Power use in prior cloth processing did not defeat exemption for manually made terry towels under the notification.

Terry towels made by manual cutting and stitching were treated as eligible for exemption under Notification No. 65/87 because the relevant test was whether power was used in manufacturing the finished towels, not merely in processing the base terry towelling cloth. Prior use of power on the cloth did not defeat the claim where the final towels were produced without power and the cloth and finished goods were treated as distinct for exemption purposes. The dutiability of the processed cloth did not bar exemption for the manually made towels, and the Revenue challenge failed.

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Issues: Whether terry towels produced by manual cutting and stitching, after the terry towelling cloth had undergone processing with the aid of power, were entitled to exemption under Notification No. 65/87 dated 1-3-1987 as goods manufactured without the aid of power.

Analysis: The exemption depended on whether power was used in the manufacture of the final article, namely terry towels. The use of power in the prior processing of terry towelling cloth did not by itself establish that power was used in making the finished terry towels. The cloth and the finished towels were treated as distinct for the purpose of the exemption claim, and the undisputed dutiability of the terry towelling cloth did not defeat the claim for the manually made terry towels.

Conclusion: The terry towels qualified for exemption under Notification No. 65/87 dated 1-3-1987, and the Revenue appeal failed.

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