned that the Appellants have not claimed SSI exemption initially at the time of adjudication before the Collector; that as the Appellants have suppressed the use of power, penalty is imposable on them.

5. We have considered the submissions of both the sides. Heading 52.06 applies (at the material time) to cotton fabrics woven on looms other than handlooms and subjected to the process of, inter alia, water-proofing. Heading 59.06 applies to “Textile fabrics, otherwise impregnated, coated or covered (including fabrics covered partially or fully with textile flocks or with preparations containing textile flocks). Note 5 to Chapter 59 mentions that Heading No. 59.06 does not apply to fabrics in which the impregnation, coating or covering cannot be seen with the naked eye. This criteria has also been emphasised by the Board in Circular dated 11-4-1991 dealing with the classification of tarpaulin/processed water-proof canvas cloth. According to the Circular, there should be a visible formation of layer on the surface of the fabrics as per Note 4 to Chapter 59. It is apparent from the test report dated 13-9-1993 of the Chief Chemist that “interstices between the yarns are not completely filled, light passes through the interstices, warp and weft yarns of the fabrics are visible with naked eyes”. The learned Advocate has thus rightly pointed out that once the warp and weft yarns of the fabrics are visible and light passes through the interstices, it cannot be claimed that there was a visible formation of layer on the surface of the fabric. The Board in another Circular dated 18-10-1996 has reiterated that “a visible layer is different from uneven residues and patches, and it should be a uniform coating visible by the naked eye otherwise than through a change of colour.” It is also mentioned in the said circular that water-proofed fabrics are specifically mentioned under Chapter 52 of CETA - unlike the HSN. “Hence this entry would prevail over the entry in the Explanatory Notes to HSN.” The Circular also refers to “I.S. Standard I.S. : 2089-1977 for water-proofed fabrics and paulines, that for manufacture of tarpaulin, firstly canvas/duck fabrics are water-proofed (which are covered by Chapter 52); and later these are converted into tarpaulins by stitching and putting eyelets. “Moreover the Appellate Tribunal in the case of Ducksole (I) Ltd., in whose respect also the Chief Chemist had given report under the said letter dated 13-9-93, and who were also passing the dipped cloth through the manually operated rollers, has held that Tarpaulin cloth did not fall within the ambit of Heading 59.06 in view of Note 4 to Chapter 59 and it is covered only by Heading 52.06. We, therefore, hold that the Tarpaulin cloth manufactured by the Appellant is classifiable under Heading 52.06 of the Tariff.

6. Notification No. 65/87-C.E., dated 1-3-87 provided a nil rate of duty in respect of tarpaulins falling under Heading 63.01 if made without the aid of power. It has been admitted by Shri G.N. Durgoji Rao, General Power of Attorney Holder, in his statement, that power was being used in the manufacture of Tarpaulin. Further it has not been rebutted by the appellants that when Central Excise Officers visited their factory premises the power was being used by them for manufacturing tarpaulins. They have also not brought on record any material or evidence to prove that power was not being used regularly. We are thus of the view that Revenue has shown the use of power in the manufacture of tarpaulins whereas the appellants, who are claiming benefit of exemption Notification No. 65/87, has not established that the tarpaulins were made without the aid of power. Accordingly Central Excise duty is chargeable on tarpaulins. We also agree with the learned SDR that penalty is imposable on them. However, as the matter has to go back to the jurisdictional Commissioner for examining as to whether the benefit of small scale exemption Notification is available to them and quantum of duty has to be re-determined, we are leaving the question of imposition of penalty to the Adjudicating Authority. The Appellants should submit the proof for availing SSI exemption to the Adjudicating Authority within one month of receipt of this Order. Thereafter, the Adjudicating Authority will decide the question of eligibility of SSI Notification, amount of duty chargeable on tarpaulins and quantum of penalty, if any, after affording a reasonable opportunity of hearing to the Appellants.

The Appeal is thus disposed of in the above terms.

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Equivalent 2003 (154) ELT 0514 (Tri. - Del.)