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Phulchand and Sons Vs. Collector of Customs - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1984)(18)ELT49TriDel
AppellantPhulchand and Sons
RespondentCollector of Customs
Excerpt:
1. these two appeals relate to the export of "linters" through bhavnagar port in september, 1980. the customs authorities levied export duty on the two consignments, treating them as "raw cotton" falling under item 16 of the second schedule to the customs tariff act (export tariff schedule). the appellants contended that linters were not raw cotton and that export duty, was not payable. their claim in this regard having been rejected by the assistant collector, they went in appeal to the appellate collector of customs, bombay, who also rejected their appeals. it is against these rejections that the present appeals (one of which has been filed directly to the tribunal and the other, having been filed as a revision application to the. central government, has been transferred to the.....
Judgment:
1. These two appeals relate to the export of "linters" through Bhavnagar port in September, 1980. The Customs authorities levied export duty on the two consignments, treating them as "raw cotton" falling under Item 16 of the Second Schedule to the Customs Tariff Act (Export Tariff Schedule). The appellants contended that linters were not raw cotton and that export duty, was not payable. Their claim in this regard having been rejected by the Assistant Collector, they went in appeal to the Appellate Collector of Customs, Bombay, who also rejected their appeals. It is against these rejections that the present appeals (one of which has been filed directly to the Tribunal and the other, having been filed as a revision application to the. Central Government, has been transferred to the Tribunal) are directed.

2. The matter was argued before us on behalf of the appellants by. Shri S.B. Jijina, Advocate, assisted by Shri D. Krishnamurti and Shri N.C.Sogani, Consultants.

3. Shri Jijina submitted that the question was whether "linters" were "raw cotton" in terms of Item 16 of the Export Tariff Schedule. He pointed out that there was no definition of "raw cotton" in the Schedule. Shri Jijina filed a number of extracts from various works of reference, enactments, etc., in support of his contention. These extracts were from Chambers Technical Dictionary, Revised Edition (page 54) ; "Textile Terms and Definitions", Seventh Edition of the Textile Institute, Manchester (page 115) ; "Cotton Spinning" (Combined Edition) by William Taggart (page 54) ; "The Standard Handbook of Textiles" (Eighth Edition) by A. T. Hall (pages 2 to 3) ; "American Cotton Handbook" by Merrill and others (pages 87 and 151) ; and 1972 Annual Book of ASTM Standards-Part 25 (page 24). All these authorities were cited in favour of the proposition that linters were different from spinnable raw cotton, otherwise known as "lint", and that linters were not considered as "raw cotton". We reproduce below the extract from the Standard Handbook of Textiles by A.J. Hall (pages 2 to 3), which is fairly representative of the authorities cited :- "The bolls of cotton are also picked mechanically by means of machines which have been specially designed for this somewhat complicated operation. Unfortunately, the mechanical picking machines cannot be so selective as hand pickers so that cotton bolls of different degrees of maturity become mixed and a larger amount of so-called 'trash' (leaf, twigs, etc.) is drawn in with cotton. The mechanical picking of cotton is now very largely practised.

As picking proceeds the cotton obtained is led through a machine known as a'gin', the purpose of which is to remove the fibres from the seeds. These cotton seeds are useful as cattle food and also a source of cotton seed oil which can be used for a variety of purposes including the manufacture of soaps and edible fats.

However, it is the separated cotton fibre which is more important and in this state, containing various Impurities such as dried leaf, twigs, earth and dust, it constitutes the raw cotton of commerce. In order to facilitate transport to the various places where such cotton can be manufactured into yarn and fabric, this loose raw cotton is highly compressed into bales each weighing about 500 lb.

(230 kgs.) (Emphasis added).

4. Shri Jijina drew our attention to Notification No. 184 dated 14-10-1966 issued by the Central Government under Section 25(1) Customs Act. This specified two items. "Raw cotton of the variety known as Bengal Deshi" was exempted from duty in excess of Rs. 700/- per tonne and "Linters" from duty in excess of 25 per cent ad valorem. ; 5. Shri Jijina stated that with the replacement of the Indian Tariff Act, 1934, by the Customs Tariff Act, 1975, the Export Tariff Schedule was also revised. At that time various exemption notifications issued with reference to the Indian Tariff Act were rescinded, through a notification dated 2-8-1976. Serial No. 98 in the Schedule annexed to this notification rescinded Notification No. 184 dated 14-10-1966.

Subsequently, a fresh Notification No. 12-Customs dated 9-1-1979 was issued, giving various degrees of exemption to different varieties of raw cotton. The varieties of raw cotton which were specified in this notification and the effective rate of duty for each of them are given below :(a) Assam/Comilla Cotton Rs. 550/- per(b) Yellow pickings and Zoda tonne Cotton (that is, cotton of third3. All other varieties of raw cotton Rs.1,000/- excepting the varieties known as Bengal Deshi.

per tonne Shri Jijina pointed out that there was no reference in this notification to "linters". According to him, this omission was because Government had come to realise that linters were not "cotton".

6. Shri Jijina went on to refer to the definition of "linter" in the Fairchild Dictionary of Textiles, to which reference was made by the Collector (Appeals) in his order dated 15-3-1983. The definition read as follows : "A name given to short cotton fibres which adhere to the seed after the first ginning process." The Collector (Appeals) had observed that this made it abundantly clear that linters were nothing but cotton fibres, that is raw cotton. The Collector had further observed that this was made clear by Notification No. 184/66 read with Notification No. 101/66, whereby "linters" falling under the item "raw cotton" were exempted from duty in excess of 25 per cent. As regards this observation, Shri Jijina submitted that subordinate legislation could not go beyond the purview of the statute and the Collector's reliance on the notification for this purpose was misconceived.

7. Shri Jijina drew our attention to the note in "Textile Terms and Definitions" published by the Textile Institute, Manchester, in which it was explained that the terms "first-cut linters", "second-cut linters" etc are used to denote linters obtained by successive reginning of the cotton seed, the length of the fibres in each successive cut becoming increasingly shorter. He also at this stage showed us what purported to be samples of "raw cotton" as generally understood and of "second-cut linters" which they had exported. These were seen by us to get a broad idea of the issue, without treating them as authentic samples.

8. Going back to the quotations furnished by him, Shri Jijina drew our attention to the "Standard Handbook of Textiles", in which it was stated that the separated cotton fibre "constitutes the raw cotton of commerce". He argued that this showed that linters were not "raw cotton" as commercially understood.

9. Following Shri Jijina, Shri Sogani drew our attention to the Indian Trade Classification, relating to the classification of goods for the purpose of foreign trade statistics. The appellants filed a photo copy of page B141 from the Indian Trade Journal of 25-4-1979. This is part of an alphabetical listing of commodities covered by the Indian Trade Classification (ITC). This page inter alia covers various items of cotton. Shri Sogani pointed out that the index showed "cotton linters" separately with Code No. 363.2000 and "Cotton, raw" of different varieties (Bengal Deshi, foreign and Indian) against other Code Nos.

Shri Sogani submitted that this was clear evidence that according to commercial understanding as shown by the Indian Trade Journal, cotton linters were not considered as raw cotton. (It was pointed out to Shri Sogani that what had been produced was an extract from the alphabetical index, and what would have been more helpful and authoritative was the basic Indian Trade Classification itself. Subsequently, Shri Sogani produced before us a copy of the Indian Trade Classification-Revision 10. Shri Sogani next drew our attention to a paper with the title "Cotton Linters : Production, Analysis and Grading in India" by V.Sundaram and S.N. Pandey, published under the auspices of the Cotton Technological Research Laboratory, Bombay. (Subsequently, as directed by us, he filed photo copies of the complete paper). Shri Sogani drew our attention to the first paragraph of this paper in which it was stated "It is generally held that the fibre cells which sprout during the first to fifth day after fertilization develop into commercial lint fibres, while those fibre cells which appear later develop into fuzzy fibres or "linters"... While the cotton fibres form valuable raw material for the textile industry the linters cannot be spun into yarn in view of extremely short length but can be used as a valuable source of cellulose for various purposes". He submitted that this clearly showed that cotton linters were quite different from raw cotton as commercially understood.

11. Shri Sogani also drew our attention to the extract from Chambers Technical Dictionary, in which it is stated that "linters are used extensively in the manufacture of rayon, gun cotton, celluloid (sic), absorbent cotton, etc. (We are not sure whether the word "celluloid" has been correctly reproduced or whether it should be some other word such as "cellulosic"). Shri Sogani submitted that this showed the use of linters to be other than spinning and different from the uses of commercial raw cotton.

12. Shri Sogani then referred to the Explanatory Notes to the CCN under Chapter 55, relating to "cotton". He pointed out that Heading No. 55.01 covered "cotton, not carded or combed". Heading No. 55.02 covered "cotton linters". It was also stated in the Notes under Heading No.55.01 that the fibres classified in that Heading were generally between 1 and 5 cms. in length whereas cotton linters consisted of fibres usually less than 5 mm. in length. Shri Sogani submitted that the classification of cotton linters under a separate Heading showed that they were different from ordinary raw cotton. (We remarked that the Explanatory Notes might go against Shri Sogani's argument because Heading No. 55.02 covering cotton linters was also a part of Chapter 55, relating to "cotton").

13. Shri Sogani thereafter drew our attention to a letter dated 1-8-1981 addressed to the appellants by a Deputy Director in the Office of the Textile Commissioner. Referring to their letter dated 27-7-1981, the Deputy Director had stated as follows :- "In this connection it may be mentioned that linter is a small fibre separated from cotton seed by delinting process. Linters are not cotton or cotton waste nor do they come under the category of miscellaneous fibres such as Assam Comillas, Zodas, Yellow Pickings, etc. and hence do not answer the definition of "cotton" under the Cotton Control Order, 1955 with which this office is concerned. In our opinion, cotton linters should be treated as a separate category." Shri Sogani submitted that this was an authoritative clarification from the office of the Textile Commissioner to show that linters were not "cotton".

14. Shri Sogani then drew our attention to the Export Policy Statement published by the Chief Controller of Imports and Exports, for the periods 1980-81 and 1981-82. He pointed out that in the Statement for 1980-81, Serial No. 68 covered "raw cotton", and various varieties such as Bengal Deshi were specified therein. There was no reference to "cotton linters". However, in the subsequent statement for 1981-82, a fresh item was added as Serial No. 99, covering "cotton linters". Shri Sogani also drew our attention to public notice No. 13 ETC (PN)/81 dated 3-2-1981 of the Chief Controller of Imports and Exports regarding "Export policy of cotton linters". In this public notice it was stated that it had been decided to allow export of "Cotton Linters" within a limited ceiling on first come, first served basis. It was also directed that in the Policy Statement contained in the Export Policy Book, 1980-81, a new entry No. 99 should be made, with the description "Cotton Linters". It was Shri Sogani's contention that this clearly showed that "cotton linters" were not covered by the other entries relating to "raw cotton" as understood by the Office of the CCI & E.Shri Sogani also placed before us an extract from the ISI Specification for Cotton Linters (IS: 3517-1979), which contained definitions of 'First Cut', 'Second Cut' and 'Mill run' linters. (This extract is not of much assistance in deciding the question before us).

15. Thereafter, Shri D. Krishnamurti addressed us. His argument was not quite clear to us. He seemed to say that if cotton linters were to be treated as a variety of raw cotton, they would be subject to export duty of Rs. 1,000/- per tonne in terms of Notification No. 1.2-Customs dated 9-1-1979-His point apparently was that it would be. anomalous to fix a duty of Rs. 1,000/-per tonne on linters, when other varieties such as Assam/Comilla cotton were to be charged at Rs. 550/- per tonne.

It was pointed out to Shri Krishnamurti that if linters Were not "raw cotton" they would not be liable to export duty at all, and the question of applying the notification would not arise. If they were to be considered as raw cotton, and if his point was that they were not covered by Serial No. 3 of the notification, then they would be subject to the full duty, since it was no one's case that they would be covered by Serial Nos. 1 and 2 of the notification. Shri Krishnamurti did not further clarify his argument.

16. This concluded the arguments of the appellants except in regard to certain affidavits and letters which Shri Jijina wished to file in support of his case. Shri Ohri objected that this should not be allowed as the affidavits, etc., had not been filed before the lower authorities, though the appellants could have done so. We informed Shri Jijina that a formal application to the Tribunal for introducing the fresh evidence would have to be made, and that such application would have'to be considered on its merits. Shri Jijina stated that he would consider the matter further and, prior to the next hearing, he would either file the application for admission of the affidavits and letters or intimate the Tribunal that he did not propose to file such an application. Subsequently, in his letter dated 23-4-1984, Shri Jijina informed us that his clients did not desire to make any application for submitting any further documents in support of their case.

17. Accordingly, this concluded the case of the appellants and when the hearing was resumed on 22-5-1984 (on which occasion only Shri Sogani appeared for the appellants) Shri Ohri was called upon to reply.

18. Replying on behalf of the Department, Shri Ohri submitted that the appellants were not correct in arguing that "raw cotton" was only such cotton as could be used for spinning of textiles. He submitted that there was authority of the Supreme Court to the effect that the end-use of an article would not be relevant for its classification if it was not specified in the law.

19. Shri Ohri submitted that over a very long period linters had been treated in India by the Customs Department as raw cotton and this practice had been accepted by the trade. He pointed out that the Import Tariff Schedule as contained in the Indian Tariff Act, 1934 (which was in force until replaced by the Customs Tariff Act, 1975), there was a separate Item No. 46(3) with the description "Cotton, raw". Under a tariff ruling of 1954, reproduced in the Indian Customs Tariff Guide, it was provided that cotton linters were covered by this item. This tariff ruling had not been superseded so long as the Indian Tariff Act was in force. This showed that cotton linters had consistently been classified as raw cotton for the purpose of import, and that this classification had been accepted by the trade.

20. As regards the Export Schedule, Shri Ohri pointed out that Notification No. 184/1976 dated 14-10-1976 specifically mentioned linters as falling within Item No. 16 of the Export Tariff Schedule, covering "raw cotton". This would also show what was the understanding of the Department as accepted by the trade.

21; Shri Ohri referred to the Explanatory Notes to the CCCN under Chapter 55, on. which the appellants had relied. No doubt cotton linters were covered by. a separate Heading No. 55.02, but this was nevertheless within Chapter 55, which related to "cotton". Thus, it was clear that cotton linters were also covered by the term cotton. In the very beginning of the Notes on Chapter 55, it was stated that "the Chapter covers cotton fibres at the various stages of their conversion from raw material to woven fabrics, including cotton linters and mixed textiles classified as cotton". Therefore, according to Shri Ohri, cotton linters were a class of raw cotton.

22. Shri Ohri went on to say that the appellants had attempted to draw a distinction between raw cotton and linters on the basis of technical treatises. This did not, however, mean that cotton linters were not cotton. He cited the judgment of the Delhi High Court in the case of Hyderabad Asbestos Cement Products (1.989 E.L.T. 735), wherein it was held that if Parliament had specifically included a particular product in the First Schedule to the Central Excises Act, its validity could not be questioned on the ground that it did not involve any process amounting to manufacture. He also relied on the judgment of the Supreme Court in the case of lndo-China Steam Navigation (1983 E.L.T. 1392), wherein it had been observed that where two reasonable constructions are possible but one leads to an anomaly while the other advances the intention of the Legislature, it is the duty of the Court to accept the latter construction. According to him, the acceptance of the appellants' view in this case would mean that notifications issued by Government relating to cotton linters were wrong or redundant and therefore should be avoided.

23. Shri Ohri also cited the judgment of the Delhi High Court in the case of Hindustan Aluminium (1981 E.L.T. 642), in which it was held that if two interpretations are possible, the one which sustains the validity of the law should be preferred.

24. Shri Ohri thereafter returned to the question regarding the classification of cotton linters. Referring to the article by Sundaram and Pandey, he drew our attention to a Table at page 96 in which there was reference to different varieties of cotton, such as Comillas, shpwing the linter-content of each. According to him, this showed that linters- could also be classified as Comillas, etc., that is, in the same way as raw cotton,'and therefore should be considered as raw cotton. He also referred to the Textile Terms and Definitions (Textile Institute, Manchester), which showed that Cotton was the seed hair of a wide variety of plants of the Gossypium family, and the Dictionary of Science and Technology, which stated that "Linters" were "short stiff fibres remaining on cotton seeds after removal of the longer fibres." He submitted that these quotations showed that there was basically no difference between linters and lint (cotton fibres), except that linters were shorter.

25. He thereafter referred to the different varieties of cotton specified in notification No. 12 dated 9-1-1979 and Shri D.Krishnamurti's argument that linters were not covered by any of the varieties so specified. According to him, if cotton linters were not covered by any category in the notification, they would be subject to the Tariff rate of duty; that is, Rs 1,000/- per tonne, which in fact had been charged in the present case. (It is not quite clear to us how the "exempted rate" under the notification could be the same as the Tariff rate. Shri Ohri could not throw light on this. However, the point is not material). ' 26. Referring to the citation from the "Textile Terms and Definitions" of the Textile Institute, Manchester, Shri Ohri pointed out that linters were formed of the same material as lint, namely "whole and broken lint fibres and fuzz fibres". He also referred to page 45 of the same publication, wherein cotton was defined as "the seed hair of a wide variety of plants of the Gossypiuni family", and submitted that linters fully satisfied this definition.

27. Referring to the book "Cotton' Spinning" by Taggart, Shri Ohri pointed out that this showed that linters were also considered as cotton.

28. Referring to the Standard Handbook of Textiles by Hall, and the .

statement therein that the separated cotton fibre "constitutes the raw cotton of commerce", Shri Ohri submitted that no distinction had been made which had the effect of excluding linters from this definition.

29. On the argument that linters could not be used for spinning and subsequent weaving of textiles, Shri Ohri pointed out that linters did have industrial uses and value though they were "not used to any extent in yarn and fabric manufacture" according to the American Cotton Handbook.

30. Referring again to the article by Sundaram and Pandey, Shri Ohri submitted that it was clear that cotton fibre was a seed hair and that commercial lint fibres and linters were chemically the same.

31. Shri Ohri also submitted that there was nothing to show that raw cotton was only such cotton as could be used in the textile industry.

32. Shri Ohri further submitted that the appellants had argued that linters were a product of the cotton-seed industry. He had looked into text books relating to that industry but had not found any reference to linters.

33. Referring to the Indian Trade Classification, Shri Ohri pointed out that the extract from the Indian Trade Journal which had been filed by the appellants was an alphabetical arrangement and did not prove that cotton linters were not raw cotton, 34. Referring to the Export Policy Books, and to the insertion of Serial No. 99, covering "cotton linters", Shri Ohri pointed out that this amendment took effect from 3-2-1981, that is, after the exports covered by the present appeals took place. Further, the amendment was made to enable the implementation of the licensing policy, that is, to permit export of linters up to a ceiling. This was only for Convenience and did not mean that linters were a commodity different from raw cotton.

35. Shri Ohri then referred to the Indian Ginning and Pressing Factories Act, 1925. In the "Definitions section" of this Act, it was stated that " "cotton" means ginned or unginned cotton, or cotton waste". No distinction was made in regard to linters.

36. Shri Ohri then referred to the clarification given by the Textile Commissioner's Office in their letter dated 1-8-1981, referring to the appellants' letter dated 27-7-1981, of which a copy had been filed by the appellants under the direction of the Tribunal. Shri Ohri submitted that it did not clearly specify the point at issue. Accordingly, the reply given by the Textile Commissioner's Office could not be taken as having relevance to the present issue. What was given was an opinion and not in exercise of any statutory function. In any case, the Textile Commissioner was not authorised to give interpretations regarding liability to export duty.

37. In the result, Shri Ohri submitted that the cotton linters were clearly covered by the expression "raw cotton" and that the appeals should be rejected.

38. Replying to Shri Ohri, Shri Sogani submitted that the position was well-established that in order to bring an article within the scope of a Tariff item, the onus was on the Department. However, the orders of the lower authorities and the arguments at the hearing appeared to assume that it was for the appellants to show that cotton linters were not covered by the item.

39. It had been argued that the intention of the Legislature all along had been to include cotton linters in "raw cotton". This was not correct, because the Legislature had never made such a provision. As regards the import duty, what was referred to was a tariff ruling. As for export duty, the reference was to an exemption notification. This was a piece of subordinate legislation, which could not determine the scope of the entry.

40. Shri Sogani submitted that various authorities cited by Shri Ohri went to show that cotton linters were "cotton". However, this was not sufficient to establish the case of the Department. It had to be shown that cottons linters were "raw cotton" as understood by the trade and the public, and this had not been shown. As against this, the appellants had clearly shown that the trade practice was to consider cotton linters on a different footing from raw cotton as normally understood. If one went to the market and asked for raw cotton, no one would think of offering cotton linters.

Classification-Revision 2-wherein different headings were provided for raw cotton and cotton linters. It was pointed out to him by the Bench that Group 263 of this Classification covered "Cotton". Entry 263.1 covered "Cotton (other than linters) not carded or combed". Within this there were sub-entries for Indian Cotton (with further sub-divisions for Bengal Deshi and others) and foreign cotton (with further sub-entries). (The expression "raw cotton" had not been used in the Classification, but had apparently been used in the alphabetical index as a matter of convenience). Entry 263.2 (with only one sub-entry, 263.2000) covered "Cotton linters". The fact that entry 263.1 referred to "cotton (other than linters)..." tended to show that the term "cotton" normally included linters, but linters had been separated out as a matter of convenience.

42. Thereupon Shri Sogani stated that perhaps the copy of the Indian Trade Classification-Revision 2, which had been shown by him to the Tribunal, was not the latest amended version and the position in such latest version might be different.

43. Shri Sogani again referred to the Export Policy Book, and the fact that in Schedule I thereto, listing "Commodities Subject to Export Control", there was in Part B a separate entry No. 99 for "Cotton Linters", showing that they were different from "raw cotton". Serial No. 68 read "Raw Cotton", and not "raw cotton, other than linters" as it would have done if linters were considered as raw cotton. With reference to this argument the Bench pointed out to Shri Sogani that the entries in the Schedule did not appear to have been drawn up bearing such considerations in mind, but only with a view to the convenience of the licensing authorities. Thus, serial No. 33 referred to "Sugar" and serial No. 33A to "Khandsari Sugar". It was evident that serial No. 33A was introduced at a later time. On the basis of his argument it would have to be considered that the entry "sugar" as it existed prior to the insertion of the separate entry "khandsari sugar" would not have included khandsari sugar, which did not appear convincing. Shri Sogani replied that he was concerned with the items relating to his case and could not comment on other items.

44. With reference to Shri Ohri's observations on the authorities from text books which he had cited, Shri Sogani reiterated that all these entries went to show that while linters might be "cotton", they were clearly distinguishable and distinguished from raw cotton used for spinning, etc., and could not be considered as "raw cotton" as commercially understood.

45. Regarding their letter to the Textile Commissioner which elicited his reply, Shri Sogani submitted that their letter was not a "suggestive" one, but one intended to elicit the opinion of the appropriate authority.

46. Shri Sogani also stated that similar cases had come up at Tuticorin, and though duty had been charged on cotton linters. to begin with, refunds had subsequently been granted. He, referred to one such case pertaining to the appellants where a refund of Rs. 3.97 lakhs had been granted. A copy of the refund order had been filed in the appeal papers. He stated that no action had been taken to review the order granting refund. This showed that in Tuticorin the Department had accepted that cotton linters were not raw cotton.

47. In the result, Shri Sogani submitted that the two appeals should be allowed.

48. After the hearing was over, Shri Sogani sent us some further documents. Two of these were the First and Second Supplements to the Indian Trade Classification-Revision 2. These were apparently sent with reference to his submissions in para 42 above. Obviously, we could not undertake a detailed examination of material submitted subsequent to the hearing, but prima facie these two Supplements do not appear to refer to or affect the classification of cotton or cotton linters.

49. Another document sent by Shri Sogani was "The Handbook of Textile Control Orders" issued by the ICMF, Bombay, containing the Cotton Control Order, 1955. What we have said in the previous paragraph applies to this also. We observe, however, that this Order was issued unders Section 3 of the Essential Commodities Act, 1955. The fourth document sent by Shri Sogani was the "Handbook of Methods of Tests" published by the Cotton Technological Research Laboratory. This was not referred to during the hearing- nor did we ask for it to he sent.. We are accordingly not taking it into account.

50. We have given our very careful consideration to the arguments advanced before us. Both sides have taken great pains to collect a mass of material which could be of assistance in deciding the issue, and we have studied this material with great care. The arguments advanced on both sides on the question whether cotton linters are "raw cotton" can be arranged under the following heads : (iii) Understanding of trade and official circles, including the Ministry of Finance and Central Board of Excise and Customs.

51. On the first aspect, that is, the nature of linters and lint (the name given to raw cotton obtained by the first ginning process and used for spinning), quotations from a number of reputed authors and institutions have been placed before us. These quotations show clearly that so far as origin or composition is concerned, there is no material difference between linters and lint. Basically the linters are the short fibres which are left on the cotton seeds after ginning, and which are subsequently removed by a separate process (vide "Cotton Spinning" by Tag-gart). The process of removing linters may be repeated, giving rise to "first cut linters", "second-cut linters", etc. According to one authority, namely the American Cotton Handbook, linters appear to develop from the cells of the seed coat at a later date than the regular lint. Their diameter is greater than that of lint fibres and they are much shorter. All these, however, are not material differences, except the difference in length, which makes them unsuitable for spinning.

52. So far as use is concerned, it is very clear that linters have several uses, but are generally not used, and apparently cannot be used, for spinning. Thus, the CCCN Explanatory Notes state as follows :- "Linters are too short for spinning ; their very high cellulose content makes them an ideal raw material for the preparation of smokeless powders and the manufacture of man-made fibres (e.g., rayon) and cellulose plastics. They are also sometimes used in the manufacture of certain varieties of paper, filter blocks and as a filler in the rubber industry".

The other authorities cited are to the same effect. For instance, at page 151 of the American Cotton Handbook, it is stated that "they are not used to any extent in yarn and fabric manufacture but do have industrial uses and value".

53. Coming to the trade understanding, the text books and reference works cited by the appellants do suggest that linters are not included within the normal understanding of "raw cotton". Thus, the CCCN Explanatory Notes, under Heading 55.01, relating to "cotton, not carded or combed", state that "international trade in raw cotton is concerned almost wholly with ginned cotton which is usually in strongly compressed bales" (linters are said to be imported in bulk or strongly compressed in the form of sheets or slabs). We have already referred to the statement in "The Standard Handbook of Textiles" by Hall, wherein it has been stated that it is the separated cotton fibre which constitutes the raw cotton of commerce. Shri Ohri submitted that the "separated cotton fibre" referred to here would equally cover linters, but from the context the appellants, seem to be right in urging that it refers only to the lint.

54. It has also be en seen that in the paper by Sundaram and Pandey, published by the Cotton Technological Research Laboratory, it has been stated that "while the cotton fibres form valuable raw material for the textile industry, the linters cannot be spun into yarn in view of their extreme short length but can be used as a valuable source of cellulose for various purposes".

55. The above citations would indicate that by "raw cotton" is meant cotton in the form of lint, and not linters. In fact, Shri Sogani did not suggest that linters were not "cotton", nor did he deny that they may literally be considered as "raw". His submission was that the expression "raw cotton" occurring in the Export Tariff Schedule should be taken as a whole and given its normal meaning as understood by the trade, and that linters were not included within this normal meaning.

56. The Indian Trade Classification was also relied upon by the appellants. As mentioned in para 40 above, there is a separate entry in this Classification for "cotton linters". This falls within Group 263 covering "cotton". There are also separate entries for Indian cotton and foreign cotton, though the word "raw" has not been used when referring to them. However, in the alphabetical index, which seems to have been provided for convenience, these varieties of cotton are referred to as "cotton, raw, Bengal Deshi", "cotton, raw, foreign" and "cotton, raw,,Indian". Cotton linters are referred to simply as "cotton linters" This would also suggest that in international trade cotton linters are not ordinarily regarded as "raw cotton" 57. Again, in the Export Policy Handbook and Statement, it has been seen that originally there was no entry for "cotton linters". There was an entry at Serial No. 68 for "raw cotton". Various varieties of raw cotton such as Bengal Deshi were specified therein, but there was no reference to "cotton linters". A separate entry for cotton linters was introduced as Serial No. 99 by the public notice dated 3-2-1981. Since there was already an existing entry for "raw cotton", this would also give support to the appellants' contention that "cotton linters" were not regarded by the Export Trade Control authorities as a variety of "raw cotton".

58. Shri Orhi submitted that the amendments to the Export Policy Statement, introducing a separate entry for "cotton linters", was introduced only on 3-2-1981, that is, after the two exports covered by the present appeals. We observe that the question here is not the legal application of a notification, which no doubt could not be retrospective. The question is whether the amendment can be taken as an indication of the understanding of the Export Trade Control authorities of the expression "cotton linters". It has not been suggested that the meaning or the understanding of this expression underwent a sudden change on 3-2-1981, and therefore its significance as on that date could reasonably be held to throw light on its significance a few months earlier when the exports under consideration took place.

59. Reference has also been made to the understanding of the Customs authorities and the Ministry of Finance. Shri Ohri pointed out that Item 46(3) of the Import Customs Tariff, contained in the First Schedule to the Indian Tariff Act, 1934, referred to "cotton, raw". As far back as 1954, the erstwhile Central Board of Revenue had issued a tariff ruling that cotton linters were covered by this item, and this ruling continued in force until it became otiose with the replacement of the Indian Tariff Act by the Customs Tariff Act, 1975. Shri Ohri strongly relied on this circumstance as showing that there was a consistent practice, accepted by the trade, to consider cotton linters as "cotton, raw".

60. There is some substance in Shri Ohri's argument. However, it is subject to certain qualifications. One is that the item referred to "cotton, raw" and not "raw cotton". Cotton linters are undoubtedly "cotton", and could reasonably be considered as "raw". Therefore, it would not be doing violence to language to regard them as "cotton, raw". However, as pointed out by Shri Sogani, we are here concerned with interpreting the expression "raw cotton" as occurring in Item No.16 to the Export Tariff Schedule. The tariff ruling, with reference to "cotton, raw", or its acceptance by the trade, may not therefore be conclusive in deciding this question.

61. It has also been pointed out that in Notification No. 184-Customs dated 14-10-1966, issued under Item 3 of the Export Tariff Schedule in the Indian Tariff Act, 1934, covering "raw cotton", there was a specific mention of "linters", for which there was an exemption of duty in excess of 25 per cent. This was a statutory notification under Section 25(1) of the Customs Act (unlike the tariff ruling referred to earlier), and showed that the Central Government considered "linters" as falling within the description "raw cotton". This is no doubt an argument in favour of the respondent. However, as pointed out by Shri Sogani, even a statutory notification is not on the same footing as an Act of Parliament, and the intention of the Central Government cannot be equated to the intention of the Legislature. If on a consideration of all the evidence before us, we come to the conclusion that cotton linters cannot be included within the expression "raw cotton", the fact that there was a reference to "linters" in this notification would not be material. In this connection we must refer to the argument of Shri Jijina that in the subsequent Notification No. 12-Cus. dated 9-1-1979, which took the place of the earlier notification, there was no reference to "linters", and no provision for exemption to linters. From this Shri Jijina had argued that the Central Government had come to realise that linters were not included in the expression "raw cotton".

Otherwise, according to him, it was inconceivable that the Central Government would not have provided a lower exempted rate of duty for linters, which were clearly inferior to the varieties of raw cotton which were covered by this notification.

62. When this argument was advanced, we pointed out to Shri Jijina that another explanation could be that the Central Government did not wish to extend any exemption to linters, even though they fell under the tariff item relating to raw cotton. However, the argument of Shri Jijina is not without force. If his interpretation is accepted, it would also go to counter the argument of Shri Ohri that by interpreting the expression "raw cotton" as not including cotton linters, we would be giving rise to the anomalous situation of rendering a notification (or part of a notification) redundant. According to Shri Jijina, the answer would be that Government themselves had realised that the reference to linters was redundant and that was why they had deleted it, and the interpretation canvassed by him would be consistent with this action of Government.

63. The appellants have also relied upon the letter from the Deputy Director in the office of the Textile Commissioner in which it was stated that linters are not cotton or cotton waste and that they do not answer the definition of "cotton" under the Cotton Control Order, 1955.

As directed by us, the appellants furnished a copy of the appellants' letter in response to which the above reply was given. We found that the appellants had not been wholly frank in the manner of writing to the Textile Commissioner's office, as they did not indicate the purpose for which they required the clarification, namely, in connection with their current dispute with the Customs authorities. On the other hand, they stated, "we require this information for the purpose of export", implying that it was in connection with export contracts. The reply from the Textile Commissioner's Office also referred to the Cotton Control Order, 1955, which had its own purpose, and did not categorically state that cotton linters were not raw cotton as understood by the trade. Nevertheless, with all these qualifications, the reply from the Textile Commissioner's Office does give the impression that according to them cotton linters constituted a separate category from the general run of "cotton" or "raw cotton".

64. The appellants have also adduced evidence to show (vide para 45 above) that in Tuticorin port the argument that Cotton Linters were not "raw cotton" had been accepted by the Customs authorities, and the consequential refund of duty had been granted to them. No evidence has been placed before us by either side to show whether the present practice of the Customs authorities at different ports is to treat Cotton Linters as raw cotton or otherwise. But the evidence shows that at least at one port, namely Tuticorin, the appellants' contention was found acceptable by the Customs authorities.

65. The other references on which reliance has been placed, such as the Cotton Ginning and Pressing Factories Act, the Cotton Control Order, and the ISI Specification No. IS : 3517-1979 "Specification for cotton linters", do not help much in arriving at a decision on the present question, since they are all with reference to various specific contexts. It is not, therefore, necessary to comment on them in detail.

66. We now have to consider whether in the light of the evidence adduced before us and analysed above, cotton linters can be regarded as "raw cotton". Shri Ohri had relied on a number of judgments (vide paras 22 and 23 above), to support the Department's case. These citations are not of much help in deciding the present matter. The decision in the case of Hyderabad Asbestos Cement Products is based on the specific inclusion of a particular product in the Schedule of a taxing Act. It is no one's case that cotton linters have been so included. The judgment in the case of Indo-China Steam Navigation is also not applicable, because it cannot be said that holding cotton linters as not being "raw cotton", would lead to an anomaly. The decision in the case of Hindustan Aluminium also does not help, because neither of the two interpretations suggested to us affects the validity of the law.

67. On his side, Shri Sogani had submitted that it was well-established by judicial decisions that the burden to establish that a particular article came within the scope of a Tariff item was squarely on the Department. Shri Sogani stated that this principle had been adopted by the Tribunal in many of its orders. It is a fact that the Tribunal has been following this principle, which is based on various judgments-for example, the judgment of the Bombay High Court in the case of Sanghvi Non-Ferrous Metal Industries v. Union of India and Ors. (1979 E.L.T.543). Accordingly, there is substance in the argument of Shri Sogani that it is for the Department to establish that cotton linters are "raw cotton", and not for the appellants to establish that they are not raw cotton.

68. On a consideration of all the evidence before us, we find it to be established that cotton linters are cotton, arid they can also be considered as raw. The Department has not, however, been able to adduce evidence to show that they are "raw cotton", as normally understood by the trade or by the concerned regulatory authorities (the exception is as regards the undestanding of the Central Board of Revenue and the Ministry of Finance). As against this, the appellants have adduced a body of evidence to show that linters are clearly distinguishable from lint, and have quite different uses; and that "raw cotton" is not ordinarily understood as referring to "cotton linters". The evidence in their favour includes various text books and works of reference, the Indian Trade Classification, the Export Policy Statement and the letter from the Textile Commissioner's Office. Having regard to the body of evidence adduced by the appellants, and keeping in mind the accepted principle that it is for the Customs authorities to establish that the goods come within the scope of the relevant Tariff item, we are of the view that the Customs authorities have not succeeded in discharging this burden. We accordingly hold that the lower authorities were wrong in holding that the cotton linters covered by these two appeals were subject to export duty as "raw cotton" falling within Item 16 of the Export Tariff Schedule. We accordingly allow these two appeals and direct that consequential relief be granted to the appellants.


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