2025 (12) TMI 1668 - HC - Central Excise

Cess on job-work dyeing of grey fabric u/s5A questioned; intermediate processing not 'manufacture', demands and appellate order quashed.

Levy of cess under s. 5A of the Textile Committee Act, 1963 on an independent job-work processing unit engaged only in dyeing grey fabric was in issue. ... Levy of cess u/s 5A of Textile Committee Act, 1963 on an independent processing unit engaged in dyeing of grey fabric on job-work basis, when the unit was not manufacturing grey cloth - applicability of period of limitation prescribed under Rule 10 of Textile Committee (Cess) Rules, 1975 - HELD THAT:- The textile means fabric or cloth or yarn or garment or any other article made wholly or in part of cotton or wool or silk or artificial silk and includes fibre. The said definition does not provide that manufacture of yarn or cloth or garment includes intermediate stages or incidental processes carried out to manufacture yarn, fabric, garment, made up articles. It is settled proposition of law that definition of another statute especially taxing statute cannot be borrowed unless and until specifically provided in such Act. The respondent is attempting to borrow definition of ‘manufacture’ from Central Excise Act read with Central Excise Tariff Act to levy cess on independent processors. In the absence of specific provision in 1963 Act, it was impermissible to borrow definition from Central Excise Act which is an independent Act levying a different type of duty. In Central Excise Act, by way of MODVAT/CENVAT there is provision of adjustment of duty paid at one stage against the duty to be paid at next stage. There is no such provision in 1963 Act. Had legislature intended to borrow definition of ‘manufacture’ from Central Excise Act, it must have incorporated same provision in the 1963 Act. The Committee itself was of the opinion that cess should not be levied on independent processing units. Cess is paid at the stage of manufacture of yarn. Payment of cess at the stage of yarn is sufficient. As cess was not levied during preceding 25 years, it is impossible to cover the scattered processing units which are giving employment from 5 to 50 people - The respondent realizing the fact that it is unviable to levy and collect cess from textile units vide notification dated 01.06.2007 exempted all the textile units and thereafter abolished the Act itself w.e.f. 21.05.2016. These facts collectively prove that Government itself was never of the opinion that cess should be charged from independent processing units. The petitioner in view of directions of this Court preferred appeal before Appellate Tribunal. From the perusal of orders, it is evident that Tribunal has passed a totally non-speaking orders. Appeal has been dismissed mechanically and without considering factual and legal position. The instant petitions deserve to be allowed and accordingly allowed. Impugned orders are hereby set aside - Petition allowed. ISSUES PRESENTED AND CONSIDERED 1) Whether cess under Section 5A could be levied on an independent processing unit engaged in dyeing of grey fabric on job-work basis, when the unit was not manufacturing grey cloth and the statute did not define 'manufacture'. 2) Whether the respondent could import ('borrow') the definition of 'manufacture' from the Central Excise law (including tariff chapter notes) to fasten cess liability under the 1963 Act. 3) Whether the demand notices for periods 1995-98 issued in 2000 were barred by limitation under Rule 10 of the 1975 Rules. 4) Whether the Tribunal's dismissal of the appeal was vitiated for being a non-speaking, mechanical order warranting interference. ISSUE-WISE DETAILED ANALYSIS Issue 1-2: Levy of cess on independent processors; permissibility of borrowing 'manufacture' from Central Excise law Legal framework (as discussed by the Court): The Court examined Section 5A which levies and collects cess as a duty of excise 'on all textiles ... manufactured in India' and mandates collection 'from every manufacturer'. The Court also noted that the 1963 Act defines 'textiles' (Section 2(g)) but contains no definition of 'manufacture'. The respondent's case relied on the Central Excise definition of 'manufacture' and tariff chapter notes treating processes like dyeing/bleaching as manufacture. Interpretation and reasoning: The Court held that, although Central Excise law contains a wide and inclusive definition of 'manufacture' (including incidental/ancillary processes and specified processes in tariff notes), that definition could not be transplanted into the 1963 Act in the absence of a specific enabling provision. The Court reasoned that the 1963 Act taxes 'manufacture of textiles' but its definition of 'textiles' does not itself expand 'manufacture' to intermediate processes. The Court applied the principle that a definition from another statute-particularly another taxing statute-cannot be borrowed unless the statute expressly provides for it. The Court further reasoned that Central Excise has mechanisms (such as set-off/adjustment at different stages) which are not present in the 1963 Act, reinforcing that the two schemes are independent and that the legislature would have incorporated such linkage if it intended to adopt the Central Excise meaning of 'manufacture'. Conclusions: The Court concluded that cess liability under Section 5A could not be fastened on independent processors merely by importing the Central Excise concept of 'manufacture'; such borrowing was impermissible under the 1963 Act as applied to the petitioner's processing activity. Issue 3: Limitation for raising demands under the 1975 Rules Legal framework (as discussed by the Court): The Court examined Rule 10 of the 1975 Rules, which requires that a notice of demand for cess short-levied or erroneously refunded be made within one year from the relevant date specified in the rule. Interpretation and reasoning: The Court found the relevant period for cess was 1995-98, while the notices were issued in 2000-beyond one year. On the Court's reading, Rule 10 governed the situation and therefore imposed a one-year limitation. Applying Rule 10, the Court held the demands were time-barred. Conclusions: The Court concluded that the impugned notices/demands were barred by limitation under Rule 10 and could not be sustained. Issue 4: Validity of the Tribunal's order as a speaking order Legal framework (as discussed by the Court): The Court assessed whether the appellate decision reflected consideration of the factual and legal questions placed before the Tribunal. Interpretation and reasoning: On reviewing the appellate order, the Court held that the Tribunal had issued a 'totally non-speaking' order, dismissing the appeal mechanically without addressing the factual and legal position that the Court found material (including applicability of Section 5A and limitation under Rule 10). Conclusions: The Court concluded that the Tribunal's order was unsustainable for lack of reasons and proper consideration, and accordingly set it aside along with the impugned demands.