CESTAT, Chennai Bench
Commissioner of Central Excise, Chennai-III Vs. Joy Foam (P.) Ltd.
Ms. Sulekha Beevi C.S., Judicial Member
And Madhu Mohan Damodhar, Technical Member
Final Order Nos. 40431-40432/2018
February 21, 2018
1. Revenue is in appeal against the order passed by Commissioner (Appeals) who held the classification of product manufactured by appellant to fall under Heading 5903 of CETA, 1985.
2. Brief facts are that the respondents classified their final product namely textile fabric combined with PU foam as textile fabric laminated with polyurethane foam under Chapter 5903 2090 and availed benefit of Notification No. 29/2004-CE dated 9.7.2004 as amended by Notification No. 10/2005-CE dated 1.3.2005 paying duty @ 8% Adv. Note 1(h) to Section XI excludes woven, knitted or crocheted fabrics or non-woven, impregnated, coated, covered or laminated with plastics or articles thereof Chapter 39. Further, Note 2(a)(5) of Chapter 59 excludes plates, sheets or strip of cellular plastics, combined with textile fabric where the textile fabric is present merely for reinforcing purposes to Chapter 39. Thus, it appeared to the department that the product cleared by the respondent falls under Chapter 39 attracting 16% rate of duty. Show cause notice was issued proposing the said classification and also demanding duty, interest and proposing penalty. After due process of law, the original authority confirmed the classification as proposed in the show cause notice as well as the demand, interest and imposed penalty. Aggrieved, the respondents approached Commissioner (Appeals) who vide order dated 29.10.2007 remanded the matter for denovo adjudication. In such remand order, the Commissioner (Appeals) had given specific directions to look into the technical information opinion given by CLR dated 17.9.1999 and also consider the contentions of the respondent with regard to the applicability of HSN Notes for interpretation of classification. In denovo adjudication, the original authority sent the sample of the impugned product for test at the Customs House, Chennai and report was obtained. As per the report, the percentage of fabric contained in the product was higher than the percentage of foam. The original authority, however held the classification in favour of Revenue. Against the said order, the respondent filed appeal before Commissioner (Appeals) who vide order impugned herein, held the impugned goods to fall under Chapter Heading 5903 and not under Chapter 39. Aggrieved, the department is now before the Tribunal.
3.1 On behalf of Revenue, ld. AR Shri R. Subramaniyam reiterated the grounds of appeal. He submitted that the Commissioner (Appeals) in the impugned order has entirely relied upon the decision of the Tribunal in the case of Triton Synthetic Fibres (P.) Ltd. v. CCE 1999 taxmann.com 1610 (CEGAT – Chennai). That the product in question in that case was manmade fabric and cotton fabric coated with PU foam used as fabric in the manufacture of shoe uppers. The goods in question in the instant case is PU foam sheets laminated with textile fabric knitted out of polyester granules used in the manufacture of car seats. The Tribunal in the said case held that the functional character of the article was that of textiles and not of plastics as the goods in question were used for shoe uppers and therefore classified under 5903. In the instant case, the functional character of the article is for making car seats. That therefore the said case is distinguishable on facts and has been wrongly applied by Commissioner (Appeals).
3.2 Further, the Commissioner (Appeals) has relied upon the test report of the Chemical Examiner, Customs House, Chennai wherein it was stated that the percentage of fabric contained in the impugned goods was about 200% more when compared to the content of PU foam. That even if the predominant content is fabric, Section Note 1(h) of Section XI (Textile and Textile Articles) clearly states that Section XI does not cover woven, knitted or crocheted fabrics or non-woven, impregnated, coated or covered or laminated with plastics of Chapter 39. In the present case, the foam is a lighter material and not used for reinforcing. Accordingly, the fabric is used for reinforcing of the lighter foam. Thus, when the fabric is used merely for reinforcement, the product has to fall under Chapter 39. The product in question is knitted polyester fabric applied to one face of the foam sheet and therefore the presence of fabric being on one side only of the product is for reinforcing purposes and the article cannot be classified under Chapter 59.
3.3 Again, Chapter Note 2(a) (5) of Chapter 59 excludes plates, sheets or strip of cellular plastics combined with textile fabric where the textile fabric is present merely for reinforcing purposes (Chapter 39). The Explanatory Note to Heading 3921 categorically states that this heading covers only cellular products or those which have been reinforced, laminated, supported or similarly combined with other materials. In view of the clear cut Explanatory Notes, Section Note and Chapter Note, the product would fall only under Chapter 39.
3.4 The original authority has relied upon the Apex Court judgment in the case of Atul Glass Industries Ltd. v. Collector of Central Excise 1986 taxmann.com 522. However, the Commissioner (Appeals) has dismissed these discussions as not applicable. In the said case, the Hon’ble Apex Court held that when statute does not contain definition, the primary function test has to be applied. In the instant case, the functional character of the article is foam which identifies in the mind of the consumer as car seat. In car seat, functional character is foam and textile is present only as reinforcing factor. He prayed that the impugned order may be set aside.
4. The ld. consultant Shri R.Janardhanan Pillai appeared on behalf of the respondent and made written as well as oral submissions which are summarized as under:â
4.1 The respondents supply PU foam for lamination to the job worker M/s. Lotus Lamination Ltd. The job worker laminates the textile fabric with PU foam. The product manufactured by the respondent is textile fabric laminated with polyurethane foam falling under 5903.20. The department had issued letter dated 4.3.2005 to appellant permitting clearances of finished products from premises of job worker. The description of the goods in the letter was shown as textiles laminated with PU foam. Thereafter show cause notice has been issued dated 5.5.2006, in which there is no proposal for reclassification of the product. That on this ground itself demand cannot sustain.
4.2 The product in question is used as cover for car seats by the manufacturers of car seats. The Commissioner (Appeals) has discussed in detail to arrive at the conclusion that the products fall within Chapter 59. The original authority in the denovo proceedings had sent the product for further testing by the Chemical Examiner at Custom House, Chennai. The gist of the report showed the percentage of fabric to be much higher than that of the percentage of foam. Thus, the predominant content is fabric and not plastic. The earlier chemical test report as well as report of SITRA was in favour of the respondents. The original authority had ignored these test reports. The Commissioner (Appeals) has rightly relied upon the test reports as well as the decision of the Tribunal in the case of Triton Synthetic Fibre (P.) Ltd. (supra) on identical set of facts. Further, the Board Circular dated 13.12.1995 was also relied which categorically stated that the correct classification of PVC leather cloth which is also known as rexine will fall under 5903 since the textile fabrics in such fabric does not act as a reinforcing material. The Circular issued by the Board is binding on the department and now department cannot contend that the textile fabric used is only reinforcing material so as to classify the goods under Chapter 39. He also explained that the functional use of the product is for making car seats. The PU foam sheets acts only as a cushion to the textile and it is laminated on the bottom side of the textile to give a cushioning effect. It is used as cover for car seat. The predominance being textile / fabric, it cannot be said that the fabric is a reinforcing material. He pleaded the impugned order may be maintained.
5. Heard both sides.
6. Before entering into the discussion, it would be worthwhile to reproduce the entries under competing heading which are as under:â
|5903||Textile fabric impregnated, coated, covered or laminated with plastics other than those of Heading|
|392||— Other plates, sheets, film foil and strip of plastics|
7.Â The gist of the Chemical Examiner s report done under the direction of the original authority in the denovo proceedings also being significant is reproduced as under:â
|Percentage of fabric :||66.0||68.3|
|Percentage of foam :||34.0||31.7|
8. From the above test report, it can be seen that the percentage of fabric contained in the white type is about 200% more compared to the content of PU foam and the percentage of fabric in the black type is more than 200% of the content of PU foam.
9. The Board vide its Circular dated 13.12.1995 has clarified that PVC leather cloth or rexine is classifiable under 5903. The doubt with regard to classification was whether this would fall under Chapter 39 and Chapter 59 which is identical to the issue at hand. It is stated in the circular that the process of manufacturing PVC leather cloth involves coating of a paste of plastic material (PVC) on one side of the base fabric. In this case, the plastic is not combined with the textile but is coated on textile fabric to form final product. Textile fabrics does not act as reinforcing material. Such fabrics are used for upholstery and can take sharp bends without cracking. After analyzing the applicability of Chapter Note 2(a) of Chapter 59, Section Note 1(d) of Section XI as well as Chapter Note 2(k) under Chapter 29 together with the HSN Notes, the Board has concluded that the product PVC leather cloth also known as rexine cloth has to be correctly classified under Chapter 59.03 of CETA, 1985.
10. The sample of the impugned product was produced before us. On examining the same, the PU foam sheet is actually on the bottom side (only one side) of the fabric. This is the main ground on which the department contends that the fabric is only for reinforcement. The article can be used for cover of car seat or upholstery. The Board Circular clarifies that such fabrics are not hit by Chapter Note 2(a) (5) to Chapter 59. Further, as per test results, the predominant content is fabric and not plastic (PU Foam sheet).
11. The facts in the case of Triton Synthetic Fibres (P.) Ltd. (supra), in our view, are identical to the issue at hand. We cannot agree with the view of the Revenue that the facts in the said case are different from the instant case. The only difference may be the impugned articles (cotton fabric coated with PU foam) was used in manufacture of shoe uppers whereas in the instant case it is used for making car seat cover. The Tribunal putting a functional test observed that the PU foam in the impugned goods act only as cushion to the textile. The consumer who buys the impugned product buy for making car seat cover and not for the purpose of cushioning. Thus following the ratio laid in Triton Synthetic Fibres (P.) Ltd.’s case (supra), we hold that the goods are classifiable under 5903.
12. In addition, the ld. consultant appearing for the respondent has produced before us an affidavit of the respondent stating that there is an error in the narration of facts in the show cause notice. The show cause notice alleges that the respondent clears PU foam sheets and polyester granules (for laminating the PU foam) to their job workers who convert the granules into yarn and knit the yarn into fabrics and use it to laminate the PU form sheets. In fact, the respondent clears PU foam to their job workers who cut the same into the required size and laminate the PU foam on textile fabric. The respondent does not send any polyester granules to the job worker. After lamination the product cleared from the job worker is called as textile fabric laminated with PU foam and not PU material laminated for textile as contended in the show cause notice. The impugned product was produced before us. Applying the rules of interpretation as well as the Board Circular and assisted by the decision in the case of Triton Synthetic Fibres (P.) Ltd. (supra), we agree with the order passed by Commissioner (Appeals).
13. The Commissioner (Appeals) has rightly appreciated the test results as well as applied the law laid down in Triton Synthetic Fibres (P.) Ltd.’s case (supra), We are of the view the impugned order does not call for any interference and the same is upheld. The appeals filed by Revenue are dismissed.
[Citation : 2018-Taxcaselaw-19-CESTAT-Karnataka-GST]