1986 (1) TMI 217 - AT - Central Excise

Issues Involved:
1. Classification of flocked fabrics containing 30% or more of non-cellulosic fibre/yarn.
2. Whether flocked fabrics should be treated as printed fabrics.
3. Justification and quantum of penalty imposed.

Issue-wise Detailed Analysis:

1. Classification of flocked fabrics containing 30% or more of non-cellulosic fibre/yarn:

The main dispute was whether the classification of flocked fabrics containing 30% or more of non-cellulosic fibre/yarn should be based on the composition of the base fabric (all cotton) or the finished fabric. The appellants argued that the duty should depend on the nature of the fibre/yarn used in weaving the base fabrics, citing the Ruby Mills Ltd. case. However, the Tribunal found that the classification should be based on the finished fabric's composition, as per the principle that goods should be taxed in the form they are presented for charge of duty. This principle was supported by the Supreme Court in the Calico Mills case, which ruled that duty liability should be determined on the nature and character of the final finished fabrics. Consequently, the Tribunal upheld the Collector's decision to charge duty under Sub-item (1A) for flocked fabrics containing 30% or more of non-cellulosic fibre/yarn.

2. Whether flocked fabrics should be treated as printed fabrics:

The appellants contended that flocked fabrics should be classified as printed fabrics, relying on various definitions and literature. However, the Tribunal noted that printing typically involves creating designs or patterns that stand out on the fabric surface. In this case, the flocking was done uniformly with flocks of the same size and color, resulting in a plain appearance without any ornamental design or special effect. The Tribunal concluded that such plain flocked fabrics could not be classified as printed fabrics. The Tribunal also reviewed the Trade Notice dated 23-3-1976 and the Board's Tariff Advice dated 1-12-1978, finding that they did not support the appellants' case for plain flocked fabrics. Therefore, the Tribunal agreed with the Collector that these fabrics attracted duty as applicable to fabrics processed in any other manner.

3. Justification and quantum of penalty imposed:

The appellants argued that the penalty of Rs. 10 lakhs imposed by the Collector was unjustified and excessive, given the central excise authorities' own doubts about the correct tariff classification. The Tribunal acknowledged that the appellants had not declared or applied for a license for over three years and were guilty of suppression and unauthorized removals. However, considering that the duty evaded was about Rs. 2 lakhs, the Tribunal found the penalty of Rs. 10 lakhs excessive and reduced it to Rs. 1 lakh.

Separate Judgments:

- Majority Judgment (G. Sankaran and V.T. Raghavachari): The majority agreed with the appellants that flocked fabrics should be treated as printed fabrics, considering the velvety surface produced by flocking. Therefore, they allowed the appeal and directed the Collector to recalculate the duty liability, treating the fabrics as printed fabrics. They also agreed with the reduction of the penalty to Rs. 1 lakh.

- Minority Judgment (K.L. Rekhi): The minority judgment upheld the Collector's classification of flocked fabrics under Sub-item (1A) and agreed with the penalty reduction to Rs. 1 lakh but did not concur with treating flocked fabrics as printed fabrics.

Final Order:

In accordance with the majority judgment, the appeal was allowed with a direction to the Collector to recalculate the duty liability, treating the flocked fabrics as printed fabrics. The penalty was reduced to Rs. 1 lakh.

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