Processed textile fabrics: excise duty arises when specified processing is completed, not after later finishing operations.

Processed textile fabrics covered by the compounded levy scheme were treated as manufactured once any one or more of the specified operations, such as bleaching, dyeing, printing, tentering, heat-setting or crease-resistant processing, was completed. The legal position under the relevant rules and tariff note was that manufacture was not postponed until later finishing steps like decatising, folding or packing. Accordingly, excise duty attached at the stage of completion of the specified processing, and a demand treating manufacture as incomplete until subsequent finishing was not sustainable.

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Issues: Whether processed textile fabrics were liable to central excise duty at the finishing stage after the withdrawal of the compounded levy scheme, or whether duty was already attracted when the stentering and other specified processing was completed before the cut-off date.

Analysis: Under the Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 2000, read with Rule 96ZQ of the Central Excise Rules, 1944, duty for independent processors of covered textile fabrics was linked to the manufacture of processed textile fabrics under the compounded levy regime. The relevant tariff entry and Chapter Note made it clear that, for headings such as 55.13, bleaching, dyeing, printing, tentering, heat-setting, crease-resistant processing or any one or more of those processes amounted to manufacture. The completion of further finishing steps such as decatising, folding or packing was not a statutory prerequisite for manufacture.

Conclusion: Duty stood attracted when the specified processing was completed, and it did not remain deferred until the finishing processes were undertaken. The demand based on the view that manufacture was incomplete at the cut-off stage was not sustainable.

Ratio Decidendi: For processed textile fabrics covered by the compounded levy scheme, manufacture is complete when any one or more of the specified processing operations is completed, and excise duty cannot be postponed until subsequent finishing operations such as decatising, folding or packing are done.

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