Punjab & Haryana High Court Quashes Textile Cess Demands on Independent Processors; Holds Dyeing and Processing Not ‘Manufacture’ Under Textile Committee Act
Case Name: M/s Varun Fabs Ltd. v. Union of India and Others (Along with connected matters)
Date of Judgment: 24 December 2025
Citation: CWP-5956-2009 and connected cases
Bench: Hon’ble Mr. Justice Jagmohan Bansal and Hon’ble Mr. Justice Amarinder Singh Grewal
Held: The Punjab and Haryana High Court allowed a batch of writ petitions filed by independent textile processing units and set aside cess demands raised under Section 5A of the Textile Committee Act, 1963. The Court held that independent processors engaged only in dyeing, bleaching or processing of grey fabric cannot be treated as “manufacturers” for the purpose of levy of textile cess. It was further held that the definition of “manufacture” under the Central Excise Act cannot be imported into the Textile Committee Act in the absence of an express statutory provision.
Summary: The petitioners were independent textile processing units engaged in dyeing and processing of grey cloth received on job-work basis from third parties. They did not manufacture yarn or grey fabric. During the years 1999–2000, the Textile Committee issued demand notices seeking levy of textile cess for earlier periods between 1995 and 1998. These demands were ultimately upheld by the Textile Cess Appellate Tribunal through non-speaking orders dated 24 November 2008.
Before the High Court, the petitioners contended that Section 5A of the Textile Committee Act permits levy of cess only on “manufacture” of textiles, and that processing activities carried out by independent processors do not amount to manufacture. It was argued that Rule 10 of the Textile Committee (Cess) Rules, 1975 prescribes a limitation of one year for issuance of demand notices, which had been violated. Reliance was also placed on the long-standing administrative practice whereby no cess was levied on independent processors for nearly 25 years, as well as on internal communications of the Textile Committee acknowledging that cess was not applicable to such units.
The respondents argued that dyeing and processing form an integral part of manufacture and that the wide definition of “manufacture” under the Central Excise Act, 1944 read with the Central Excise Tariff Act should be applied. It was also contended that since the petitioners had not filed returns, limitation under Rule 10 would not apply.
The High Court rejected the stand of the respondents and held that the Textile Committee Act does not define “manufacture” and does not incorporate the definition under the Central Excise Act. The Court observed that borrowing a definition from another taxing statute is impermissible unless expressly provided. The absence of any mechanism for set-off or cascading adjustment under the Textile Committee Act further indicated that Parliament never intended to treat independent processors as manufacturers.
The Court also relied on the Chairman of the Textile Committee’s letter dated 17 November 2000 and the resolution passed in the 84th meeting of the Committee, both of which clearly acknowledged that cess was not leviable on independent processing units and should instead be confined to the yarn stage. The subsequent exemption notification dated 1 June 2007 and repeal of the Act in 2016 were also treated as reinforcing this legislative and administrative intent.
On limitation, the Court held that the demand notices issued in 2000 for periods between 1995 and 1998 were clearly barred by Rule 10 of the 1975 Rules. Additionally, the Court found that the Appellate Tribunal had dismissed the appeals mechanically without dealing with the legal and factual issues, rendering its orders unsustainable.
Decision: All the writ petitions were allowed. The impugned orders passed by the Textile Cess Appellate Tribunal and the underlying demand notices were set aside.