Tariff classification of processed fabrics sustained under Chapter 54, preserving compounded levy benefit under the exemption notification.

Processed fabrics supplied in running length were treated as classifiable under Chapter 54, not Chapter 59, because the supplier's manufacturing facility was limited to weaving and the department did not show that the goods were not in running length. A later description by the supplier of similar goods under Chapter 59 for another period did not alter the classification for the disputed period, especially where the classification issue had already attained finality. On that basis, the special compounded levy procedure under Notification No. 32/2001-C.E. remained available, and the demand and penalties could not be sustained.

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Issues: Whether the processed fabrics cleared by the assessee for HIFPL were classifiable under Chapter 54 or Chapter 59, and consequently whether the assessee was entitled to the benefit of the special compounded levy procedure under Notification No. 32/2001-C.E.

Analysis: The classification of the fabrics manufactured by HIFPL had already been decided in favour of the assessee's stand and had attained finality. The record showed that HIFPL had only the facility to weave fabrics and supplied woven fabrics in running length to the assessee. Such goods were treated as falling under Chapter 52/54, and the department did not establish that the goods processed by the assessee were not in running length. The mere description by HIFPL of the goods as falling under Chapter 59 for a later period did not justify classifying the same goods under Chapter 59 for the period in dispute. Since the goods processed and cleared by the assessee were held to fall under Chapter 54, the special procedure for payment of duty on compounded levy basis remained available.

Conclusion: The assessee was entitled to the benefit of Notification No. 32/2001-C.E., and the demand and penalties could not be sustained.

Ratio Decidendi: Where the supplied goods are found, on final classification, to fall under the eligible tariff chapter, the assessee cannot be denied compounded levy benefit merely because the supplier had earlier described the goods under a different chapter.

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