Vs. M/S. Emptee Poly-Yarn Pvt.Ltd.  INSC 59 (20 January 2010)
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.786 OF 2010
(Arising out of S.L.P.(C) No.26482/2008) C.I.T., Mumbai ...Appellant(s) Versus
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
learned counsel on both sides.
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 Appeal arising out of
S.L.P.(C) No.26482/2008), in which the relevant Assessment Year is 1996-97.
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.
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.
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 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 reported in 2010 (1) SCALE 425.
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
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 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.
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. 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.
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 process a
manufacture. In the circumstances, the judgment in the Swastik Rayon
Processors's case (supra) will not apply.
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.
January 20, 2010.