Exempt goods retain exemption when their essential character is unchanged by covering or stitching, with no fresh dutiable manufacture.

An exempt pillow does not become a new dutiable commodity merely because it is later covered, labelled, stitched or wrapped, where its essential character as a pillow remains unchanged. The note states that once the underlying goods fall within the exemption, differential duty cannot be levied only on account of subsequent covering, as no fresh manufacture attracting duty is established. It also states that carry-cots made by stitching cushions fall within the exemption for mattresses and similar articles, and therefore are not liable to additional duty. The appeal was allowed and the duty demand was set aside.

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Issues: (i) Whether covering of already exempt uncovered pillows amounted to manufacture of a new dutiable product, and (ii) whether carry-cots made by stitching cushions were covered by the relevant exemption notification.

Issue (i): Whether covering of already exempt uncovered pillows amounted to manufacture of a new dutiable product.

Analysis: The pillows were found to be manufactured from waste or scrap of polyurethane foam and were already exempt under the relevant notification. The addition of covers, labelling, stitching, and wrapping did not change the essential character of the goods as pillows. Once the underlying product was exempt, duty could not again be demanded merely because the pillows were later covered.

Conclusion: The covering of the pillows did not bring into existence a separately dutiable new product, and the demand of differential duty on that count was not sustainable, in favour of the assessee.

Issue (ii): Whether carry-cots made by stitching cushions were covered by the relevant exemption notification.

Analysis: The carry-cots were manufactured by stitching cushions, and the notification covered mattresses and similar articles. On that basis, the carry-cots were treated as goods falling within the scope of the exempted items. The fact that they were made from cushions and stitched in a particular manner did not take them outside the exemption.

Conclusion: Carry-cots were held to be within the purview of the exemption notification and were not liable to additional duty, in favour of the assessee.

Final Conclusion: The appeal succeeded, and the duty demand was set aside on the footing that the goods in question remained exempt and no fresh manufacture attracting duty was established.

Ratio Decidendi: Where the essential character of an exempted article remains unchanged, subsequent covering or stitching does not by itself constitute manufacture of a new dutiable commodity; exemption continues if the goods fall within the scope of the relevant notification.

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