22nd January, 2001
F. No. 59/4/2000-CX.1
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
Some doubts have been raised as regard to the classification of processed tyre cord fabrics of high tenacity yarn under Heading 59.02 or 59.05 (now 59.06) and levy of additional excise duty in lieu of sales tax (AED) on these fabrics during the period from 16-3-1995 to 1-6-1998.
2. The matter has been examined by the Board. It is observed that the unprocessed tyre cord fabrics falling under 59.02 are dipped in latex solution and passed through heating chambers; these dipped fabrics are further coated and calendered with unvulcanised rubber compound. These processed tyre cord fabrics (dipped/calendered) are used in the manufacture of tyres falling under Chapter 40. Such processed tyre cord fabrics were for years being classified under Heading 59.02 and by virtue of notification existing from 1983 onwards.AED leviable on processed tyre cord fabrics falling under Heading 59.02 was fully exempt provided that appropriate AED has been paid on unprocessed tyre cord fabrics. The industry had never questioned the classification, but doubts were raised after the above said notification got rescinded w.e.f. 16-3-1995. AED became leviable on processed tyre cord fabrics which were being classified under 59.02 obtained after dipping and rubberising of unprocessed tyre cord fabrics from 16-3-1995 even if the later have discharged AED. A telex was issued on 30-4-1996 from F.No. 345/11/96-TRU to Commissioners clarifying the position after 1995 budget specifying the leviability of AED on processed tyre cord fabrics. It was only during the Budget 1998, considering various representations from industry that notification No. 11/98 dated 2-6-1998 was issued exempting processed tyre cord fabrics classifiable under Heading 59.02 from payment of AED if manufactured out of unprocessed tyre cord fabrics on which appropriate duty has been paid. Thus, AED was attracted on processed tyre cord fabrics for the period 16-3-1995 to 1-6-1998, in the absence of any exemption.
3. To escape duty liability doubts have been created by certain units claiming that these merit classification under Heading 59.05 (later 59.06) on the ground that it was only rubberised fabrics, and cited Board’s circular No. 10/87 dated 29-7-1987 to support this view point. It is pertinent to note that Board’s circular No. 10/87 dated 29-7-1987 has been issued in an entirely different context. The product under consideration in that circular was not a grey tyre cord fabrics of high tenacity yarn, which was dipped and rubberised, but it was man-made woven fabrics other than tyre cord fabrics. Various alternative classifications of such rubberised man-made fabrics were considered (59.02 was not one of them – because it was not grey tyre cord fabric which was being rubberised and whose classification was in dispute) and classification under 59.05 considered most appropriate.
4. The instruction issued under circular No. 320/36/97 dated 30-6-1997 [see 1997 (93) E.L.T. T34] was also examined. This instruction is with reference to the rubberised tyre cord warpsheets for cycle tyres. Unlike auto tyres, cycle tyres do not use high tenacity tyre cord fabrics. The warpsheets are generally of cotton and weftless. Therefore, cycle tyres warpsheets are treated distinctly from tyre cord fabrics used in auto tyres. While auto tyre cord fabrics are classifiable under Heading 59.02 cycle tyre warpsheets are classifiable under Heading 59.05.
5. The judgment of Tribunal in case of Vikrant Tyres Ltd., and Falcon Tyres Ltd., were also examined by the Board. In both the cases the issue before the Tribunal was whether the rubberised textile fabrics would be classifiable under Heading 40.05/06 or 59.05 (now 59.06). The assessees were claiming the classification under Chapter 40 whereas the Tribunal decided that these are rubberised textile fabrics falling under Heading 59.05. As the question was never put before Tribunal to examine the classification under Heading 59.02, the Board’s view to classify the processed tyre cord fabrics under Heading 59.02 remain unaltered.
6. Though, the Tribunal in some judgments in case of MRF Ltd and CEAT Ltd., has recently classified processed tyre cord fabrics under Heading 59.05, these have not been accepted and civil appeals filed in these cases have been admitted by the Supreme Court.
7. As mentioned above, Board has been consistently holding that the classification of dipped and rubberised tyre cord fabrics of high tenacity yarn falls under Heading 59.02 on which AED is leviable from 16-3-1995 to 1-6-1998. The exemption from AED which was available to such processed tyre cord fabrics under Heading 59.02 was withdrawn w.e.f. 16-3-1995 but later restored w.e.f. 2-6-1998 – specifically again taking these goods as falling under 59.02 only.
8. Field formations may be informed suitably so that there are no doubts left about the stand of Board/Govt. on the classification issue.
9. The receipt of this circular may please be acknowledged.