Separate job-work units and non-manufacture processes cannot be clubbed to sustain excise demand without proof of common control.

Separate job-work units could not be clubbed for excise purposes where they had different partners, machinery, billing and assessment, and no proved financial flowback or common control. Retracted statements, supported by affidavits, were insufficiently rejected, and the remaining material did not establish use of power in mercerizing or stentering to the requisite standard. Baling and packing were also held not to amount to manufacture, as they caused no physical or chemical change and did not fall within the relevant deeming provision. On that reasoning, the excise demand and penalties were unsustainable.

---

---

Issues: (i) Whether the processing carried out in two separate partnership units could be clubbed and treated as one continuous process for fastening excise duty on the final clearances from one unit. (ii) Whether the allegation of use of power in mercerizing and stentering was sustainable in the light of the retracted statements and other evidence. (iii) Whether baling and packing amounted to manufacture so as to attract duty.

Issue (i): Whether the processing carried out in two separate partnership units could be clubbed and treated as one continuous process for fastening excise duty on the final clearances from one unit.

Analysis: The two units were found to be separate partnership concerns doing job work for the same supplier, with different partners, separate machinery, separate billing, separate assessment and no proved financial flowback or common managerial control. The wet fabric moved between the units was admittedly non-marketable, and the finding that ownership remained with one unit was unsupported by evidence. Mere transfer of goods for further processing and maintenance of a common account did not justify treating the two independent units as one for excise purposes.

Conclusion: The processes in the two units could not be clubbed, and the duty demand could not be sustained on that basis.

Issue (ii): Whether the allegation of use of power in mercerizing and stentering was sustainable in the light of the retracted statements and other evidence.

Analysis: The adverse statements were retracted at the earliest opportunity by affidavits, and the rejection of those affidavits without proper examination was held to be inconsistent with the governing law on affidavit evidence. The remaining material, including the alleged high electricity consumption, the loose motor, and the invoice relating to the motor, was not sufficient to establish use of power in mercerizing. In any event, the stentering allegations could not support the demand when no duty had been confirmed against the second unit.

Conclusion: The allegation of use of power was not proved to the requisite standard and could not sustain the demand.

Issue (iii): Whether baling and packing amounted to manufacture so as to attract duty.

Analysis: Baling and packing caused no physical or chemical change in the fabric and did not fall within the deeming provisions relied upon by the Revenue. Applying the contextual reading of the tariff entry and Chapter Note 3 to Chapter 52, those activities were held not to be covered by the expression amounting to manufacture.

Conclusion: Baling and packing did not amount to manufacture and could not attract duty.

Final Conclusion: The excise demand and penalties were unsustainable because the two units could not be clubbed, the power-use allegation failed, and the final processes relied upon by the Revenue were not manufacture.

Ratio Decidendi: Separate job-work units with no proved common control or financial nexus cannot have their independent processes clubbed for excise liability, and a process that does not amount to manufacture cannot be taxed merely because it is not expressly exempted.

---