Strict reading of deemed Modvat credit exclusion preserves credit for semi-processed fabrics in continuing job-work manufacture.

An exclusion in a deemed Modvat credit notification for processed fabrics used as input for further processing was read strictly. Where grey fabrics were first received and only an intermediate processing stage was carried out through another job worker before completion of manufacture, the resulting semi-processed fabrics were not treated as processed fabrics within the exclusion. The benefit of deemed credit under Notification No. 29/96-CE (N.T.) therefore remained available, and denial of credit was held unsustainable.

---

---

Issues: Whether a processor of fabrics working on job-work basis, who receives grey fabrics, sends semi-processed fabrics to another job worker for an intermediate process, and then completes the processing, is disentitled to deemed Modvat credit under Notification No. 29/96-CE (N.T.) on the ground that processed fabrics are used as input for further processing.

Analysis: The relevant notification grants deemed credit for dyes, chemicals and consumables used in the manufacture of processed fabrics, but excludes cases where processed fabrics are themselves used as inputs for further processing. The decisive question was whether the semi-processed fabrics sent out for one intermediate process could be treated as processed fabrics so as to attract the exclusion. The Tribunal applied the earlier view that where the assessee initially receives grey fabrics and the subsequent receipt from a job worker is only after partial processing for completion of the full manufacturing process, such receipt cannot be treated as receipt of processed fabrics within the meaning of the exclusion. The exclusionary explanation was read strictly and not in a manner that would defeat the benefit where the fabric remained part of the continuing manufacturing chain.

Conclusion: The assessee was held entitled to the benefit of deemed Modvat credit and the denial of credit was not sustainable.

Final Conclusion: The appeal succeeded and the impugned denial of deemed credit was set aside, with consequential relief.

Ratio Decidendi: An exclusion in a credit notification for processed fabrics used as input for further processing does not apply where grey fabrics are initially received and only an intermediate processing stage is carried out through another job worker before the manufacturing process is completed.

---