Manufacture under excise law denied for compressive shrinkage processing of denim fabric; revenue challenge failed

Controlled compressive shrinkage of denim fabric in Monfort machines was examined against the excise test of manufacture under Chapter Note 3 to Chapter 52. The majority held that the singeing, brushing, dampening, compressive shrinking and drying operations did not create a commercially distinct product or a lasting change amounting to shrink proofing, and were only incidental to completion of the fabric. On that basis, the process was not manufacture and the Revenue's challenge to the dropping of proceedings could not survive. A dissenting member considered the impugned order without jurisdiction because the matter had been remanded earlier and proposed de novo reconsideration.

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Issues: Whether the controlled compressive shrinkage process carried out on denim fabric in Monfort machines amounted to manufacture under Chapter Note 3 to Chapter 52 of the Central Excise Tariff Act, 1985, and whether the Revenue's appeal against dropping of the proceedings could be sustained.

Analysis: The process in question consisted of singeing, brushing, dampening, compressive shrinking and drying of the fabric. The majority held that the relevant test was whether the operations brought about a commercially different product with a lasting change, as contemplated by the settled excise law on processing of grey fabric. On the technical material and expert opinions relied upon, the process was found to be only dampening and partial shrinkage, not shrink proofing, and not to produce a new commercially distinct commodity. The majority also accepted that the process was incidental or ancillary to the fabric's completion and did not itself amount to manufacture. In that view, the related proceedings and demands based on the alleged manufacture could not survive.

Conclusion: The process did not amount to manufacture, and the Revenue's challenge to the order dropping the proceedings failed.

Dissenting Opinion: G.A. Brahma Deva, Member (J), held that the impugned order was without jurisdiction because the matter had been remanded to the Assistant Commissioner, and proposed remand of the entire matter to the concerned Commissioner for de novo consideration.

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