Cotton fabric exemption survives polymer coating, but Special Additional Duty remains payable on separate levy analysis

A polymer-based fusible coating did not alter the essential character of imported fabric where the warp and weft remained 100% cotton, so the benefit of Notification No. 29/2004-Cx. was available. Special Additional Duty was nevertheless leviable because the exemption claim based on nil duty under the additional duties regime could not be sustained once the goods were excluded from the relevant Schedule. The document states that the cotton fabric exemption was upheld, while the SAD exemption failed on the separate duty-liability issue.

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Issues: (i) Whether the imported fabric, though sprayed with polymer-based fusible material, continued to be 100% cotton textile fabric eligible for benefit under Notification No. 29/2004-Cx.; (ii) Whether Special Additional Duty was leviable on the goods in view of Notification No. 20/2006 [Sl. No.50] and the exclusion of the goods from the Schedule of the Additional Duties of Excise (Goods of Special Importance) Act, 1957.

Issue (i): Whether the imported fabric, though sprayed with polymer-based fusible material, continued to be 100% cotton textile fabric eligible for benefit under Notification No. 29/2004-Cx.

Analysis: The report of the Textiles Committee recorded that the warp and weft of the fabric was 100% cotton woven fusible interlining material. The polymer-based fusible coating was treated as a mere coating and not as a change in the essential character of the fabric. The exemption under the notification was denied only if the goods were not made of cotton or were made of other textile materials. The factual finding of the committee report was not disputed.

Conclusion: The imported goods remained 100% cotton textile fabric and the benefit of Notification No. 29/2004-Cx. was admissible to the assessee.

Issue (ii): Whether Special Additional Duty was leviable on the goods in view of Notification No. 20/2006 [Sl. No.50] and the exclusion of the goods from the Schedule of the Additional Duties of Excise (Goods of Special Importance) Act, 1957.

Analysis: The exemption from SAD was claimed on the footing that the goods suffered nil duty under the relevant additional duties regime. However, the Revenue's case that the goods had been taken out of the Schedule with effect from 8-4-2011 was accepted, and the reasoning linking SAD exemption only to nil SIA duty was not sustained. The assessee did not contest this position.

Conclusion: Special Additional Duty was leviable and the assessee was not entitled to exemption on this issue.

Final Conclusion: The appeal succeeded only on the issue of Special Additional Duty, while the classification and notification benefit for the cotton textile fabric was upheld in favour of the assessee.

Ratio Decidendi: A polymer-based fusible coating does not by itself alter the essential cotton character of a fabric for exemption purposes, but SAD liability must be determined independently of a nil-duty assumption where the relevant goods are no longer covered by the exempting schedule.

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