2006 (1) TMI 373 - AT - Central Excise

Commissioner (Appeals) corrects fabric classification under Central Excise Tariff Act

The Commissioner (Appeals) determined that processed embroidered fabrics were to be classified under Heading 5805.90 of the Central Excise Tariff Act ... Classification of goods - Deemed manufacture by processing under Chapter Note 8 of Chapter 58 - Classification of embroidered fabrics with reference to ground fabric versus embroidery thread (Section XI sub heading note) - Applicability of Notification No. 3/2001 C.E. (item No. 159)Classification of goods - Classification of embroidered fabrics with reference to ground fabric versus embroidery thread (Section XI sub heading note) - Processed embroidered fabrics received in grey and subjected to bleaching/dyeing are to be classified as the processed embroidered fabric under Heading 5805.90 and not by reference to the base (ground) fabric classified under Chapters 52, 54 or 55. - HELD THAT: - The Tribunal held that once base fabrics are embroidered at the grey stage and thereafter processed, the proper exercise is to classify the resulting processed embroidered fabric. The Chapter entries under 58.05 govern classification of such embroidered goods; embroidery which does not fall within power operated vertical machine categories and which is processed other than as manufactured by those machines is appropriately classifiable under S.H. 5805.90. The lower authority's approach of classifying the processed goods by reference to the base fabric (Chapters 52, 54, 55) was rejected because the processed embroidered fabric constitutes the article to be classified after processing and not merely the original ground fabric.Classification under Chapters 52/54/55 is not sustainable; processed embroidered fabrics fall under Heading 5805.90.Deemed manufacture by processing under Chapter Note 8 of Chapter 58 - Applicability of Notification No. 3/2001 C.E. (item No. 159) - Chapter Note 8 treats processes such as bleaching and dyeing as manufacture attracting levy, but where the relevant tariff entry for the processed embroidered fabric (5805.90) carried a NIL rate at the material time, no duty demand could be sustained and the benefit of Notification No. 3/2001 was not to be applied as claimed by the appellant. - HELD THAT: - The Tribunal applied Chapter Note 8 to recognise that processing (bleaching/dyeing etc.) amounts to manufacture for fabrics of Chapter 58 and thus normally attracts excise levy under Section 3. However, on construing the tariff applicable to the processed embroidered article, the Tribunal found that the appropriate sub heading was 5805.90 and that, at the relevant time, that entry was chargeable at NIL rate under the tariff. Consequently, although the processing is a deemed manufacture, there was no excise liability to be levied on the processed embroidered fabric. For these reasons the claimed reliance on Notification No. 3/2001 as a separate source of exemption was unnecessary and inapplicable to alter the conclusion that no duty was leviable.Processing is deemed manufacture under Chapter Note 8 but no duty is leviable as Heading 5805.90 carried a NIL rate; Notification No. 3/2001 benefit is not applicable to create any additional liability.Final Conclusion: Appeals allowed; the orders directing classification by reference to base fabrics (Chapters 52/54/55) and consequent duty demand are set aside. The processed embroidered fabrics are classifiable under Heading 5805.90 and, as that entry attracted NIL rate for the relevant period, no excise liability arises; the appellant's claim under Notification No. 3/2001 is unnecessary and not applied. Issues:Classification and dutiability of embroidered fabrics processed by the appellant.Analysis:The appellant, engaged in fabric processing on a job work basis, processed gray fabrics received from customers by bleaching, dyeing, etc. The dispute revolved around the classification and dutiability of these processed embroidered fabrics. The tariff description under Heading 58.05 of the Central Excise tariff was crucial, along with Chapter Note 8 of Chapter 58, which defined processes amounting to manufacture. The appellant claimed the benefit of Notification No. 3/2001, which fixed a duty rate of 'NIL' for certain embroidered fabrics not subjected to any process. However, a show cause notice alleged incorrect duty discharge on processed fabrics based on the classification of the base fabric used. The lower authority classified the goods under different chapters based on the base fabric used, leading to duty liability. The appellant appealed against this order.The Commissioner (Appeals) held that only specific goods manufactured with power-operated embroidery machines would attract 'NIL' duty under Chapter Heading 5805.90. Embroidered fabrics in running length were to be classified based on the fabric group, subject to Central Excise duty applicable to fabrics of specific chapters. The Commissioner set aside the original order, directing the jurisdictional officer to compute the liability based on the correct classification of fabrics received for processing. The appeal was rejected, leading to an appropriate classification and duty demand.Upon review, it was found that the HSN Chapter 58 and CETA 1985 were not aligned. The processed embroidered fabrics fell under Heading 5805.90 of CETA 1985. The classification post-processing had to be determined based on Chapter Note 8 of Chapter 58, leading to a fresh levy under the Central Excise Act. The appellant's factory processes did not align with the specific machine embroidery operations, resulting in no duty liability under Chapter Heading 5805.90. The benefit of Notification No. 3/2001 was deemed inapplicable. The classification order based on the nature of the base fabric was deemed incorrect, as the processed embroidered fabric was to be classified under Heading 5805.90. The orders were set aside, and the appeal was allowed accordingly.In conclusion, the judgment clarified the classification and dutiability of processed embroidered fabrics, emphasizing the importance of Chapter Note 8, specific manufacturing processes, and appropriate tariff headings for duty assessment.