Broad exemption for embroidery yarn/thread upheld where use in fabric manufacture made embroidery mode immaterial.

Exemption notifications covering goods "meant for use in the manufacture of fabrics" were construed broadly to include embroidery work as part of fabric manufacture, so cotton embroidery yarn/thread and rayon embroidery yarn/thread remained eligible. The mode of use, whether by hand embroidery or machine embroidery, was held immaterial to the exemption. The challenge to cotton embroidery yarn/thread also failed because the show-cause notices had proceeded on the accepted classification, and the department was not permitted to alter its case through a different tariff classification. The same reasoning applied to rayon embroidery yarn/thread, and the evidence relied on by Revenue did not displace eligibility under the notifications.

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Issues: Whether cotton embroidery yarn/thread and rayon embroidery yarn/thread were eligible for exemption under Notifications Nos. 35/95-C.E., 8/96-C.E. and 4/97-C.E., and whether the Revenue could deny that benefit by seeking a different tariff classification.

Analysis: The exemption notifications used the expression "meant for use in the manufacture of fabrics". That expression was construed broadly to include embroidery as part of the manufacture of fabrics, and the manner in which the yarn/thread was used, whether by hand embroidery or machine embroidery, was held to be immaterial. The challenge to cotton embroidery yarn/thread also failed because the show-cause notices themselves had proceeded on the accepted classification and the original authority was not required to amend the department's pleadings. For rayon embroidery yarn/thread, the same approach was applied, and the evidence relied upon by the Revenue did not displace the finding that the goods were eligible for the notifications.

Conclusion: The exemption benefit was upheld for both cotton embroidery yarn/thread and rayon embroidery yarn/thread, and the Revenue's appeals failed.

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