2017 (4) TMI 1224 - SC - Central Excise

Classification of goods - Polyester Covered Yarn - Nylon Covered Yarn - Whereas the appellants/assessees argue that these products are covered by Chapter No. 56 and come under CSH No. 5606.06, the Revenue has taken the position that the aforesaid goods fall in CSH No. 5402.62/61 - Held that - the Assessing Officer referred to Rule 3(a) of the Rules of Interpretation as per which the heading which provides the most specific description is to be preferred to the heading providing a more general description. The Tribunal has revisited the entire issue taking into consideration all the aspects of the matter and in the light of tests reports of MANTRA, affirmed the findings of the Authorities below that the products manufactured by assessees are nothing but air mingled yarn and, therefore, cannot be classified under Chapter No. 56 in view of the fact that it does not contain a core around which another yarn has been woven - appeal dismissed - decided against appellant.

Issues Involved:
1. Classification of Polyester Covered Yarn and Nylon Covered Yarn.
2. Determination of applicable Chapter Heading under the Central Excise Tariff Act.
3. Interpretation of Chapter Notes and HSN Explanatory Notes.
4. Applicability of test reports and technical details in classification.
5. Principle of pre-dominance of textile material used.

Issue-wise Detailed Analysis:

1. Classification of Polyester Covered Yarn and Nylon Covered Yarn:
The primary issue in these appeals is the correct classification of Polyester Covered Yarn and Nylon Covered Yarn. The appellants/assessees argue that these products should be classified under Chapter 56, specifically CSH No. 5606.06, while the Revenue contends that they should fall under CSH No. 5402.62/61. The Customs Excise & Service Tax Appellate Tribunal (CESTAT) accepted the Revenue's position, leading to the assessees' challenge in these appeals.

2. Determination of Applicable Chapter Heading:
The assessees initially classified the yarns under Chapter 54 and paid duty accordingly. However, after observing that the Customs Department classified similar imported yarns under Chapter 56, they reclassified their products under CSH No. 5606.06 from July 2001. The Excise Department objected, leading to a show cause notice and subsequent adjudication. The Adjudicating Authority upheld the Department's objection, demanding differential duty and imposing penalties, which were affirmed by the Commissioner (Appeals) and the CESTAT.

3. Interpretation of Chapter Notes and HSN Explanatory Notes:
Chapter 54 deals with Man-Made Filaments, with CSH 54.02 covering Synthetic filament yarn. Chapter Note 3 specifies that processes like air mingling amount to manufacture. Chapter 56 covers "Wadding, Felt and Non-Wovens; Special Yarns; Twine, Cordage, Ropes and Cables and Articles thereof," with CSH 5606.00 including gimped yarn. The assessees argued that air mingling involving different yarns should classify the product as gimped yarn under Chapter 56. They referred to HSN Explanatory Notes and dictionary definitions to support their claim. However, the Revenue and Tribunal held that the product did not meet the criteria for gimped yarn as defined in the HSN Explanatory Notes.

4. Applicability of Test Reports and Technical Details in Classification:
The technical details and test reports from Man Made Textile Research Association (MANTRA) played a crucial role. The process described involved air mingling where Polyester/Nylon and Lycra/Spandex are intermingled using pressurized air, without the core yarn undergoing twisting with the cover threads. The MANTRA report confirmed that the yarns did not meet the criteria for gimped yarn, supporting the Revenue's classification under Chapter 54.

5. Principle of Pre-dominance of Textile Material Used:
The classification was also based on the principle of pre-dominance of textile material used. The product contained a higher percentage of Polyester or Nylon (91-93% in Polyester Covered Yarn and 75-97.5% in Nylon Covered Yarn) compared to Lycra/Spandex. The Tribunal affirmed that the products were air mingled yarns, not gimped yarns, and thus fell under CSH No. 5402.62/61.

Conclusion:
The Supreme Court upheld the concurrent findings of the lower authorities and the Tribunal, rejecting the assessees' contentions. The products were correctly classified under Chapter Heading 5402.62/61 based on the pre-dominance of Polyester/Nylon and the technical process involved. The appeals were dismissed with costs, affirming the Revenue's classification and the penalties imposed.

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