2006 (5) TMI 316 - AT - Central Excise

Issues Involved:
1. Classification of goods.
2. Payment of duty on the classified goods.

Issue-wise Detailed Analysis:

1. Classification of Goods:

The core issue in the appeal was the classification of yarn manufactured by the respondent unit, which involved determining whether the yarn was "texturised yarn" or "multifolded yarn." The respondent unit engaged in pressing/manufacturing various types of yarn, including multifolded yarn, produced by mingling filaments of input yarns through water and/or Airjet machines and stabilizing the yarn through a heater.

The Central Excise authorities initially treated the disputed goods as an exempted product, not considering it as "texturised yarn" based on various test reports until October 2000. However, in October 2000, new samples were tested by VJTI, which concluded that the sample was "texturised yarn," leading the department to classify the product under sub-headings 5402.31 and 5402.32, making it ineligible for exemption.

The respondent filed classification declarations under sub-headings 5402.31 and 5402.32 but contended that the products were actually multifolded yarns of Nylon and Polyester, classifiable under sub-headings 5402.61 and 5402.62, attracting a Nil rate of duty. The Divisional Dy. Commissioner directed the respondent to classify their product under 5402.31 and 5402.32, leading to an appeal to the Commissioner (Appeals), who ruled in favor of the respondent, classifying the yarn under sub-headings 5402.61/5402.62.

The department's appeal to the Tribunal resulted in a remand to the Commissioner (Appeals) for re-evaluation, who again decided in favor of the respondent, prompting the current appeal by the Revenue.

2. Payment of Duty:

The respondent paid duty "under protest" following the department's classification direction. The department contended that the Commissioner (Appeals) failed to provide technical grounds for classifying the yarn as multifolded yarn instead of texturised yarn. The manufacturing process described by the respondent involved air texturising, which the department argued constituted texturised yarn.

Multiple test reports were considered:
- The Director, Central Revenue Control Laboratory (CRCL), and the Joint Director, Central Excise Laboratory, Mumbai, opined that the yarn samples were texturised yarn.
- VJTI's report supported the department's stance, describing the yarn as "texturised yarn."
- Conversely, SASMIRA's reports classified the yarn as "multiple (folded) yarn," not "texturised yarn."

The respondent argued that the VJTI report was unreliable due to discrepancies in sample numbers and the institution's lack of specialization compared to SASMIRA. They emphasized that SASMIRA's specialized research in synthetic yarns should take precedence.

The Tribunal noted the long-standing dispute dating back to 1983, with consistent departmental laboratory reports classifying the product as non-textured yarn. SASMIRA's reports in 1998 and 2000 also classified the yarn as multiple folded yarn. The VJTI report was found incomplete and inconsistent with the definition of "texturised yarn" under the HSN.

The Tribunal concluded that the majority of test reports supported the classification of the yarn as "multiple (folded) yarn," not "texturised yarn." The change in the department's stance lacked sound reasoning, and the correct classification was under sub-headings 5402.61 and 5402.62 of CETA, 1985. The appeal by the Revenue was dismissed, upholding the Commissioner (Appeals)'s order dated 21-9-2004.

Conclusion:

The Tribunal upheld the classification of the respondent's product as "multiple (folded) yarn" under sub-headings 5402.61 and 5402.62, dismissing the Revenue's appeal and confirming the non-excisability of the product as "texturised yarn." The decision was pronounced in court on 5-5-2006.

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