Holding

The carpets are to be classified as jute carpets/jute floor coverings under Chapter 57, based on the predominance of jute, and the Revenue's classification as polypropylene carpets is erroneous.

Summary

M/s Champdany Industries Ltd. manufactured carpets interlacing jute, cotton and polypropylene yarns, with jute constituting more than 50% by weight. The Revenue issued a show‑cause notice classifying the carpets as polypropylene carpets because the surface was polypropylene, rejecting the predominance of jute. The Assistant Commissioner, the Commissioner (Appeals) and the Customs, Excise & Service Tax Appellate Tribunal all held that the carpets should be classified as jute carpets under Chapter 57, relying on Section Notes 2(A) and 14(A) and the predominance test. The Revenue appealed, arguing that Chapter Note 1 and the surface material should dictate classification and that a residuary heading could be used. The Supreme Court held that Chapter Note 1 merely defines a carpet for Chapter 57 and cannot be used for classification; the goods must be classified by the material that predominates by weight, i.e., jute, and the Revenue could not rely on arguments not raised in the show‑cause notice. Consequently, the Court dismissed the Revenue’s appeals, confirming the classification as jute carpets.

Issues considered

The applicability of Chapter Note 1 of Chapter 57 for classifying the carpets as polypropylene carpets.
Whether the predominance test under Section Notes 2(A) and 14(A) of the Central Excise Tariff Act, 1985 mandates classification as jute carpets.
Whether the Revenue can rely on arguments not raised in the show‑cause notice.
The permissibility of using a residuary heading when a specific heading under Chapter 57 is available.
The relevance of Rule 3 of the General Rules for the Interpretation of the Schedule in this classification.

Legislation cited

Central Excise Tariff Act, 1985s. 14(A), s. 2(A)

Subjects

classificationcentral excisepredominance testchapter notestariff scheduleshow‑cause noticeresiduary headingRule 3 interpretationjute carpets

Judgment

[2009) 14 (ADDL.) S.C.R. 211

THE COMMISSIONER OF CENTRAL EXCISE, A
BHUBANESWAR-1
v.
M/S. CHAMPDANY INDUSTRIES LIMITED
(Civil Appeal No. 7075-7076 of 2005)
SEPTEMBER 8, 2009 B

[D.K. JAIN AND ASOK KUMAR GANGULY, JJ.]

Central Excise Tariff Act, 1985:
c
First Schedule, Chapter 57 - Chapter Note I - Jute
Carpets/jute floor coverings - Classification of -
Predominance test - Carpets made of yams of jute, cotton
and polypropylene, jute being more than 50% predominated
"°' by weight over each of the other single textile material - D
HELD: Carpets in question can be classified as jute carpets/
jute floor coverings - Classification of goods - Case not
made out in show-cause notice cannot be argued in court -
Role of Chapter Notes - Explained -Central Excise Tariff Act,
1985 - Practice and procedure.
E
The respondent-assessee manufactured B.L. and
,. S.M. varieties of carpets interlacing yarns of jute, cotton
1
and polypropylene-jute being more than 50%
predominated by weight over each of the other single
textile material. The carpets did not have any base F
material. Although these facts were admitted by Revenue,
yet, it issued show-cause notice to the respondent, for
the period 1991 to 1999, stating that the surface of the
carpets being entirely of polypropylene, the same, as per
Note I of Chapter 57 of the First Schedule to the Central G
""'( Excise Tariff Act, 1985, could not be classified as jute
carpets but were classifiable as polypropylene. The
Assistant Commissioner rejected representation of the
assessee. The Commissioner (Appeals}, however,
211 H
\

212 SUPREME COURT REPORTS {2009] 14 (ADDL.) S.C.R.
'\
A allowed the appeals of the assessee and the Customs,
Excise and Service Tax Appellate Tribunal dismissed
Revenue's appeal. Aggrieved, Revenue filed the appeals.

Dismissing the appeals, the Court

B HELD: 1.1. A perusal of Chapter Note 1 of Chapter
57 of the First Schedule to the Central Excise Tariff Act,
1985 makes it clear that the same merely defines the term
}-
carpet and other floor coverings "for the purposes of this
Chapter", namely, Chapter 57. The role of the Chapter
c Note is only to decide whether or not the goods in
question are carpets and other textile floor coverings for
the purposes of Chapter 57. Once the goods are carpets
and falling under Chapter 57, the role of Chapter Note 1
comes to an end. It is also the case of the Revenue that
D Chapter Note 1 cannot be pressed into service for the ~
purpose of classification. [Para 18 and 19l [219-G-H; 220- ..
,

A·B]

1.2. Rule 1 of the "General Rules for the Interpretation
of the said Schedule" which are part of the Central Excise
E Tariff Act, 1985, provides that classification shall be
determined according to the terms of the Headings and
any relevant Section or Chapter Notes. In the instant case, ·-~ ,.,,
as per Section Notes 2(A) and 14A for the period between
1994-1995 and Section Note 2(A) read with· sub-heading
F Note 2(A) thereafter, the inter-se classification has to be
done under different headings and sub-headings. [Para
21 to 23] [221-A-C]

1.3. Since the goods in question admittedly fall under
G Chapter 57 and consist of more than two or more textile
materials, it has to be classified on the basis of that textile . ,..,
material which predominates by weight over any other
singre textile material. As in the goods in question jute
admittedly predominates by weight over each other single
textile material, the same could only be classified as jute
H
COMMNR. OF CENTRAL EXCISE, BHUBANESWAR-1 v. 213
CHAMPDANY INDUSTRIES LTD.
carpets/jute floor coverings and nothing else. This logic A
and reason is in consonance with the interpretation of the
Chapter Note, Section Note and the sub- headings. The
contrary interpretation given by the Revenue is not
correct. [Para 24 and 25] [221-C-F]
B
HPL Chemicals Ltd. vs. Commissioner of Central Excise,
Chandigarh (2006) 5 SCC 208; Dunlop India Ltd. vs. Union
of India and others (1976) 2 sec 241; Mis Bharat Forge and
Press Industries (P) Ltd. vs. Collector of Central Excise,
Baroda, Gujarat (1990) 1 SCC 532; and Mis .. lndo
International Industries vs. Commissioner of Sales Tax, Uttar C
Pradesh (1981) 2 SCC 528, relied on.

1.4. It is not disputed by the Revenue that by the
'\-- predominance t~st the_ content of the jute in the carpet is
highest and more than ~0%. Polypropylene fiber .has also D
been accepted by the Revenue as a textile material falling
under Chapter 55. Therefore, the mere fact that the
surface of the carpet is polypropylene fiber, it does not
cease to become jute carpet [Para 36-37] [225-C-D]
E
Collector of Central Excise, Hyderabad vs. Fenoplast (P)
--,. Ltd. (II) - 1994 (72) ELT 513 (SC), referred to.

1.5. From a perusal of the Rules 3(a), (b) and (c), it
appears that the dominant intention in the said Rule,
especially clause (a) thereof is that the heading which F
provides the most specific description shall be preferred
to the heading providing a more general description. In
the case in hand, following the said interpretation, the
goods manufactured by the respondent-company are to
.be classified as jute carpet or jute floor coverings. [Para G
~45 and 46] [227-B-C]

Commissioner of Central Excise, Nagpur vs. Simplex
Mills Co. Ltd. (2005) 3 SCC 51, relied on.
H
214 SUPREME COURT REPORTS (2009] 14 (ADDL.) S.C.R.

A 1.6. Further, the point on Rule 3 which has been
argued for the Revenue was not part of its case in the
show-cause notice. It is well settled that unless the
foundation of the case is made out in the show-cause
notice, · Revenue cannot in court argue a case not made .
B out in its show-cause notice. [Para 50) [228-8-C]

Commissioner of Customs, Mumbai vs. Toyo
Engineering India Limited (2006) 7 SCC 592; Commissioner
of Central Excise, Nagpur vs. Ballarpur Industries Ltd. (2007)
8 sec 89, relied on.
c
Oswal Agro Mills Ltd. and Ors. vs. Collector of Central
Excise and Ors. 1993 Supp. (3) SCC 716 ; Novopan India
Ltd, Hyderabad vs. Collector of Central Excise and Customs,
Hyderabad 1994 Supp.(3) SCC 606; Hindustan Poles
D Corpora.tion vs. Commissioner of Central E;xcise, Calcutta -
(2006) 4 sec 85; Kemrock Industries & Exports Ltd. VS.
Commissioner of Central Excise, Vadodara - (2007) 9 SCC
52, Held in applicable.

E 1.7. Besides, in view of the consistent finding on fact
and law by the Commission~r (Appeals) and the Tribunal,
this Court does not find any reason to upset such -( ·
concurrent findings which are neither perverse nor can
they be said to be based on no evidence. [Para 60) [230-
B~ .
F
Case Law Reference: .
2006) s sec 208 relied on para 31
(1976) 2 sec 241 relied on para 32
G
(1990) 1 sec 532 relied on para 33
1994 (72) ELT 513 (SC) referred to para 39
(1981) 2 sec 528 relied on para 41
H

f
- " COMMNR. OF CENTRAL EXCISE, BHUBANESWAR-1 v. 215
CHAMPDANY INDUSTRIES LTD.

(2005) 3 sec 51 relied on P.ara 48 A
(2006) 1 sec 592 relied on para 50
(2007) 8 sec 89 relied on para 51
1993 Supp. (3) SCC 716 Held in applicable para 53
8
1994 Supp. (3) SCC 606 Held in applicable para 55
(2006) 4 sec 85 Held in applicable para 57
(2001) 9 sec 52 Held in applicable para 59
c
, CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
7075-7076 of 2005.

From the Judgment & Order dated 5.4.2005 of the
\- Customs, Excise & Service Tax Appellate Tribunal, Eastern
Bench, Kolkata in Appeals ER-416 of 2000 & 14 of 2001. D

P.P. Malhotra, ASG, Madhurima Tatia, S.K. Dubey, V.
Dalmia, B. Krishna Prasad for the Appellant.

S.K..J3agaria, Himanshu Shekhar for the Respondent. E

-. The Judgment of the Court was delivered by

GANGULY, J. 1. Along with this appeal other appeals were
heard together. There are some common questions but
factually this case is different from other cases. So this judgment F
will govern these two appeals.

2. The respondent in these two appeals are manufacturers
of carpets by interlacing yarns of three different types, namely,
jute, cotton and polypropylene. It is the case of the respondent-
G
.., company that in the carpets which it manufactures jute always
predominates by weight over each of the other single textile
material.

3. In the case of M/s. Champdany Industries Limited, at an
H
216 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.

A earlier stage of the proceedings an order was passed by the
Commissioner (Appeals) on 27.06.1995, whereby the
Commissioner (Appeals) remanded the matter to the original
adjudicating authority to decide whether the carpets
manufactured by Mis. Champdany Industries Limited have
s separate base fabric. The Commissioner found that the said
question is technical in nature and in order to remove any doubt,
matter was referred to an expert body like Jute Commissioner
Office for its opinion.

4. Pursuant to the said remand order, the Department
C drew samples of the carpets manufactured by the respondent
and sent the same to the Jute Commissioner's office. The Jute
Commissioner got these samples tested by the expert body of
the Jute Industry, namely, Indian Jute Industries Research
Association and the report of the said association shows that
D jute predominates by weight over each other single textile
material in the said carpets and the said carpets did not have
any base fabric.

5. In the show-cause notice, which has been issued in this
E case, these facts are admitted. In the adjudication order £.assed
in this case by Assistant Commissioner of Central Excise and
Customs, Bhubaneswar, this fact has also been noted and from
the said adjudication it will appear that the jute content in those
carpets is 51.45% in B.L. and 52% in S.M. Those B.L. and
F S.M. are the varieties of carpets manufactured by the
respondent-company and in these two Civil Appeals, namely
C.A No. 7075-7076 of 2005 we are concerned with those two
varieties of carpets.

6. Despite the said report, the Revenue's case is that the
G surface of the carpet being entirely of polypropylene, the same
cannot be classified as jute carpet.

7. Apart from the aforesaid opinion of the expert, the
Deputy Commissioner of Central Excise as well as
H Department's Chemical Examiner also visited the respondent's

/
J
COMMNR. OF CENTRAL EXCISE, BHUBANESWAR-1 v. 217
CHAMPDANY INDUSTRIES LTD. [ASOK KUMAR GANGULY, J.]

- factory and examined its process of manufacture and tested
the samples drawn on the spot. The Department's Chemical
Examiner also found that those carpets do not have any base
A

fabric and the jute predominates by weight over each other
single textile material and the percentage of jute was more than
50%. This also appears from the adjudication order of the 'B
Assistant Commissioner of Central Excise and Customs,
Bhubaneswar.
~

8. The Revenue even after accepting those reports issued
a show-cause notice, inter alia, on the ground that the surface
of the jute carpets was entirely of polypropylene and therefore,
c
as per Note 1 of Chapter 57 of the First Schedule to the Central
Excise Tariff Act, 1985 those carpets cannot be classified as
jute carpets but are classifiable as polypropylene carpets. The
said notice related to the period from December 1991 to May
•. ~ D
1999.

9. Respondent-company, however, disputed the said
contention of the Revenue and an adjudication order was
passed on 26.11.1999 by the Assistant Commissioner. In the
said order, the Assistant Commissioner accepted the reports E
referred to hereinabove and also accepted the position that in
-~ those carpets jute predominates by weight over each other
single textile material and those carpets do not have any base
fabric. In spite of the aforesaid position, the Assistant
Commissioner relying on Chapter Note 1 of Chapter 57 held F
... that those carpets cannot be classified as jute carpets but they
are polypropylene carpets.

10. Against the said order dated 26.11.1999 the
respondent-company filed an appeal before the Commissioner
(Appeals) and the Commissioner (Appeals) by an order dated G
.,. 13.03.2000 allowed the appeal. In the said order, the
Commissioner (Appeals) held that the interpretation of the
'1'
Assistant Commissioner of Chapter Note I of Chapter 57 was
not correct and the Commissioner (Appeals) came to a
conclusion that as per the Section Notes any product which H
218 SUPREME COURT REPORTS [2009] 14 (ADDL.)S.C.R.

A contains two or more textile materials are to be classified as r,
consisting of that textile material which predominates by weight
over similar textile materials. It may be noted that following the
classification order dated 26.11.1999 the Assistant
Commissioner passed a quantification order dated
B 30.03.2000, but since the appeal of the respondent-company
in respect of the classification order of Assistant Commissioner
dated 26.11.1999 was allowed, the appeal against the
~
quantification order was also allowed by the Commissioner
(Appeals) on 25.08.2000 by following order dated 13.03.2000
c in the classification proceedings.

11. Against those orders dated 13.03.2000 and
25.08.2000 the Revenue filed two appeals before the Customs,
Excise and Service Tax Appellate Tribunal (hereinafter referred
to as "the Tribunal"). Thereafter, the Tribunal by an order dated -.f ••
D 26.09.2000 dismissed both the appeals filed by the Revenue.

12. It may be noted in this connection that before the
Hon'ble Andhra Pradesh High Court petitions were filed in
relation to classification at tile stage of show-cause notice. The
E High Court of Andhra Pradesh interfered in those show-cause
proceed.ings. As the Revenue filed their appeal against those
J.--
·,·
show-cause proceedings, this Hon'ble Court held by a judgment
and order dated 05.05.2004 that the High Court ought not to
interfere in matters of classification at the show-cause stage.
Thus, the judgment of the High Court was set aside and the
F
matter was remanded to the authority for adjudication.
Thereafter, the Tribunal heard the matter afresh and dismissed
-
the appeal of the Revenue by an order dated 05.04.2005.
Against the said order of the Tribunal this appeal has been filed
by the Revenue.
G
'r'
13. The order of the Tribunal which has been impugned
herein has been reported in 2006 (193) ELT 295. In paragraph
9 at page 299 of the report, the Tribunal held that in the carpets
manufactured by the respondent-company jute predominates
H by weight over each of the other single textile material. The
COMMNR. OF CENTRAL EXCISE, BHUBANESWAR-1 v. 219
CHAMPDANY INDUSTRIES LTD. [ASOK KUMAR GANGULY, J.]

""' Tribunal found that this has been admitted by the Assistant A
Commissioner in its order dated 26.11.1999 in view of the tests ·
done by the Departmental Chemical Examiner on the spot and
during the visit to the factory of the respondent-company which
has also been admitted from the reports of Indian Jute
Industries Research Association. Therefore, this factual position B
is admitted by the Revenue.
~ 14. In view of such admitted factual position, the Tribunal
held that such carpets were clearly classifiable as jute carpets
as the test of predominance of jute over other single textile
material is the deciding factor for classification purposes.
c
I
15. Admittedly, the case of the Revenue is that the product
falls under Chapter 57 and it contains two or more textile

- ' ~
materials. In fact that is the case of the Revenue in the Show-
cause notice and in the order of the Assistant Commissioner.

16. The necessary corollary from the aforesaid stand of
D

the Revenue is that once the goods are falling under Chapter
57, Chapter Note 1 to Chapter 57 becomes relevant. The said
Chapter Note is set out below:
E
"For the purposes of this Chapter, the term 'carpets
-~
and other textile floor coverings' means floor coverings in
which textile materials serve as the exposed surface of the
article when in use and includes article having the
characteristics of textile floor coverings but intended for F
. use for other purposes."

17. The Revenue also placed reliance on the said Chapter
Note. in fact the Revenue wanted to classify the said carpets
as otherwise than jute carpets by relying on the said Chapter
G
note.

18. In our view the said stand of the Revenue is not correct.
A perusal of the said Chapter note makes it clear that the same
merely defines the term carpet and other floor coverings "for
the purposes of this Chapter'', namely, Chapter 57. H
220 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.

;...
A 19. Here we must be conscious of the limited role played
by Chapter Note. It is only to decide whether the goods in
question are carpets and other textile floor coverings for the
purposes of Chapter 57 or not. Once the goods are carpets
~nd falling under Chapter 57, the role of Chapter Note 1 comes
B to an end. It is also the case of the Revenue that the Chapter
Note 1 cannot be pressed into service for the purpose of
classification. }.

20. Reference in this connection may be made to the
relevant statutory provisions laid down in Section 2(A) and
c 14(A) of Section XI of the Central Excise Tariff Act, 1985. Those
provisions are set out below:-

"2(A) Articies classifiable in Chapters 50 to 55 or in

D
Heading No. 58.06 or 59.02 and of a mixture of two or
more textile materials are to be classified as if consisting
-wholly of that one textile material which predominates by
..f
-
weight over any other single textile material."

"14(A) Products of Chapters 56 to 63 containing two or
_more textile materiGlc are to be regarded as consisting
E
wholly of that textile material which would be selected
under Note 2 above for the classification of a product of j.-

Cha-pters 50 to 55 consisting of the same textile materials.

(B) For the application of this rule:
F
(i) In the case of textile products consisting of a base
fabric and a pile or looped surface, no account
shall be taken of the base fabric;

(ii) In the case of embroidery, only the base fabric shall
G be taken into account."

21. The classification thereafter has to be covered under
one heading or sub-heading of Chapter 57. The question of
classification of such carpets under one or other heading or
H sub-heading of Chapter 57 has to be decided on the basis of
~
I COMMNR. OF CENTRAL EXCISE, BHUBANESWAR-1 v. 221
CHAMPDANY INDUSTRIES LTD. [ASOK KUMAR GANGULY, J.]

description of such heading/sub-heading read with the relevant A
Section Notes and Chapter Notes. This also flows from Rule 1
of the "General Rules for the Interpretation of the said
Schedule" and these Rules are part of the Central Excise Tariff
Act, 1985.
B
22. Rule 1 of the said Rules provides that classification
shall be determined according to the terms of the Headings and.
any relative Section or Chapter Notes.

23. In the instant case as per Section Notes 2(A) and 14A
for the period between 1994-1995 and Section Note 2(A) read C
with sub-heading Note 2(A) thereafter, the inter-se classification
has to be done under different headings and sub-headings.
24. Since the goods admittedly fall under Chapter 57 and
consist of more than two or more textile materials, it has to be ,o
classified on the basis of that textile material which
predominates by weight over any other single textile material.
As in the goods in question jute admittedly predominates by
weight over each other single textile material, the said Carpet
could only be classified as jute carpets and nothing else.
E
25. This Court finds that this logic and reason is in
consonance with the interpretation of the Chapter Note, Section
Note and the sub-headings. The contrary interpretation given
by the Revenue is not correct. In fact the Revenue wanted to
classify the carpets under the residuary sub-heading 5702.90 F
of Heading 57.02. Both Headings 57.01 and 57.02 are set out
below:

"57.01 Carpets and other textile floor coverings,
knitted, woven, tufted, or flocked, whether or not G
made up (excluding dari, sataranji, namdahs,
jute carpets and coir carpets) -

In or in any relation to the manufacture of which
any process is ordinarily carried on with the aid
of machines: H
)
222 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.

A 5701.11 - Not embossed 30%

5701.12 - Embossed 30%

5701.90 - Other Nil

B 57.02 Carpets and other textile floor coverings (other
than those of heading No.57.01) including
floor coverings of felt, whether or not made up

5702.10 - Floor coverings of Coir Nil
c 5702.20 - Floor coverings of jute 10%-

5702.90 - Other 30%"

26. The relevant entries from the Central Excise Tariff 1997-
98 are extracted below:
D
"57.02 Carpets and other textile floor coverings (other
than those of heading No.57.01) knotted,
woven, tufted or flocked, whether or not made
up
E
- In or in relation to the manufacture of which
any process is ordinarily carried on with the aid
of machines:

5702.11 - Of coconut fibres (coir) Nil
F
5702.12 - Of jute Nil

5702.19 - Other 25%

5702.90 - Other Nil"
G
"57. 03 Other Carpets and other textile floor coverings, )
whether or not made up

5703.10 - Of coconut fibres (coir) Nil
H
COMMNR. OF CENTRAL EXCISE, BHUBANESWAR-1 v. 223
CHAMPDANY INDUSTRIES LTD. [ASOK KUMAR GANGULY, J.]

~ 5703.20 - Of jute Nil A

5703.90 - Other 25%"

27. The aforesaid tariff has come into effect on 23.07.1996.

28. In this connection we may refer to Notification No.50/ B
90-CE dated 20.03.1990. From the aforesaid Notifications it
would appear that the total exemption was granted ih respect
of jute blankets, jute felt, jute mats and mattings, jute carpets
and bleached, dyed or printed jute fabrics falling Linder Chapter
53, 56, 57 or 63 of the Schedule to the Central Excise Tariff c
Act, 1985 with the condition that exemption shall not be available
if the jute content is less than 50% in the aforesaid
commodities.

'~
29. Later on by a subsequent Notification No. 93/94-CE
D
dated 25.4.1994, the said 50% has beenlowered to 30%. By
a subsequent Notification No.29/95-CE dated 16.03.1995, total
exemption was granted in respect of floor coverings of jute.

30. On a conjoint reading of the aforesaid Tariff and the
exemption Notifications issued by the Government, the stand E
of the Revenue cannot be sustained.
-;A-
31. Apart from that the revenue's stand in this case is
contrary to the decision of this Court in HPL Chemicals Ltd.
vs. Commissioner of Central Excise, Chandigarh - (2006) 5
F
SCC 208. Commenting on the reliance placed by the Revenue
on the residuary item in Heading 38.23 (renumbered 38.24),
this Court observed that the CEGAT erred in relying on the
residuary article by reading the residuary heading as if it was
specific heading. This Court observed as under:-
G
-~ "31 .... In the present case since the goods were covered
by a specific heading i.e. Heading 25.01, the same cannot
be classified under the residuary heading at all. This
position is clearly laid down in Rule 3(a) of the
Interpretative Rules set out above. As per the said H
i-

224 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.

A Interpretative Rule 3(a), the heading which provides the ~ ,_
most specific description shall be preferred to the heading
providing a more general description ... "

32. In coming to the said conclusion, this Court relied on
an earlier three-Judge Bench decision of this Court in Dunlop
B
India Ltd. vs. Union of India and others - (1976) 2 SCC 241,
para
f
35. In the said paragraph this Court very elegantly clarified
the position in the following words:-
c
"35 ....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
~
D orphanage of the residuary clause .... "

33. That principle has also been upheld by another three-
Judge Bench decision of this Court in Mis Bharat Forge and
Press. Industries (P) Ltd. vs. Collector of Central Excise,
Baroda, Gujarat -(1990) 1 SCC 532 (at page 534 para 4):-
E
"4. The question before us is whether the department is
--':-
right in claiming that the items in question are dutiable
under tariff entry 68. This, as mentioned already, is the
residuary entry and only such goods as cannot be brought
F under the various specific entries in the tariff should be
attempted to be brought under the residuary entry. In other
words, unless the department can establish that the goods
in question can by no conceivable process of reasoning
be brought under any of the tariff items, resort cannot be
II
had to the residuary item ....
G
,..-
34. It is, thus, clear that the aforesaid principle has virtually
been hardened into a rule of law by reason of the consistent
view taken by this Court. The Revenue's stand in this case in
purporting to justify the classification of the goods manufactured
H by the respondent company under a residuary heading,
COMMNR. OF CENTRAL EXCISE, BHUBANESWAR-1 v. 225
CHAMPDANY INDUSTRIES LTD. [ASOK KUMAR GANGULY, J.]
therefore, cannot be appreciated. A

35. Learned Counsel for the Revenue argued that in a
case where there is some doubt relating to classification of the
goods, the essential characteristic of the goods will have to be
looked into. Relying on this concept of essentiality test the B
learned counsel argued as the exposed surface of the carpet
is polypropylene fiber and not jute, these goods cannot be
~
cl~ssified as jute carpets. It was also argued if these goods are
to be classified as jute carpets, then the exposed surface of
the carpets must be of jute.
c
.,.. 36. This argument is contrary to the principle discussed
above, namely, the predominance test. It is not disputed by the
Revenue that by the predominance test the content of the jute
in the carpet is highest and more than 50%. Polypropylene fiber
'" has also been accepted by the Revenue as a textile material D
falling under Chapter 55.

37. Therefore, the mere fact that the surface of the carpet
is polypropylene fiber, it does not cease to become jute carpet.
So this Court is constrained to hold that this argument by the E
Revenue on the basis of surface or essentiality test is
erroneous.
-*
----·
38. Learned counsel for the Revenue also argued that the
common parlance test should be applied for classifying the
carpets as the carpets to the common man would not appear F
to be jute carpet but polypropylene carpet.

39. In Collector of Central Excise, Hyderabad vs.
Fenoplast (P) Ltd. (II)- 1994 (72) ELT 513 (SC), a three-Judge
Bench of this Court held that while interpreting statutes like the G
~ Excise Tax Acts or Sales Tax Acts where the primary object is
to raise revenue and for such purpose the various products and
goods are classified, the common parlance test can be
accepted, if any term or expression is not properly defined in
the Act "if any term or expression has been defined in the
H
226 SUPREME COURT REPORTS [2009) 14 (ADDL) S.C.R.

A enactment then it must be understood in the sense in which it 1--
is defined but in the absence of any definition being given in
the enactment the meaning of the term in common parlance or
commercial parlance has to be adopted". ,__

40. Going by the aforesaid principl~. we cannot hold that
B
common parlance test has· any application here. "
,....,___
41. In laying down this' preposition, the Court relied upon >- '\
a decision of this Court in Mis lndo International Industries vs.
Commissioner of-Sales Tax, Uttar Pradesh - (1981) 2 SCC
·--
r-

c 528. t-

42. Learned counsel for the Revenue argued that for the "".:
purpose of classification in this case Rule 3 of the 'Rules for
the Interpretation of the Schedule to the Act' should be applied ,_
-...(-'
D and by applying the said Rule the goods manufactured by the ....
respondent Company should be covered under the heading
"others".
l'
43. This Court is unable to accept the said submission for \

the following reasons.
E
~
44. In order to appreciate the said submission, the said i
Rule 3 (a) (b) and (c) is quoted below:- __k---

"3. (a) The heading which proyides the most specific
description shall be preferred to headings providing a
F '
more general description. However, when two or more ),

headings each refer to part only of the materials or '
-,

substances contained in mixed or composite goods or to
part only of the items in a set, those headings are to be I-
regarded as equally specific in relation to those goods,
G even if one of them gives a more complete or precise
y '
description of the goods.

(b) Mixtures, composite goods consisting of different '-
materials or made up of different components, and goods
H put up in sets, which cannot be classified by reference to
COMMNR. OF CENTRAL EXCISE, BHUBANESWAR-1 v. 227
CHAMPDANY INDUSTRIES LTD. [ASOK KUMAR GANGULY, J.]

~ (a), shall be classified as if they consisted of the material A
or component which gives them their essential character,
insofar as this criterion is applicable.

(c) When goods cannot be classified by reference to (a)
or (b), they shall be classified under the heading which
B
occurs last in the numerical order among those which
equally merit consideration."

45. From a perusal of the said Rules it appears that the
dominant intention in the said Rule, especially clause (a) thereof
is that the heading which provides the most specific description c
- shall be preferred to the heading providing a more general
description.

,.
.....
46. In the case in hand, following the said interpretation,
the goods manufactured by the respondent-company are to be D
classified as jute carpet or jute floor coverings.

47. Clause (b) and Clause(c) of the said Rule 3 will apply
only in those cases which cannot be classified under clause (a).
Since in the instant case following the dominant intention of
clause (a), the goods manufactured by the respondent- E
company can be classified, clause (b) and clause(c) of the said
-·~ Rule need not be pressed into service.

48. Reference in this connection may be made to a three-
Judge Bench decision of this Court in Commissioner of F
Central Excise, Nagpur vs. Simplex Mills Co. Ltd. - (2005) 3
SCC 51. In paragraph 11 of the said report, the purport of the
said Rule has been discussed. While discussing the said Rule,
this Court held that the Rule having been framed pursuant to
the powers under Section 2 of the Central Excise Tariff Act, G
1985 is statutory in nature. Learned Judges also made it clear
that for the purposes of classification primacy should be
attached to the section and chapter notes along with terms of
.the headings. If on application of Section and Chapter Notes,
no clear picture emerges' then only can one resort to those
H
228 SUPREME COURT REPORTS [2009) 14 (ADDL.) S.C.R.

A rules. Ji..
49. In the instant case from the above discussion, it is clear
from a perusal of the Chapter and Section Note, that the goods
manufactured by the respondent-company can be classified as
jute carpets/jute floor coverings. Thus, the argument on behalf
B
of the Revenue cannot be accepted.

50. Apart from that, the point on Rule 3 which has been .
argued by the learned counsel for the Revenue was not part of
its case in the show-cause notice. It is well settled that unless
c the foundation of the case is made out in the show-cause
notice, Revenue cannot in Court argue a case not made out in
its show-cause notice. {See: Commissioner of Customs,
Mumbai vs. Toyo Engineering India Limited - (2006) 7 SCC
-
592, para 16}. ~/
-~
D
51. Similar view was expressed by this Court in the case
of Commissioner of Central Excise, Nagpur vs. BallarpLir
Industries Ltd. - (2007) 8 SCC 9. In paragraph 27 of the said
report, learned Judges made it clear that if there is no
invocation of the concerned rules in the show-cause notice, it
E
would not be open to the, Commissioner to invoke the said
Rule. ~--

52. Learned counsel for the Revenue also relied on some
judgments.
F
53. It relied on the case of Oswal Agro Mills Ltd. and Ors. .;
vs. Collector of Central Excise and Ors. - 1993 Supp. (3) SCC
716. In that case the .Court allowed the appeal filed by the
assessee and did not accept the interpretation of the Revenue
G on 'Toilet Soap'. Learned judges relied on the age old principle
that where the words of the statute are plain and clear, there is -)-'
· no room for applying any of the canons of interpretation which
are merely presumption in cases of ambiguity in the statute.

54. Applying the said principle in the present case, we hold
H that the ratio in Oswal Agro (supra) does not at all advance the
COMMNR. OF CENTRAL EXCISE, BHUBANESWAR-1 v. 229
..
CHAMPDANY INDUSTRIES LTD. [ASOK KUMAR GANGULY, J.]
.... case of the Revenue. Apart from that the said decision was A
rendered under the old Tariff Act when there was nothing like
Chapter Note and Section Note. Oswal Agro (supra) has no
application here.

55. Learned counsel relied also on the· decision of this B
Court in Novopan India Ltd, Hyderabad vs. Collector of
Central Excise and Customs, Hyderabad - 1994 Supp. (3)
~ SCC 606. In that case, the Court interpreted the provision of
Old Tariff Act with regard to exemption and held in paragraph
16 that a person·invoking an exemption provision must establish
c
- clearly that he is covered by the said provision. In case of doubt
. or ambiguity, the benefit of exemption cannot be claimed by
the assessee.
, -.__... 56. In the present case, those questions are to at all
relevant as we are concerned with the provisions of the new 0
Central Excise Act of 1985 which came into force on 22.2.1986
with Section. Notes, Chapter Notes, Headings and sub-
headings. Therefore, the ratio in Novopan (supra) has no
relevance in the facts of the present case.
E
57. Learned counsel also relied on the decision of this
-).. Court in Hindustan Poles Corporation vs. Commissioner of
Cental Excise, Calcutta - (2006) 4 SCC 85. In fact the judgment
in that case does not at all advance the case of the respondent.
In paragraph 39 of the judgment it has been held that the
F
residuary entry is meant only for those categories of goods
which clearly fall outside the ambit of specified entries and
unless the Department can establish that the goods in question
can, by no conceivable process of reasoning, be brought under
any of the tariff items, resort cannot be had to the residuary !tern.
G
58. Following the said principle, as we must, in the instant
""' case, the goods manufactured by the respondent-company fall
clearly under the specified items as discussed above.

59. Revenue also relied on another decision of this Court
H
230 SUPREME COURT REPORTS [2009] 14 (ADDL.) S.C.R.

A in Kemro'ck Industries & Exports Ltd. vs. Commissioner of
Central Excise, Vadodara - (2007) 9 SCC 52, for the purpose
of essentiality test. As noted above, there is no whisper of the
essentiality test in the show-cause notice. As no case of
ess.entiality test has been made out in the show-cause notice,
B the same cannot be argued for the first time before this Court.
As such the judgment in Kemrock (supra) on essentiality test
is of no avail.

60. For the reasons aforesaid and in view of the consistent
C finding on fact and law by the Commissioner (Appeals) and the
Tribunal, this Court does not find any reason to upset such
concurrent findings which are neither perverse nor can they be
said to be based on no evidence. Therefore, the appeals filed
by the Revenue are dismissed as being devoid of merit. In the
facts and circumstances of this case, there will be no order as
D tocosts.

R.P. Appeals dismissed.

...\.,-

--
'