Deemed Modvat credit on unprocessed fabrics allowed where duty-paid yarn was woven by independent weavers, not the same mill.

Para 5 of Notification No. 7/2001 was read as limiting deemed Modvat credit only where unprocessed fabrics were woven in the same mill and credit had already been taken on the inputs contained in those fabrics. Where duty-paid yarn was used to make unprocessed fabrics through independent weavers, the exclusion did not apply. On that basis, the deemed credit was available on such unprocessed fabrics, since they were not fabrics woven in the assessee's own mill under the credit rules.

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Issues: Whether a composite mill was entitled to deemed Modvat credit under Notification No. 7/2001 on unprocessed fabrics manufactured from duty-paid yarn and sent to independent weavers, in the light of the exclusion in para 5 applicable to fabrics not woven in the same mill.

Analysis: Para 5 of Notification No. 7/2001 restricted the benefit to processed fabrics manufactured from unprocessed fabrics not woven in the same mill, subject to the condition that no credit had been taken in respect of the declared inputs contained in such unprocessed fabrics. The provision was read as excluding only unprocessed fabrics woven in the same mill where credit had already been availed on the inputs contained therein. On the facts, the unprocessed fabrics were woven by independent weavers from duty-paid yarn and were not goods woven in the mill on job work under the credit rules.

Conclusion: The deemed credit was available to the assessee on such unprocessed fabrics.

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