Manufacture and excise duty on polyester yarn conversion into spun thread upheld despite same tariff classification.

Conversion of duty-paid polyester yarn into spun polyester thread constituted manufacture because the process produced a commercially different article with a distinct name, character and use. The fact that both products fell under the same tariff item did not prevent excise duty on the finished excisable goods. Rule 56A did not bar the levy merely because the manufacture occurred in the same factory; it applied only where the conditions for proforma credit were satisfied. The duty was therefore held leviable and the challenge to the demand failed.

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Issues: Whether excise duty was chargeable on conversion of duty-paid polyester yarn into spun polyester thread when both products fell under the same tariff item, and whether Rule 56A of the Central Excise Rules barred such levy.

Analysis: The conversion of yarn into sewing thread involved a manufacturing process resulting in a commercially different product with a distinct name, character and use. The fact that both inputs and final product were classifiable under the same tariff item did not by itself prevent levy of duty on the finished excisable goods. Rule 56A was applicable only where the statutory conditions for proforma credit were satisfied and did not exclude duty merely because manufacture occurred in the same factory. In the absence of any rebuttal to the finding that a new product emerged, the statutory definition of manufacture was attracted.

Conclusion: The duty was correctly held leviable and the challenge to the demand failed.

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