2014 (6) TMI 233 - AT - Central Excise

Demand of cess - Manufacture of cloth - Appellants contends that they cannot be solely made liable as they are only job worker and it is the supplier of cloth who is liable to discharge such liability - Held that - Appellants themselves admit that they hold Central Excise Registration for processing of man-made fabrics being independent processors and that they undertake the job work of finishing and dyeing of man-made fabrics and accordingly, they are doing job work and collect charges for processing on job charge basis. It has also been admitted by the Appellants themselves in para 3 of their Memorandum of Appeal that grey fabrics is received by the Appellants from various traders considered as deemed manufacturer in terms of Central Excise Act and Rules made thereunder for processing on job charge basis. The processed fabrics is returned to the said deemed manufacturer on payment of duty on the declared value of grey fabrics after adding processing charges as per the settled law. So far as the exemption under the proviso to sub-section (1) of Section 5A is concerned, the same is available to handloom and powerloom industries. The Appellants, who are manufacturing finished goods and not grey fabrics, i.e. the raw material, being not handloom or powerloom industries, cannot derive advantage of exemption on the basis of the raw material manufactured by other manufacturers. Thus, the Appellants are manufacturers of textiles in the aforestated facts and circumstances of the case and being so, they are subject to levy of cess in terms of the aforestated scheme of Law. - Decided against assessee.

Issues Involved:
1. Liability of cess on processing activities carried out by independent processors.
2. Definition and scope of "manufacture" under the Textiles Committee Act, 1963.
3. Applicability of Circular No. 55(2)/73-AC of 1975 to independent processors.
4. Exemption of handloom and powerloom industries from cess.

Detailed Analysis:

1. Liability of cess on processing activities carried out by independent processors:
The appellants argued that their processing activities, which involve finishing and dyeing of man-made fabrics on a job charge basis, do not constitute "manufacture" and hence, should not attract cess under Section 5A(1) of the Textiles Committee Act, 1963. They contended that as job workers, they should not be solely liable for the cess; rather, the suppliers of the cloth should bear this liability. The tribunal rejected this argument, holding that the appellants, being independent processors, are indeed involved in "manufacture" as defined under the relevant legal provisions and are thus liable to pay cess.

2. Definition and scope of "manufacture" under the Textiles Committee Act, 1963:
The appellants argued that the term "manufacture" is not defined in the Textiles Committee Act, 1963, and therefore, should not be interpreted to include their processing activities. However, the tribunal referred to various legal precedents and definitions from the Central Excise Act, which clarify that any process that transforms raw materials into a new product with a distinct name, character, or use constitutes "manufacture." The tribunal cited multiple judgments, including the Supreme Court's decision in Aditya Mills Ltd. v. Union of India, which held that processes like bleaching, dyeing, and printing amount to manufacture. Consequently, the tribunal concluded that the appellants' activities fall within the scope of "manufacture."

3. Applicability of Circular No. 55(2)/73-AC of 1975 to independent processors:
The appellants relied on Circular No. 55(2)/73-AC of 1975, which states that only mill-made yarn, cloth, and made-ups are subject to cess, and not the activities of independent processors like dyeing, bleaching, and printing. The tribunal, however, clarified that this circular applies only to textiles removed from mill premises and not to independent processors. It emphasized that under Section 5A(1) of the Act, every manufacturer of textiles, including independent processors, is liable to pay cess unless specifically exempted. Thus, the appellants cannot use this circular to avoid cess liability.

4. Exemption of handloom and powerloom industries from cess:
The respondents argued that the proviso to Section 5A(1) of the Textiles Committee Act exempts textiles manufactured directly by handloom or powerloom industries from cess, but not textiles processed further by independent processors. The tribunal agreed, citing the case of Nath Bros. Exim. International Ltd. v. Union of India, which held that the exemption applies only to textiles in their finished form directly coming out of handloom or powerloom industries. The tribunal concluded that the appellants, who process grey fabrics into finished products, do not qualify for this exemption.

Conclusion:
The tribunal ruled in favor of the Revenue, stating that the appellants' processing activities amount to "manufacture" under the Textiles Committee Act, 1963, and thus, they are liable to pay cess. The tribunal dismissed the appeal, upholding the demand notice issued by the Assessing Officer for the cess liability.

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