Powerloom processing and cess demand procedure: processing is not manufacture from powerloom, and notice fails without hearing.

Processing of textile fabrics produced from powerloom material was held not to fall within "manufactured from out of powerloom" because processing is a subsequent operation distinct from weaving by a powerloom; the unit was therefore liable to cess on that issue. However, a demand notice based on unfiled returns and figures taken from the Central Excise Department was held unsustainable because the prescribed assessment procedure was not followed and no opportunity of hearing was afforded under the relevant rule. The appeal succeeded on the procedural defect, and the impugned demand notice was set aside notwithstanding the finding on cess liability.

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Issues: (i) Whether processing of textile fabrics produced from powerloom material falls within the expression "manufactured from out of powerloom" so as to attract cess exemption. (ii) Whether the demand notice was sustainable when no return had been filed and the assessee was not afforded an opportunity of hearing.

Issue (i): Whether processing of textile fabrics produced from powerloom material falls within the expression "manufactured from out of powerloom" so as to attract cess exemption.

Analysis: The statutory definition of "powerloom" contemplates a loom worked by power and used for weaving cloth out of yarn or fibre. The process of processing is a subsequent set of operations on an already existing textile and is distinct from the activity of weaving by a powerloom. On a reading of the statutory definitions, processing cannot be treated as manufacture from out of powerloom.

Conclusion: This issue was decided against the assessee, and the unit was held liable to pay cess.

Issue (ii): Whether the demand notice was sustainable when no return had been filed and the assessee was not afforded an opportunity of hearing.

Analysis: The notice itself showed that the assessee had not filed returns and that figures were taken from the Central Excise Department. In such a situation, assessment could not be made under Rule 6 and demand could not be issued under Rule 7 without following the procedure under Rule 8, which requires an opportunity of hearing. The notice was therefore contrary to the prescribed procedure.

Conclusion: This issue was decided in favour of the assessee, and the demand notice was set aside.

Final Conclusion: The appeal succeeded because the impugned demand notice was held unsustainable in law, notwithstanding the finding that cess liability existed on the processing unit.

Ratio Decidendi: Processing of textiles is not synonymous with manufacture from a powerloom, and a demand under the cess scheme cannot stand unless the prescribed assessment procedure and opportunity of hearing are followed.

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