Deemed credit for composite mills upheld; non-disclosure of job-work weaving did not justify extended limitation.

Notification No. 29/96-C.E. (N.T.) was construed to allow deemed credit to a composite mill manufacturing processed fabrics, and the benefit was not confined to fabrics received for processing on job work basis. A departmental restriction on actual credit was held inapplicable because the actual credit had been taken on fibre used in yarn manufacture, not on the final product covered by the notification. On limitation, the absence of any statutory duty to disclose that unprocessed fabrics were woven by outside weavers meant non-disclosure could not amount to suppression or concealment with intent to evade duty, so the extended period was unavailable. The demand and penalty were therefore unsustainable.

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Issues: (i) Whether a composite mill manufacturing processed fabrics from unprocessed fabrics got woven through outside weavers on job work basis was entitled to deemed credit under Notification No. 29/96-C.E. (N.T.), dated 3-9-1996. (ii) Whether the demand was barred by limitation in the absence of suppression or concealment of material facts.

Issue (i): Whether a composite mill manufacturing processed fabrics from unprocessed fabrics got woven through outside weavers on job work basis was entitled to deemed credit under Notification No. 29/96-C.E. (N.T.), dated 3-9-1996.

Analysis: The notification granted deemed credit to specified processed fabrics and also dealt separately with composite mills. The exclusion in paragraph 4 applied to a manufacturer other than a composite mill. The assessee fell within the definition of composite mill. The text of the notification did not confine deemed credit only to unprocessed fabrics received for processing on job work basis. The restriction in the departmental circular regarding availing actual credit on inputs was also held inapplicable, since the actual credit was taken on fibre used in the manufacture of yarn, and yarn was not the final product covered by the notification.

Conclusion: The assessee was entitled to deemed credit under Notification No. 29/96-C.E. (N.T.), dated 3-9-1996.

Issue (ii): Whether the demand was barred by limitation in the absence of suppression or concealment of material facts.

Analysis: Since the notification itself did not require disclosure of the fact that the unprocessed fabrics had been woven by outside weavers on job work basis, the assessee was under no duty to intimate that circumstance as a condition for availing the credit. In the absence of any such statutory obligation, non-disclosure could not amount to suppression or concealment with intent to evade duty, and the extended period was not available.

Conclusion: The demand was barred by limitation.

Final Conclusion: The demand and penalty were unsustainable and the appeal succeeded in full.

Ratio Decidendi: Where a notification granting deemed credit does not restrict its benefit to a particular mode of receipt of goods, and no statutory duty of disclosure is cast on the assessee, credit cannot be denied on a narrow departmental construction or sustained by invoking extended limitation without proof of suppression.

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