In a landmark verdict providing massive relief to the textile processing industry, the Punjab and Haryana High Court has struck down long-pending cess demands that had plagued independent units for over two decades. The court decisively ruled that activities like dyeing and processing do not constitute "manufacture" under the Textile Committee Act of 1963.
A Two-Decade Legal Battle Ends
The order brings a decisive end to a protracted legal conflict between a large number of textile processors and the central government. The dispute centered on cess demands raised for the period between 1995 and 1998. A division bench comprising Justice Jagmohan Bansal and Justice Amarinder Singh Grewal delivered the judgment, allowing a cluster of petitions led by Varun Fabs Ltd and other similar units.
The bench set aside orders that were originally passed by the Textile Cess Appellate Tribunal back in 2008. The Tribunal had upheld the levy of cess on these independent processing units. The High Court's ruling thus overturns a 15-year-old appellate decision, freeing the units from the financial burden.
Court Rejects Expansive Definition of 'Manufacture'
A core legal argument in the judgment was the definition of the term "manufacture." The court held that the Textile Committee had erred by applying the broad definition from the Central Excise Act to levy cess on processors. These independent units were primarily engaged in dyeing grey fabric on a job-work basis.
The judges made a critical observation: the Textile Committee Act does not define "manufacture" in such expansive terms. They emphasized that definitions from one taxing statute cannot be automatically imported into another unless the law expressly provides for it. This interpretation formed the bedrock of the decision to quash the cess.
Historical Practice and Time-Barred Demands
Adding weight to its decision, the bench noted a significant historical precedent. It was recorded that no cess was collected from independent processing units between 1975 and 2000. The court pointed out that this fact was even acknowledged by the chairman of the Textile Committee in an official communication.
This 25-year practice, the court stated, clearly demonstrated that the government itself did not originally consider these processors liable for the cess. Furthermore, the court found the cess demands to be legally time-barred. Notices were issued in 2000 for a period dating back to 1995-98, which exceeded the one-year limitation period prescribed under Rule 10 of the Textile Committee (Cess) Rules, 1975.
Levy Declared Legally Unsustainable
In its concluding remarks, the court was critical of the Tribunal's earlier orders, describing them as "non-speaking" and mechanical. After considering all arguments—the definition of manufacture, the historical practice, and the limitation period—the bench conclusively declared that the levy was legally unsustainable.
The judgment is a major victory for the textile processing sector in the region, setting a clear precedent and relieving them of contested financial liabilities that have hung over their operations for generations.
