Flax yarn classification under the pre-1995 tariff turned on whether later HSN notes could be applied retrospectively.

Polished and glazed flax yarn of 1429 decitex or more was discussed as a tariff classification issue under Heading 53.01 versus Heading 56.07 for the relevant pre-1995 period. The analysis states that, absent a section or chapter note removing such yarn from Heading 53.01, the product retained its character as flax yarn, and later HSN-based exclusion notes could not be applied retrospectively. The commentary also notes that approved classification lists, disclosed returns, and departmental access to the particulars weighed against any allegation of suppression, affecting limitation and penalty exposure.

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Issues: (i) Whether polished and glazed flax yarn measuring 1429 decitex or more was classifiable under Heading 53.01 or under Heading 56.07 for the relevant period. (ii) Whether the demand was barred by limitation and the penalty could be sustained.

Issue (i): Whether polished and glazed flax yarn measuring 1429 decitex or more was classifiable under Heading 53.01 or under Heading 56.07 for the relevant period.

Analysis: The tariff entry for flax yarn during the relevant period contained no section note or chapter note taking polished or glazed flax yarn of a particular decitex out of Heading 53.01 and placing it under Heading 56.07 as twine, cordage, ropes or cables. The HSN note treating such yarn as cordage etc. was an artificial classification rule introduced later and could not govern the pre-1995 tariff when the headings were not yet aligned with HSN. The product therefore retained its character as flax yarn for the relevant period.

Conclusion: The goods were classifiable under Heading 53.01 and not under Heading 56.07, in favour of the assessee.

Issue (ii): Whether the demand was barred by limitation and the penalty could be sustained.

Analysis: The classification lists had been approved by the proper officer, the returns disclosed the nature of the goods, and the department had access to the relevant particulars. In those circumstances, the non-mention of decitex could not amount to deliberate suppression with intent to evade duty. The foundation for invoking the longer limitation period was therefore absent, and the penalty rested on the same footing.

Conclusion: The extended period of limitation was not available to the Revenue and the penalty could not be sustained, in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal succeeded with consequential relief.

Ratio Decidendi: Where the tariff entry in force does not contain an HSN-based artificial exclusion, the goods must be classified according to the unamended tariff entry for the relevant period, and approved disclosures to the department negate suppression for invoking the extended limitation period.

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