Kalpataru Industries vs Commissioner of Central Excise, Mumbai>2003(06)LCX0088

2003(06)LCX0088

IN THE CESTAT, WEST ZONAL BENCH, MUMBAI

S/Shri Gowri Shankar, Member (T) and G.N. Srinivasan, Member (J)

KALPATARU INDUSTRIES

Versus

COMMISSIONER OF CENTRAL EXCISE, MUMBAI

Order No. 1279/2003-WZB/C-II, dated 10-6-2003 in Appeal No. E/1928/97-Bom.

CASES CITED

Ashish Enterprises v. Commissioner — 2002(06)LCX0110 Eq 2002 (145) ELT 0628 (Tribunal) — Relied on ........ [Paras 2, 4]

Commissioner v. Ratan Tarpaulin Water Proof Industries — 1999(09)LCX0282 Eq 2000 (126) ELT 0782 (Tribunal) — Relied on [Paras 2, 7]

DEPARTMENTAL CLARIFICATION CITED

Trade Notice No. 45/91, dated 1-5-1991 of Bombay Collectorate of Central Excise............ [Paras 8, 11]

REPRESENTED BY : Shri V.S. Nankani, Advocate, for the Appellant.

Shri M.K. Gupta, Jt. CDR, for the Respondent.

[Order per : Gowri Shankar, Member (T)]. - The question for consideration in this appeal is the classification of the fabrics that the appellant manufactures. It subjects the cotton grey fabric for process of treatment. During this treatment, a solution consisting of paraffin wax which is the predominant ingredient also includes ochre, lubricating oil and aluminium stearate. It is applied to both sides of the fabric. The appellant has classified these goods in Heading 52.07 of the tariff. This heading is for cotton fabrics subjected to industrial process of waterproofing without the aid of steam or power. It is contended that the appellant does not use steam or power in its manufacture. The notice issued to it proposed classification of the goods in Heading 59.06, as a fabric otherwise impregnated. The notice relied upon a report of test conducted by the Deputy Chief Chemist at Mumbai which indicated the goods to be composed of canvass cotton fabric heavily impregnated with paraffin wax, earthy matter and inorganic compounds. The assessee contended in reply that the object of the processing was only to render the fabrics waterproof. The goods are therefore correctly classifiable in Heading 5207.07. It also asked for retest by the Chief Chemist, which showed it to be impregnated with the preparation of waxy material, iron oxide and aluminium sterate and such impregnation is being visible to the naked eye. In its reply, the assessee contended that the object of the impregnation was only to render the fabrics waterproof and it would therefore be more appropriately classifiable in Heading 5207.07. The Assistant Collector did not accept this contention. He found that since the impregnation which is visible by naked eye, the goods are correctly classifiable in Heading 5906.90 and the benefit of exemption contained in Notification No. 48/90 would not be available. This order having been confirmed by the Commissioner (Appeals), the assessee has come before us.

2. The contention of the Counsel for the appellant is this. Clause (a) of Note 5 to Chapter 59 makes it a condition for classification in Heading 59.06 that provides that Heading 59.06 does not apply to fabrics in which impregnation, coating or covering cannot be seen with naked eye (for which purposes no accounts will be taken resulting in change). This however does not mean to the variable conclusion that where impregnation, coating or covering can be seen with the naked eye, the goods will automatically fall for classification in Heading 59.06. This heading would cover fabrics which are otherwise impregnated, coated or covered i.e. fabrics which do not fall under Headings 59.01 and 59.05; Heading 52.07 is specific for cotton fabrics subjected to the processes specified therein, including waterproofing. The goods are therefore more appropriately classifiable in Heading 52.06. He relies upon the decisions of the Tribunal in CCE v. Ratan Tarpaulin Water Proof Industries - 1999(09)LCX0282 Eq 2000 (126) ELT 0782 (T) = 1999 (035) RLT 821 and Ashish Enterprises v. CCE - 2002(06)LCX0110 Eq 2002 (145) ELT 0628 (T) = 2002 (053) RLT 237.

3. The departmental representative relies heavily upon the fact that the goods have been found to be so impregnated as to make the impregnation visible to the naked eye. This justifies classification of the goods in Heading 59.06.

4. Heading 59.06 covers textile fabrics “otherwise impregnated, coated or covered”. The reference to the presence of the words “otherwise impregnated” is obviously to exclude from its scope impregnated, coated or covered textile fabrics which would fall for classification in any of the Headings 59.01 to 59.05. Each of these entries relates to textile fabrics coated, impregnated or covered. Therefore, it is only those coated, covered or impregnated textile fabrics which would fall for classification in Headings 59.01 to 59.05 that will fall for classification in Heading 59.06. Many of the articles classifiable in any of the preceding headings will themselves have impregnation which may be visible to the naked eye. In fact Note 2 to Chapter 59 itself excludes from classification in Heading 59.03 textile fabrics impregnated, coated, covered or laminated with plastics. Only the impregnation, coating or covering cannot be seen with the naked eye. Therefore, the mere presence of impregnation, coating or covering which can be seen by the naked eye does not by itself automatically result in the goods being classifiable in Heading 59.06. In the Harmonised System of Nomenclature, the presence of such impregnation, coating or covering would perhaps lead to the conclusion that the goods would be classifiable in any of the Headings 59.01 to 59.06. However, the Central Excise tariff with which we are concerned had made a departure. We have following say about this departure. In our decision in Ashish Enterprises v. CCE - 2002(06)LCX0110 Eq 2002 (145) ELT 0628 (T) = 2002 (053) RLT 237, we have held in paragraph 5 as follows :-

“5. Headings 52.06 and 52.07 of the tariff are for cotton fabrics woven on looms other than the handloom and subject to bleaching, mercerising, dyeing, printing, waterproofing, shrinkproofing, organdieproofing or any two or more of these processes. Heading 52.06 is for fabrics so processed with the aid of power or steam and 52.07 is for fabrics processed without the aid of power or steam. There is no heading in the Harmonized System of Nomenclature corresponding to these headings. Heading 59.06 of the tariff is identically worded as Heading 59.07 of the HSN. Hence, the explanatory notes of Heading 59.07 would apply to Heading 59.06 of the tariff. From a consideration of these provisions it appears to us that fabrics which are coated, covered or impregnated only to render them creaseproof, mothproof, unshrinkable or waterproof will not be classifiable under Heading 59.07 either in the HSN nomenclature or in the tariff. Such fabrics will fall under Chapter 52 of the HSN and in the case of the tariff, under Heading 52.06 or 52.07 if they are other than handloom fabrics. In the case of fabrics with which we are concerned i.e., fabrics coated with wax, if the coating is done only in order to render the fabrics creaseproof, mothproof, unshrinkable or waterproof it will fall under Headings 52.06 or 52.07. If the coating is performed for any other purpose it will fall under Heading 59.06. The apparent analogy arises as a result of the words in the tariff Headings 52.06 or 52.07 there are no corresponding headings in the HSN. Any other interpretation would render either the HSN Explanatory Notes inapplicable or the words of the Headings 52.06 and 52.07 redundant.”

5. Heading 59.06 of the tariff, at the relevant time (it is now Heading 59.07), was correspondent with Heading 59.07 of the Harmonized System of Nomenclature. Note 5 to Chapter 59 both in the HSN and tariff, specified goods to Heading 59.07 (in the HSN) corresponding to Heading 59.06 in the tariff, does not apply. Clause (a) specifies fabrics in which the impregnation, coating or covering cannot be seen with naked eye, for which purpose no accounts should be taken or when it is resulting in change of colour. The contention of the Counsel for the appellant that, in the manner in which the clause is worded, it can only lead to the conclusion that fabric in which the impregnation, coating or covering cannot be classified in this heading. The converse, he says, that if the impregnation, coating or covering can be seen with the naked eye, it must be classified in this heading, does not hold true. The heading covers fabrics otherwise impregnated, coated or covered. The word “otherwise” as employed has not exclude fabrics of Headings 59.01 to 59.06, some of which may be coated or impregnated. Therefore, the textile fabric that is impregnated, coated or covered, does not fall for classification in any of the preceding headings of Chapter 59, it will prima facie fall for classification in Heading 59.07. Thereafter, by applying the provisions of Note 5, fabrics specified therein will be excluded. The question of whether the coating, covering or impregnation can or cannot be seen to the naked eye, it would only arise in the case of fabrics so coated, covered or impregnated. This argument therefore has really significance. On a comparison of the words of the heading, and the notes, it is therefore legitimate to conclude that fabrics which are coated, covered or impregnated other than those which are classifiable in Headings 59.01 to 59.07 and other than those in which the coating, covering or impregnation cannot be seen with naked eye would fall for classification in Heading 59.07.

6. What we have now to consider is the effect, if any, of the words of Headings 52.07 and 52.08. Each of these headings which relates to woven fabrics of cotton containing 85% or more by weight in the case of Heading 52.07 and less then 85% of cotton fabrics mainly or solely with other cannot meet in the case of 52.08 containing sub-headings for fabrics other than denim “subjected to the process of bleaching, mercerising, dyeing, printing, waterproofing, organdie processing or any one or more of these processes.”

7. The Tribunal, by its decision in CCE v. Ratan Tarpaulin Water Proof Industries - 1999(09)LCX0282 Eq 2000 (126) ELT 0782 (T) = 1999 (035) RLT 821, had also relied upon the presence of this heading. These headings in Chapter 52 of the tariff and their absence in the HSN in justifying classification of fabrics are excluded (with Note 5 to this chapter); these usually fall in Chapters 50 to 55, 58 or 60. Examples of these excluded fabrics are those impregnated with size, starch or similar dressings (e.g., organdies, muslin), or with substances designed solely to render them crease-proof, mouth-proof, unshrinkable or waterproof e.g., waterproof gabardines or poplins). Therefore, at least some varieties of textile fabrics which have been coated, covered or impregnated solely to render the waterproof would be classifiable in Chapters 50 to 55, 58 or 60. Cotton fabrics to be classifiable in Chapter 52. The exclusion note to the HSN that we have cited indicates that the impregnation, coating or covering done on fabrics solely to render them crease-proof, mouth-proof, unshrinkable or waterproof would not be visible to the naked eye, at least would not be in some cases.

8. We see these two possible answers to the question as to the classification of fabrics (other than those in Headings 59.02 to 59.05) of fabrics impregnated, coated or covered. One view is that, as long as impregnation, coating or covering is visible to the naked eye, irrespective of the purpose for which it is done it falls in Heading 59.06. That heading, in clear terms to such fabrics the purpose for which the processes are carried out is irrelevant, we are only concerned with the end result, the formation of visible eye on the fabric. This is what in fact the Ministry’s circular reproduced in the Trade Notice No. 45, dated 1-5-1991 of the Bombay Collectorate of Central Excise says. The other view is that whether visible or not if the processes have been undertaken in order to render the fabric waterproof, it should be classified in Chapters 50 to 52 or in Heading 59.06. The argument in favour of this classification which had been affirmed in the Tribunal’s decision cited above, is that this is the most specific heading.

9. As we have noted, the sub-headings in 52.06 and 52.07 relating to processed fabrics including among other fabrics, are by way of departure from the provisions of the HSN; there is no such provision in that nomenclature. If the intention were to exclude from these headings fabrics which have rendered waterproof by having been coated, covered or impregnated whether being able to be seen or not without the naked eye, that intention could easily have been made manifest. All that was required was to put in words in Headings 59.06 or 59.07 which would say that the heading would not apply to fabrics subjected to the process specified in the sub-heading by coating, covering or impregnating them. The same result could have been achieved by interpreting the index in notes to any of the Chapters 59 or 52. This has not been done. Heading 59.07 covers any fabrics which have been subjected to the process inter alia of waterproofing. It does not exclude a particular process or processes by which this object has been achieved. It is not anybody’s case that coating, covering or impregnating a fabric is not a process specified in Headings 52.07 or 52.08. Therefore, on a plain reading of the heading, the fabrics which have been subjected to any process (including coating, covering or impregnation) so as to render them waterproof will fall in Heading 52.07. In fact, as we have noted, even the Explanatory Notes to the HSN seem to suggest that the fabrics which are coated, covered or impregnated render them waterproof etc. would not fall in Heading 59.07, for the reason that such coating, covering or impregnation does not result in the process being visible to the naked eye, which is a pre-requisite to classification in Heading 59.07, but the last point is only in the nature of an aid and cannot by any means be the sole determinant. We do not have sufficient material before us to say what the processes are generally undertaken to render the fabrics waterproof and whether the processes involved coating, covering or impregnation is invariably, generally sometimes or rarely visible to the naked eye. In the case before us, there is no doubt expressed by the department that the coating, covering or impregnation done on the fabrics for the purpose of waterproof. The appellant submitted in its reply that the fabrics were subjected to various processes that is specified in order to render them waterproof so as to conform with the Indian Standard Specifications for tarpaulin in its Standard IS : 2089 of 1977.

10. In fact the Explanatory Notes to Heading 59.07 say, referring to impregnated, coated or covered fabrics, “This group covers textile fabrics (excluding those of Headings 59.01 to 59.06), which have been impregnated, coated or covered, provided the impregnation, coating or covering can be seen with the naked eye; for that purpose, no account should be taken of any resulting change of colour.” It goes on to say that “textile fabrics in which the impregnation, coating or covering cannot be seen or can be seen only by reason of a resulting change in colour, and fabrics finished with normal dressings having a basis of amylaceous or similar substances, are excluded (see Note 5 to this Chapter); these usually fall in Chapters 50 to 55, 58 or 60. Examples of these excluded fabrics are those impregnated with size, starch or similar dressings (e.g., organdies, muslin), or with substances designed solely to render them crease-proof, mouth-proof, unshrinkable or waterproof.” Now, by applying this note, it would follow that any fabric which has been given a coating so as to render it waterproof would be classifiable in Heading 59.06, if the coating is visible to the naked eye (no account being taken of change in colour). What is the position, if the coating is not visible to the naked eye? Headings 52.06 and 52.07, as we have noted, are not part of the Harmonised System of Nomenclature. These two headings introduce a specific heading including for fabrics which have been subjected to any of the processes specified therein, among which is waterproofing. By a plain reading of the words of this heading, any fabric which has been subjected to waterproofing by any means whatsoever, irrespective of whether the result of such process is visible to the naked eye or not, would be classifiable in one of them.

11. There is clearly a conflict between these two headings. If the legislative intent, in introducing Headings 52.06 and 52.07, were to exclude therefrom classification of fabrics which would otherwise be classifiable in Heading 59.06, it could have been made clear, either by appropriately amending Note 5 to Chapter 59, introducing a note to Chapter 52 or specifically excluding from heading fabrics of Headings 59.06 and 59.07. None of these has been done. The Board’s circular no doubt expresses one point of view, that it is the presence of visible layer that it determined for classification. It however does not answer the question as to why, if that were the intention, none of these steps which comes to account was taken. In that situation, therefore, we do not think it would be appropriate to say that the sole test to be applied of the visibility or otherwise to the naked eye of the coating, covering or impregnation. That would in effect result in ignoring the terms of Headings 52.06 and 52.07 which demand classification of waterproof fabrics in them without any qualification. On balance therefore, we must conclude that there is no ground for reconsideration of the earlier decision of the Tribunal, holding that such fabrics are classifiable in Chapter 52.

12. The appeal is accordingly allowed and the impugned order set aside.

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Equivalent 2003 (156) ELT 0297 (Tri. - Mumbai)