Textile Committee Cess Not Leviable On Independent Dyeing, Processing Units: Punjab And Haryana High Court

The bench, consisting of Justices Jagmohan Bansal and Amarinder Singh Grewal, stated that the respondent (department) is attempting to borrow the definition of 'manufacture' from the Central Excise Act, read with the Central Excise Tariff Act, to levy cess on independent processors.

The High Court opined that in the absence of a specific provision in the 1963 Act, it was impermissible to borrow a definition from the Central Excise Act. 

"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", the court observed

In the case at hand, the petitioner has been engaged in processing/dyeing of grey fabric on a job-work basis for the past many years.

The Textile Committee issued a demand notice in 1999-2000 to the petitioner for the period 1995-96 to 1997-98, alleging that processing amounts to manufacture.

As per the petitioner, the independent processing units are not manufacture and the demands were time-barred under Rule 10 of the Textile Committee (Cess) Rules, 1975.

The petitioner filed an appeal before the Textile Cess Appellate Tribunal, Mumbai, which was dismissed.

The petitioner's counsel argued that the company only processed fabric on a job-work basis and did not manufacture textiles, and therefore could not be charged cess under the Textile Committee Act. It was also contended that the law allows the authorities to raise a demand only within one year, but the notices were issued more than three years later.

Disagreeing with the petitioner, the government, argued that the petitioner had not filed mandatory returns and therefore could not rely on the one-year limitation period (Rule 10 of the Textile Committee (Cess) Rules, 1975). According to the authorities, the demands were valid because they were raised under a different provision that does not prescribe any time limit (Rule 8).

After hearing both sides, the High Court noted that the cess provision under the Textile Committee Act was introduced in 1975 (Section 5A), yet no money was collected from independent processing units for nearly 25 years. It was only around 2000 that the authorities began issuing demand notices to such units.

The court also referred to the Central Excise law, which defines “manufacture” very broadly (Section 2(f) of the Central Excise Act), covering even minor processes linked to finishing a product. It but clarified that this expansive definition could not automatically be applied to the textile cess law.

The High Court opined that "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 the government itself was never of the opinion that cess should be charged from independent processing units."

The bench noted that the demand notices were issued in 2000, and the period involved is 1995-98, which means notices were issued beyond 1 year from the period involved.

The High Court found that the tribunal had dismissed the appeal mechanically and had passed a non-speaking order.

In view of the above, the bench allowed the plea.

Case Title: Varun Fabs Ltd. v. Union of India & Ors.

Citation: 2026 LLBiz HC (PNH) 1

Case Number: CWP-5956-2009

Counsel for Petitioner: Senior Advocate Puneet Jindal with Advocate Rahul Bansal, Advocate Balwinder Singh

Counsel for Respondent: Senior Government Counsel Arun Gosain with Advocate Swati Arora for respondent no.2, Senior Standing Counsel Sourabh Goel with Advocates Anju Bansal, Geetika Sharma and Himanshi Gautam for Union of India

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