Court affirms Central Excise duty on yarn cone conversion as 'manufacture'

The court held that the conversion of cotton yarn hanks into cones constitutes 'manufacture' attracting Central Excise duty. The inclusion of cones in item 18A of the Central Excise Tariff was deemed legal and valid. The court rejected the petitioner's argument that winding dyed yarn into cones does not amount to manufacturing, citing the statutory definition of 'manufacture' under Section 2(f) of the Act. The conversion process met the criteria for 'manufacture,' aligning with established legal principles, leading to the dismissal of the petitioner's plea against the inclusion of cones in item 18A.

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Issues:
Whether the conversion of cotton yarn hanks in loose form into cones constitutes 'manufacture' attracting Central Excise duty.
Whether the inclusion of cones in item 18A of the Central Excise Tariff is legal and valid.

Analysis:
The petitioner argued that winding dyed yarn into cones does not involve any manufacturing process and should not attract excise duty. However, the Central Excise authorities maintained that such conversion constitutes 'manufacture' and is subject to duty. The authorities relied on item 18A of the Central Excise Tariff, which broadly includes various forms of cotton yarn, including cones. The definition of 'manufacture' under Section 2(f) of the Act encompasses processes like winding or reeling, indicating that converting yarn from one form to another qualifies as manufacturing. The court found that the conversion of dyed yarn into cones indeed amounts to a manufacturing process, as per the statutory definition. Therefore, the petitioner's argument against the inclusion of cones in item 18A was dismissed.

In support of the petitioner's case, Mr. Doraiswami referenced two legal judgments. The first case, Union of India v. Delhi Cotton and General Mills, dealt with the concept of 'manufacture,' emphasizing the creation of a new substance. The Supreme Court held that excise duty is leviable on the end-product only, not on intermediary products. The second case, Kwality Coated Products v. Govt. of India, questioned whether a specific product was a new kind brought into existence, determining the liability for excise duty. However, the court differentiated these cases from the present scenario, highlighting the specific provisions of item 18A and Section 2(f)(iv) governing the conversion of yarn into cones. The court concluded that the conversion process met the criteria for 'manufacture' and excise duty application, aligning with the principles established in Empire Industries v. Union of India, where the Supreme Court clarified that transformation through labor and skill constitutes 'manufacture' for excise purposes.

In response to the petitioner's arguments, Mr. Jamel Haseem, Additional Central Government Standing Counsel, cited the Supreme Court's decision in Empire Industries v. Union of India, emphasizing that job work operations like dyeing and printing qualify as 'manufacture' under the Act. The court noted that the conversion of dyed yarn into cones fulfills the criteria for 'manufacture' and excise duty liability under item 18A. Consequently, the petitioner's plea for a writ declaring the inclusion of cones in item 18A as ultra vires and unconstitutional was rejected, and the writ petition was dismissed with no costs.

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