Processed cotton fabrics lose grey-fabric status after calendering and shearing, attracting higher interest under the duty-deferment scheme.

Cotton fabrics subjected in the same factory to calendering and shearing are treated as processed fabrics, not grey or unprocessed fabrics, for Notification No. 80/76 and Rule 49A. The note states that recognised finishing processes remove the benefit of exemption available to unprocessed cotton fabrics, even if the goods may still be referred to in trade as grey goods. It also states that clearance after such processing attracts differential interest at 3% of the yarn duty under Rule 49A. The impugned orders were sustained and the appeals failed.

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Issues: Whether cotton fabrics subjected to calendering and shearing remained grey fabrics or became processed fabrics for the purpose of Notification No. 80/76 and Rule 49A, and whether differential interest at 3% of the yarn duty was payable.

Analysis: Calendering and cropping (shearing) are recognised finishing processes. A fabric cleared after such processing is not treated as grey or unprocessed merely because it may continue to be known in trade as grey goods. Under Notification No. 80/76, unprocessed cotton fabrics subjected in the same factory to the specified finishing processes lose the benefit of exemption. Rule 49A likewise differentiates between clearance of grey fabrics and fabrics cleared after processing, making 3% interest applicable in the latter case.

Conclusion: The fabrics were processed fabrics and not grey fabrics, and the demand for interest at 3% was justified against the assessee.

Final Conclusion: The impugned orders were sustained and the appeals failed.

Ratio Decidendi: Cotton fabrics subjected to specified finishing processes cease to be grey or unprocessed for the purposes of the relevant exemption and duty-deferment scheme, and the higher interest rate applies to clearance after processing.

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