1988 (2) TMI 224 - AT - Central Excise

Issues Involved:
1. Classification of dyed acrylic hand knitting yarn under Item No. 18(ii) or Item No. 18(i) of the Central Excises and Salt Act, 1944.
2. Retrospective application of re-classification and demand for duty.

Issue-wise Detailed Analysis:

1. Classification of Dyed Acrylic Hand Knitting Yarn:
The primary issue in this appeal was whether the dyed acrylic hand knitting yarn manufactured by the appellants should be classified under Item No. 18(ii) as "bulked yarn" or under Item No. 18(i) as "other than textured yarn" during the disputed period (1.3.1975 to 30.4.1976). The Assistant Collector of Central Excise had classified the goods as bulked yarn under Item No. 18(ii), based on a report from the Deputy Chief Chemist that the scouring and dyeing imparted a fluffy appearance, characteristic of bulked yarn. This classification was upheld by the Collector (Appeals).

The appellants contended that the Tribunal's earlier decision in Gokal Chand Rattan Chand Woollen Mills v. Collector of Central Excise, Bombay (1986) (26) E.L.T. 585, which classified similar yarn under Item No. 18(ii), did not constitute a binding precedent. They argued that Explanation I(iv) referred only to filament yarn and not spun yarn, and that the department had not proven that the yarn was produced from base yarn. The department maintained that the yarn was correctly classified under Item No. 18(ii).

Upon review, it was determined that the term "Textured Yarn" in Explanation II to Item No. 18, CET, included bulked yarn and stretch yarn. Definitions from standard textile references indicated that increased bulk could be achieved through blending fibers of different shrinkage potentials. However, there was no evidence that the subject yarn was a blend of such fibers. The fluffy appearance alone did not suffice to classify it as bulked yarn. The Assistant Collector had previously approved the classification lists submitted by the appellants, and the show cause notice did not provide a satisfactory basis for re-classification.

The Tribunal concluded that the term "Textured Yarn" covered only processed filament yarn, not spun yarn. Therefore, the correct classification of the subject yarn was under Item No. 18(i), CET, as it stood at the relevant time.

2. Retrospective Application of Re-classification and Demand for Duty:
The appellants argued that the classification lists had been approved by the Assistant Collector and had not been reviewed by the competent authority under Section 35A of the Central Excises and Salt Act. Therefore, any re-classification should be applied prospectively, not retrospectively. The department's demand for duty covered the period from 1.3.1975 to 30.4.1976, while the show cause notice was issued on 24.6.1976.

The Tribunal agreed with the appellants, citing the Delhi High Court's decision in J.K. Synthetics Limited v. Union of India and Others (1981 E.L.T. 328) and previous Tribunal decisions. It was held that the department could not retrospectively enforce a revised classification unless specific circumstances justified such action. The change in classification was based on rethinking rather than new facts or circumstances.

Separate Judgments:
- One judge agreed with the conclusion that the appeals should succeed but for different reasons. He believed that the bulked character of the yarn resulted from the shrinkage of constituent fibers and that the classification under Item 18(ii) CET was correct. However, he concurred that the demand for duty could only be enforced from the date of the show cause notice.
- Another judge maintained that the yarn was classifiable under Item 18(ii) CET, consistent with the earlier decision in Gokal Chand Rattan Chand Woollen Mills. He also agreed that the demand for duty could not be upheld retrospectively.

Conclusion:
In view of the majority opinion, the yarn in question is classifiable under Item 18(ii) CET as it stood at the relevant time. However, the demand for duty cannot be upheld and is not enforceable. The appeals are disposed of accordingly.

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