Temporary fabric finishing does not amount to manufacture where no lasting change or new character in the goods is established.

Padding cotton polyester lungi fabrics with starch and chemicals, together with special finishing, did not amount to manufacture because the processes produced only temporary stiffness, sheen or softness that disappeared after washing and did not create goods with a new name, character or use. Mercerizing was not established on the record. On that basis, denial of exemption and the duty demand were unsustainable, and the related penalty could not survive once the principal demand failed.

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Issues: Whether padding of cotton polyester lungi fabrics with starch and chemicals, along with special finishing and alleged mercerizing, constituted manufacture and justified denial of exemption and duty demand.

Analysis: The fabrics were processed by padding with starch and chemicals and by special finishing, but the record did not establish mercerizing. The relevant tariff note and the governing exemption notifications were considered in light of the principle that a process amounts to manufacture only if it brings about a change of a lasting character and results in goods with a new name, property, or use. The processes in question were found to produce only temporary stiffness, sheen, softness, or similar effects that wore off after washing, and therefore did not amount to manufacture. The alleged grounds for penalty also could not survive once the principal demand failed.

Conclusion: The processes did not amount to manufacture and the denial of exemption was unsustainable. The appeal was therefore dismissed, in favour of the assessee.

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