Separate job-work units cannot be clubbed for excise duty without proof of integrated control and dummy status.

Separate job-work units could not be treated as one continuous manufacturing activity for excise purposes where they had separate machinery, bills, payments, and no common partners, financing, or managerial control; the demand could not be fastened by clubbing their processes. Baling and packing of cotton fabrics did not amount to manufacture because they caused no physical or chemical change and the statutory definition could not be stretched to cover them. The alleged use of power in mercerizing and stentering was not proved by reliable objective evidence, and retracted statements were insufficient without adequate corroboration. On these findings, the demand and penalties were unsustainable.

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Issues: (i) whether the processes carried out in two separate job-work units could be clubbed and treated as one continuous manufacturing activity for excise duty purposes; (ii) whether baling and packing of cotton fabrics amounted to manufacture; and (iii) whether the evidence was sufficient to sustain the finding that power was used in mercerizing and stentering so as to deny exemption.

Issue (i): whether the processes carried out in two separate job-work units could be clubbed and treated as one continuous manufacturing activity for excise duty purposes

Analysis: The fabric moved from one unit to the other in wet condition, but the two concerns were found to be separate partnership firms carrying out distinct job work, with separate machinery, separate bills, separate payments, and no common partners. There was no material of common financing, managerial control, or flowback. Mere manual movement of goods between the units and maintenance of a common account did not justify treating the processes as one or fastening duty on the final clearance by clubbing the activities.

Conclusion: The processes could not be clubbed, and the finding of a single combined manufacturing activity was unsustainable.

Issue (ii): whether baling and packing of cotton fabrics amounted to manufacture

Analysis: Baling and packing did not bring about any physical or chemical change in the fabric. The statutory definition of manufacture and the Chapter Note dealing with cotton fabrics could not be stretched, by applying noscitur a sociis, to include mere baling and packing. The process did not answer the legal test of manufacture, and duty could not be sustained merely because such activity was not specifically exempted.

Conclusion: Baling and packing did not amount to manufacture.

Issue (iii): whether the evidence was sufficient to sustain the finding that power was used in mercerizing and stentering so as to deny exemption

Analysis: The retracted statements could not be rejected merely because affidavits were filed later. The affidavits had to be considered on merits, and the evidence of power usage in mercerizing was not adequately supported by objective material. The allegation based on electricity consumption, loose motor, and the supposed use of power in stentering was not satisfactorily proved. In any event, the challenge regarding stentering did not assist the Revenue once the units could not be clubbed and no demand had been confirmed against the second unit.

Conclusion: The allegation of use of power in the relevant processes was not established to the standard required for sustaining the demand.

Final Conclusion: The demand and penalties could not be sustained because the units were independent, the processes could not be clubbed, baling and packing were not manufacture, and the Revenue failed to prove the decisive factual basis for denial of exemption.

Ratio Decidendi: Separate job-work units cannot have their processes clubbed for excise duty in the absence of evidence of dummy status or integrated control, and mere baling and packing without a statutory deeming provision do not amount to manufacture.

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