By TIOL News Service

NEW DELHI, APRIL 28, 2017: THESE appeals pertain to classification of the goods known as Polyester Covered Yarn and Nylon Covered Yarn. 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 goods fall in CSH No. 5402.62/61. The stand of the Revenue has been accepted by the Customs Excise & Service Tax Appellate Tribunal ('CESTAT') which is challenged by the assessees in these appeals.

The 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.

The Supreme Court noted,

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.

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) which also supported the version of the Revenue.

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 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.

The Supreme Court held:

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, no merit in any of the contentions raised by the appellants .

The appeals accordingly fail and are dismissed with cost.

(See 2017-TIOL-191-SC-CX)