2006 (8) TMI 354 - AT - Central Excise

Summary

Issues:
Classification of goods under Notification No. 7/2003-CE - Differential duty demand - Benefit of Explanation 1 to Sl. No. 41 - Use of polyester yarn in garments.

Classification of Goods under Notification:
The case involved the classification of goods under Notification No. 7/2003-CE, where the lower authorities demanded a differential duty from the appellant for classifying their goods under Sl. No. 42 instead of Sl. No. 41, resulting in a 2% difference in duty payment. The goods in question were garments declared as 100% cotton but contained 3% polyester yarn for adornment. The Appellate Tribunal found that the appellants were entitled to the benefit of Explanation 1 to Sl. No. 41, which clarified that garments made from knitted fabrics of cotton, even if they contain materials like polyester for adornment, should be classified under Sl. No. 41. The Tribunal held that the denial of the benefit of Sl. No. 41 due to the polyester content was incorrect, and the differential duty demand was not sustainable.

Use of Polyester Yarn in Garments:
The crucial issue in the judgment was the use of 3% polyester yarn in the garments to adorn them with stripes. The Tribunal noted that the purpose for which polyester yarn was used in the garments had been overlooked by the Commissioner (Appeals), leading to the denial of the benefit of Sl. No. 41 to the assessee. However, the Tribunal emphasized that it was not disputed that polyester was used solely for adornment purposes in the garments. Therefore, the appellants were prima facie entitled to clear their goods on payment of duty at the rate of 8% under Sl. No. 41. The Tribunal concluded that the demand for differential duty was not sustainable, leading to a waiver of pre-deposit and a stay of recovery in respect of the duty and penalty amounts.

In conclusion, the judgment by the Appellate Tribunal CESTAT, Chennai addressed the issues of classification of goods under Notification No. 7/2003-CE, the use of polyester yarn in garments, and the entitlement of the appellants to the benefit of Explanation 1 to Sl. No. 41. The Tribunal ruled in favor of the appellants, emphasizing that the denial of the benefit of Sl. No. 41 due to the presence of polyester for adornment was incorrect. This detailed analysis highlights the Tribunal's decision to waive the pre-deposit and stay the recovery of the differential duty demand, ensuring a fair outcome for the appellant in the case.