Calcutta High Court
M/S. Harsh Polyfabric Private Limited vs Union Of India And Ors on 22 January, 2025
Author: T.S. Sivagnanam
Bench: T.S Sivagnanam, Hiranmay Bhattacharyya
1
OD-9 & 10
IN THE HIGH COURT OF JUDICATURE AT CALCUTTA
CIVIL APPELLATE JURISDICTION
ORIGINAL SIDE
THE HON'BLE MR. JUSTICE T.S. SIVAGNANAM
AND
THE HON'BLE MR. JUSTICE HIRANMAY BHATTACHARYYA
APO/114/2024
M/S. HARSH POLYFABRIC PRIVATE LIMITED
VS
UNION OF INDIA AND ORS.
APO/115/2024
M/S. HARSH POLYFABRIC PRIVATE LIMITED
VS
UNION OF INDIA AND ORS.
Appearance :
Mr. J. P. Khaitan, Sr Adv.
Mr. Rahul Tangri, Adv.
Mr. Vasudev A., Adv. . ...for appellants.
Mr. Anirban Ray, Sr. Adv.,
Mr. T.M. Siddiqui, Sr. Adv.,
Mr. Tanoy Chakraborty, Adv.
Mr. Saptak Sanyal, Adv.
...for State.
Mr. B. P. Banerjee, Adv.
Mr. Tapan Bhanja, Adv. ...for CGST authority.
Mr. Sujit Mitra, Adv. ...for UoI.
BEFORE :
THE HON'BLE THE CHIEF JUSTICE T.S SIVAGNANAM
-A N D-
HON'BLE JUSTICE HIRANMAY BHATTACHARYYA
DATE : January 17, 2025.
HEARD ON : 17.01.2025 & 22.01.2025
DELIVERED ON : 22.01.2025
T.S. SIVAGNANAM, C.J. :
1. These two appeals are directed against a common judgment and order in WPO 588
of 2019 and WPO 235 of 2021. By the impugned order the learned Single Bench has
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substantially considered the factual matrix and recorded various findings which all
enured in favour of the appellant /assessee.
2. The appellant is aggrieved on account of the fact that the learned Single Bench
though recorded findings on merits in favour of the appellant/assesee, and was
satisfied that the order of the Appellate Authority was to be set aside and remanded
the matter for de novo consideration.
3. Aggrieved by such portion of the order the appellant/writ petitioners have
preferred this appeal.
4. It is a matter of record that the respondents have not preferred any appeal as
against these findings recorded by the learned Single Bench which are in favour of the
appellant, which we are required to see as to whether the case requires to be
remanded for reassessment/de novo consideration or not.
5. The appellant/assessee filed refund application under Section 54(3) of the West
Bengal Goods and Services Act, 2017 (the Act) of Income Tax Act, 1961 accumulated
due to inverted tax structure for two different periods which are not in dispute. The
adjudicating authority has noted the manufacturing process adopted by the assessee
and held that the classification of Non-Woven Fabric and PPSB Bed Sheets as
manufactured from the said Non-Woven Fabric is not correct and it shall file under
HSN in Chapter 39.
6. With this reasoning the application filed for refund arising due to inverted duty
structure was rejected.
7. Aggrieved by such order the assessee preferred an appeal under Section 107(1)
of the Act before the Joint Commissioner, West Bengal State Tax.
8. The first issue which was considered by the Appellate Authority is whether Non-
Woven Fabric which made from filament and how the said manmade filament are
made from polypropylene granules. We need not examine this issue in appeal as the
Appellate Authority agreed with the assessee’s submissions and finding was rendered
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in favour of the assessee holding that non-wovens, whether or not impregnated,
coated, covered or laminated of manmade filament, is rightly classifiable in Chapter 56
under HSN and 75603 and GST should be charged at 12% instead of 18%.
9. This finding has attained finality as the revenue has not challenged the same.
The second aspect was with regard to the classification of the PPSB Bed Sheets. The
assessee’s case was that PPSB Bed Sheets are produced in a finished state by
processing the Non-Woven Fabric which are manufactured by the assessee and that
the assessee does not consume PP Granules directly into the manufacturing of bed
sheets, instead Non-Woven Fabric manufactured from PP Granules is used in the
manufacture of PPSB Bed Sheets. The Non-Woven Fabric as manufactured by them is
then cut, shielded/stitched on four sides to give it different shape, size and quality of
bed sheets. Therefore, the assessee declared the said product should be classified in
Chapter 63 and HSN Code 63041390 and submitted the return charging 5% GST on
its sale value. The appellate authority did not accept the submission of the assessee
on the solitary ground that in the Customs and Central Excise Tariff Act articles made
up Chapter 56 to 62 do not cover in Chapter 63 and, therefore, the appellate authority
held that PPSB Bed Sheets should be considered in Chapter 5603 at par with Non-
Woven Fabric and to be taxed @12% instead of 5% as claimed by the assessee.
Accordingly, the order rejecting the refund application was modified to the extent
indicated above. However, the appellate authority did not issue any order for interest
which is statutorily payable.
10. Aggrieved by the same, the assessee preferred a writ petition before this Court
in WPO/588/2019. By order dated 10th January, 2023 the writ petition was dismissed
on the ground that the issues raised by the assessee in the writ petition cannot be
considered in a petition filed under Article 226 of the Constitution. Aggrieved by such
dismissal, the assessee preferred an intra-court appeal in APOT/49/2023 and the said
appeal was allowed by judgment dated 28th February, 2023 after noting that as
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against the order passed by the appellate authority, though the assessee has an
alternate remedy of filing an appeal before the Tribunal, the GST Tribunal having not
been constituted, they were remediless and, therefore, they have approached the
learned Writ Court challenging the said order. This Court considered the said
submissions and held that a slight departure is required to be made while applying
the normal principle which would be applied while considering a challenge to a
classification dispute, that too, in a writ petition since the assessee does not have
effective alternate remedy since the Tribunal has not been constituted. Therefore, the
writ petition was allowed to be maintainable and the order dismissing the writ petition
was set aside and the writ petition was restored to the file of the learned Writ Court to
be decided on merits and in accordance with law. Pursuant to such order and
direction, the writ petition has been heard and as observed earlier, all findings on fact
and law are wholly in favour of the appellant/assessee except that portion of the order
by which the matter stood remanded for de novo consideration by the appellate
authority. After recording the said submissions made on either side and taking note of
the various decisions cited at the bar, the learned Single Bench held that the appellate
authority inadequately considered various factual elements in the decision making
process and that the onus of proving a product’s classification under a specific tariff
heading lies with the revenue, which was demonstrated that such classification
allowance with the understanding of consumers or common parlance. In this regard,
learned Single Bench took note of the decision of the Hon’ble Supreme Court in Puma
Ayurvedic Herbal (P) Ltd. v. CCE, Nagpur, 2006 (196) ELT 3 (SC). Further, the Court
held that the appellate authority failed to discharge the burden of proving that PPSB
Bed Sheets, manufactured by the assessee, fall under tariff heading 5603 rather than
6304. For the proposition that the burden of proof lies on the taxing authority, the
learned Single Bench took note of the decision of the Hon’ble Supreme Court in Union
of India v. Garware Nylons Ltd., 1996 (87) ELT 12 (SC). Furthermore, the learned Single
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Bench held that mere assertion as made by the appellate authority will not hold any
weight, and that there must be tangible evidence to support the appropriate finding
which may be presented either orally or through documentation and with the
responsibility of the taxing authority to furnish such evidence, even before the initial
adjudicating authority. That apart, the learned Single Bench held that the respondent
authority neglected to recognise that PPSB Bed Sheets essentially represents a process
to manifestation of the reference Non-Woven Fabric. These fabrics undergo cutting
into desired configuration followed by subsequent finishing process thereby
transforming them into made up textile articles. Therefore, learned Single Bench held
that the failure to acknowledge this crucial aspect underscores the inadequacy of the
respondent’s determination. Thus, the Court concluded that the respondent’s decision
lacks sufficient evidentiary support and proper consideration of the pertinent factual
and legal principle and accordingly, quashed the impugned order. Having held so, the
learned Single Bench opined that the matter has to be remanded back to the appellate
authority for a de novo consideration.
11. Before we examine the said aspect, we shall first consider as to whether the
reasoning given by the appellate authority in support of its conclusion that PPSB Bed
Sheets have to be taxed at 12% is justified. As pointed out above, the assessee’s
submission was not accepted because under the Customs and Central Excise Tariff
Act that articles `made up’ Chapter 56 to 62 do not cover in Chapter 63. In this
regard, we have to refer to Chapter 63 of the Tariff Act. Chapter 63 deals with other
`made up’ textile articles; sets; worn clothing and worn textile articles; rags. In the
notes, the following has been mentioned :
“1. Sub-Chapter 1 applies only to made up articles, of any textile fabric.
2. Sub-Chapter 1 does not cover :
(a) goods of Chapters 56 to 62; or
(b) worn clothing or other worn articles of heading 6309.”
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12. In terms of paragraph 1 of the notes, sub-Chapter 1 applies to only a `made up’
articles to any textile fabrics. In terms of paragraph 2 of the notes, sub-Chapter 1 does
not cover two categories which are mentioned in clauses (a) and (b) of which clause (a)
would be relevant for the case on hand, which reads as “goods of Chapter 56 to 62;
or”. Thus, it is seen that the appellate authority has misread the second note in
Chapter 63 and has used the word “that articles made of Chapter 56 to 62”. By wrong
substitution of the word “that” which is not contained in the chapter note, the
appellate authority has arrived at a finding that the bed sheets in question have to be
taxed at 12%. The authority failed to note that the word “made is not found in sub-
para 2 of the notes under Chapter 63”. It is settled legal principle that the authorities
nor the court can add words or substitute words in a statute and it has to be read as
such and the plain meaning should be gathered from the statute. This error has led to
a wrong finding that the bed sheets in question have to be taxed at 12% instead of 5%.
That apart, if we take note of Chapter heading 6304, which deals with other furnishing
articles excluding those of heading 9304 there was a separate heading bed sheets.
Under the said sub-heading in sub-Chapter 63041930 bed sheets and bed covers of
handmade fabrics have been specifically mentioned. This also will enure in favour of
the appellant/revenue.
13. Another error committed by the appellate authority is to misread paragraph 2(a)
of the Notes in Chapter 56. Notes in Chapter 63 by substituting the words “goods of
Chapter 56 to 62;” by that “that articles made of Chapter 56 to 62”. This error led to
an inherent wrong decision in holding that the PPSB Bed Sheets is to be considered in
Chapter 5603 and to be taxed at 12% instead of 5% as claimed by the appellant.
14. One more issue which we may need to point out that the classification issue
has been raised by the department for the first time in a refund application was filed
by the appellant. The authority considering the refund application is not expected to
make a roving enquiry into the classification of the product which should be done at
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the assessment stage and not at the stage of refund. Be that as it may, this issue did
not arise for consideration for the first time but was raised by the department namely,
the Sales Tax Officer, Bureau of Investigation, Government of West Bengal after they
conducted a visit to the factory of the appellant on 14th February, 2019. Show-cause
notice was issued contending that there is a difference between the bed sheets and
PPSB Bed Sheets and therefore, the bed sheets made from polypropylene would not be
eligible for exemption from payment of tax in terms of Serial 3B of Schedule A to the
West Bengal Value Added Tax Act, 2003. Show-cause notice was adjudicated and the
department did not accept the stand of the appellant. The appellant challenged the
order before the West Bengal Taxation Tribunal in RA 1310 of 2017 and the learned
Tribunal by its order dated 30th November, 2018 held that the PPSB Bed Sheets
manufactured and sold by the appellant were used only as bed sheets and were
eligible for exemption from payment of tax under Serial 3B of Schedule A of the VAT
Act. The same classification issue also arose in a proceeding initiated by the Central
Excise Authorities on the ground that the classification of the final product by the
appellant was incorrect and the availment benefit of exemption notification was wrong.
Show-cause notices were adjudicated and an order-in-original dated 22 nd December,
2015 was passed by the Commissioner of Central Excise, Kolkata-II holding that the
goods manufactured by the appellant are classifiable under Chapter 39 of the Central
Excise Tariff Act and confirmed the entire demand along with appropriate interest and
mandatory penalty equal to the amount confirmed as proposed in the show-cause
notice. This order of adjudication was challenged by the petitioner by filing a writ
petition before this Court in WP 378 of 2016 and by order dated 4th May, 2016 the
order-in-original was set aside subject to the condition that the appellant makes a pre-
deposit of Rs.5 Lacs to the concerned Commissioner within a timeframe and thereafter
the Commissioner to afford an opportunity of hearing to the appellant. The order also
further stated that in the event the Commissioner passes a different order and accepts
8
the appellant’s claim for the product to be regarded under Chapter 56 of the Schedule,
the pre-deposit will be refunded without interest. Pursuant thereto, the matter went
back to the adjudicating authority for consideration. The point which fell for
consideration before the Commissioner was whether the product manufactured
appellant is classifiable as the appellant is Non-Woven Fabric classifiable under
Central Tariff Sub-heading 5603, being exempt (as claimed by the appellant) or under
Chapter 39 of the Central Excise Tariff, as articles of plastic as alleged in the show-
cause notice. The allegation against the appellant was that they misclassified the
product under Central Excise Tariff Sub-heading 5603 to avail the benefit of the
exemption notification dated 1st March, 2004. The Commissioner on de novo
adjudication passed an order on 27th July, 2016 accepting the case of the appellant
and dropping the proposal in the show-cause notice. In the said order the adjudicating
authority has referred to a chemical test report done by the Ministry of Textiles,
Government of India, Textile Testing and Technical Services, Kolkata and in the said
test report it was mentioned that the sample shows presence of Polypropylene fibre
though the sample is made of 100% polypropylene. Another test report of the
Chemical Laboratory, Customs House, Kolkata was also taken note of wherein the
sample is in the form of white non-woven sheet composed of Polypropylene and so in
support of classification under Chapter 39. That apart, the Joint Director, Chemical
Laboratory, Kolkata, Customs House, clarified the issue and stated that the sample
was found to be non-woven sheet composed of fibre of Polypropylene and, therefore,
the adjudicating authority held that there is no doubt in presence of fibre in the
product. It was further held that it has been established that the sample is composed
of fibre Polypropylene. The allegation against the appellant in the show-cause notice
issued by the Central Customs authorities is that Chapter 3(b) of Chapter 56 of the
Central Excise Tariff Act, 1985 states that non-woven which are completely embedded
in plastic or label are entirely clubbed in such material are excluded from Chapter 56
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and Second Note (h) of Section XI of the First Schedule to the Central Excise Tariff Act,
which also states that this section does not cover “Non-wovens, whether or not
impregnated, coated, covered or laminated” with plastics or articles thereof of Chapter
39. The adjudicating authority noted that the said allegation was raised only on the
basis that the impugned product is manufactured completely from 100%
polypropylene. The adjudicating authority also took note of the definition of the term
“Non-woven” as defined in the handbook on glossary on textile terms issued by the
Bureau of Indian Standards under SP: 45-1988 and after taking note of the said
definition, the adjudicating authority held that the product is Non-woven since it is
composed of polypropylene fibres and merits classification under Chapter heading
no.5603 of the Central Excise Tariff Act, 1985. The adjudicating authority took note of
Rule 3(a) of the General Rule for interpretation of the First Schedule of the Central
Excise Tariff Act, which states that heading providing most specific description is
preferred to the headings of more general description and since non-wovens are
specifically covered under Chapter 56, the goods should fall under Chapter 56 of the
Central Excise Tariff Act. Further, it was noted that Chapter heading 5603 contained
sub-heading which specifically covers non-woven fabric which made from filaments.
Apart from that, in Chapter 2 of Chapter 39 restricts the goods of Section (XI), that is,
textiles and textile materials to be a member of Chapter 39. Thus, the adjudicating
authority held that when the presence of polypropylene fibre is proved in the goods,
the same cannot import classification under Chapter 39 only because the goods is
prepared from or composed of 100% polypropylene, that is, plastics. A reference was
also made to the circular issued by the Central Board in CBES Circular F.
No.10/90/CX(1) dated 2nd April, 1990. After referring to the said Circular, the
adjudicating authority came to the conclusion that it is established that only because
of 100% plastic is used to prepare the goods, the same should not be classified under
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Chapter 39 since the goods is proved to be Non-Woven and the said goods is
specifically covered under Chapter 56.
15. That apart in the adjudication order the authority noted that the appellant was
granted lease of land by the West Bengal Industrial Development Corporation Limited
upon the stipulation to commence operation of PPSP Bond, non woven fabric
manufacturing unit within the specified period. Further the appellant also qualified for
10% capital subsidy and 5% interest re-imbursement under technical upgrading fund
scheme of the Government of India in respect of said factory for manufacture of the
said fabric.
16. The factory was duly registered as a technical textile unit and was granted such
capital subsidy and interest re-imbursement. That apart the appellant’s main features
as one of the technical textile manufacturing units in the country in the list
maintained by the Ministry of Textiles of the Government of India. This all will go to
establish that the appellant is a manufacturer of textile products. The order passed by
the Commissioner of Central Excise dated 2.8.2016 had attained finality as there was
no challenge made by the department to the said findings.
17. Thus, the identical issue where the appellant/assessee arose during the VAT
regime as well as under the provisions of Central Excise Act and the findings were in
favour of the appellant and the same attained finality.
18. Now at this distance of time, after the advent of GST regime the
respondent/department was precluded from raising the identical issue that too while
processing of refund claim application.
19. Thus, the attempt of the respondent department is to resurrect a settled issue
which is impermissible under the law.
20. Thus, taking note of the above as held by the Hon’ble Supreme Court in Hari
Bishnu Vs. Syed Ahmed Ishaque And Ors. ; (1954) 2 SCC 881, a writ of Certiorari could
be issued to correct an error of law; it is essential that it should be something more
11
than a mere error; it must be one which must be manifest on the face of record. It was
also held that what is an error apparent on the face of the record cannot be defined
precisely and exhaustively and there being an element of indefiniteness inherent in its
very nature, it must be left to be determined judicially on the facts of each case.
21. In Apparel Export Promotion Council Vs. A.K. Chopra; (1999) 1 Supreme Court
Cases 759 the Hon’ble Supreme Court while explaining the concept of judicial review
held that the court must remained conscious of the fact that if the decision has been
arrived at by the administrative authority after following the principles established by
law and the rules of natural justice and the individual has received a fair treatment to
meet the case against him, the Court cannot substitute its judgement for that of the
administrative authority on a matter which falls squarely within the sphere of
jurisdiction of the authority. As has been noted above, the authority in the instant
case ignored the principles established by law apart from the fact by misleading the
provision and also in not taking note of the vital issue that the self-same issue had
attained finality in a proceeding which was commenced under the provision of the
West Bengal Value Added Tax Act as well as for a proceeding which has been
commenced under the provisions of the Central Excise Tariff Act.
22. While on this issue we also take note of the decision of the Hon’ble Supreme
Court in the case of United Offset process Pvt. Ltd. Vs. Assistant Commissioner of
Customs, Bombay [1989 Supp(1) SCC 131], wherein the Hon’ble Supreme Court
explained the theory of classification on the basis of trade parlance in the following
terms:-
“If there is no meaning attributed to the expressions used in the
particular enacted statute then the items in the customs entries should
be judged and analysed on the basis of how these expressions are used
in the trade or industry or in the market or, in other words, how these
are dealt with by the people who deal in them, provided that there is a
12market for these types of goods. This principle is well known as
classification on the basis of trade parlance. This is an accepted form of
construction. It is a well known principle that if the definition of a
particular expression is not given, it must be understood in its popular
or common sense viz. in the sense how that expression is used every day
by those who use or deal with those goods”.
23. Similar view was expressed by the Hon’ble Supreme Court in CCE Vs.Shree
Baidyanath Ayurved Bhawan Ltd. [2009 (237) ELT 225 (SC)], wherein the Hon’ble
Supreme Court approved the common parlance test which continues to be one of the
determinative tests for classification on a product. It was held that what is important
to be seen is how the customer looks at the product and what is his perception in
respect of such product. The user’s understanding is a strong factory in determination
of classification of products. Furthermore, it is seen that in all the sale invoices where
the goods were sold by the appellant to various parties it is sold as bed sheets and
who in turn sell the same to hospital, railways etc. The certificates obtained from
Government Hospitals and Private Hospitals were also placed before the authority.
24. That apart the revenue never disputed the classification of PPSB Bed Sheets,
manufactured by the appellant under HSN 6304. In Collector of Central Excise, Meerut
Vs. Kapri International Pvt. Ltd. reported at 2002 (142) ELT 10 (SC) the Hon’ble
Supreme Court held that cutting the cotton fabrics from running length into small
pieces brings into existence new commodities like bed-sheets, bed spreads, table
cloths etc. which had a definite commercial identity in the market. That apart the
cardinal rule is that the burden of proof is on the revenue when they raised dispute
regarding the classification of a product. For this proposition reference is made to the
decision of the Hon’ble Supreme Court in Union of India Vs. Garware Nylons Ltd., 1996
(87) ELT 12(SC). Unfortunately, in the case on hand, the revenue appears to have
13
shifted the burden on the petitioner to prove the negative which is not sustainable in
law.
25. Thus for all the above reasons, we are of the clear view that when the learned
Single Bench found the legal position is wholly in favour of the appellant, the necessity
to remand the matter for fresh consideration would not arise.
26. For the above reason, the appeal is allowed. The order passed by the learned
Single Bench to the extent remanding the matter to the appellate authority to reassess
the facts is set aside and, consequently, the writ petition is allowed, as prayed for, and
the order passed by the appellate authority, namely the Senior Joint Commissioner,
West Bengal State Tax, Calcutta dated 31.5.2019 are set aside and the refund
application stand allowed and the respondents are directed to effect the refund to the
appellant within a period of 12 weeks from the date of the receipt of server copy with
statutory interest under Section 56 of the Act.
27. Order passed by the Senior Joint Commissioner to the extent only with regard
to findings regarding classification of the PPSP bed sheets, since the other portion of
the order has gone in favour of the appellant, the same remains intact. Equally all the
findings rendered by the learned Single Bench which enure in favour of the appellant
stands intact and the order including that part of the order remanding the matter to
the appellate authority for reassessment alone is set aside and the writ petition is
allowed, as prayed for.
(T.S. SIVAGNANAM, CJ.)
I agree.
(HIRANMAY BHATTACHARYYA, J.)
pkd/GH/SN/S.Das
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