C. I. T. MUMBAIversusM/S. EMPTEE POLY-YARN PVT. LTD.

                          [2010] 1 S.C.R. 801


                             C.1.T., MUMBAI                            A
                                     v.
                 MIS. EMPTEE POLY-YARN PVT. LTD.
                    (Civil Appeal No. 786 of 2010)

                           JANUARY 20, 2010
                                                                       B
                [S.H. KAPADIA AND H.L. DATTU, JJ.)

           Income Tax Act, 1961:

            s. 80 IA - 'Manufacture' - Twisting and texturising of c
       partially oriented yarn (POY) - HELD: Keeping in view the
       process in the light of the opinion given by the expert, which
       has not been controverted, POY is a semi-finished yarn not
       capable of being put in warp or weft, it can only be used for
       making a texturized yarn, which, in turn, can be used in the 0
       manufacture of fabric - Thus, POY cannot be used directly
       to manufacture fabric - According to the expert, crimps,
       bulkiness etc. are introduced by a process, called as thermo
       mechanical process, into POY which converts POY into a
       texturized yarn - If thermo mechanical process is examined E
       in detail, it becomes clear that texturising and twisting of yam
       constitutes 'manufacture' in the context of conversion of POY
       into texturized yam - Besides, under the Income Tax Act, as
       amended in 2009, the test given bf Supreme Court in Mis.
       Oracle Software's case* has been recognised when the
       definition of the word 'manufacture' is made explicit by F
      Finance Act No.212009 which states that 'manufacture' shall,
      inter alia, mean a change in bringing into existence of a new
      and distinct object or article or thing with a different chemical
      composition or integral structure - Thus, it may be mentioned
      that the thermo mechanical process also bring about a G
      structural change in the yarn itself, which is one of the
      important tests to be seen while judging whether the process
...   is manufacture or not - The structure, the character, the use
      and the name of the product are indicia to be taken into
                                     801                                H
    802      SUPREME COURT REPORTS                 [2010] 1 S.C.R.


A account while deciding the question whether the process is a
    manufacture or not.

         *C.I. T. vs. Mis. Oracle Software India Lid. 2010 (1) SCALE
    425, relied on.
B       Commissioner of Central Excise, Mumbai-V vs. Swastik
    Rayon Processors 2007 (209) E.L.T. 163 (S.C.), held
    inapplicable.

         'Manufacture - Examination of the process applicable to
c the   product  - HELD: Repeatedly the Supreme Court has
  recommended to the Department, be it under Excise Act,
  Customs Act or the Income Tax Act, to examine the process
  applicable to the product in question and not to go only by
  dictionary meanings - This recommendation is not being
D followed over the years - Even when the assessee gives an
  opinion on a given process, the Department does not submit
  any counter opinion wherever such counter opinion is possible
  - Prima facie, however, in the instant case, there is no
  possibility of any counter opinion to the opinion given by the
  Mumbai University - This judgment is to be confined to the
E
  facts of the present case - It is not being said that texturising
  or twisting per se in every matter amounts to manufacture -
  It is the thermo mechanical process embedded in twisting and
  texturising when applied to a partially oriented yarn, that          "-----
  makes the process a manufacture - Central Excise Act, 1944
F
  - Customs Act, 1962 - Constitution of India, 1951 - Article
  141.

          Words and Phrases:

G       Expression 'manufacture' - Meaning of in the context of
    s.80 IA of the Income Tax Act, 1961.

                          Case Law Reference:

          2010 (1) SCALE 425         relied on            para 7
H
   C.l.T., MUMBAI v. EMPTEE POLY-YARN PVT LTD.                803


     2007 (209) E.L.T. 163 (S.C.) held inapplicable para 9            A

     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 786
of 2010.

  . From the Judgment & Order dated 27.02.2008 of the High
Court of Judicature at Bombay in ITA No. 1393 of 2000.                B

                              WITH

C.A. No. 787, 788, 789, 790, 791, 792 of 2010

   Arijit Prasad, Rahul Kaushik, B.V. Balaram Das for the             C
Appellant.

      V. Lakshmi Kumaran, Alok Yadav, Ankur, M.P. Davanath
for the Respondent.
                                                                      D
     The following Order of the Court was delivered

                             ORDER

     1. Leave granted.
                                                                      E
     2. Heard learned counsel on both" sides.

      3. The short question which arises for determination in this
batch of Civil Appeals is: Whether twisting and texturising of
partially oriented yarn ('POY' for short) amounts to 'manufacture'
in terms of Section SOIA of the Income Tax Act, 1961?                 F

      4. The lead matter in this batch of Civil Appeals is C./. T.,
Mumbai vs. Mis. Emptee Poly-Yam Pvt. Ltd. (Civil Appeal
arising out of S.L.P.(C) No.26482/2008), in which the relevant
Assessment Year is 1996-97.
                                                                      G
    5. Repeatedly this Court has recommended to the
Department, be it under Excise Act, Customs Act or the Income
Tax Act, to examine the process applicable to the product in
question and not to go only by dictionary meanings. This
                                                                      H
    804       SUPREME COURT REPORTS                 (2010] 1 S.C.R.


A recommendation is not being followed over the years. Even
  when the assessee gives an opinion on a given process, the
  Department does not submit any counter opinion wherever such
  counter opinion is possible. Prima facie, however, in this case,
  we do no see possibility of any counter opinion to the opinion
s given by the Mumbai University, vide letter dated 10th July,
  1999.

        6. With the above preface, we are required to examine the
  above question as to whether twisting and texturising of POY
C amounts to 'manufacture'. At the outset, we wish to clarify that
  our judgment should not be understood to mean that per se
  twisting and texturising would constitute 'manufacture' in every
  case. In each case, one has to examine the process undertaken
  by the assessee.

D      7. Having examined the process in the light of the opinion
  given by the expert, which has not been controverted, we find
  that POY is a semi-finished yarn not capable of being put in
  warp or weft, it can only be used for making a texturized yarn,
  which, in turn, can be used in the manufacture of fabric. In other
E words, POY cannot be used directly to manufacture fabric.
  According to the expert, crimps, bulkiness etc. are introduced
  by a process, called as thermo mechanical process, into POY
  which converts POY into a texturized yarn. If one examines this
  thermo mechanical process in detail, it becomes clear that
F texturising and twisting of yarn constitutes 'manufacture' in the
  context of conversion of POY into texturized yarn. At this stage,
  we may also reproduce, hereinbelow, para 10 of our judgment
  in the case of C.I. T. vs. Mis. Oracle Software India Ltd.,
  reported in 2010 (1) SCALE 425.

G         "The term "manufacture" implies a change, but, every
          change is not a manufacture, despite the fact that every
          change in an article is the result of a treatment of labour
          and manipulation. However, this test of manufacture needs
          to be seen in the context of the above process. If an
H         operation/process renders a commodity or article fit for
  C.l.T., MUMBAI v. EMPTEE POLY-YARN PVT. LTD.                805
              [R.V. RAVEENDRAN, J.]

     use for which it is otherwise not fit, the operation/process     A
     falls within the meaning of the word "manufacture''.

     8. Applying the above test to the facts of this case, it is
clear that POY simplicitor is not fit for being used in the
manufacture of a fabric. It becomes usable only after it              B
undergoes the operation/process which is called as thermo
mechanical process which converts POY into texturised yarn,
which, in turn, is used for the manufacture of fabric. One more
point needs to be mentioned. Under the Income Tax Act, as
amended in 2009, the test given by this Court in Mis. Oracle          C
Software's case (supra) has been recognised when the
definition of the word 'manufacture' is made explicit by Finance
Act No.2/2009 which states that 'manufacture' shall, inter alia,
mean a change in bringing into existence of a new and distinct
object or article or thing with a different chemical composition
or integral structure. Applying this definition to the facts of the   D
present case, it may be mentioned that the above thermo
mechanical process also bring about a structural change in the
yarn itself, which is one of the important tests to be seen while
judging whether the process is manufacture or not. The
structure, the character, the use and the name of the product         E
are indicia to be taken into account while deciding the question
whether the process is a manufacture or not.

     9. Before concluding, we may point out that the learned
counsel appearing for the Department cited before us a                F
judgment of a Division Bench of this Court in the case of
Commissioner of Central Excise, Mumbai-V vs. Swastik
Rayon Processors, reported in 2007 (209) E.L.T. 163 (S.C.),
in which it has been held that twisting of cellulosic filament yarn
with a blended yarn comprising of polyester and viscose will          G
not amount to manufacture under Section 2(F) of the Central
Excise Act. In our view, the said judgment has no application
to the facts and circumstances of this case. As stated above,
POY is a semi-finished product. It is a raw material/input. That
raw material or input gets converted into a texturised yarn by        H
    806     SUPREME COURT REPORTS                   [2010] 1 S.C.R.


A reason of the thermo mechanical process. POY is unfit for
  manufacture of fabric. POY, as stated above. means partially
  oriented yarn whereas a cellulosic filament yarn is a final product
  in the sense that it can be used directly for manufacture of
  fabric. If this definition is kept in mind, the judgment in the case
B of Swastik Rayon Processors's case (supra) will not apply to
  the facts of the present case.

       10. We once again repeat the caution which we have
  mentioned hereinabove. Our judgment in the present case is
  to be confined to the facts of the present case. We are not
C saying that texturising or twisting per se in every matter amounts
  to manufacture. It is the thermo mechanical process embedded
  in twisting and texturising w_hen applied to a partially oriented
  yarn which makes the process a manufacture. In the
  circumstances, the judgment in the Swastik Rayon
D Processors's case (supra) will not apply.

       11. Applying the above test to the facts of the present
  case, we find no infirmity in the impugned judgments of the High
  Court. Accordingly, the Civil Appeals filed by the Department
E are dismissed with no order as to costs.

   R.P.                  Appeals filed by Department dismissed.