2003 (2) TMI 416 - AT - Central Excise

Summary

Issues:
Dutiability of processed embroidery under Central Excise Tariff Chapter 58.

Analysis:
1. The main issue in the appeals was the dutiability of processed embroidery under Chapter 58 of the Central Excise Tariff. The appeals involved conflicting decisions by the Commissioner (Appeals) regarding whether embroidery should be considered fabric and thus attract duty under Note 8 of Chapter 58.

2. The assessees argued that embroidery should not be classified as fabric, as Chapter 58 includes various items like special woven fabrics, tufted fabrics, lace, and embroidery. They highlighted that the specific mention of fabrics in other tariff headings within Chapter 58 indicated that embroidery is a separate art form on fabrics and not a process of manufacturing fabrics.

3. The assessees further contended that the wording of Note 8, which states "in relation to fabrics of this Chapter," implies that the note applies only to fabrics falling under Chapter 58 and not to other goods within the chapter. They emphasized that the legislative intent was to treat embroidery as a distinct manufacturing activity separate from fabric production.

4. The Revenue argued that embroidery, when carried out on fabrics, should be classified under Heading 5805 of the Central Excise Tariff. They referred to a decision by the Kerala High Court regarding embroidered cotton sarees being classified as cotton fabrics for sales tax purposes.

5. The Tribunal clarified that the issue was not whether fabrics retain their identity after embroidery but whether embroidery itself should be considered fabric for the purpose of attracting duty under Note 8. The scheme of the Central Excise Tariff treated fabric and embroidery as separate manufacturing activities, with specific headings for different types of fabrics and embroidery.

6. The Tribunal noted that the absence of a specific definition of fabrics under the Central Excise Tariff meant that the term should be understood in its general sense. Embroidery was recognized as a separate art form carried out on a base fabric, as indicated in the HSN Notes and Chapter 5810 of the Tariff.

7. The Tribunal analyzed the wording of Tariff Headings under Chapter 58, highlighting that headings like 5805, 5807, 5808, and 5810 did not use the term "fabrics." The language of Note 8 suggested that it applied only to fabrics within the chapter, supporting the contention that embroidery should be treated separately from fabrics.

8. Considering the scheme of the Central Excise Tariff, the specific language used in the tariff headings, and the general understanding of embroidery as distinct from fabrics, the Tribunal accepted the assessees' argument that Note 8 did not apply to embroidery. Consequently, the appeals of the assessees were allowed, and the Revenue's appeal was rejected.