Trade classification of cotton fabrics depends on market recognition, not yarn-stage processing, keeping bleached fabrics outside grey goods.

Cotton fabrics woven from bleached and/or dyed yarn were classified by trade understanding and the condition of the goods as entered, not by whether later wet or dry finishing had been undertaken. The materials showed that such fabrics did not necessarily require further bleaching or dyeing after weaving, and the uncontroverted affidavit established that the textile trade recognised them as bleached and/or dyed fabrics. On that basis, the fabrics were not grey goods merely because the bleaching or dyeing occurred at the yarn stage, and they fell within Item 10(a) and (b) rather than Item 5(a) and (b), so differential excise duty was not payable.

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Issues: Whether cotton fabrics woven out of bleached and/or dyed yarn were liable to be classified as grey fabrics under Item 5(a) and (b) or as bleached and/or dyed fabrics under Item 10(a) and (b) of the exemption notification for the purpose of excise duty.

Analysis: The relevant classification turned on the nature by which the goods were understood in trade and commerce, and on whether the fabrics entering the processing factory had to be regarded as grey merely because they had not undergone subsequent dry or wet finishing operations. The materials before the Court showed that fabrics woven from bleached and/or dyed yarn did not necessarily require further bleaching or dyeing, and the uncontroverted affidavit established that such goods were recognised in the textile trade as bleached and/or dyed fabrics. On that basis, the fabrics could not be treated as grey goods merely because the bleaching or dyeing had been done at the yarn stage.

Conclusion: The goods fell within Item 10(a) and (b), not Item 5(a) and (b), and the demand for differential duty was not sustainable.

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