1996 (9) TMI 123 - SC - Central Excise

Nylon twine qualifies as nylon yarn under Item 18 of Central Excises and Salt Act 1944

The SC held that nylon twine qualifies as nylon yarn under Item 18 of the First Schedule to the Central Excises and Salt Act, 1944. The Court emphasized ... Classification - burden of proof - Whether 'Nylon Twine' can be considered as 'Nylon Yarn' so as to be covered by Item 18 of the First Schedule to the Central Excises and Salt Act, 1944 as it stood prior to the Amendment of 1977? Held that:- In this case, apart from the meaning given to the words 'Yarn', 'Twine' etc., in the standard works referred to by the High Court, two items of evidence stand out prominent and clinch the issue. The first is, an order received by the assessee from the Director of Fisheries, Madras which goes to show that Nylon Twine is considered as a type of Nylon Yarn used for making fishing nets. The second is, two affidavits filed by the assessees before the authorities - one from the Managing Director of Maharashtra Rajya Machimar Sekhari Sangh Limited and another from a Partner of Maharashtra Fishing Material Company, wherein it is stated that 'Twine' is a category of 'Yarn'. What is more - the assessees made available the above persons who have sworn to the affidavits for cross-examination at the time of the hearing of the applications, but the Revenue did not cross-examine them. The trade inquiry received by the assessees and also the affidavits conclusively point out that Nylon Twine is considered as a kind of 'Nylon Yarn' in the particular trade by persons conversant with the subject-matter. The revenue has not let in any material to the contra. The burden of proof is on the taxing authorities to show that the particular case or item in question, is taxable in the manner claimed by them. Mare assertion in that regard is of no avail. It has been held by this Court that there should be material to enter appropriate finding in that regard and the material may be either oral or documentary. It is for the taxing authority to lay evidence in that behalf even before the first adjudicating authority. Especially in a case as this, where the claim of the assessee is borne out by the trade inquiries received by them and also the affidavits filed by persons dealing with the subject matter, a heavy burden lay upon the revenue to disprove the said materials by adducing proper evidence. Unfortunately, no such attempt was made. As stated, the evidence led in this case conclusively goes to show that Nylon Twine manufactured by the assessees has been treated as a kind of Nylon Yarn by the people conversant with the trade. It is commonly considered as Nylon Yarn. Hence, it is to be classified under Item 18 of the Act. Appeal dismissed. The core legal question considered by the Court was whether 'Nylon Twine' can be classified as 'Nylon Yarn' so as to fall within the scope of Item 18 of the First Schedule to the Central Excises and Salt Act, 1944, as it existed prior to the 1977 amendment. This issue arose because the Revenue contended that Nylon Twine was a distinct product from Nylon Yarn and thus liable to excise duty under the residuary Item 68, whereas the assessees claimed that Nylon Twine was a kind of Nylon Yarn and entitled to the exemption notification applicable to Nylon Yarn used in fishing nets.The Court examined the relevant statutory provisions, including the detailed description of Item 18, which covered Rayon and Synthetic Fibres and Yarn, including textured yarn, with various explanations defining 'Fibres and yarn other than Textured yarn,' 'Textured Yarn,' 'Base Yarn,' and exclusions such as mineral fibres and yarn. The Court also noted the introduction of Item 68 in 1977 as a residuary entry for all other goods not specified elsewhere in the schedule.The principal contention of the Revenue was that Nylon Twine and Nylon Yarn are different in commercial parlance and physical characteristics, and therefore Nylon Twine did not fall under Item 18. The assessees countered by relying on trade usage, authoritative literature, and affidavits to demonstrate that Nylon Twine is considered a type of Nylon Yarn in the relevant trade, particularly for use in fishing nets.The Court gave significant weight to the material evidence placed before the High Court, including references to the Encyclopaedia Britannica, Indian Standards Institution standards, manuals published by the Food and Agriculture Organisation, orders from the Director of Fisheries, and affidavits from trade persons. The High Court had found that Nylon Twine was treated as a kind of Nylon Yarn by persons in the trade and that the burden was on the Revenue to prove otherwise. The Revenue failed to produce any evidence to contradict this finding or to cross-examine the affiants.In interpreting the tariff entries, the Court reiterated well-established principles of statutory interpretation in fiscal statutes. It emphasized that words used in such statutes should be construed according to their popular or commercial meaning as understood by those dealing in the goods, rather than by their technical or scientific meaning. The Court cited precedent that where legislation addresses a particular trade or business, words having a special meaning in that context should be understood accordingly, provided there is material to support such a finding.The Court further highlighted the necessity for the taxing authorities to adduce evidence before the adjudicating authority to establish that an article is commercially distinct and taxable under a particular tariff entry. Mere assertions without evidence are insufficient. Technical literature and authoritative publications must be placed before the adjudicating authorities and the Tribunal to enable proper evaluation.Applying these principles to the facts, the Court found that the evidence conclusively showed that Nylon Twine was considered a kind of Nylon Yarn in the trade for the manufacture of fishing nets. The Revenue did not provide any contradictory evidence. The Court quoted a prior ruling that when an article has a reasonable claim to be classified under a specified tariff item, it should not be denied classification and relegated to the residuary clause.The Court upheld the High Court's conclusion that Nylon Twine falls within Item 18 of the Act and is not liable to excise duty under the residuary Item 68. The appeals by the Revenue were dismissed with costs.Significant holdings include the following verbatim excerpts of legal reasoning:'There is, however, sufficient material on record which goes to show that nylon twine manufactured by the petitioners has been treated as a kind of nylon yarn by the people in the trade. It is commonly considered as yarn. Hence it can be classified under Item 18.''The burden is on the taxing authorities to show that the item in question is taxable in the manner claimed by them.''In construing the relevant item or entry, in fiscal statutes, if it is one of every day use, the authority concerned must normally, construe it, as to how it is understood in common parlance or in the commercial world or trade circles. It must be given its popular meaning.''When an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause.'Core principles established include the primacy of commercial and popular meaning in tariff classification, the evidentiary burden on taxing authorities to establish distinctiveness and taxability, and the inadmissibility of mere assertions without supporting evidence. The Court underscored that classification must be guided by trade usage and the understanding of those dealing with the goods, not by purely technical or dictionary meanings.Final determinations were that Nylon Twine is a kind of Nylon Yarn within the meaning of Item 18 of the First Schedule to the Central Excises and Salt Act, 1944, and therefore liable to excise duty under that item and not under the residuary Item 68. The Revenue's appeals were dismissed, and the High Court's order directing refund of excess duty collected was affirmed.