"http://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 1 of 6 \nCASE NO.:\nAppeal (civil) 1476-1493 of 1999\nPETITIONER:\nComm.of Central Excise,Goa and Chennai. \nRESPONDENT:\nM.R.F. Ltd., Chennai \nDATE OF JUDGMENT: 25/01/2005\nBENCH:\nS.N. VARIAVA,Dr. AR. LAKSHMANAN & S.H. KAPADIA\nJUDGMENT:\nJ U D G M E N T\nAND\nCIVIL APPEAL Nos.1087-1088 OF 1999\nCommissioner of Central Excise,\nChennai. \\005 Appellant \nVersus\nM.R.F. Ltd., Chennai \\005 Respondent\nKAPADIA, J.\n The main question which arises for determination in this \nset of Civil Appeals is \\026 whether Dipped Nylon Tyre Cord \nWarp Sheet (hereinafter referred to as the \"Dipped Tyre Cord \nFabric\") is a High Tenacity Yarn in terms of Tariff Heading \n59.02.\n The facts giving rise to these civil appeals filed by the \ndepartment under Section 35-L (b) of the Central Excise Act, \n1944 are as follows:\n M/s M.R.F. Ltd., Goa are manufacturers of tyres \nexcisable under chapter 40 of the Schedule to the Central \nExcise Tariff Act, 1985. M/s MRF Ltd buys Grey Tyre Cord \nWarp Sheet (hereinafter referred to as the \"Grey Tyre Cord \nFabric\") which is passed through rollers into a tank containing \nDip solution of Latex, which covers the said Grey Tyre Cord \nFabric. The Dip solution consists of chemicals. After dipping, \nthe Tyre Cord Fabric is heat stretched and lifted to a height of \n15 ft. by small rollers through heat chambers and then brought \ndown for calendering, which is the second stage of the process. \nTwelve show-cause notices were issued to M/s MRF Ltd. by \nthe Commissioner of Central Excise, Goa under which \nadditional duty of excise was demanded on the ground that the \nassessee was manufacturing an excisable product, namely, \nDipped Tyre Cord Fabric, falling under Tariff Heading 59.02.\n By common written reply, the assessee contended that \nthey did not manufacture Dipped Tyre Cord Fabric; that they \nmanufacture only tyres; that in the course of manufacture of \ntyres, they use Grey Tyre Cord Fabric as a reinforcing material \nand before it is so used, the Grey Tyre Cord Fabric is dipped in \na solution of Latex and thereafter rubberised on both sides. It \nwas submitted that no manufacture is involved as the Dipped \nTyre Cord Fabric is sticky to touch. It was further submitted \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 2 of 6 \nthat the Dipped Tyre Cord Fabric was not marketable. \n The main question before the Commissioner \n(Adjudication) was \\026 whether the assessee was liable to pay \nadditional excise duty on Dipped Tyre Cord Fabric, which was \ncaptively consumed in the manufacture of tyres. By order dated \n31.10.1997, the Commissioner (Adjudication) found that \nDipped Tyre Cord Fabric was neither Grey Tyre Cord Fabric \nnor a Rubberised Tyre Cord Fabric. According to the \nCommissioner, Dipped Tyre Cord Fabric was an independent \nproduct which came into existence out of a process incidental to \nthe manufacture, namely, dipping. The Commissioner held that \nTariff Heading 59.02 refers to Tyre Cord Fabric of High \nTenacity Yarn of Nylon whereas Tariff Heading 59.06 refers to \nRubberised Textile Fabric. It was observed in the impugned \norder that in order to be categorized as Rubberised Textile \nFabric, the product should have a predominance of rubber in \nproportion to the fabric. According to the Commissioner, the \nprocess of dipping did not bring about a predominance of \nrubber in the product. According to the Commissioner, dipping \nwas a process ancillary to manufacture. According to the \nCommissioner, dipping was a stage prior to rubberising. It was \na stage prior to coating of compounded rubber on both sides of \nthe tyre cord. Consequently, it was held that Dipped Tyre Cord \nFabric was an independent product classifiable under Tariff \nHeading 59.02, on which additional excise duty was payable by \nthe assessee. It was further held that Dipped Tyre Cord Fabric \nwas capable of being marketed and, therefore, additional excise \nduty could be levied thereon.\n Being aggrieved by the order dated 31.10.1997, M/s \nM.R.F. Ltd. went in appeal to Customs, Excise and Gold \n(Control) Appellate Tribunal (hereinafter referred to as \"the \nTribunal\"). At this stage, it may be noted that the assessee \nchallenged similar orders passed by the Commissioner \n(Adjudication), Goa, dated 15.12.1997 and 20.2.1998 along \nwith the above order dated 31.10.1997. The assessee also \npreferred appeals against the orders passed by the \nCommissioner of Central Excise (Adjudication), Chennai, on \nclassification of Rubberised Nylon Tyre Cord Warp Sheet \n(hereinafter referred to as Rubberised Tyre Cord Fabric), which \nwill be dealt with separately by us.\n By impugned judgment dated 20.7.1998, the Tribunal \nheld that Dipped Tyre Cord Fabric was classifiable under Tariff \nHeading 59.05 (now 59.06). The Tribunal equated Rubberised \nTyre Cord Fabric with Dipped Tyre Cord Fabric and placing \nreliance on the judgments in Falcon Tyres Limited v. Collector \nof Central Excise, Bangalore reported in [1996 (88) ELT 450] \nand Vikrant Tyres Limited v. Collector of Central Excise, \nBangalore reported in [1997 (90) ELT 178], allowed the \nassessee’s appeals, holding Rubberised Dipped Tyre Cord \nFabric as a product falling under Tariff Heading 59.05 (now \n59.06).\n Being aggrieved, the department has come to this Court \nagainst the three orders passed by the Commissioner, Goa dated \n20.2.1998, 31.10.1997 and 15.12.1997.\n Mr. R. Mohan, learned Additional Solicitor General \nsubmitted that Grey Tyre Cord Fabric (base fabric) after \ndipping was classifiable under Tariff Heading 59.02 as \nProcessed Tyre Fabric. He further submitted that in terms of \nTariff Heading 59.06, Rubberised Textile Fabric other than \nthose falling under Tariff Heading 59.02 alone would fall under \nHeading 59.06. He submitted that because of this exclusion, \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 3 of 6 \nDipped Tyre Cord Fabric would fall under Tariff Heading \n59.02 which referred to Tyre Cord Fabrics of High Tenacity \nYarn. In this connection, learned counsel for the department \nplaced reliance on the description of the product under HSN \nHeading 59.02 read with the Note appended thereto, which \nspecifies that HSN Heading 59.02 covered Tyre Cord Fabrics, \nwhether or not dipped in rubber or plastics. He further \nsubmitted that as per rule (1) of the Interpretation Rules \nappended to the Schedule to the Central Excise Tariff Act, \n1985, classification of the product has to be decided according \nto the terms of the Heading. According to the learned counsel, \nthe Heading 59.02 covered Tyre Cord Fabric of High Tenacity \nYarn and, therefore, Dipped Tyre Cord Fabric was rightly \nclassified by the department under Tariff Heading 59.02. \nLearned counsel for the department further submitted that in the \npresent case, the Tribunal has not examined the \"process of \ndipping\" and it has merely followed the previous judgments \nwhich do not have any application to Dipped Tyre Cord \nFabrics.\n Mr. F.S. Nariman, learned senior advocate appearing on \nbehalf of M/s M.R.F. Ltd. submitted that Dipped Tyre Cord \nFabric was not an independent product in terms of manufacture \nand marketability. He submitted that the assessee did not \nmanufacture Dipped Tyre Cord Fabric. He submitted that \nDipped Tyre Cord Fabric was similar to friction cloth. He \nsubmitted that there is no evidence of Dipped Tyre Cord Fabric \nbeing marketable. He submitted that in order to determine \\026 \nwhether the product was excisable or not, it was necessary to \nfamiliarize oneself with the product as well as with the \nmanufacturing process. He contended that Grey Tyre Cord \nFabric after going through the process of dipping loses its \nidentity and becomes a different product commercially. He \nsubmitted that the product under Chapter Heading 59.02 was \nthe basic product and when dipped it gets shifted from textile to \nrubber. He submitted that Chapter Heading 59.02 did not use \nwords, such as, \"Impregnated, coated, covered and laminated\", \nwhereas these words have been used under other Heading in the \nsame Chapter. He submitted that the reliance placed by the \ndepartment on the Explanatory Note to HSN was erroneous. \nHe submitted that Chapter Heading 59.02 in the HSN has only \npersuasive value while reading the Tariff Chapter Heading \n59.02. He further submitted that Dipped Tyre Cord Fabric was \nnot marketable as it was made according to MRF specifications. \nHe submitted that in the show-cause notices, there was no \nallegation to the effect that Dipped Tyre Cord Fabric was \nmarketable. Learned senior counsel further submitted that \nDipped Tyre Cord Fabric was classifiable under Chapter \nHeading 59.06 of Central Excise Tariff Act, 1985, as held in \nFalcon Tyres (supra) and Vikrant Tyres (supra).\n Mr. Nariman further submitted that the burden was on \nthe department to prove that Dipped Tyre Cord Fabric was an \nindependent product both in terms of manufacture and \nmarketability. He submitted that no such finding has been \nrecorded by the Commissioner (Adjudication).\n In order to appreciate the rival contentions, we quote \nherein below the relevant provisions:\nI. HEADINGS 59.02 AND 59.06 OF 1985 ACT.\nHeading No.\nDescription of Goods\n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 4 of 6 \n59.02\nTyre cord fabric of high tenacity yarn of nylon \nor other polyamides polyesters or viscose \nrayon.\n59.06\nRubberised textile fabrics, other than those of \nHeading No.59.02.\nII. HEADINGS 59.02 OF HSN\nHeading No.\nDescription of Goods\n59.02\nTyre Cord Fabric of High Tenacity Yarn of \nNylon or other Polyamides Polyesters or \nViscose Rayon.\nThis heading covers tyre cord fabric, whether or not dipped or \nimpregnated with rubber or plastics.\n \nIII. NOTE\\0264 OF SECTION-XI \\026 TEXTILES AND \nTEXTILE ARTICLES.\n For the purposes of this Section, ’high tenacity yarn’ \nmeans yarn having a tenacity, expressed in cN/tex \n(centinewtons per tex), greater than the following:\nSingle yarn of nylon or other polyamides or of \nPolyesters \\005 60cN/tex \nMultiple (folded) or cabled yarn of nylon or\nOther polyamides or of polyesters \\005 55cN/tex \nSingle, multiple (folded) or cabled yarn of \nviscose rayon. \\005 27cN/tex \nIV. NOTE\\0264 OF CHAPTER-59 \\026 IMPREGNATED, \nCOATED, COVERED OR LAMINATED TEXTILE \nFABRICS; TEXTILE ARTICLES OF A KIND SUITABLE \nFOR INDUSTRIAL USE.\n For the purposes of heading No.59.06, the expression \n’rubberised textile fabrics’ means:\n(a) Textile fabrics impregnated, coated, covered \n or laminated with rubber, \n(i) weighing not more than 1,500 g/m2; \nor\n(ii) weighing more than 1,500 g/m2 and \ncontaining more than 50 per cent by \nweight of textile material;\n(b) Fabrics made from yarn, strip or the like, \nimpregnated, coated, covered or sheathed \nwith rubber, of heading No.56.04;\n(c) Fabrics composed of parallel textile yarns \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 5 of 6 \nagglomerated with rubber, irrespective of \ntheir weight per square metre.\nThis heading does not, however, apply to plates, \nsheets or strips of cellular rubber, combined \nwith textile fabric, where the textile fabric is \npresent merely for reinforcing purposes \n(Chapter 40), or textile product of heading \nNo.58.10.\"\n On reading above provisions, we find that it is the rubber \ncontent of the product, which is the main determinative test to \ndecide whether Dipped Tyre Cord Fabric is classifiable under \nChapter Heading 59.02 or 59.05 (now 59.06). To be \ncategorized as Rubberised Tyre Cord Fabric, the product must \nhave pre-dominance of rubber in proportion to fabric. It is for \nthis reason that Note-4 of Chapter 59, quoted above, indicates \nthe requisite parameters. Tariff Heading 59.02 is found in \nsection XI of 1985 Act, which has caption \"Textiles and Textile \nArticles\". The Heading of Chapter 59 refers to lamination and \ncoating of Textile Fabrics. If the parameters mentioned in \nNote-4 of Chapter 59 are satisfied then the product in question \nwould fall under Chapter Heading 59.06 which uses the \nexpression \"Rubberised Textile Fabrics\", failing which the \nproduct will fall under Chapter Heading 59.02. Similarly, one \nhas to keep in mind the specifications given under Note-4 to \nsection XI, which defines \"High Tenacity Yarn\". If the product \nin question, namely, Dipped Tyre Cord Fabric comes within the \nspecifications prescribed in Note-4 to section XI, then the \nproduct may fall under Chapter Heading 59.02 We may \nfurther point out that the classification of Dipped Tyre Cord \nFabric was not in issue in any of the earlier judgments, referred \nto above. The Tribunal was wrong in equating Dipped Tyre \nCord Fabric with Rubberised Tyre Cord Fabric. The judgments \nin Falcon Tyres (supra) and Vikrant Tyres (supra) dealt with \nclassification of Rubberised Tyre Cord Fabric with reference to \nChapter Heading 40.05 vis-‘-vis Chapter Heading 59.05 (now \n59.06). Therefore, the abovementioned prior judgments have \nno application to the controversy in hand. Lastly, the Tribunal \nhas not examined the scope of HSN Heading 59.02. Moreover, \nthe Adjudicating Authority has not examined the matter in the \nlight of Note-4 to Chapter 59. It has not examined the problem \nin the context of Note-4 to section XI and there is no evidence \nof marketability of Dipped Tyre Cord Fabric. Although, the \nadjudication order is a well reasoned order, we want the \nAdjudicating Authority to also examine the matter in the light \nof the above Note-4 to Chapter 59 and Note-4 to section XI. \nWe have also given an opportunity to the department to lead \nevidence, both on the process as well as on marketability. The \nbasic question which the Adjudicating Authority is required to \ndecide is \\026 whether Dipped Tyre Cord Fabric is an independent \nproduct in terms of manufacture and marketability?\n Accordingly, the question of excisability and the \nquestions of classification of Dipped Tyre Cord Fabric are \nremitted to the Commissioner (Adjudication), Goa for a fresh \ndetermination in accordance with law.\n Now coming to the question of classification of \nRubberised Tyre Cord Fabric, we may point out that the \nSuperintendent of Central Excise having jurisdiction over M/s \nM.R.F. Ltd., Arkonam issued two show-cause notices dated \n3.12.1996 and 3.6.1997 proposing to levy additional excise \nduty on Rubberised Tyre Cord Fabric captively consumed in \n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 6 of 6 \nmanufacture of tyres during the period May, 1996 to October, \n1996 and during the period November, 1996 to April, 1997 \nrespectively. By the said show-cause notices, the department \nsought to classify Rubberised Tyre Cord Fabric under Chapter \nHeading 59.02. M/s M.R.F. Ltd., however, contended that \nRubberised Tyre Cord Fabric was classifiable under Chapter \nHeading 40.05. According to the assessee, on rubberization, \nthe content of rubber in the product exceeded the prescribed \nlimit vis-‘-vis the fabric and, therefore, it was classifiable under \nChapter Heading 40.05. However, the Commissioner, Chennai \ncame to the conclusion that Rubberised Tyre Cord Fabric was \nclassifiable under Chapter Heading 59.05 (now 59.06). He \nplaced reliance on the judgments in Falcon Tyres (supra) and \nVikrant Tyres (supra). This order was passed by the \nCommissioner, Chennai on 25.9.1997. By the said order, the \nproceedings against the assessee were dropped. This order has \nbeen confirmed by this Court vide order dated 27.9.2001 in \nCivil Appeal Nos.1494-1495 of 1999. However, in conjoint \nproceedings, the Commissioner (Adjudication) took a contrary \nview, vide order dated 24.10.1997, that Rubberised Tyre Cord \nFabric was classifiable under Chapter Heading 59.02 and, \ntherefore, the assessee was liable to pay the additional excise \nduty thereon. The said order was challenged by the assessee \nbefore the Tribunal. By the impugned judgment dated \n20.7.1998, the said order is set aside, following the judgments \nin Falcon Tyres (supra) and Vikrant Tyres (supra).\n In short, the controversy regarding classifiability of \nRubberised Tyre Cord Fabric is no more res integra. The said \nproduct is classifiable under Chapter Heading 59.06. We do \nnot find any infirmity in the impugned judgment of the Tribunal \non this point.\n Accordingly, Civil Appeal Nos.1479 to 1481 of 1999 and \nCivil Appeal Nos.1087-1088 of 1999, filed by the department \nrelating to classification of Rubberised Tyre Cord Fabric are \ndismissed. \n Civil Appeal Nos.1476 to 1478 of 1999 and Civil Appeal \nNos.1482 to 1493 of 1999, filed by the department relating to \nclassification of Dipped Tyre Cord Fabric are allowed; the \nimpugned judgments and orders of the Tribunal as well as of \nthe Commissioner are set aside; and the matters are remitted to \nthe Commissioner (Adjudication), Goa for a fresh disposal in \naccordance with law. \n \n In the facts and circumstances of this case, there will be \nno order as to costs in all the civil appeals.\n \n"