1984 (7) TMI 77 - HC - Central Excise

Court reclassifies nylon fishnets as fabrics exempt from excise duty, grants relief to petitioners

The High Court allowed the petition, setting aside the Assistant Collector's classification of nylon fishnets under Tariff Item No. 68. The Court held ... Classification of goods - man-made fabrics - Tariff Item No. 22 - residuary entry - interpretation of tariff entries - extraordinary jurisdiction under Article 226 - knitting, weaving and knotting as processes of fabric formationExtraordinary jurisdiction under Article 226 - remedy under the Act - Whether the High Court should entertain the writ petition despite the petitioners not having availed the statutory remedies under the Act - HELD THAT: - The Court considered the petitioners' stated reasons in paras 19 and 20 for not pursuing the statutory appellate remedies and held that those grounds were sufficient to justify invocation of the Court's extraordinary jurisdiction. While ordinarily the High Court should not obstruct statutory fora, the power under Article 226 is not fettered so as to compel refusal where satisfactory grounds for bypassing prescribed remedies are shown. The Court observed that disputes involving pure questions of law, particularly statutory interpretation on taxing liability, are appropriate for determination by the High Court and declined to remit the matter to the Collector or appellate authorities. [Paras 9, 10]Writ petition entertained and not dismissed for failure to pursue statutory remedies; Court proceeded to decide the controversy on merits.Man-made fabrics - Tariff Item No. 22 - classification of goods - interpretation of tariff entries - knitting, weaving and knotting as processes of fabric formation - residuary entry - Whether fishing nets manufactured of nylon twine/yarn constitute 'man-made fabrics' within Tariff Item No. 22 or are to be classified under the residuary Entry No. 68 - HELD THAT: - Applying the ordinary and trade sense of 'fabric' and following precedents on the characterization of yarn and twine, the Court held that a fabric is any material put together by interlacing, weaving, knitting, knotting or similar processes from fibres, filaments or yarns. The Court accepted the view (following Garware and the Supreme Court in Porritts and Spencer) that twine is a form of yarn and that knotting is a mode of forming fabric. The Collector's reasons - that nets are not known as fabrics in trade parlance, that their use is determinative, and that no knitting/weaving is involved - were found unsupported by evidence and legally irrelevant. The Court emphasised that use of the product is immaterial to its character as a fabric and that general entries covering a product cannot be displaced by resort to the residuary entry. Consequently, fishing nets made of man-made yarn/twine fall within the scope of Tariff Item No. 22. [Paras 19, 20, 21, 23, 29]Fishing nets manufactured from nylon twine/yarn are fabrics within the meaning of Tariff Item No. 22; the Collector's classification under Entry No. 68 set aside.Final Conclusion: The High Court exercised its Article 226 jurisdiction despite nonexhaustion of statutory remedies and on merits held that fishing nets manufactured of nylon twine/yarn are 'man-made fabrics' within Tariff Item No. 22 of the Central Excises and Salt Act, 1944; the Assistant Collector's order classifying the nets under the residuary Entry No. 68 was set aside. Issues Involved:1. Classification of nylon fishnets under Central Excise Tariff.2. Jurisdiction of the High Court under Article 226 despite available statutory remedies.3. Interpretation of the term 'fabric' within Tariff Item No. 22.4. Validity of the Assistant Collector's classification under Tariff Item No. 68.Issue-wise Detailed Analysis:1. Classification of Nylon Fishnets under Central Excise Tariff:The petitioners, a factory manufacturing nylon fishnets, sought classification of their product under Tariff Item No. 22 of the First Schedule of the Central Excises and Salt Act, 1944, which pertains to 'Man-made Fabrics.' They argued that their fishnets, made from nylon yarn, should be classified as knitted fabrics and thus exempt from excise duty under Notification No. 80/69. The Assistant Collector of Central Excise, Goa, however, classified the fishnets under Tariff Item No. 68 (residuary entry) on the grounds that the product was not finished by the knotting process, was not known as a 'fabric' in common trade parlance, and did not involve knitting or weaving processes.2. Jurisdiction of the High Court under Article 226 Despite Available Statutory Remedies:The petitioners bypassed available statutory remedies and directly invoked the extraordinary jurisdiction of the High Court under Article 226. The respondents argued that the petitioners should have followed the remedies available under the Act. However, the Court held that the grounds given by the petitioners in paras 19 and 20 of their petition were sufficient to grant them relief. The Court emphasized that in matters involving fiscal statutes and taxing liabilities, it would not deny relief on technical grounds if the grounds for not adopting statutory remedies were satisfactory.3. Interpretation of the Term 'Fabric' within Tariff Item No. 22:The core issue was whether the term 'fabric' as used in Tariff Item No. 22 included nylon fishnets. The Court examined various definitions and standard nomenclatures, including the Brussels Trade Nomenclature, which classified fishing nets under textile articles. The Court noted that the term 'fabric' generally includes materials made by weaving, knitting, or knotting. The Court referred to the Supreme Court judgment in Porritts and Spencer (Asia) Ltd. v. State of Haryana, which held that the method of weaving or the use of the product was immaterial in determining its classification as a textile. The Court concluded that nylon fishnets, being made from man-made fibers or yarn, fall within the definition of 'fabric' under Tariff Item No. 22.4. Validity of the Assistant Collector's Classification under Tariff Item No. 68:The Court found several infirmities in the Assistant Collector's reasoning. The Assistant Collector erroneously concluded that fishnets were not fabrics based on their manufacturing process and trade parlance. The Court held that the method of production (knotting) and the end-use of the product were irrelevant to its classification as a fabric. The Court emphasized that the term 'fabric' inherently involves a material put together by weaving, knitting, or knotting. Consequently, the Court set aside the Assistant Collector's classification under Tariff Item No. 68 and declared that the fishnets produced by the petitioners are fabrics within the meaning of Tariff Item No. 22.Conclusion:The High Court allowed the petition, set aside the Assistant Collector's order dated June 21, 1982, and held that the fishnets produced by the petitioners are fabrics within the meaning of Tariff Item No. 22 of the Central Excises and Salt Act, 1944. The petitioners were granted relief, and the rule was made absolute with no order as to costs. The Court refused the respondents' request for leave to appeal to the Supreme Court, citing adherence to the Supreme Court's judgment.