1998 (1) TMI 209 - AT - Central Excise

Issues Involved:
1. Classification of "Taspa yarn"
2. Applicability of exemption under old and new tariff
3. Validity of demand under Rule 9(2) of the Central Excise Rules
4. Limitation period for raising the demand
5. Applicability of Board's instructions and guidelines

Issue-wise Detailed Analysis:

1. Classification of "Taspa yarn":
The appellants were engaged in crimping/texturising duty-paid man-made and synthetic yarn, commercially known as "Taspa yarn." The primary issue was whether "Taspa yarn" should be classified under Heading 5606.00 as "special yarn" or under Heading 5403.00 as "fancy yarn." The department argued that "Taspa yarn" was a special yarn, while the appellants contended it was fancy yarn. The process of manufacture described by the appellants did not include a core yarn, which was a necessary ingredient for classification as a special yarn. The Chemical Examiner confirmed that the contested goods lacked a core yarn, supporting the appellants' claim. The Tribunal concluded that "Taspa yarn" should be classified under Chapter 54 as textured synthetic filament yarn of polyester, not under Chapter 56.

2. Applicability of exemption under old and new tariff:
Under the old tariff, Tariff Item No. 18(ii) covered textured non-cellulosic man-made filament yarn. The Tribunal found that the yarn had uniform slugs along its length, fitting the definition of textured yarn. Therefore, the yarn manufactured by the appellants before 1-3-1986 was classifiable under Item No. 18(ii), and the benefit of Notification No. 178/83 was available. For the period after 1-3-1986, the CET, 1985, based on the HSN, was considered. The Tribunal noted that the definitions in the HSN and CET were identical, and the yarn met the description of textured yarn in the HSN. Thus, the yarn was correctly classifiable under Chapter 54.

3. Validity of demand under Rule 9(2) of the Central Excise Rules:
A show cause notice dated 9-6-1988 was issued demanding duty under T.I. No. 68 of the old tariff and Heading 5606 of the CET, 1985, for the period January 1984 to March 1987. The Collector confirmed the demand of Rs. 27,80,004.60 and imposed a penalty of Rs. 10 lakh. The appellants argued that the demand was hit by limitation and that the process of manufacture had been communicated to the department. The Tribunal noted that the department had accepted the declarations for three years, which had the same effect as classification lists. Therefore, the invocation of Rule 9(2) was misplaced.

4. Limitation period for raising the demand:
The Tribunal observed that the appellants had filed declarations from time to time, and the department had accepted these declarations. The Tribunal cited various judgments, including those of the Supreme Court and High Courts, which held that where the department was aware of the manufacturing process, suppression could not be alleged. The Tribunal concluded that the demand was hit by limitation, as the department was kept aware of the process of manufacture.

5. Applicability of Board's instructions and guidelines:
The appellants relied on the Board's clarification issued under F. No. 56/2/88-CX-I, dated 19-10-1988, which stated that yarn without a core could not be classified as special yarn. The Tribunal noted that departmental clarifications or instructions, although not binding on the Tribunal or Courts, were directory for departmental officers. The Tribunal cited judgments where it was held that the Revenue could not advance arguments contrary to the Board's instructions. The Tribunal found that the contested yarn did not have a core, was not chenille or loopwale yarn, and, per the Board's advice, could not be classified as special yarn.

Conclusion:
The Tribunal set aside the Collector's order, finding that the yarn was correctly classifiable under Chapter 54 and not under Chapter 56. The demand was also held to be hit by limitation. The appeal was allowed, and consequential relief was ordered.

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