Pass Book Scheme exemption must follow actual inputs used, and further pre-deposit was waived after substantial security was furnished.

The exemption notification under the Pass Book Scheme was construed according to its plain language, so credit and the applicable Standard Input Output Norms had to be determined by reference to the inputs actually used in the export product. The department's restrictive reading, which would have denied the benefit to exporters who purchased grey fabrics and got them processed before manufacture, was rejected because the text did not support an added limitation. On interim relief, substantial pre-deposits already made and bank guarantees furnished justified waiver of the remaining pre-deposit of differential duty and penalties.

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Issues: (i) Whether the exemption notification governing the Pass Book Scheme was to be applied on the basis of the inputs actually used in the exported product, so as to determine the applicable Standard Input Output Norms; (ii) Whether waiver of the remaining pre-deposit was justified having regard to the amounts already deposited and the bank guarantees furnished.

Issue (i): Whether the exemption notification governing the Pass Book Scheme was to be applied on the basis of the inputs actually used in the exported product, so as to determine the applicable Standard Input Output Norms.

Analysis: The notification was required to be read as confining credit to those inputs actually used in the export product. The dispute turned on whether exporters who purchased grey fabrics and got them processed before making up the final goods could be denied the benefit claimed under the relevant SION, while exporters who directly procured processed fabrics could retain it. The language of the notification did not justify the restrictive interpretation adopted by the department, and the proper construction favoured the applicants.

Conclusion: The applicable SION had to be determined on the basis of the inputs actually used in the export product, and the departmental interpretation was rejected.

Issue (ii): Whether waiver of the remaining pre-deposit was justified having regard to the amounts already deposited and the bank guarantees furnished.

Analysis: The applicants had already made substantial pre-deposits and had also furnished bank guarantees. In that background, requiring further pre-deposit of the disputed duty and penalties was not warranted at the interim stage.

Conclusion: Waiver of the remaining pre-deposit of the differential duty and penalties was granted.

Final Conclusion: The applicants obtained interim relief on the correct construction of the exemption notification, and the outstanding duty and penalty pre-deposit was waived.

Ratio Decidendi: An exemption notification in a scheme of this nature must be construed according to its plain language and the benefit cannot be curtailed by adding a restrictive condition not found in the text, especially where the applicants have already made substantial deposits and furnished security.

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