1986 (6) TMI 123 - AT - Central Excise

Issues Involved:

1. Classification of tarpaulin under Central Excise Tariff.
2. Applicability of excise duty on tarpaulin.
3. Whether the process of cutting, stitching, and eyeletting constitutes manufacture.
4. Allegation of suppression of facts and misstatement by the appellant company.
5. Reliance on case law and previous judgments.

Issue-wise Detailed Analysis:

1. Classification of Tarpaulin under Central Excise Tariff:

The primary issue was whether the fabrication of proofed canvas into tarpaulin with the aid of power results in the production of a new product classifiable under Item 68 of the Central Excise Tariff. The appellant argued that tarpaulin is merely proofed canvas, which falls under Item 19 of the Central Excise Tariff, and thus, no further duty is payable. They cited the Supreme Court decision in Porritts & Spencer (Asia) Ltd., which held that textiles may have diverse uses, and it is not the use but the description that determines their classification. The Tribunal concurred with the Gujarat High Court's decision in Pokardas & Bros. and the Bombay High Court's decision in Satyavijaya Commercial Co., which classified tarpaulin as cotton fabric under Item 19, especially after the 1979 amendment that enlarged the scope of Item 19 to include water-proof fabrics.

2. Applicability of Excise Duty on Tarpaulin:

The Department argued that the tarpaulin manufactured by the appellant does not fall under Items 1 to 67 of the Central Excise Tariff and should be classified under Item 68. The Tribunal found that the retrospective amendment of 1979 to Item 19 of the Central Excise Tariff, which included water-proof fabrics, meant that tarpaulin should be classified under Item 19. Consequently, no additional excise duty was applicable beyond what was already paid on the grey canvas.

3. Whether the Process of Cutting, Stitching, and Eyeletting Constitutes Manufacture:

The appellant contended that these processes do not amount to manufacture as they do not bring into existence a new product known to the market. They cited several Supreme Court decisions, including Union of India v. Delhi Cloth and General Mills Co. Ltd., which held that mere processing of goods does not constitute manufacture unless a new and different article with a distinct name, character, or use emerges. The Tribunal, relying on the decisions in Pokardas & Bros. and Satyavijaya Commercial Co., did not find it necessary to delve into this issue further as they had already concluded that tarpaulin falls under Item 19.

4. Allegation of Suppression of Facts and Misstatement by the Appellant Company:

The Department alleged that the appellant company had failed to report the fabrication of tarpaulin and had evaded excise duty. The appellant argued that they had sought a clarification from the Department in 1984 and had received a response stating that if the base fabric is cotton, the tarpaulin finish will fall under Item 19. The Tribunal found that there was no suppression or misstatement of facts warranting a demand of duty beyond the normal period.

5. Reliance on Case Law and Previous Judgments:

The appellant cited various judgments in their favor, including Porritts & Spencer (Asia) Ltd., Navinchandra & Co., and others, to support their claim that tarpaulin should be classified under Item 19. The Tribunal found these citations relevant and consistent with their conclusion. The Department relied on the Madras High Court decision in M. Jeevajee & Co., which held that tarpaulin is a different marketable commodity and not a textile. However, the Tribunal noted that this judgment was based on the user test, which the Supreme Court had disapproved in Porritts & Spencer (Asia) Ltd. The Tribunal preferred the judgments of the Gujarat and Bombay High Courts, which aligned with the Supreme Court's reasoning.

Conclusion:

The Tribunal allowed the appeal, setting aside the demand for duty and the penalty related to it. They concluded that the finished tarpaulin is classifiable as cotton fabric under Item 19 of the Central Excise Tariff, following the decisions of the Gujarat and Bombay High Courts. The appropriation of security amounts towards the value of goods seized was also set aside.

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