1994 (2) TMI 58 - SC - Central Excise

Whether rexin cloth produced by the respondent falls under Tariff Item 19-III of the Schedule to the Central Excise Act, as it obtained at the relevant time? Held that - Learned Judge has given two reasons for his conclusion, namely, (1) since the P.V.C. Compounding was done simultaneously with the weaving of the fabric, there was no pre-existing base fabric and (2) having regard to the higher percentage of P.V.C. Compound in the ultimate product, it cannot be treated as a man-made fabric within the meaning of T.I. 22. Though the learned counsel for Revenue sought to distinguish the first ground given by the Bench saying that in that case the P.V.C. Compounding was done simultaneously with the weaving of the fabric, the said distinction is, in our opinion, without a difference. It does not matter whether the P.V.C. Compounding is done simultaneously with the weaving or is done on a pre-existing fabric. Be that as it may, the more relevant aspect is the second ground given by the Bench wherein they applied the test of predominance to the final product and not to the base fabric. This was evidently done because the attention of the Bench was not invited to the proviso. As indicated hereinabove, while setting out T.I. 22, the proviso is omitted which, however, has material bearing. It is not known what would have been the conclusion if the proviso would have been noted. Thus the matter is placed before a Bench of three Judges

Summary

Issues Involved:
1. Classification of 'rexin cloth' under the Central Excise Tariff.
2. Interpretation of the term "such fabrics" in Tariff Item 19.
3. Applicability of Tariff Items 19-III, 22, and 22(B).
4. Relevance of the proviso and Explanation I in Tariff Item 19.
5. Precedent value of the decision in Collector of Central Excise, Calcutta v. Multiple Fabrics Pvt. Ltd.

Detailed Analysis:

1. Classification of 'rexin cloth' under the Central Excise Tariff:

The primary issue in this appeal is whether 'rexin cloth' produced by the respondent falls under Tariff Item 19-III of the Schedule to the Central Excise Act. The Tribunal, by a majority of 2:1, held that it does not. The Revenue is challenging this majority opinion.

2. Interpretation of the term "such fabrics" in Tariff Item 19:

The crux of the dispute revolves around the interpretation of the term "such fabrics" in clauses (i) and (ii) of Tariff Item 19. The Appellate Collector and the Tribunal concluded that "such fabrics" refer to the final product, not the base fabric. This interpretation led them to determine that the product does not fall within Tariff Item 19-III, as the content of cotton in the final product is far less than 40%.

3. Applicability of Tariff Items 19-III, 22, and 22(B):

The Revenue argued that the product should fall under Tariff Item 19-III, and alternatively, under T.I. 22(B). The respondent's counsel clarified that the product has been classified under T.I. 68 and duty has been paid accordingly. The Tribunal's majority opinion supported the respondent's stance that the product does not fall within T.I. 19-III.

4. Relevance of the proviso and Explanation I in Tariff Item 19:

The Revenue's counsel emphasized that the proviso and Explanation I in Tariff Item 19 clarify that "such fabrics" refer to the base fabric, not the final product. The proviso explicitly states that in the case of fabrics impregnated, coated, or laminated, the predominance or percentages should be in relation to the base fabrics. Explanation I defines "base fabrics" as those falling under sub-item (I) of T.I. 19, which are subjected to processes like impregnation or coating.

5. Precedent value of the decision in Collector of Central Excise, Calcutta v. Multiple Fabrics Pvt. Ltd.:

The respondent's counsel relied heavily on the Supreme Court's decision in Collector of Central Excise, Calcutta v. Multiple Fabrics Pvt. Ltd. The question in that case was whether "PVC conveyor belting" fell within T.I. 22 or the residuary Tariff Item 68. The Court held that the product did not fall under T.I. 22 due to the higher percentage of PVC Compound in the final product, applying the test of predominance to the final product rather than the base fabric. However, the Court did not consider the proviso in T.I. 22, which is similar to the proviso in T.I. 19.

Conclusion and Referral:

The Supreme Court noted that the decision in Multiple Fabrics Pvt. Ltd. did not consider the proviso, which has a material bearing on the interpretation of the tariff items. The Court expressed doubt about the correctness of the decision in Multiple Fabrics Pvt. Ltd. and decided that the matter should be placed before a Bench of three Judges for a more authoritative determination. The records were directed to be placed before the Hon'ble Chief Justice for necessary action.