Supreme Court Holds Job-Work Processing Not Liable to Textile Cess Under Section 5A:

The dispute arose when the AO, Textiles Committee, issued a show-cause notice dated 20 August 2001 to Premium Suiting Pvt. Ltd., demanding Rs 2,68,293 towards textile cess. The company was engaged in bleaching, dyeing and processing 100% man-made fabrics received from powerloom and handloom units on a job-work basis. The company submitted that it merely processed fabrics manufactured by small powerloom and handloom units and returned the processed textiles to the original manufacturers. It claimed that such fabrics were exempt from textile cess under the proviso to Section 5A of the Textiles Committee Act, 1963.

The assessing authority rejected the explanation and confirmed the demand. The Textiles Committee Cess Appellate Tribunal also dismissed the company’s appeal. The Allahabad High Court, however, allowed the company’s writ petition and quashed the demand. Aggrieved by the decision, the AO approached the Supreme Court.

The Supreme Court upheld the Allahabad High Court’s decision and dismissed the AO’s appeal as meritless. It held that Premium Suiting Pvt. Ltd. merely carried out supplementary processing of fabrics received from handloom and powerloom manufacturers and returned the same to them. No independent manufacture of textiles took place at the company’s processing units.

The Court noted that the term “manufacture” is not defined under the Textiles Committee Act, 1963. It rejected the argument that the definition contained in Section 2(f) of the Central Excise Act, 1944, which includes certain processes incidental or ancillary to the completion of a manufactured product, could automatically be applied to determine liability under Section 5A.