Charminar Nonwovens Ltd. vs Commr. of Cus. and C. Ex.

T.N.C. Rangarajan, J.—These two writ petitions concern the classification of the product manufactured by the petitioner. According to the petitioner, it manufacturers and sells Floor Coverings and Filter Fabrics at its factory at Bonthapally in Medak District. The product is a jute fabric with polypropylene surface. In 1992 the question of classification came up for adjudication and it was taken to be taxable under sub-heading 5708.90 at 30 per cent. The petitioner appealed and the Collector (Appeals) by his order dated 16-7-1993 held that it must be classified as "Jute Carpet" chargeable at 5 per cent under Entry 5708.20. In October this year, the officers of the Department inspected the factory premises, took down some statements from the Managing Director and thereafter issued a show cause notice dated 6-11-1996 stating that the product has been wrongly classified as jute carpet and it should properly fall under the residuary item under sub-heading No. 5703.90 chargeable at 30 per cent. Simultaneously, another order detaining the goods manufactured by the assessee for securing a payment of duty was also issued. These writ petitions have been filed against the show cause notice and detention order.

The learned counsel for the petitioner submitted that as far as the classification is concerned, the very same matter had come up for adjudication before the appellate authority and once such adjudication had been made, the Department is bound by it and the matter cannot be reviewed. He, therefore, submitted that the show cause notice itself was without jurisdiction and requires to be quashed. With regard to the detention order, he submitted that the power to seize the goods is dependent upon the liability of the goods for confiscation and will arise only when there was any default of payment of duty. According to him, the detention order was premature and cannot be applied to the goods which have not yet been taken out.

The Department has filed a counter affidavit in which reliance was placed on the changes in Customs and Central Excise on the introduction of Finance Bill (No. 2) 1996 and in particular reliance was placed on para 38.2 at page 38 of letter No. DOF No. 334/14/95-TRU, dated 22nd July, 1996 which reads as follows :

"In respect of the concessional rate of duty on floor coverings of jute, different practices of assessment have come to notice. The concessional rate of 5% is applicable only to those floor coverings of jute which satisfy the parameters given in Note 1 to Chapter 57 which states that ''carpets and other floor coverings'' means floor coverings in which textile material serve as the-exposed surface of the article when in use. In other words, only those floor coverings of jute where jute serves as exposed surface of the article when in use, would be eligible for the concessional rate of 5%."

The learned standing counsel for the Department submitted that the heading in Chapter 57 specifically stated that the exposed surface of the article will be the criterion for classifying the goods and since the product manufactured by the petitioner did not contain jute as exposed surface, it cannot fall under item No. 5702.20, and accordingly, it will fall under residuary item No. 5703.90. He submitted that the Chapter heading is of greater significance than the Notes under the section. According to him, instructions given along with the budget proposals gave the Department an opportunity to rethink the matter and there was no estoppel against the statute. He also relied on the Plasmac Machine Manufacturing Co. Pvt. Ltd. Vs. Collector of Central Excise, Bombay, , Ceat Ltd. Vs. Assistant Collector, , T.I. Miller Ltd. Vs. Union of India, , Modern Steel Industries Vs. Union of India, , Stores Supply (India) Agency Vs. Asstt. Collector of Customs, and Metal Forgungs Pvt. Ltd. Vs. Union of India and Others, to contend that the scope of a writ petition is very limited and show cause notice should not be interfered with because the petitioner can give his objections and the Department will decide the issue.

The first question is whether the product has been properly classified earlier. The Tariff Act gives the rate at which the goods are to be taxed for the purpose of Excise Duty and the Schedule to the tariff contain several chapters grouped into

(1) Plasmac Machine Manufacturing Co. Pvt. Ltd. Vs. Collector of Central Excise, Bombay,

(2) Ceat Ltd. Vs. Assistant Collector,

(3) T.I. Miller Ltd. Vs. Union of India,

(4) Modern Steel Industries Vs. Union of India,

(5) Stores Supply (India) Agency Vs. Asstt. Collector of Customs,

(6) Metal Forgungs Pvt. Ltd. Vs. Union of India and Others, .

several sections. Section 11 contains textiles and textile articles and one of the Chapters in this section refers to carpets and other textile floor coverings. Note 1 in Chapter 57 reads as follows :-

"For the purposes of this Chapter, the term ''Carpets and other Textile Floor coverings'' means floor coverings in which textile materials serve as the exposed surface of the article when in use and includes article having the characteristics of textile floor coverings but intended for use for other purposes."

As can be seen from this Note at the top of the Chapter 57, it defines only the term ''carpets and other textile floor coverings'' and does not deal with the manner in which a carpet made out of different textiles are to be classified. This situation is dealt in Note 2(A) in the section itself. Section 2(A) states as follows :-

"Products of Chapters 56 to 63 containing two or more textile materials are to be regarded as consisting wholly of that textile material which would be selected under Note 2 above for the classification of a product of Chapters 50 to 55 consisting of the same textile materials."

This criterion, however, does not apply to a case where the textile product consisting of ground fabric and period or looped surface in which case no account is to be taken of the ground fabric. The petitioner has specifically alleged in the affidavit filed in support of the writ petition that the product manufactured is not of a piled or looped surface and this fact has not been denied in the counter affidavit. Therefore, Note 2(A) applies to the present case. We have to turn to the classification of products under Chapters 50 to 55 for ascertaining the correct position. Note 2(A) at the beginning of the Section states as follows :

"Goods classifiable in Chapters 50 to 55 or in heading No. 68.08 or 59.02 and of a mixture of two or more textile materials are to be classified as if consisting wholly of that one textile material which predominates by weight over any other single textile material.

When no one textile material predominates by weight, the goods are to be classified as if consisting wholly of that one textile material which is covered by the heading which occurs last in numerical order among those which equally merit consideration."

According to this criteria, where two textile materials are mixed to produce the goods in question, the textile material which predominates by weight over the other textile material has to be taken as the proper classification of the goods. This is the manner in which the appellate authority also decided the issue in the order made on 16-7-1993 which read as under:

"Situation of this type are envisaged in the Section notes and guidelines have been provided in the matter of classification of goods. Chapter 57 Note 1 only clarifies the type of goods that fall under this Chapter and Note 2 speaks of the goods which do not fall under it. To use that definition (wrongly at that) to sub-classify goods under the Chapter when the Section notes are clear as to the manner in which goods consisting of more than one material should be classified is erroneous. The assistant Collector is directed to classify the type of goods in question after taking note of the chemical examiner''s report in accordance with the Section Note 14(A) read with 2A of Section XI."

That appellate order became final. We are entirely in agreement with this approach of the Appellate Collector and we are of the opinion that as the section and Chapter Notes stand, this is the correct position and the goods of the petitioner have been rightly classified as the jute carpet falling under item No. 5703.30 by the Appellate Authority.

The attempt of the Department is to get over this appellate adjudication even though no appeal has been filed and it has become final. Such an attempt has been disapproved by the Supreme Court in the case of Union of India and others Vs. Kamlakshi Finance Corporation Ltd., . It is well settled that where there is no change in the factual situation or in the law, the earlier classification cannot be reviewed. However, the learned Standing Counsel for the Department submitted that the instructions given along with the budget proposals constitute the occasion for rethinking in the matter. Those instructions did not override the rules in the section and chapter which is part of the Tariff Act schedule. Until those notes are changed, the rule of construction and classification cannot be ignored only by reason of certain instructions given at the time of the budget proposals. These instructions which were relied on by the Department did not crystallise into change in the rule position. Since the facts and the law remained unchanged, the Department has no jurisdiction u/s 11-A to issue a show cause notice for reclassifying the goods.

The learned Standing Counsel submitted that if the Department is not allowed to review the classification, there will be loss of revenue as the earlier classification will stand without any modification. This is the very argument which was considered by the Supreme Court and rejected. The cases cited by the learned Standing Counsel are the cases, where reclassification was made without there being an appellate adjudication and are therefore, irrelevant. In the present case,in the face of the appellate adjudication earlier on the same facts and in the admitted position of there being no change in the law/the issue of show cause notice is bad in law. The contention that the assessee was given an opportunity to show cause is of no significance because obviously the Department has made up its mind to depart from the earlier adjudication and any explanation given by the petitioner will be an infructuous exercise. In the circumstances, we are satisfied that the show cause notice was wholly without jurisdiction and we have no hesitation in quashing the same.

The detention order also is untenable and is consequently quashed.

The higher rate of tax already paid by the petitioners will be adjusted against the future dues or refunded to the assessee.

Accordingly, the writ petitions are allowed. No costs.