2018 (2) TMI 1439 - AT - Central Excise

Classification of goods - textile fabric combined with PU foam as textile fabric laminated with polyurethane foam - whether classified under CETH 5903 of CETA or under Chapter 39? - benefit of N/N. 29/2004-CE dated 9.7.2004 as amended by N/N. 10/2005-CE dated 1.3.2005? - Held that - It is stated in the Circular dated 13.12.1995 that the process of manufacturing PVC leather cloth involves coating of a paste of plastic material (PVC) on one side of the base fabric. In this case, the plastic is not combined with the textile but is coated on textile fabric to form final product. Textile fabrics does not act as reinforcing material. Such fabrics are used for upholstery and can take sharp bends without cracking. After analyzing the applicability of Chapter Note 2(a) of Chapter 59, Section Note 1(d) of Section XI as well as Chapter Note 2(k) under Chapter 29 together with the HSN Notes, the Board has concluded that the product PVC leather cloth also known as rexine cloth has to be correctly classified under Chapter 59.03 of CETA, 1985. The SCN alleges that the respondent clears PU foam sheets and polyester granules (for laminating the PU foam) to their job workers who convert the granules into yarn and knit the yarn into fabrics and use it to laminate the PU form sheets. In fact, the respondent clears PU foam to their job workers who cut the same into the required size and laminate the PU foam on textile fabric. The respondent does not send any polyester granules to the job worker. After lamination the product cleared from the job worker is called as textile fabric laminated with PU foam and not PU material laminated for textile as contended in the SCN. Appeal dismissed - decided against Revenue.

Summary

Issues: Classification of product under Heading 5903 vs. Chapter 39

Issue 1: Classification of the product under Heading 5903 vs. Chapter 39
The case involved a dispute regarding the classification of a product manufactured by the appellant as either falling under Heading 5903 of CETA, 1985 or under Chapter 39. The respondents classified their final product as textile fabric combined with PU foam under Chapter 5903 and availed benefits of certain notifications. The department, however, proposed a different classification under Chapter 39, leading to a show cause notice and subsequent proceedings. The Commissioner (Appeals) remanded the matter for denovo adjudication, considering technical information and HSN Notes. The original authority confirmed the classification under Chapter 39, but the Commissioner (Appeals) held the goods to fall under Chapter Heading 5903. The department appealed to the Tribunal against this decision.

Analysis:
- The Revenue argued that the product's functional character for making car seats should classify it under Chapter 39, distinguishing it from a previous case involving shoe uppers.
- They emphasized that even if fabric predominates, when used for reinforcement, the product should fall under Chapter 39.
- Referring to Chapter Note 2(a)(5) of Chapter 59, they contended that the product should be classified under Chapter 39 based on the presence of fabric for reinforcement.
- The Revenue cited an Apex Court judgment regarding the functional character of the article and argued that in this case, foam was the functional character, identifying the product as car seat material.

Analysis:
- The respondent argued that the product was textile fabric laminated with PU foam under Chapter 5903, supported by Circulars and test reports.
- They highlighted the functional use of the product for making car seats and the predominance of fabric over foam.
- The respondent pointed out discrepancies in the department's description of the product and emphasized the Board Circular's classification of similar products under Chapter 5903.
- They presented evidence supporting their classification, including test reports and the decision in Triton Synthetic Fibres (P) Ltd., which the Commissioner (Appeals) also relied on.

Final Decision:
The Tribunal examined the test report showing fabric predominance in the product and the Board Circular classifying similar products under Chapter 5903. They found the facts similar to the Triton case and upheld the Commissioner (Appeals) decision, dismissing the Revenue's appeals. The Tribunal agreed with the classification of the product under Heading 5903, emphasizing its functional use and the predominance of fabric over foam.