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TMI Blog1986 (1) TMI 217X X X X Extracts X X X X X X X X Extracts X X X X ..... be assessed at the lower concessional rate applicable to cotton fabrics-printed under exemption notification No. 88/69-C.E. dated 1-3-1969. The appellants are also aggrieved by the penalty of Rs. 10 lakhs imposed on them by the Collector after holding them guilty of not taking out central excise licence and non-declaration, non-accountal and unauthorised removal of their flocked fabrics. 2. The process of manufacture of the goods was as follows. The appellants purchased base cotton fabrics of Medium B category from the market, coated them with resin (adhesive) and then affixed thereon flocks (finely chopped fibres of nylon, acrylic or viscose) by electrostatic attraction. The finished flocked fabrics gave the appearance of velvet cloth, imitation suede or leather, depending upon the type of flocking done. The flocked fabrics were used as sofa covers, furnishing cloth and for manufacture of shoes etc. From the point of view of the tariff, they were admittedly cotton fabrics as cotton predominated in the finished fabric. However, coming to the points of detail, while some contained 30% or more of non-cellulosic fibre/yarn (because of nylon acrylic flocks), the rest contained visc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as demanded by the Collector would not exceed Rs. 2 lakhs, though the department itself had not yet quantified the amount. In the circumstances, the Collector did not follow a judicial approach when he adjudged the penalty at Rs. 10 lakhs. 4. The appellants added that though the descriptive part of the old item 19-I(1), (1A) and (2) was revised with retrospective effect into the present item 19-I(a) and (b) by the Ordinance of 1979 with the object of validating the processing duty, for rates as applicable to processed fabrics, such as theirs, one had still to look to the corresponding old item and the exemption notification. They also stated that though valuation of their finished fabrics was one of the points before the Collector, he left that point to be determined by the lower authority and they had, therefore, no submissions to make regarding the valuation aspect before us. 5. The learned representative of the department relied on the Collector s order and added that the penalty adjudged by the Collector was justified because there had been total suppression and non-declaration on the part of the appellants which persisted even after the introduction of the residuary tarif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess then 35s. (d) Cotton Fabrics, Medium B-that is to say, fabrics in which the average count of yarn is 17s of more but is less than 26s. (e) Cotton Fabrics, Coarse-that is to say, fabrics in which the average count of yarn is less than 17s. (f) Cotton Fabrics not otherwise specified. II. Embroidery, in the piece, in strips or in motifs, in or in relation to the manufacture of which any process is ordinarily carried on with the aid of power. III. Cotton fabrics impregnated or coated with preparation of cellulose derivatives or of other artificial plastic materials. Explanation I.-"Base fabrics" means fabrics falling under Sub-item I of this item which are subjected to the process of embroidery or which are impregnated or coated with preparations of cellulose derivatives or of other plastic materials. 7. Taking up the case of flocked fabric containing 30% or more of non-cellulosic fibre/yarn first, we find nothing in Item 19 to support the contention of the appellants that for the purpose of determining classification under sub-item 19-I (1A), composition of the fibre/yarn that goes into weaving the fabric alone is relevant and that if such composition undergoes a cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re :- IS : 2244-1972-Indian Standard Glossary of Terms Relating to Treated Fabrics. Definition of Printing : A process of enhancing the appearance of cloth by application of colours, pigments or flocks on cloth to produce ornamental designs or special effects. Textile Terms and Definitions by Manchester Textile Institute, 1975: A method of cloth ornamentation in which adhesive is printed on the fabrics and finely chopped fibres are applied all over by means of dusting on, an air-blast or electrostatic attraction. The fibres adhere only to the printed areas and are removed from the unprinted areas by mechanical action . There can be no doubt that both the above definitions of Printing are authoritative and can be taken to represent the trade understanding. But the point is that they do not support the appellants contention. As commonly understood, printing means embossing of a design or pattern on the fabric which should stand out from the rest of the cloth surface. This is usually achieved by application of different colours or dyes. It can be done by flocking also-by either partially flocking the cloth or by flocking it all over with flocks of different colours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attracted duty as applicable to fabrics processed in any other manner. 10. Coming finally to the question of penalty, admittedly there was no declaration or application for licence by the appellants for over three years till they were found out by the authorities sometimes in December 1975-April 1976. They say that they had a bona fide belief that their process of flocking did not amount to manufacture and processing of duty paid fabrics by them did not attract any further duty. We are not satisfied that this self-opinionated impression of theirs could be called a bona fide belief when, inspite of a possible controversy between the department and the processors, the independent processors all around them were complying with excise control and were paying the processing duty but the appellants did not as much as disclose even their existence to the authorities, much less seeking any clarification from them. The Gujarat High Court judgment in Vijaya Textiles case (1979 E.L.T. J 181) came much later and even that judgment held that processing of fabrics amounted to manufacture which attracted duty under item 68 which had been introduced with effect from 1-3-1975. From the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1972-Glossary of Terms relating to Treated Fabrics) which is described as a process of enhancing the appearance of cloth. Flocking, therefore, amounts to processing of cloth, that is, processing of already manufactured fabrics. Thus flocking can be described correctly as a process incidental or ancillary to the completion of the manufactured product (flocked fabrics, herein) in terms of the inclusive definition of manufacture in Section 2 (f) of the Central Excises and Salt Act not only in the main general definition of manufacture but also in the particularised definition of the said term in relation to cotton fabrics" in item 19 CET as retrospectively introduced by the amending Act 6 of 1980-but, it cannot reasonably be deemed, in my view, to be part of the manufacture of the cotton fabric proper since cotton fabric had already come into existence, as we have seen. The flocked cotton fabric would, therefore, fall within the description cotton fabrics , subjected to one or more processes..." It is true that the flocking material consisted of non-cellulosic fibre and the finished product-flocked fabric-contained more than 30% by weight of non-cellulosic fibre. But, this woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was subjected to resulted in burning out a part of the cotton fibre resulting in the percentage of terene going up to 31.8%. The assessee s contention was that the composition of the fabric at the grey stage was the elevant consideration and, on this basis, the correct classification would be under item 19 1(2) as Cotton fabrics, others and not under item 19 I (1A) as cotton fabrics ..containing 30% or more by weight of fibre or yarn or both of non-cellulose origin. 18. The revenue s contention, on the other hand, was that where grey fabric falling under item 19 I (2) was processed in the same factory and the processed fabric fell under item 19 I(1 A), it was the latter item that was relevant for assessment. The Tribunal held that through the grey fabric might have fallen under item 19 (1) (2), after the fabric was subjected to processing resulting in change in the relative percentages of the constituent fibres or yarn, the non-cellulose fibre content going upto a figure over 30%, the processed fabric was correctly classifiable under item 19 I (1A). 19. It is to be considered whether the ratio of the above decision has application to the facts of the present case. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings, the Court directed assessment under item No. 22, agreeing with Mill s contention. When the matter reached the Supreme Court by special leave, the Court held that the character of the goods at the intermediate stage of production could not be taken into consideration for determining the liability to duty. The processes, after the intermediate stage in the case before the Court, formed an integral part of the manufacture of the product in question and the classification of the manufactured product for the purpose of excise duty, held the Court, should depend upon its nature and character at its final stage of production unless a contrary intention appeared from the statute. On this basis, the Court held that even though the product might have fallen under item No. 19 at the intermediate stage of production, at the final stage when duty became exigible, it became taxable under item 22 only. 21. Again, it is to be noted that in the Ahmedabad Calico Mills case also, it was an integrated process of manufacture and the Supreme Court was adjudicating upon the question whether in an integrated process of manufacture, for the purpose of liability of duty, the composition of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... election by Wingate (quoted by the Collector of Central Excise, Bombay in his trade notice No. 39 (MP) Rayon and Silk Fabrics/3/76 dated the 23rd March 1976) that flock printing refers to the application of short dyed cotton, rayon or wool fibres to fabric or, paper . Further, the two methods of flock printing are described in the following terms : (1) The flock fibres are processed into the resin substance, which has already been printed on the fabrics, and (2) the flock is applied to the resin printed fabric by electrolysis (electrostatics). The second method produces a velvety surface. 24. The fabrics before us have a velvety surface as a result of being flocked all over. Thus, it would be reasonable to hold that the subject fabrics come within the purview of the term of fabrics subjected to the process of printing . 25. In the result, I would allow the appeal with a direction to the Collector to recalculate the duty liability of the appellant taking into account the above findings. In so far as the penalty levied on the appellant is concerned, I agree with the conclusion reached by brother Shri Rekhi. [Order per V.T. Raghavachari]. I have carefully perused the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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