Classification by actual composition defeated duty demand, confiscation and penalty where test reports showed filament yarn in fabrics.

Fabrics had to be classified according to actual composition, and the presence of filament yarn in the test reports meant Chapter Heading 5508.00 could not be sustained. Because fabrics containing filament yarn were treated as falling under Chapter Heading 5408.00 rather than the heading adopted in adjudication, the basis for the differential duty demand disappeared. The connected confiscation and penalty also could not survive once the classification was found to be incorrect, and all consequential demands were set aside in favour of the assessee.

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Issues: Whether the fabrics containing staple fibre and filament yarn were correctly classifiable under Chapter Heading 5512.00 of the Central Excise Tariff Act, 1985, and whether the consequential demand of duty, confiscation and penalty could be sustained.

Analysis: The fabrics under the relevant period were required to be classified on the basis of their actual composition. Fabrics under Chapter Headings 5508.00 and 5512.00 cover fabrics made of staple fibres, whereas fabrics containing filament yarn fall within Chapter Heading 5408.00. Since the test reports showed the presence of filament yarn, the classification adopted in the adjudication order under Chapter Heading 5508.00 could not be upheld. Once the classification itself was found to be incorrect, the basis for confirming differential duty disappeared, and the associated confiscation and penalty could not survive.

Conclusion: The classification under Chapter Heading 5508.00 was not sustained, and the demand of duty, confiscation and penalty were set aside in favour of the assessee.

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