1996 (9) TMI 123 - SC - Central Excise

Whether Nylon Twine can be considered as Nylon Yarn so as to be covered by Item 18 of the First Schedule to the Central Excises and Salt Act 1944 as it stood prior to the Amendment of 1977? Held that - The burden of proof is on the taxing authorities to show that the particular case or item in question is taxable in the manner claimed by them. Mare assertion in that regard is of no avail. It has been held by this Court that there should be material to enter appropriate finding in that regard and the material may be either oral or documentary. It is for the taxing authority to lay evidence in that behalf even before the first adjudicating authority. Especially in a case as this where the claim of the assessee is borne out by the trade inquiries received by them and also the affidavits filed by persons dealing with the subject matter a heavy burden lay upon the revenue to disprove the said materials by adducing proper evidence. Unfortunately no such attempt was made. As stated the evidence led in this case conclusively goes to show that Nylon Twine manufactured by the assessees has been treated as a kind of Nylon Yarn by the people conversant with the trade. It is commonly considered as Nylon Yarn. Hence it is to be classified under Item 18 of the Act. Appeal dismissed.

Issues Involved:
1. Whether "Nylon Twine" can be considered as "Nylon Yarn" under Item 18 of the First Schedule to the Central Excises and Salt Act, 1944, as it stood prior to the Amendment of 1977.
2. Whether the excise duty on "Nylon Twine" should be levied under Item 18 or Item 68 of the First Schedule to the Act.

Detailed Analysis:

1. Classification of "Nylon Twine" as "Nylon Yarn" under Item 18:

The primary issue in these appeals was whether "Nylon Twine" could be classified as "Nylon Yarn" under Item 18 of the First Schedule to the Central Excises and Salt Act, 1944, as it stood before the 1977 Amendment. The respondents (assessees) manufactured both "Nylon Yarn" and "Nylon Twine" and contended that "Nylon Twine" used for making fishing nets should be classified under Item 18, which covers "RAYON AND SYNTHETIC FIBRES AND YARN INCLUDING TEXTURED YARN, IN OR IN RELATION TO THE MANUFACTURE OF WHICH ANY PROCESS IS ORDINARILY CARRIED ON WITH THE AID OF POWER."

The High Court of Bombay, in its judgment, referred to various materials such as the Encyclopaedia Britannica, Indian Standards Institution Standards, and affidavits from industry experts, concluding that "nylon twine manufactured by the petitioners has been treated as a kind of nylon yarn by the people in the trade." The court emphasized that the burden of proof was on the taxing authorities to show that "nylon twine" should be taxed under Item 68 and not Item 18. The High Court directed the Revenue to refund the excess amount collected as Central Excise Duty on the basis that "Nylon Twine" falls under Item 68.

2. Excise Duty on "Nylon Twine" under Item 18 or Item 68:

The Revenue contended that "Nylon Twine" and "Nylon Yarn" are distinct items, with different physical characteristics and uses, and thus should be classified separately. They argued that "Nylon Twine" should be taxed under Item 68, which covers "ALL OTHER GOODS, NOT ELSEWHERE SPECIFIED, MANUFACTURED IN A FACTORY BUT EXCLUDING" certain specified items. The assessees had paid duty under Item 68 under protest and sought a refund.

The Supreme Court, in its analysis, emphasized the importance of understanding the terms in fiscal statutes as they are understood in common parlance or in the commercial world. The Court cited previous decisions, including Indian Cable Company Ltd. v. Collector of Central Excise and Collector of Central Excise, Chandigarh v. Steel Strips Ltd., to support the principle that words in fiscal statutes should be construed in their popular meaning unless they have a technical meaning in a particular trade or industry.

The Court found that the evidence, including trade inquiries and affidavits, conclusively demonstrated that "Nylon Twine" was considered a type of "Nylon Yarn" by those in the trade. The Revenue failed to provide contrary evidence. The Court held that the burden of proof was on the taxing authorities to show that "Nylon Twine" should be taxed under Item 68, and they had not met this burden.

Conclusion:

The Supreme Court concurred with the High Court's reasoning and conclusion that "Nylon Twine" should be classified under Item 18 of the Act. The appeals by the Revenue were dismissed, and the judgments of the High Court were affirmed. The Court reiterated the principle that when an article has a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it should not be consigned to the residuary clause. The Revenue was directed to refund the excess excise duty collected from the assessees, with costs awarded to the assessees.

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