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NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 5805-5807 OF 2009

SARLA PERFORMANCE FIBERS LTD. .....APPELLANT(S)

VERSUS

COMMISSIONER  OF  CENTRAL EXCISE & CUSTOMS, VAPI .....RESPONDENT(S)

W I T H

CIVIL APPEAL NO. 7253 OF 2009

AND

CIVIL APPEAL NO. 11204 OF 2014

J U D G M E N T

A.K. SIKRI, J.

All these appeals involve identical dispute, which pertain to

classification of the goods known as Polyester Covered Yarn and

Nylon Covered Yarn.  Whereas the appellants/assessees argue

that these products are covered by Chapter No. 56 and come

under CSH No. 5606.06, the Revenue has taken the position that

the aforesaid goods fall in CSH No. 5402.62/61.  The stand of the

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Revenue has been accepted by the Customs Excise & Service

Tax Appellate Tribunal (for short ‘CESTAT’) which is challenged

by the assessees in these appeals.  For the sake of convenience,

we shall take note of the facts from Civil Appeal Nos. 5805-5807

of 2009.   

 2) The aforesaid two products, namely, Polyester Covered Yarn and

Nylon  Covered  Yarn  are  manufactured  by  the  appellants  by

applying  the  process  of  conventional  covering  on  machine  –

MENEGATTO  –  Model  1500/2000  and  also  separately  by

applying the process  of  air  covering on machine  SSM-DP2-C.

The  dispute  pertains  to  the  goods  manufactured  with  the

application of air covering process.  This process of air covering

is as under:

The Lycra/Spandex Spool is loaded on the feeder and nylon or polyester is loaded on the Creel.  Then the Lycra or Spandex is drafted to certain extent i.e. as per  the  requirement  of  quality.   Then  the Nylon/polyester  &  Lycra/Spandex  is  passed  through the air jet where the covering takes place.  Finally the covered yarn is wound on paper tube.

3) It is an admitted case that upto July, 2001, the assessees were

themselves  covering  these  yarns  under  Chapter  No.  54  and

paying duty accordingly.  As per them, it was noticed that Custom

Department  was  acquiring  such  yarns  on  importation  under

Chapter  56.   The  assessees  were  advised  that  the  yarns  in

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question  are  to  be  classified  under  Chapter  No.  56  and  not

Chapter No. 54 and, therefore, after intimating the Department,

they  started  effecting  the  clearances  under  CSH No.  5606.06

w.e.f. July, 2001.   

4) On  visit  by  the  officers  of  the  Excise  Department,  when  the

aforesaid  manner  of  effecting  the  clearances  was noticed,  the

objection was raised by the Department stating that the goods

were classifiable under CSH 5402.62/61 and not 5606.06.  After

recording the statements of some employees of  the appellants

company,  show  cause  notice  dated  04.09.2002  was  issued

proposing  modification  in  classification  of  covered  yarn

manufactured  by  air  covering  method  and  on  that  basis

differential duty for the period from March, 2001 to February, 2002

was  also  demanded.   The  show  cause  notice  also  proposed

imposition of penalty and recovery of interest as well.  This show

cause  notice  led  to  adjudication  by  the  Adjudicating  Authority.

After  receiving  reply  to  show  cause  notice  and  giving  an

opportunity  of  hearing  to  the  assessees,  the  Adjudicating

Authority  affirmed  the  proposal  contained  in  the  show  cause

notice  and  also  affirmed  demand  of  differential  duty  of

Rs.44,89,471/-  with  interest  as  applicable.   Penalty  of  equal

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amount  as  that  of  duty  was  also  imposed.   This  order  was

challenged by the assessees before the Commissioner (Appeals)

and thereafter before the CESTAT, resulting into the dismissal of

their appeals at both levels.

5) Before  proceeding  to  take  note  of  the  submission  of  the

respective counsel for the parties, it will be apt to take note of the

two  competing  entries.   Chapter  54  deals  with  Man-Made

Filaments and CSH 54.02, with which we are concerned, pertains

to  Synthetic  filament  yarn,  other  than  sewing  thread.   Various

sub-heads of Heading No.54.02 are as under:

Heading No.

Sub-head ing No.

Description of goods Rate of duty

Basic  Additional

54.02 Synthetic  filament yarn  (other  than sewing  thread), including  synthetic monofilament  of  less than 60 Deniers  

5402.10 -  High  tenacity  yarn  of nylon  or  other polyamides

16%

5402.20 -  High  tenacity  yarn  of polyesters

16%

5402.61 -  Of  nylon  or  other polyamides

16%

5402.62 - Of polyesters 16%

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6) There  are  four  chapter  notes  and  for  the  purposes  of  these

appeals, chapter note 3 needs to be kept in mind.  Accordingly,

we reproduce the same as well:

“3.   In  relation  to  products  of  heading  Nos.  54.01, 54.02,  54.03,  54.04  and  54.05,  dyeing,  printing, bleaching, mercerising, twisting, texturising, doubling, multiple-folding, cabling, air mingling, air texturing or any  other  process  or  any  one  or  more  of  these processes, or the conversion of any form of the said products  into  another  form  of  such  products  shall amount to manufacture.”

7) Chapter  56  under  which  the  assessees  intend  to  cover  their

products,  bears  the  heading  “Wadding,  Felt  and  Non-Wovens;

Special Yarns; Twine, Cordage, Ropes and Cables and Articles

thereof”.  The relevant entry under Heading No.56.06 reads as

under:

Heading No.

Sub-head ing No.

Description of goods Rate of duty

Basic  Additional

56.06 5606.00 Gimped  yarn,  and strip  and  the  like  of Heading  No.  54.04  or 54.05,  gimped  (other than those of Heading No. 56.05 and gimped horsehair  yarn); Chenille  yarn (including  flock chenille  yarn);  Loop wale yarn

16%

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8) Mr.  Lakshmikumaran,  learned  counsel  appearing  for  the

assessees, submitted that, no doubt, Note 3 of Chapter No. 54

stipulates that  the process of  air mingling is  also included in

Chapter  No.  54.   His  submission,  however,  was  that  this  air

mingling  refers to the situation where same yarn is used.  He

argued that when two different kinds of yarns are used in the air

mingling,  it  is  known as gimped and such process of  gimped

yarn would not be covered by Chapter No. 54 but was specifically

covered by Chapter Heading 56.06.  In support of his submission,

Mr.  Lakshmikumaran  referred  to  HSN  Explanatory  notes

pertaining to Heading 56.06 wherein the nature of the product is

described as under:

“These products are composed of a core,  usually of one or more textile yarns, around which other yarn or yarns are wound spirally.  Most frequently the covering threads completely cover the core, but in some cases the turns of the spiral are spaced; in the latter case, the product may have somewhat the appearance of certain  multiple  (folded),  cabled  or  fancy  yarns  of Chapters  50  to  55,  but  may  be  distinguished  from them by the characteristic of gimped yarn that the core does  not  itself  undergo  a  twisting  with  the  cover threads.

(emphasis added)”   9) He also sought to draw sustenance from the dictionary meaning

of ‘gimp yarn’ which is defined in Fairchild’s Dictionary of Textiles,

7th Edition authored by Phyllis G. Tortora and Robert S. Merkel in

the following manner:

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“gimp yarn A fancy yarn made of one or more strands twisted around a central core and delivered at a faster rate to form a distinct spiral effect.   The outer yarns often  are  colored  and  coarser  than  the  core  yarns. Gimp yarns originally were made of silk twisted around a  fine  wire  or  strong  cord.   Uses:  trimming,  lace, embroidery.”

10) He  further  submitted  that  the  Tribunal  wrongly  held  that  HSN

Explanatory notes would not apply in the instant case.

11) Counsel  appearing  in  other  appeals  adopted  the  same

arguments.

12) Mr.  Radhakrishnan,  learned  senior  counsel  appearing  for  the

Revenue, submitted, per contra, that the matter was examined in

its all length and breadth, taking into consideration every relevant

fact  that  the  products  were  covered  by  Chapter  Heading

5402.62/61.   For  this  purpose,  he  extensively  read  the  facts

stated  in  the  show  cause  notice,  reasoning  given  by  the

Adjudicating  Authority  in  the  Order-in-Original  as  well  as

Order-in-Appeal  passed  by  the  Commissioner  (Appeals).   He

further submitted that the Tribunal has given cogent reasons in

rejecting these very submissions made by the appellants before

this Court  and commended this  Court  to accept well  reasoned

decision of the Tribunal.   

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13) At the outset, it may be pointed out that there is no dispute that

two yarns are used in the manufacture of the product, namely,

Nylon  and  Lycra.   At  the  same  time,  however,  it  is  also  an

admitted fact that in Polyester Covered Yarn, the percentage of

Lycra  is  only  nine  to  ten  and  it  is  Polyester/Nylon  which  is

pre-dominantly used ranging from 91% to 93%.  Taking note of

these facts and definition of gimped yarn in Explanation (A) to

Chapter Heading 56.00 under Section XI of Explanatory note to

HSN,  it  was stated in  the show cause notice that  the product

could  not  be  treated  as  gimped  yarn.   This  process  which  is

mentioned in  the  show cause notice  in  detail,  and  the  factual

position contained therein  was not  disputed by the appellants,

reads as under:

“5. Whereas it further appear that as per the technical details of the machineries involved in the manufacture of  said  polyester/nylon  covered  yarn  that  the Polyester/Nylon  yarn  is  not  wound  spirally  on  the Polyurethane (elastomeric) yarn i.e. Lycra or Spandex that  the Polyester/Nylon Texturised yarn forming the loop in relaxed condition is not  wrapped around the polyurethane (elastomeric) yarn i.e. Lycra or Spandex or held in place by a binder or tie yarn that both the Polyester/Nylon texturised and Lycra or spandex are attached to each other by a new technology of yarn covering by application of pressurized air in the path of both the polyester-twist-textured yarn and elastomeric yarns, similar to the technique of intermingling i.e. Air intermingling that the process of manufacture in SSM DP2C machine is that  one textured filament yarn of Polyester/Nylon is fed.  Another yarn of Lycra/Spandex is fed.  Both the yarns are fed together in an air jet.  In the  air  jet,  due  to  compressed  air,  the  filament  of

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Polyester/Nylon  get  intermingled  with  that  of Lycra/Spandex.

6.   In  Polyester  covered  yarn  the  percentage  of Lycra/Spandex by weight is 9 to 10%.  In other words, the Polyester is predominant ranging from 91 to 93%. In  nylon  covered  yarn,  the  percentage  of Lycra/Spandex  by  weight  is  2.5  to  25%.   In  other words  Nylon  is  predominant  ranging  from  75%  to 97.5% and the two yarns are held together by way of intermingling.

7.  Further the gimped yarn is defined in explanation (A) to Ch.H.56.00 under section XI of explanatory note to  HSN.   According  to  explanatory  notes,  gimped yarns are compressed of core, usually of one or more textile  yarn  around  which  other  yarn  or  yarns  are wound spirally.  Most frequently the covering threads completely cover the core, but in some case the turns of the spiral  are spaced.  In the latter case product may have some what the appearance certain multiple (folded), cabled or fancy yarn of chapter 50 to 55 but may be distinguished from them by the characteristic of gimped yarn that the core does not itself undergo a twisting with the cover threads.  In gimped yarn, the yarn forming the loop is wrapped around the core yarn and  is  held  on  place  by  binder  or  tie  yarn.   The manufacture  requires  two  distinct  twisting  operation after  the  yarn  is  first  made,  it  is  twisted  opposite direction to establish the desired effect.  It may have the loops formed by a very soft  and slackly  twisted yarn.  These yarns falls under Chapter Heading 56.06 of the Tariff as special yarns.  In view of the above, and in view of the fact that the yarn forming the loop is not wrapped around the core yarn is not held in place by a binder or  the tie  yarn like in gimped yarn and loops are not formed by twisted yarn.  These yarns viz. Polyester/Nylon  covered  yarn  can  not  fall  under Chapter heading 56.06 of the Central Excise Tariff Act, 1985.

8.   It  therefore  appears  that  Air  mingled  yarns manufactured by M/s. Sarla Polyester Ltd. comprise a Polyester Yarn (Polyester) or Nylon Yarn (Polyamide) air mingled with Lycra/Spandex (polyurethane).  The assessee  using  lycra  or  spandex  as  core  yarn  and covering the same with polyester or nylon yarn, a non

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elastic  multi  filament  yarn  of  Polyester/Nylon  is  fed through an air jet with stretched lycra/spandex.  In the air  jet,  due  to  compressed  air,  the  filaments  of polyester/nylon  get  intermingled  with  that  of Lycra/Spandex.   The  resulting  yarn  would  therefore merit  classification  based  on  the  principle  of pre-dominance of textile material used.  Since the air mingled  yarn  contain  more  polyester  or  nylon  by weight  vis-a-vis  Lycra/Spandex  such  yarns  merit classification under Chapter Sub Heading No. 5402.61 or  5402.62  as  Synthetic  Filament  Yarn  of  Nylon  or Polyester respectively.  This classification is decided by virtue of Section Note 2(A) to section XI covering chapter 50 to 63 of the first schedule to Central Excise Tariff  Act,  1985.   Since  M/s.  Sarla  Polyester  Ltd., Silvassa are having intermingling machinery  at  their manufacturing  unit,  they  are  adopting  the intermingling/interlacing  process  for  covering lycra/spandex.  Further the unit does not have facility to  manufacture  spun  yarn  and  cannot  manufacture crimped yarn.  The unit has the air mingling machinery capable of producing air mingled yarn only.  Therefore yarn  manufactured  by  them  cannot  be  classified Crimped Yarn under  CH. Heading no.56.06 of  CET. The  interlaced/intermingled  yarn  manufactured  by undertaking air mingling operation is to be classified by resorting to section note 2(a) to section XI i.e. by principle  of  pre-dominance  of  textile  material  used. The goods manufactured by M/s. Sarla Polyester Ltd. would therefore fall under chapter Heading no.5402.61 and  5402.62  as  Nylon  and  Polyester  respectively predominate in weight over lycra/spandex.”  

14) In nutshell, having regard to the use of Nylon and Lycra in the

ratio of 90:10, the classification was proposed on the principle of

pre-dominance  of  textile  material  used.   The  Order-in-Original

was  passed  by  the  Assessing  Authority,  taking  note  of  the

dominance of Polyester or Nylon yarn in the manufacturing of the

said  product.   The  Assessing  Authority  also  referred  to  tests

reports from Man Made Textile Research Association (MANTRA)

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which also supported the version of the Revenue.  Contention of

the assessees that the product should be covered under Chapter

Heading 56.06 was turned down by the Assessing Officer in the

following manner:

“28.  The assessee has claimed the classification of their  covering  yarn  manufactured  by  way  of attachment  by  applying  pressurized  air  in  Air  Jet machine under Chapter Sub-heading 56.06 of Central Excise Tariff.  Accordingly, on perusal of said entry in Central  Excise  tariff,  it  is  seen  that  Chapter Sub-heading  No.  56.06  covered  gimped  yarn,  and strop  and  the  like  of  heading  No.  54.04  or  54.05, gimped (other  than those of  Heading  No.56.05  and gimped  horse  hair);  chenille  yarn  (including  flock chenille yarn); lop wale yarn.   

Since  the  assessee  has  claimed  polyester  and Nylon covering yarn as gimped yarn under  Chapter Sub-heading 56.06 of Central Excise Tariff, it may be mentioned here that as per the Explanatory Notes to HSN, Gimped yarn are composed of core, usually of one or more textile yarns, around which other yarns are wound spirally.  In gimped yarn, the yarn forming the loop is wrapped around the core yarn and is held in place by binder or tie yarn.  However as per the test report  of  MANTRA,  Surat,  which  has  not  been challenged or disputed by the assessee, the polyester or Nylon yarn did not wound spirally and even did not wrapped  around  the  Lycra/Spandex  (elastoemeric) yarn or it was not held in place by a binder or tie yarn. It  was  merely  attached  with  each  other  due  to pressurized air by way of technique of intermingling. Therefore the yarns in question cannot be said to be composed of  core  of  yarns.   And  as  such it  is  not gimped yarn.”  

15) The Appellate Authority while affirming the order of the Assessing

Officer also referred to Rule 3(a) of the Rules of Interpretation as

per  which  the  heading  which  provides  the  most  specific

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description is to be preferred to the heading providing a more

general description.  The Tribunal has revisited the entire issue

taking into consideration all the aspects of the matter and in the

light  of  tests  reports  of  MANTRA,  affirmed the  findings  of  the

Authorities below that the products manufactured by assessees

are  nothing  but  air  mingled  yarn  and,  therefore,  cannot  be

classified under Chapter No. 56 in view of the fact that it does not

contain  a  core  around  which  another  yarn  has  been  woven.

Thus, a categorical finding is arrived at that the core does not

itself undergo twisting with covered threads.  On the basis of the

aforesaid concurrent finding of the Authorities below rejecting the

contentions of the assessees that the product in question was a

gimped yarn, supported with cogent and valid reasons, we do not

find any merit in any of the contentions raised by the appellants

before us.  The appeals accordingly fail and are dismissed with

cost.

.............................................J. (A.K. SIKRI)

.............................................J. (ASHOK BHUSHAN)

NEW DELHI; APRIL 27, 2017.

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