Processed textile fabric duty arises on completion of recognised processing, not after later finishing operations.

Excise duty under the compounded levy regime for independent textile processors arises when the statutorily recognised processing operations on processed fabric are completed on the stenter. Under Note 4 of Chapter 55 and Rule 96ZQ, manufacture is treated as complete once processes such as bleaching, dyeing, printing, shrink-proofing, tentering, heat-setting or crease-resistant processing are done, and duty cannot be deferred until later finishing steps like decatising, folding or packing. On that basis, the demand and penalty orders were unsustainable because liability had already crystallised when the relevant processing stage ended.

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Issues: Whether excise duty under Section 3A of the Central Excise Act, 1944 read with Rule 96ZQ of the Central Excise Rules, 1944 was leviable on processed textile fabric at the stage when stentering had been completed but decatising, folding and packing were still pending.

Analysis: Under Rule 2 of the Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 2000 and Rule 96ZQ of the Central Excise Rules, 1944, duty liability for independent processors was linked to the manufacture of processed textile fabrics covered by the relevant tariff entries. Note 4 of Chapter 55 of the Central Excise Tariff Act, 1985 treated bleaching, dyeing, printing, shrink-proofing, tentering, heat-setting, crease-resistant processing or any one or more of those processes as manufacture. The decisive consideration was whether manufacture had been completed when the fabric had undergone the relevant processing on the stenter, and not whether later finishing operations such as decatising, folding or packing had also been completed.

Conclusion: Duty stood levied once the relevant processing was completed, and it did not wait for the finishing processes. The demand and penalty orders were therefore unsustainable.

Ratio Decidendi: For processed textile fabrics covered by the compounded levy regime, manufacture is complete when the statutorily recognised processing operations are completed, and excise duty cannot be deferred until subsequent finishing stages are done.

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