2006 (1) TMI 373 - AT - Central Excise

Summary

Issues:
Classification and dutiability of embroidered fabrics processed by the appellant.

Analysis:
The appellant, engaged in fabric processing on a job work basis, processed gray fabrics received from customers by bleaching, dyeing, etc. The dispute revolved around the classification and dutiability of these processed embroidered fabrics. The tariff description under Heading 58.05 of the Central Excise tariff was crucial, along with Chapter Note 8 of Chapter 58, which defined processes amounting to manufacture. The appellant claimed the benefit of Notification No. 3/2001, which fixed a duty rate of 'NIL' for certain embroidered fabrics not subjected to any process. However, a show cause notice alleged incorrect duty discharge on processed fabrics based on the classification of the base fabric used. The lower authority classified the goods under different chapters based on the base fabric used, leading to duty liability. The appellant appealed against this order.

The Commissioner (Appeals) held that only specific goods manufactured with power-operated embroidery machines would attract 'NIL' duty under Chapter Heading 5805.90. Embroidered fabrics in running length were to be classified based on the fabric group, subject to Central Excise duty applicable to fabrics of specific chapters. The Commissioner set aside the original order, directing the jurisdictional officer to compute the liability based on the correct classification of fabrics received for processing. The appeal was rejected, leading to an appropriate classification and duty demand.

Upon review, it was found that the HSN Chapter 58 and CETA 1985 were not aligned. The processed embroidered fabrics fell under Heading 5805.90 of CETA 1985. The classification post-processing had to be determined based on Chapter Note 8 of Chapter 58, leading to a fresh levy under the Central Excise Act. The appellant's factory processes did not align with the specific machine embroidery operations, resulting in no duty liability under Chapter Heading 5805.90. The benefit of Notification No. 3/2001 was deemed inapplicable. The classification order based on the nature of the base fabric was deemed incorrect, as the processed embroidered fabric was to be classified under Heading 5805.90. The orders were set aside, and the appeal was allowed accordingly.

In conclusion, the judgment clarified the classification and dutiability of processed embroidered fabrics, emphasizing the importance of Chapter Note 8, specific manufacturing processes, and appropriate tariff headings for duty assessment.