Whether bleaching and dyeing of textile amounts to manufacture? Answering in negative and clarifying that definition of manufacture under the Central Excise Act cannot be imported into the statute, the Supreme Court has held that bleaching, dyeing and processing of fabrics supplied by handloom and powerloom manufacturers does not amount to ‘manufacture’ under the Textiles Committee Act.
The Apex Court explained that where fabrics originate from handloom or powerloom industries that enjoy a statutory exemption from textile cess, the exempt character of those textiles is not lost merely because further processing is undertaken by an independent processor. The Court also reiterated that the definition of ‘manufacture’ under the Central Excise Act cannot automatically be imported into the Textiles Committee Act unless the legislature has expressly provided for such incorporation.
Bleaching, dyeing and similar operations may improve or enhance the fabric, but they do not result in the emergence of a new textile product for the purpose of levy of cess under the Textiles Committee Act. Thus, the Apex Court recognised that processors working on fabrics supplied by exempt handloom and powerloom units function as an ‘extended arm’ of those manufacturers and therefore cannot be separately burdened with textile cess.
Briefly, the dispute arose when the Assessing Officer, Textiles Committee sought to recover textile cess of Rs. 2.68 lakhs from M/s Premium Suiting Pvt Ltd., an independent textile processor engaged in bleaching, dyeing and processing man-made fabrics supplied by handloom and powerloom manufacturers. Following an audit objection which indicated that several independent processors in Uttar Pradesh had not been paying textile cess, the Textiles Committee issued a show-cause notice and subsequently passed an assessment order demanding cess from the respondent.
The respondent contended that it merely processed fabrics belonging to small handloom and powerloom units on a job-work basis and that textiles produced by such industries were expressly exempt from cess under Section 5A of the Textiles Committee Act, 1963.
The demand was upheld by the Textiles Committee Cess Appellate Tribunal, which relied on an earlier decision holding that processing activities amounted to ‘manufacture’ and therefore attracted cess liability. However, the Allahabad High Court quashed the demand, holding that dyeing and bleaching of fabrics received from handloom and powerloom units did not alter their exempt character.
A Two-Judge Bench comprising Justice N.V. Anjaria and Justice S.V.N. Bhatti observed that Section 5A of the Textiles Committee Act levies cess on textiles ‘manufactured’ in India, but the Act itself does not define the term ‘manufacture’. Therefore, the definition of ‘manufacture’ contained in the Central Excise Act could not automatically be imported into the Textiles Committee Act. The Court reaffirmed the settled principle that definitions in one statute cannot be borrowed for interpreting another statute unless the legislature specifically provides for such incorporation or both statutes operate in the same field.
The Court further noted that the respondent was not producing textiles. It merely received already manufactured fabrics from handloom and powerloom units, carried out bleaching, dyeing and similar processing operations on a job-work basis, and returned the processed fabrics to the owners. Such activities may improve, refine or upgrade the fabric, but they do not result in the manufacture of a new textile product under the scheme of the Textiles Committee Act.
The Court also emphasized that the proviso to Section 5A expressly exempts textiles manufactured by handloom and powerloom industries from the levy of cess. Since the respondent’s activity was only an ancillary extension of the manufacturing process undertaken by those exempt industries, it could not be separately subjected to textile cess. The respondent functioned merely as an ‘extended arm’ of the exempt manufacturers.
