Non-woven fabric classification under Heading 5603 and failure to prove suppression defeat extended limitation

Non-woven fabric produced by web formation and bonding was held classifiable under Heading 5603, not Chapter 39, because the Revenue produced no test report or other corroborative material and did not identify the precise tariff entry supporting its view; HSN notes and cited precedent supported classification in Chapter 56. The extended period of limitation was also held unsustainable because the assessee had consistently classified the goods under Heading 5603, filed ER-1 returns openly, and the demand was based on those returns, leaving no material to show suppression. The appeal was allowed and the demand was set aside with consequential relief.

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Issues: (i) Whether the non-woven fabric manufactured by the appellant was correctly classifiable under Heading 5603 rather than Chapter 39 of the Central Excise Tariff Act, 1985. (ii) Whether invocation of the extended period of limitation was sustainable in the absence of suppression.

Issue (i): Whether the non-woven fabric manufactured by the appellant was correctly classifiable under Heading 5603 rather than Chapter 39 of the Central Excise Tariff Act, 1985.

Analysis: The classification dispute turned on the nature of the product and the manufacturing process. The Revenue did not place any test report or other corroborative material to support classification under Chapter 39, nor did it identify the precise 6-digit or 8-digit tariff entry under which the goods were said to fall. The manufacturing process recorded in the show cause notice was found to be materially similar to the process considered in the cited precedent, where non-woven fabrics produced by web formation and bonding were held to fall under Heading 5603. The HSN explanatory notes were treated as supporting the view that such non-woven textile products belong in Chapter 56.

Conclusion: The product was held to be correctly classifiable under Heading 5603, and the Revenue's classification under Chapter 39 was rejected.

Issue (ii): Whether invocation of the extended period of limitation was sustainable in the absence of suppression.

Analysis: The appellant had been classifying the goods under Heading 5603 and filing regular ER-1 returns, which were accepted by the department without objection. The demand itself was worked out from those returns. On these facts, no material was shown to establish suppression or any conduct justifying the extended limitation period.

Conclusion: Invocation of the extended period was held to be not legally sustainable, and the demand for the extended period was set aside.

Final Conclusion: The appeal was allowed and the impugned demand was set aside, with consequential relief as admissible in law.

Ratio Decidendi: Where the Revenue fails to adduce corroborative evidence for a proposed tariff classification and the assessee's returns disclose the classification adopted, a contrary classification and invocation of the extended limitation period cannot be sustained.

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