Deemed credit on exempt fabrics remains available when declared inputs are contained in the final processed product.

Deemed credit is available on grey fabrics and other declared inputs used in processing exempt fabrics exported under bond where those inputs are contained in the final product, even if they are not directly used by the manufacturer. The scheme is intended to address the absence of actual duty credit on exempt goods, and the relevant notifications treat yarn, dyes, chemicals and cotton fabrics as covered inputs and final products. On that reasoning, the absence of a separate declaration for grey fabrics did not defeat eligibility when the underlying inputs were embedded in the processed fabrics. The refund sanctioned by the lower authority was therefore upheld and the Revenue challenge failed.

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Issues: Whether deemed credit was available on grey fabrics and other inputs used in the manufacture of processed fabrics exported under bond, and whether the Revenue had any ground to interfere with the refund sanctioned by the lower authority.

Analysis: Grey fabric was exempt from duty, and the scheme of deemed credit was intended to address the absence of actual credit in such cases. The relevant notifications declared yarn, dyes and chemicals as inputs and cotton fabrics as final products. The Tribunal had already held that where the declared inputs are contained in the final products, deemed credit is available even if the inputs are not directly used by the manufacturer of the final products. On that reasoning, the claim that grey fabrics were not declared as eligible inputs did not dislodge the availability of deemed credit when the relevant inputs were contained in the grey fabrics used for processing.

Conclusion: Deemed credit was held admissible, and the Commissioner (Appeals)'s order granting the refund was sustained.

Final Conclusion: The Revenue's challenge to the refund order failed, and the appeal stood rejected.

Ratio Decidendi: Deemed credit is available where declared inputs are contained in the final product, even if those inputs are not directly used in manufacture, and direct user declaration is not to claim such credit under the applicable notification and rule.

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