Grey fabric processing test: temporary calendering and shearing did not attract the higher interest rate.

For differential interest under Rule 49A of the Central Excise and Salt Rules, the controlling test is whether processing makes grey fabric cease to be grey fabric in the commercial sense. Calendering and shearing are not ative merely because some process was applied; their effect must be judged on the facts of each case. Here, calendering was only a temporary finish by plain rollers and shearing merely trimmed stray fibres, without creating a lasting change or a commercially distinct commodity. The fabric therefore remained grey cloth, and the higher rate under Rule 49A(2) was not attracted; interest applied only under Rule 49A(1)(b).

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Issues: Whether cotton fabrics subjected to calendering and shearing ceased to be grey or unprocessed fabrics so as to attract interest at 3% under Rule 49A(2) of the Central Excise and Salt Rules, 1944, instead of 1.5% under Rule 49A(1)(b).

Analysis: The rate of interest under Rule 49A depends not on whether some process was applied in the abstract, but on whether the process made the grey fabric cease to be grey fabric as commercially known and understood. Calendering and shearing are generic expressions covering different operations, and their effect must be tested on the facts of each case. On the facts found, the calendering was only a temporary finish by plain rollers and the shearing merely trimmed stray fibres. No lasting change or commercially distinct commodity resulted, and the fabric remained grey cloth for purposes of Rule 49A(1).

Conclusion: The higher rate under Rule 49A(2) was not attracted. The assessee was liable only to interest under Rule 49A(1)(b), and the assessee succeeded.

Ratio Decidendi: For differential interest under Rule 49A, the controlling test is whether the processing applied to grey fabric makes it cease to be grey fabric in the commercial sense; mere finishing operations that do not effect such a change do not attract the higher rate.

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