1998 (9) TMI 312 - Commissioner - Central Excise

Issues Involved:
1. Classification of covered spandex yarn before and after the Budget of 1995.
2. Applicability of exemption under Notification 26/94-C.E., dated 1-3-1994.
3. Interpretation of manufacturing process and its impact on classification.
4. Application of Harmonized System of Nomenclature (HSN) notes for classification.
5. Application of Section Note 2(A) of Section XI of the Tariff Act.

Detailed Analysis:

1. Classification of Covered Spandex Yarn Before and After the Budget of 1995:
The primary issue was whether the covered spandex yarn should be classified under Heading 56.06 or another heading. Before the Budget of 1995, the yarn was classified under Heading 56.06 as "other special yarns," which included gimped yarn. Post-Budget 1995, the classification was contested due to the omission of the term "other special yarns" from Heading 56.06, which now only included gimped yarn, chenille yarn, and loop wale yarn.

2. Applicability of Exemption under Notification 26/94-C.E., dated 1-3-1994:
The exemption under Notification 26/94-C.E. applied to covered spandex yarn classified under Heading 56.06 before the Budget of 1995. The lower authority denied this exemption, classifying the yarn as core spun yarn, which was not covered under the said notification.

3. Interpretation of Manufacturing Process and Its Impact on Classification:
The manufacturing process involved using lycra (spandex) filament as a core, covered by cotton fibre. The lower authority distinguished between covered spandex yarn and core spun yarn based on the covering material (yarn vs. fibre) and stretch capability. The judgment emphasized that the process used by the appellants resulted in covered spandex yarn, not core spun yarn, thus qualifying for the exemption.

4. Application of Harmonized System of Nomenclature (HSN) Notes for Classification:
The lower authority relied on HSN notes to classify the yarn as gimped yarn under Heading 56.06. However, the judgment found that the core of the covered spandex yarn also underwent twisting, distinguishing it from gimped yarn, where the core does not twist with the cover threads. The end use of the yarn also differed from that of gimped yarn.

5. Application of Section Note 2(A) of Section XI of the Tariff Act:
Post-Budget 1995, the classification was guided by Section Note 2(A) of Section XI, which states that goods consisting of a mixture of two or more textile materials should be classified based on the predominant material by weight. Since the covered spandex yarn consisted of 88% cotton fibre and 12% spandex, it was classified as cotton yarn under Sub-heading 5205.19.

Conclusion:
The appeals were allowed, and the orders passed by the lower authority were set aside. The judgment concluded that the yarn manufactured by the appellants was indeed covered spandex yarn, not core spun yarn, and thus eligible for exemption under Notification 26/94-C.E. before the Budget of 1995. After the Budget of 1995, the yarn was correctly classified as cotton multiple (folded) yarn under Sub-heading 5205.19, considering the predominant weight of cotton fibre.

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