Repacking of duty-paid yarn is not manufacture; penalty also fails where extended limitation cannot be invoked.

Repacking of duty-paid yarn was held not to amount to manufacture because the governing chapter notes specifically listed the processes treated as manufacture, and repacking was not among them; the phrase "any other process" was confined to processing of the yarn itself, not mere repacking. On that footing, the excise demand was not sustainable. The text also states that where sufficient information had already been disclosed, the extended period of limitation could not be invoked; as a result, the penalty had no independent basis and was not sustainable.

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Issues: (i) whether repacking of duty-paid yarn amounted to manufacture; (ii) whether penalty could be sustained when the extended period of limitation was not invocable.

Issue (i): Whether repacking of duty-paid yarn amounted to manufacture.

Analysis: The relevant chapter notes specifically enumerated the processes that would amount to manufacture in relation to the yarn covered by those chapters. Repacking was not one of the listed processes, and the expression "any other process" was read in the context of the processes applied to the yarn itself, not a mere repacking activity. The process undertaken by the assessee was therefore outside the scope of manufacture under the chapter notes.

Conclusion: Repacking of yarn did not amount to manufacture, and the demand of duty was not sustainable.

Issue (ii): Whether penalty could be sustained when the extended period of limitation was not invocable.

Analysis: The finding that sufficient information had been placed before the Department meant that the extended period could not be invoked. Once the demand itself was not open to the extended limitation period, the basis for imposing penalty under the relevant excise provisions did not survive.

Conclusion: The penalty was not sustainable and was rightly set aside.

Final Conclusion: The order upheld the dropping of the duty demand and set aside the penalty, leaving the assessee substantially successful.

Ratio Decidendi: Repacking is not manufacture unless the governing tariff notes specifically treat that process as manufacture, and penalty cannot be sustained where the demand is outside the permissible period of limitation.

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