C.I.T..Mumbai vs M/S.Emptee Poly-Yarn Pvt.Ltd

M/s. Emptee Poly-Yarn Pvt. Ltd. ...Respondent(s)

With Civil Appeals Nos. 787 to 792 of 2010 (Arising out of S.L.P.(C) Nos.4186, 10269, 21390, 2102, 1490 and 1582 of 2009

O R D E R

Leave granted.

Heard learned counsel on both sides.

The short question which arises for determination

in this batch of Civil Appeals is: Whether twisting and

texturising of partially oriented yarn ('POY' for short)

amounts to 'manufacture' in terms of Section 80IA of the

Income Tax Act, 1961?

The lead matter in this batch of Civil Appeals is

C.I.T., Mumbai Vs. M/s. Emptee Poly-Yarn Pvt. Ltd. (Civil

Appeal arising out of S.L.P.(C) No.26482/2008), in which

the relevant Assessment Year is 1996-97.

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Repeatedly this Court has recommended to the

Department, be it under Excise Act, Customs Act or the

Income Tax Act, to examine the process applicable to the

product in question and not to go only by dictionary

meanings. This recommendation is not being followed over

the years. Even when the assessee gives an opinion on a

given process, the Department does not submit any counter

opinion wherever such counter opinion is possible. Prima

facie, however, in this case, we do no see possibility of

any counter opinion to the opinion given by the Mumbai

University, vide letter dated 10th July, 1999.

With the above preface, we are required to examine

the above question as to whether twisting and texturising

of POY amounts to 'manufacture'. At the outset, we wish

to clarify that our judgment should not be understood to

mean that per se twisting and texturising would constitute

'manufacture' in every case. In each case, one has to

examine the process undertaken by the assessee.

Having examined the process in the light of the

opinion given by the expert, which has not been

controverted, we find that POY is a semi-finished yarn not

capable of being put in warp or weft, it can only be used

for making a texturized yarn, which, in turn, can be used

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in the manufacture of fabric. In other words, POY cannot

be used directly to manufacture fabric. According to the

expert, crimps, bulkiness etc. are introduced by a

process, called as thermo mechanical process, into POY

which converts POY into a texturized yarn. If one

examines this thermo mechanical process in detail, it

becomes clear that texturising and twisting of yarn

constitutes 'manufacture' in the context of conversion of

POY into texturized yarn. At this stage, we may also

reproduce, hereinbelow, para 10 of our judgment in the

case of C.I.T. Vs. M/s. Oracle Software India Ltd.,

reported in 2010 (1) SCALE 425.

"The term "manufacture" implies a change, but, every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labour and manipulation. However, this test of manufacture needs to be seen in the context of the above process. If an operation/process renders a commodity or article fit for use for which it is otherwise not fit, the operation/process fall6 s within the meaning of the word "manufacture".

Applying the above test to the facts of this case,

it is clear that POY simplicitor is not fit for being used

in the manufacture of a fabric. It becomes usable only

after it undergoes the operation/process which is called

as thermo mechanical process which converts POY into ...4/-

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texturised yarn, which, in turn, is used for the

manufacture of fabric. One more point needs to be

mentioned. Under the Income Tax Act, as amended in 2009,

the test given by this Court in M/s. Oracle Software's

case (supra) has been recognised when the definition of

the word 'manufacture' is made explicit by Finance Act

No.2/2009 which states that 'manufacture' shall, inter

alia, mean a change in bringing into existence of a new

and distinct object or article or thing with a different

chemical composition or integral structure. Applying this

definition to the facts of the present case, it may be

mentioned that the above thermo mechanical process also

bring about a structural change in the yarn itself, which

is one of the important tests to be seen while judging

whether the process is manufacture or not. The structure,

the character, the use and the name of the product are

indicia to be taken into account while deciding the

question whether the process is a manufacture or not.

Before concluding, we may point out that the

learned counsel appearing for the Department cited before

us a judgment of a Division Bench of this Court in the

case of Commissioner of Central Excise, Mumbai-V vs.

Swastik Rayon Processors, reported in 2007 (209) E.L.T. ...5/-

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163 (S.C.), in which it has been held that twisting of

cellulosic filament yarn with a blended yarn comprising of

polyester and viscose will not amount to manufacture under

Section 2(F) of the Central Excise Act. In our view, the

said judgment has no application to the facts and

circumstances of this case. As stated above, POY is a

semi-finished product. It is a raw material/input. That

raw material or input gets converted into a texturised

yarn by reason of the thermo mechanical process. POY is

unfit for manufacture of fabric. POY, as stated above,

means partially oriented yarn whereas a cellulosic

filament yarn is a final product in the sense that it can

be used directly for manufacture of fabric. If this

definition is kept in mind, the judgment in the case of

Swastik Rayon Processors's case (supra) will not apply to

the facts of the present case.

We once again repeat the caution which we have

mentioned hereinabove. Our judgment in the present case

is to be confined to the facts of the present case. We

are not saying that texturising or twisting per se in

every matter amounts to manufacture. It is the thermo

mechanical process embedded in twisting and texturising

when applied to a partially oriented yarn which makes the ...6/-

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process a manufacture. In the circumstances, the judgment

in the Swastik Rayon Processors's case (supra) will not

apply.

Applying the above test to the facts of the present

case, we find no infirmity in the impugned judgments of

the High Court. Accordingly, the Civil Appeals filed by

the Department are dismissed with no order as to costs.

..................J. (S.H. KAPADIA)

..................J. (H.L. DATTU) New Delhi, January 20, 2010.