Classification of processed embroidered fabrics follows the finished fabric entry, with nil-rate tariff treatment defeating the duty demand.

Processed embroidered fabrics received in grey condition and subjected to bleaching or dyeing are classified by reference to the processed embroidered fabric entry, not the underlying base fabric, because Chapter Note 8 of Chapter 58 treats such processing as manufacture. On that basis, Heading 5805.90 applies to embroidered fabrics, and where that heading carried a nil rate at the relevant time, no duty demand could be sustained. The claimed benefit of Notification No. 3/2001-C.E. was unnecessary to consider because the goods were already covered by the nil-rated tariff entry.

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Issues: Whether processed embroidered fabrics received in grey condition and subjected to bleaching or dyeing were classifiable under Heading 5805.90 and not under Chapters 52, 54 or 55 on the basis of the base fabric, and whether duty demand could be sustained.

Analysis: The processed goods were already embroidered fabrics at the grey stage. Chapter Note 8 of Chapter 58 treated bleaching, dyeing and similar processes on fabrics of that chapter as manufacture, so the goods had to be classified on the basis of the processed embroidered fabric and not the underlying base fabric. The reasoning accepted that the relevant entry under Heading 5805 covered embroidered fabrics and that, at the material time, Heading 5805.90 carried a nil rate. Since the goods fell within that heading, the duty demand could not be sustained. The claimed benefit of Notification No. 3/2001-C.E. was found unnecessary to apply because the goods were already covered by the nil-rated tariff entry.

Conclusion: The processed embroidered fabrics were classifiable under Heading 5805.90 and were not chargeable to duty; the classification under Chapters 52, 54 and 55 was unsustainable.

Final Conclusion: The appeal succeeded and the assessee obtained relief against the duty demand and adverse classification.

Ratio Decidendi: Where fabrics already embroidered at the grey stage are subjected to processes such as bleaching or dyeing, and the tariff entry applicable to the processed embroidered fabric carries a nil rate, classification must follow the processed embroidered fabric entry rather than the base fabric classification.

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