Deemed-import credit under export schemes turns on industrially relevant input and negative-list restrictions, not generic nomenclature.

Under the Pass Book Scheme, credit for exports of glacial acetic acid had to be computed by reference to the industrially relevant input and the applicable import restrictions. The Tribunal treated denatured ethyl alcohol as the appropriate deemed import input for manufacture of the exported product and held that undenatured ethyl alcohol, being associated with potable use and falling within the restricted or negative-list category, could not be substituted merely because the norm referred generally to ethyl alcohol. It also held that the DGFT clarification could not override the scheme's policy intent or the relevant customs classification. The credit claim based on undenatured ethyl alcohol was therefore rejected and the Revenue's challenge succeeded.

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Issues: Whether, under the Pass Book Scheme and the relevant export-import norms, credit for exports of glacial acetic acid could be computed on the basis of undenatured ethyl alcohol as the deemed import input, or whether the input had to be treated as denatured ethyl alcohol and aligned with the negative-list restrictions.

Analysis: The export product was glacial acetic acid and the relevant norm prescribed ethyl alcohol as the input on net-to-net basis. The Tribunal held that the scheme required the customs credit to be worked out with reference to the nature of the input that could legitimately be treated as an industrial input for the exported product, and that undenatured ethyl alcohol was commercially associated with potable use and fell within the restricted or negative-list category. It further held that denatured ethyl alcohol was the industrial form relevant for manufacture of the exported product, and that the DGFT clarification could not override the scheme's policy intent or the customs classification adopted for the relevant input.

Conclusion: The credit claim on the basis of undenatured ethyl alcohol was not sustainable, and the Revenue's challenge succeeded.

Final Conclusion: The order of the Commissioner (Appeals) was reversed and the Revenue appeal was allowed.

Ratio Decidendi: Under a deemed-import credit scheme, the admissible input credit is to be determined according to the industrially relevant input and the policy restrictions applicable to that input, and a restricted or negative-list item cannot be substituted merely because it is generically described in the norms.

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