Doubling of polyester yarn is not manufacture, so excise duty and related demand cannot be sustained.

Doubling or multi-folding of single polyester yarn does not amount to manufacture for excise purposes, so no excise duty is leviable on polyester sewing thread produced by that process. The exemption claim based on the imported yarn having suffered additional customs duty equivalent to excise duty was also accepted, and the denial of exemption was unsustainable. The demand was treated as time-barred in light of the settled position prevailing at the relevant time that such processing was not manufacture. The duty demand and penalty could not be sustained, and the assessee obtained full relief.

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Issues: (i) Whether doubling or multi-folding of single polyester yarn amounts to manufacture so as to attract excise duty on polyester sewing thread; (ii) whether the appellants were entitled to exemption on the footing that the imported yarn had suffered additional customs duty equivalent to excise duty; (iii) whether the demand was barred by time.

Issue (i): Whether doubling or multi-folding of single polyester yarn amounts to manufacture so as to attract excise duty on polyester sewing thread.

Analysis: The imported yarn was treated as single yarn, and the process undertaken was only doubling or multi-folding. The settled position applied was that such process does not bring into existence a manufactured product for excise purposes. Since no manufacture was involved, the foundation for levy of duty on the resulting yarn product failed.

Conclusion: The issue was decided in favour of the assessee, and no excise duty was leviable on the doubling or multi-folding process.

Issue (ii): Whether the appellants were entitled to exemption on the footing that the imported yarn had suffered additional customs duty equivalent to excise duty.

Analysis: The imported yarn had already suffered additional duty, which was treated as equivalent to central excise duty on like goods manufactured in India. On that footing, denial of the exemption notification was unsustainable. However, in view of the finding that the process itself did not amount to manufacture, the exemption question became secondary.

Conclusion: The issue was decided in favour of the assessee, and the exemption benefit could not be denied.

Issue (iii): Whether the demand was barred by time.

Analysis: The demand was also considered in the light of the settled understanding prevailing at the relevant time that doubling or multi-folding of yarn was not manufacture. On that basis, the demand was treated as having been raised beyond the permissible period.

Conclusion: The issue was decided in favour of the assessee, and the demand was held time-barred.

Final Conclusion: The duty demand and penalty could not be sustained, and the assessee obtained complete relief.

Ratio Decidendi: Doubling or multi-folding of single yarn does not amount to manufacture, and where no manufacture exists, excise duty cannot be levied on the resulting product.

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