UGAM CHAND BHANDARIversusCOMMISSIONER OF CENTRAL EXCISE, MADRAS

A                        UGAM CHAND BHANDARI
                                       v.
            COMMISSIONER OF CENTRAL EXCISE, MADRAS

                                 MAY 5, 2004

B             [RAJENDRA BABU, CJ. AND G.P. MATHUR, J.]

         Central Excise :

        Central Excise Act, 1944--Section 11 A, Proviso-Extended limitation
C period-Invocation of-Water-proof fabrics-Wrong classification iJy
  assessee--Department officials had been regular.Ty visiting the factory of
  assessee and were aware of the manufacturing process adopted by them-
  Held, no fi-aitd was played on the Department-Consequently extended
  limitation period is not invocable.

D         Central Excise Tariff Act, 1985-Tariff Heading 59.06-Water-proof
    fabrics-Nature of-Found on test by the chemical examiner to be an
    impregnated/coated fabric with the layer of coating visible to naked eye-
     Tribunal rightly classified the product under Tariff Heading 59.06.

E        The questions that arose for consideration in the appeals are
    whether the water-proofed fabrics are classifiable under Heading
    52.07 of the Central Excise Tariff Schedule as claimed by the appellant-
    manufacturer or under Heading 59.06 as held by the Tribunal, and
    whether the extended period oflimitation under proviso to Section 11 A
F   of the Central Excise Act, 1944 is invokable.

         Partly allowing the appeals, the Court

       HELD : 1.1. The finding recorded by the Tribunal as to the nature
  of the product is after examining relevant material with reference to
G relevant entries. The Tribunal held that the fabric manufactured by the
  appellants is impregnated and, therefore, has to be considered as fabric
  impregnated with materials other than those mentioned under Tariff
  59.02 and 59.05. Such impregnation clearly indicated that under the
  scheme of the Central Excise Tariff the impregnated fabrics with a
H coating and which is visible to the naked eye on the material on record
                                       58
                 U.C. BHANDARI v. C.C.E. [RAJENDRA BABU, CJ.]            59

    being of the finding of fact, cannot be interfered with, (62-D-Fl         A
          1.2. Apart from the fact that there was difference of opinion even
    in the Department, the fact remains that the department officials had
    been regularly visiting the factory of the appellants and were in the
    kno~ of the process of manufacture adopted by the appellants and to B
    state that the appellants had played fraud on the department is difficult
    to sustain. In the circumstances, the application of the extended period
r   of limitation as provided under Section I IA of the Act is not correct.
    Therefor.e, that part of the order where the Tribunal has rejected the
    prayer of the appellants not to invoke Section llA is set aside and in
    other respects the order made by the Tribunal is maintained. [63-A-BJ C

        CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1751-
    1752 of 1997.

           From the Judgment and Order dated 3.8.96 of the Central Excise, D
    (;:ustoms and Gold (Control) Appellate Tribunal, South Zonal Bench at
    Madras in F.O. No. 1402/96 in A. Nos. E/R 783-784 of 1995.

                                     WITH

         C .A. Nos. 1778, 1795-1796 of 1997.                                  E
        V. Lakshmikumaran, Alok Yadav and V. Balachandran for the
    Appellants.

'        Gourishankar Murthy, Siddhartha Chowdhury and B.K. Prasad for
    the Respondent.                                                           F
         The Judgment of the Court was delivered by

          RAJENDRA BABU, CJ. : These appeals arise out of an order made
    on 3.8.1996 by the Customs, Excise and Gold (Control) Appellate Tribunal G
    (for short the Tribunal) in which questions that arise for consideration are
    (i) whether the water-proofed fabrics are classifiable under Heading 52.07
    of the Central Excise Tariff Schedule as claimed by the appellant or undei·
    Heading 59.06 as held by the Tribunal, and (ii) whether the extended period
    oflimitation under proviso to Section 11 A of the Central Excise Act, 1944 H
    60                 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A is invokable m the present case and consequently whether penalty
    under rule I 73Q of the Central Excise Rules, 1944 is imposable on the
    appellant.

          The two competing entries are as under :-

B            "'Heading 52.07.

            Cotton fabrics (including fabrics covered under Heading Nos.
            52.09, 52.10 and 52.11 ), -

c           (a)   woven on looms other than handlooms, and

            (b)   subjected to the process of bleaching. mercerizing, dyeing,
                  printing, water-proofing, shrink-proofing, organdie processing
                  or any other process or any two or more of these processes
                  without the aid of power of steam"
D
             "Heading 59.06.

             Textile fabrics, otherwise impregnated, coated or covered (including
             fabrics covered partially or fully with textile flocks or with
E            preparations containing textile flocks)."

           The Tribunal took note of the prospectus issued by the appellants
    m which equity was sought to be raised from general public which
    described the process as under :-
F            "Grey cotton canvas for CPT is processed through application of
             a common proofing mixture and dried in a drying range. The
             common proofing mixture is prepared with ingredients consisting
             mainly of wax of different grades, aluminium stearate and copper
             napthanate (and colouring agents, if required)."
a
            It was stated that the proce;s carried out by the appellants is held
    out as of impregnation to make the fabric water proofed. Whereas the
    fabrics manufactured by the appellants were tested and it was found on test
    by th~ chemical examiner to be an impregnated/coated fabric with the layer
H   of coating visible to the naked eye. They noticed that even rubber coated
                 U.C. BHANDARI v. C.C.E. [RAJENDRA BABU, C.I.]               61

    or plastic coated fabrics will be water proof; that if the appellant's plea is A
    accepted, then the scope of tariff items in Chapter 59 will become restricted
    to the extent that even if the cotton fabric is coated and impregnated so
    long as it was water proof, it will fall under tariff heading 52.07 or 52.06,
    as the case may be. After anaylsing various headings, the Tribunal took
    the view that fabric manufactured by the appellants is impregnated one and B
    the same, therefore, has to be considered as fabric impregnated with
    materials other than those mentioned under tariff 59.02 and 59.05; that
    fabrics also passes the muster of note 4 of Chapter 59 which note was at
    seri.al No. 5 after coming into force of the new tariff subsequently during
    the relevant period as being coated with materials other than materials C
    under Heading 59.01 to 59.05 with coating visible to the naked eye. On
    analysing Chapter 59, it was noticed that the Chapter covers impregnated
    cotton and textile fabrics among other things. The Tribunal, in particular,
    noticed that process as applicable to any textile and does not change the
    texture of the fabric nor add to its weight. After referring to some text
    books, the Tribunal noticed that interpretation has to be made on the basis D
    of Chapter notes and, therefore, the Tribunal was of the view that the
    impregnated fabrics with a coating visible to the naked eye have been
    correctly held to be assessable under tariff heading 59.06.

            Next, contention put forth on behalf of the appellants that their plea E
    for re-testing their fabrics was not accepted by the Tribunal on the basis
    that nothing prevented the appellants from asking for re-test of the samples
    as provided for under the rules at an appropriate stage of the proceedings.
    This contention has been rightly dealt with by the Tribunal and calls for
    no interference.
                                                                                  F
          The next contention advanced before us is that when the impregnation
    or coating could be seen with the naked eye, then only the product can
    merit classification under Heading 59 .06 and on the other hand, if the
    impregnation or coating cannot be seen with the naked eye and the fabric
    could be seen with the naked eye, then Heading 59.06 would not cover G
    than product. They rely upon a circular issued on 11th April 1991 to the
    effect that while determining whether the deposit on the surface is a visible
    layer or not, a layer should be distinguished from mere presence of residues
•   in uneven patches. It is submitted that in the present cases, the test report
    of the samples of the product merely state that the impregnation and coating H
    62                  SUPREME COURT REPORTS (2004] SUPP. 2 S.C.R.

A is visible to naked eye and there is no mention about visible layer formation
    of the coating or impregnation and hence, the product cannot be classified
    under Heading 59.06. It is also submitted that since the test report of the
    chemical examiner was not corre,ct and was not clear, the appellants sought
    re-test of the samples drawn or in the alternative cross-examination of the
B   chemical examiner, but no re-testing as provided in Rule 56 was allowed
    by.the Commissioner on the ground that the request was made beyond 90
    days. In any case, it is submitted, the sealed samples are still available and
    the same can be got tested even now for the test of presence of visible layer
    formation.

c           On behalf of the respondents it is contended that a finding recorded
    by the authorities being one on fact and that conclusion having become
    final by conclusions reached by the Tribunal, this matter should not be re-
    examined by us.

D           As stated earlier, finding recorded by the Tribunal as to the nature
    of the product is after examining relevant material with reference to
    relevant entries. The denial of cross-examination was due to the lapse of
    the appellant and cannot take advantage of the same in these proceedings.
    The Tribunal held that the fabric manufactured by the appellants is
E   impregnated and, therefore, has to be considered as fabric impregnated
    with materials other than those mentioned under Tariff 59.02 and 59.05.
    Such impregnation clearly indicated that under the scheme of the Central
    Excise Tariff the impregnated fabrics with a coating and which is visible
    to the naked eye on the material on record being one of the finding of fact,
F   we cannot interfere with it. Hence, all the contentions of the appellants
    stand rejected.

           In so far as the contention raised by the appellants whether the
    extended period oflimitation under proviso to Section 11-A of the Central
    Excise Act could be invoked in the present cases is concerned, what is to
G   be seen is whether there was no deliberate intention on the part of the
    appellants to have suppressed any material information. The plea taken by
    them is that under bona fide belief that the fabrics are classifiable under
    heading 52.07 they classified th1~ same and the authorities had been visiting
    the appellants from 1986 onwards and they were aware of the process
H   adopted in manufacturing the end product by them. The Tribunal rejected
             U.C. BHANDARI v. C.C.E. [RAJENDRA BABU, CJ.)              63

this contention. Apart from the fact that there was difference of opinion A
even in the Department, the fact remains that the department officials had
been regularly visitii:ig the factory of the appellants and were in the know
of the process of manufacture adopted by the appellants and to state that
the appellants had played fraud on the department is difficult to sustain.
In the circumstances, we think, the application of the extended period of B
limitation as provided under Section 11 A of the Act is not correct.
Therefore, that part of the order where the Tribunal has rejected the prayer
of the appellants not to invoke Section 1lA is set aside and in other respects
the order made by the Tribunal is maintained.

       We may state that the contention advanced on appellants that C
whether the Tribunal was correct in charging the excise duty on the price
of the product without treating the same as cum-duty price need not be
examined in these cases as these contentions had not been specifically
raised before, or considered by the Tribunal.
                                                                            D
       The appeals stand partly allowed to the extent indicated above and
in other respects the appeals stand dismissed.

B.B.B.                                            Appeals partly allowed.