Holding

Nylon twine is to be classified under Item 18 as it is regarded as nylon yarn by persons conversant with the trade, and the revenue failed to discharge its burden of proof to the contrary.

Summary

Garware Nylon Ltd. manufactured nylon yarn and nylon twine. Until 1977 the twine was cleared under Item 18 of the Central Excise and Salt Act, 1944, which allowed a partial exemption for fishing‑net use. After the introduction of Item 68 in 1977, the revenue re‑classified the twine under Item 68 and demanded duty, which the assessee paid under protest and later sought a refund. The High Court held that, based on trade evidence, nylon twine is treated as a kind of nylon yarn and therefore falls within Item 18, directing the revenue to refund the duty. On appeal, the Supreme Court affirmed this view, emphasizing that the burden of proof lies on the taxing authority to show a different classification and that the revenue failed to produce any such evidence. Consequently, the appeals by the Union of India were dismissed.

Issues considered

Whether nylon twine is covered by Item 18 (nylon yarn) of the First Schedule to the Central Excise and Salt Act, 1944, or should be classified under Item 68.
The burden of proof in tariff classification disputes – whether it rests on the revenue authority.

Legislation cited

Central Excise and Salt Act, 1944

Subjects

central excisetariff classificationnylon twinenylon yarnburden of proofItem 18Item 68trade usagestatutory interpretation

Judgment

UNION OF INDIA AND ORS. A
v.
GARWARE NYLONS LTD. ETC.

SEPTEMBER 9, 1996

(S.P. BHARUCHA AND K.S. PARIPOORNAN, JJ.) B

Central Excise and Salt Act 1944, First Schedule, Item 18 and
68-Whether 'Nylon Twine' could be considered as 'Nylon Yam' under Item
18-Held, evidence led showed nylon twine treated as nylon yam by the
people conversant with the trade, hence classifiable under Item 18. c
The respondent assessee manufacture Nylon Yarn and Nylon Twine
and were allowed to clear Nylon Twine under Item 18 of the first schedule
to the Central Excises and Salt Act, 1944 ('Act') upto 1977. Since the
assessee contended that the Nylon Twine manufactured by them was used
for the purpose of making fishing nets, they were permitted to avail a D
partial exemption from payment of duty. With the introduction in 1977 of
Item 68 to the schedule to the Act, the Revenue construed nylon twine as
· being different from nylon yarn and classified it under Item 68. The
assessee paid the duty so assessed under protest.
E
The application by the assessee for refund of the excise duty was
' rejected by the Assistant Collector and its appeal was also rejected by the
Appellate Collector. After the Central Government dismissed its revision
petition, the assessee approached the High Court of Mumbai which upheld
its contention and directed the Revenue to refund to the assessee the excess
amount collected from them as duty on the basis that nylon twine fell F
under Item 68 of the first schedule to the Act.

Before this Court, the Revenue contended that nylon twine and nylon
yarn were different commodities. The assessee contended that nylon twine
was considered a kind of nylon yarn by traders and persons dealing with G
the subject ml!tter.

Dismissing the appeal, this court

Held : 1. The evidence. led in this case conclusively showed that nylon
twine manufactured by the assessees has been treated as a kind of nylon H
629
630 SUPREME COURT REPORTS (1996] SUPP. 5 S.C.R.

A yarn by the people conversant with the trade. It was commonly considered
as nylon yarn. Hence, it was to be classified under Item 18 oft.he Act. [639·B]

2. The burden of proof was on the taxing authorities to show that the
particular case or item in question, is taxable in the manner claimed by
them. Unfortunately, no such attempt was made. The Revenue failed to
B establish the contrary.[ 638-F-H; 639-B] "

· Indian Cable Company Ltd., Calcutta v. Collector of Central Excise,
Calcutta and Others., [1994) 6 SCC 610; Collector of Central Excise, Chan-
digarh v. Steel Strips Ltd., Sangrur, [1995) 4 SCC 241 & Dunlop India Ltd.
C v. Union of India, AIR (1977) SC 597, referred to.

'Principles of Statutory Interpretation' (Sixth Edition • 1996) by Justice
G.P. Singh, referred to •
. I

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 715 of
D 1981 Etc.
•,

· From the Judgment and Order dated 9.4.80 of the Bombay High '
Court in S.C.A. No. 2974 of 1978.

E P.A. Chaudhary, A. Subba Rao, V.K. Verma, Ms .. Sushma Suri and
P. Parmeshwaran for the Appellants.
~· r
,
Dushyaitt Dave, R.N. Karanjawala, Ms. Ruby Ahuja, Sandeep Mittal,
Ms. Manik Karanjawala, F.L. Benarwalla, J.P. Pathak, Ms. Rohini Dan-
dekar, A.C. l\Iahimkar and Ms. Amrita Mitra for JBD & Co. for the
F Respondents.J
I '
The Judgment of the Court was delivered by

PARIPOORNAN, J. Special leave granted in S.L.P. (C) No. 11008 of
1988.
G
2. The above three appeals involve a common question of law,
namely, whether "Nylon Twine" can be considered as "Nylon Yarn" so as
to be covered by Item 18 of the First Schedule to the Central Excises and
Salt Act, :;_944 {hereinafter referred to as "the Act") as it stood prior to the
H Amendment of., 1977.
U.O.l.1'. GAR WARE NYLONELTD. [PARIPOORNAN,J.] 631

"18 RAYON AND SYNTHETIC FIBRES AND YARN A
Tariff
Description of goods Rate of duty Basic
Item
18. RA YON AND SYNTHETIC FIBRES
AND YARN INCLUDING TEXTURED
YARN, IN OR IN RELATION TO THE
B
MANUFACTURE OF WHICH ANY
PROCESS IS ORDINARILY CARRIED
ON WITH THE AID OF POWER :
(i) Fibres and Yarn other than Textured Rs. 85.00 per kg.
Yarn. The duty for the c
(ii) Textured Yarn produced out of Base time being
Yarn leviable on the
base yarn, if not
already paid plus
Rs. 20 per kg. D
(iii) Other Textured Yam Rs. 105.00 per kg.

Explanation-I "Fibres and Yarn, other than Textured yarn", shall
be deemed to include -

(i) man-made fibres;
E

(ii) man-made metallic yarn;

(iii) spun (discontinuous yarn containing not less than ninety
per cent by weight of man-made fibres calculated on F
the total fibre content; and

(iv) man-made filament (continuous) yarn that has not been
processed to introduce crimps, coils, loops or curls
along the length of the filaments, but does not include G
bulked yarn and stretch yarn.

Explanation-II "Taxtured Yarn means yarn that has been
processed to introduce crimps, coils, loops or curls along the
length of the filaments and shall include bulked· yarn and
stretch yarn. H
r
•·
. !
632 SUPREME COURT REPORTS [1996) SUPP. 5 S.C.R.

A Explanation-III "Base Yarn" means yarn ~ailing under sub-
item (i) of the this Item from which the Textured Yarn has
,, been produced.

Explanation-IV - This item does not include mineral fibres
and yarn.
B
3. It will be useful to note that from 1st March 1977 a new item i.e.
Item 68 was introduced to the first schedule tc the Act which is to the
following effect.

Tariff Rate of duty
c Item ''
Description of goods
Basic
68. ALL OTHER GOODS, NOT 1% Adv.
ELSEWHERE SPECIFIED,
MANUFACTURED IN A FACTORY
BUT EXCLUDING -
D (A) alcohol all sorts including alcoholic liquors
'
for human consumption;

Item 18 was also amended in the following manner :
E
"II. Man-made filament yarns-

(i) Non-cellulosic - ,,
(a) other than textured
F
(b) textured

Explanation : "Textured Yarn" means yarn that has been
processed to introduce crimps, coils, loops or curls along the
length of the filaments and shall include bulked yarn and
G stretch yarn. '

(ii) Cellulosic;
' \
(iii) Metallized."

H 4. We heard Council.
.
1'
U.0.1. v. GARWARENYLONE LTD. [PARIPOORNAN,J.J 633

5. In this group, the main appeal is Civil Appeal No. 715/18. It is an A
appeal preferred by the Union of India (Revenue) against the judgment
and order of the High Court of Bombay dated 9.4.1980 rendered in
Special Civil Application No. 2974/78. In the other two cases, the judgment
in special civil application No. 2974/78 was followed. The judgment in the
said special civil apQlication is reported in 1980 (6) E.L.T. 249 (Born.). B

6. The respondents-assessees manufacture "Nylon Yarn" and Nylon
Twine". They are doing so eversince 1962. Under first schedule, Item 18 of
the Act excise duty is payable in respect of "Nylon Yarn" as specified
therein. The notification issued under Rule 8 of the Excise Rules provided
that "Nylon Yarn", which is meant for use in the manufacture of fishing C
nets and parachute cords is exempt from the payment of so much of excise
duty leviable under Item 18 as is in excess of Rs. 4 per kg. The assessees
contended that "Nylon Twine" manufactured by them is used for the
purpose of making fishing nets. Prior to 1975 they were allowed to clear
Nylon twine manufactured by them on payment of excise duty as specified D
under the above exemption n_otification. Thereafter, when the new item,
viz. Item 68 (residuary entry) was introduced in the Act, it was contended
by the excise authority that Nylon twine manufactured by the assessees was
not covered by item 18. According to the Revenue Nylon twine and Nylon
yarn are two different items and Item 18 takes within its fold Nylon yarn
only and not Nylon twine. The authorities claimed excise duty on "Nylon E
twine" under Item 68. The assessee paid such duty under protest. There-
after, the application filed by the assessees for refund before the Assistant
Collector failed. He passed an order to that effect on 28.5.1976. The appeal
filed was rejected by Appellate Collector on 28.9.1976. Similarly the
Central Government rejected the revision by order dated 31.10.1979. It is F
thereafter the assessees approached the High Court of Bombay for refund
of the amount paid under protest. A Division Bench of the High Court
Heard and disposed of the petition by judgment and order dated 9.4.1980
Suj~ta Manohar, J. delivered the leading judgment and Masodkar, J.,
though for different reasoning, agreed with, the conclusion of Sujata
Manohar, J. G

7. Sujata Manohar, J., after referring to the following material- viz. -
Encyclopedia Britennica, Vol. X (abridged version), the India Standards
Institution Standard bearing No. AIS 332 of 1967 wherein the expressions
"Twine and Yarn" were dealt with, the Tndian Standards Institution Stand- H
634 SUPREME COURT REPORTS [1996] SUPP. 5 S.C.R.

A ard_ bearing No. IS 1402-676 relating to "netting for fishing", the Manual
called "Netting Materials for Fishing Gear" the manual Published by the
Food and Agriculture Organisation of the United Nations, the orders
received by the assessees from the Director of Fisheries, Madras, two
affidavits, -'one from the Managing Director of Maharashtra Rajya
Machimar' Sehkari Sangh Limited and another from a Partner of
B
Maharashtra Fishing Material Company, concluded thus, in paragraph 14
of the judgment :

"14. There is, however, sufficient material on record which goes to
show _that nylon twine manufactured by the petitioners has been
c treated as a kind of nylon yam by the people in the trade. It is
commonly considered as yarn. Hence it can be classified under
Item 18. The respondents have failed to establish that nylon twin~
must be taxed under Item 68, as it is not covered by Item 18 of
the First Schedule. The respondents are the taxing authorities, and
they must show that the time in question is taxable in the manner
D claimed by them ......... the burden is on the taxing authorities to
show that the item in question is taxable in the manner claimed by
them"

(Emphasis supplied)
E
The learned Judge, therefore, directed the Revenue to refund to the
assessees ,the excess amount collected from them as Central Excise Duty
on the basis that "Nylon twine" falls under Item 68 of the First Schedule to
the Act.

F 8. Sri P.A. Chaudhary, Senior Advocate, appearing for the Union of
India - appellant, contended that Nylon Twine is different from Nylon
Yam, that Item 18 of the Act would cover only "Nylon Yam" and not Nylon
Twine; that a mere look of Nylon Twine will go to show that it is different
from Nylon' Yarn; that in commercial parlance different words are used for ,_
G Nylon Twine and Nylon Yam. and the said goods have different user and
different physical characteristics. He stressed that Nylon Twine - the
commodity involved in the instant case is not known as "Nylon Yarn" and
so, the same is outside the purview of Item 18 the Act. Certain decisions
of general application were also cited. Counsel for the respondents -
assessees contended that the Nylon Twine is nothing but Nylon Yarn, other
H than textured yarn and referred to the Encyclopeadia Britennica, Vol. X
U.0.l.v.GARWARENYLONEL'ID.[PARIPOORNAN,J.] 635

(abridged version), and the literature issued by the Indian Standards A
Institution and others, the trade inquiries and the affidavits filed by persons
in the particular trade, would conclusively show that Nylon Twine is
considered as a kirrd of Nylon Yam by the traders and persons dealing with
the subject matter and the High Court had abundant material to substan-
tiate the above proposition.
B
9. We do .not think it is necessary, especially in this batch of cases,
to refer in detail to the decisions cited by the Revenue or the text~books
and the literature of the Indian Standards Institution and the Manual
published by the Food and Agriculture Organisation, United Nations, as
to what is meant by "Twine'', "yarn'', "netting twine" etc. referred by the High C
Court. In this case, clinching evidence is afforded to demonstrate that trade
and industry which deals with the goods, consider "Nylon Twine" as a kind
or "Nylon Yarn".

10. There' are innumerable decisions of this Court which have laid
down the test or the principles to be borne in mind in construing the Items D
or Entries in Fiscal Statutes. In a recent decision. in Indian Cable Company
Ltd., Calcutta v. Collector of Central Excise, Calcutta and Others, [1994] 6
SCC 610, at page 615 a three-member Bench stated the law th1,1s :

"........ in construing the relevant item or entry, in fiscal statutes, if
it is one of every day use, the authority concerned must normally, E
construe it, as to how it is understood in common parlance or in
the commercial world or trade circles. It must be given its popular
meaning. The meaning given in the dictionary must not prevail.
. Nor should the entry be understood in any technical or botanical
or scientific sense. In the case of technical words, it may call for
a different approach. The approach to be made in such cases has F
been stated by Lord Esher in Unwin V. Hanson thus:

"If the Act is directed to dealing with matters affecting
everybody generally, the words used have the meaning at~
tached to them in the common and ordinary use of language.
If the Act is one passed with reference to a particular trade, G
business, or transaction, and words are used which everybody
conversant with that trade, business or transaction knows and
understands to have a particular meaning in it item the words
are to be construed as having that particular meaning, though
it may differ from the common or ordinary meaning of the H
636 SUPREME COURT REPORTS [1996] SUPP.5S.C.R.

A words."

We would only add that there should be mate1ial to enter appropriate
fi11di11g in the case. The 111ate1ial may be either oral or docu111enta1y
evidence."

B (Emphasis supplied

11. in a subsequent decision in Collector of Central Excise, Chan-
digadi v. Steel Strips Ltd., Sangntr, [1995] 4 SCC 241, at pages 243-244,
another three-member Bench stated the law thus :

c "......... We find no evidence upon the record in regard to what
happens to hot-rolled steel strips before cold-rolled steel s(lips are
produced."

xxxx xxx xxx

D It cannot be sufficiently emphasised that when it is the case of the
Excise authorities that an article is the result of a process of
manufacture and it is commercially distinct a11d known as such, it
is for the Excise awh01ities to lay evidence in this behalf before the
first adjudicating auth01ity regardless of the fact that he is an officer
of ihe Excise Depanment. There should, ordinarily, be no difficulty
E in establishing that the article is the result of a process of manufac-
ture; in the event of difficulty, it would be open to the Excise
authorities to seek a direction requiring the assessee to set out in
writing what it does to obtain the article. Too often, as our
experience in this Court and in the High Court, before the Tribunal
was established, shows, lack of evidence has led to the failure of
F
the case of Excise authorities and, consequently, to the loss of
revenue to the State.

Failure to lay the requisite evidence cannot be made up by .
reference to autholitative publications unless the Excise authorities
G inf01111 the assessee that they P,fOpose to rely upon the same before
the adjudicating authority.... Technical evide11ce and autholitative
publications must, there/ore, be placed in the first instance before the
adjudicating auth01ity and the Tribunal. They have the requisite
technical expertise to evaluate the same."

H (Emphasis supplied)
U.0.1. v. GARWARENYLONE LTD. [PARIPOORNAN,J.] 637

12.. The law on the point as laid down by this Court (in various A
decisions) has been summarised in the book "Principles of Statutory Inter-
pretation" (Sixth Edition - 1996) by Justice G.P. Singh, at pages 67, 70, 72
and 73 thus :

"...... So in construing entries of goods in Excise, Customs or Sales
Tax Act resort should normally be had not to the scientific or B
technical meaning but to their popular meaning viz. the meaning
attached to the expressions by those dealing in them. ........ The
popular meaning in the context of a Sales Tax Act is that meaning
which is popular in commercial circles for the Act essentially, in
its working, is concerned with dealers who are commercial men." c
xxxx xxx xxx

"The justification of the rule that the words are to be understood
in their natural, ordinary of popular sense is well expressed by
JUSTICE FRANKFURTER : "After all legislation when not ex- . D
pressed in technical terms is addressed to common run of men
and is therefore to be understood according to sense uf the thing,
as lhe ordinary man has a right lo rely on ordinary words ad-
dressed." In determining, therefore, whether a particular import is
included within the ordinary meaning of a given word, one may E
have regard to the answer which everyone c~nversant with the
word and the subjPct-matter of statute and to whom the legislation
is addressed, will give if the problem were put to him."

xxxx xxx xxx
F
"As a necessary consequence of the principle that words are
understood in their ordinary or natural meaning in relation to the
subject-matter, in legislation relating to a particular trade, business, ·
profession, art or science; words having a special meaning in that
context are understood in that sense. Such a special meaning is
called the technical meaning to distinguish it from the more com- G
mon meaning that the word may have ........... The Supreme Court
"has consistently taken the view that, in determining the meaning
of connotation of words and expressions describing an article in a
tariff Schedule, one principle which is fairly well settled is that
those words and expressions should be construed in the sense in H
638 SUPREME COURT REPORTS (1996) SUPP. 5 S.C.R.

A which they are understood in the trade by the dealer and the
consumer. The reason is that it is they who are concerned with it,
and, it is the sense in which they understand it which constitutes
the definitive index of legislative intention".

13. Stated briefly, we should understand, the expression occuring in
B Item 18 of the Act, in the sense, in which the persons who deal in such
goods understand it normally.

14. In this case, apart from the meaning given to the words "Yarn",
"Twine" etc., in the standard works referred to by the High Court, two items
C of evidence stand out prominent and elinch the issue. The first is, an order
received by the assessee from the Director of Fisheries, Madras which goes
to show that Nylon Twine is considered as a type of Nylon Yarn used for
making fishing nets. The second is, two affidavits ·filed by the assessees
before the authorities - one from the Managing Director of Maharashtra
D Rajya Machimar Sehkari Sangh Limited and another from a Partner of
. Maharashtra Fishing .Material Company, wherein it is stated that "Twine'
is a category of "Yarn", What is more - the assessees made available the .
above persons who have swam to the affidavits for cross-examination at the
.. time of the hearing of the applications, but the Revenue did not cross-
examine them. The trade inquiry received by the assessees and also the
E affidavits conclusively point out that Nylon Twine is considered as a kind
of "Nylon Yarn" in the particular trade by persons conversant with the
subject-matter. The revenue has not let in any material to the contra.
I

15. In our view, the conclusion reached by the High Court is fully in
F accord with the decisions of this Court and the same is justified in law. The
burden of proof is on the taxing authorities to show that the particular case
or item in question, is taxable in the. manner claimed by them. Mere
assertion in that regard is of no avail. It has been held by this Court that
there should be material to enter appropriate finding in that regard and ·
the material may be either oral or documentary. It is for the taxing
G authority to lay evidence in that behalf even before the first adjudicating
authority. Especially in the case as this, where the claim of the assessee is
borne out by the trade inquiries received by them and also the affidavits
filed by persons dealing with the subject matter, a heavy burden lay upon
the revenue to disprove the said materials by adducing proper evidence.·:
H Unfortunately, no such attempt was made. As stated, the evidence led in
U.O.L v. GARWARENYLONELID. [PARIPOORNAN,J.] 639

this case conclusively goes to show that Nylon Twine manufactured by the A
assessees has been treated as a kind of Nylon Yarn by the people conver-
sant with the trade. It is commonly considered as Nylon Yarn. Hence, it is
to be classified· under Item 18 of the Act. The Revenue has failed to
establish the contrary. We would do well to remember the guidelines laid
down by this Court in Dunlop India Ltd. v. Union of India, AIR (1977) SC B
597 - at page 607, in such a situation, wherein it was stated :

"....... When an article has, by all standards, a reasonable claim to
be classified under an enumerated item in the Tariff Schedule, it
will be against the very principle of classification to deny it the
pare.ntage and consign it to an orphanage of the residuary clause." C .
(Emphasis supplied)

16. We concur with the reasoning and conclusion of the High Court.
There is no substance in these appeals. The judgments appealed against in
this batch of appeals are affirmed. The appeals are dismissed with costs, D
including Counsel's fee of Rs. 5,000 in each case.

S.M. Appeals dismissed.