Deemed credit on processed fabrics was available where partially processed inputs had already suffered duty and were finally processed.

Processed fabrics made from partially processed fabric inputs could qualify for deemed credit under Notification No. 29/96-C.E. (N.T.) when the inputs had suffered actual duty and were later cleared after final processing on payment of duty. The notification barred deemed credit only where Rule 57A(1) credit had been taken, except for processed fabrics received as input; read with the trade notice and Board clarification, this preserved actual duty-paid credit on partially processed fabrics while allowing deemed credit on the processed fabrics cleared. Denial of the benefit was therefore unsustainable, and the assessee was entitled to the claimed credit.

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Issues: Whether processed fabrics manufactured from partially processed fabrics were eligible for deemed credit under Notification No. 29/96-C.E. (N.T.), and whether the denial of such benefit was justified.

Analysis: The notification excluded a manufacturer from availing deemed credit only where credit in respect of inputs under Rule 57A(1) was taken, except in the case of processed fabrics received as input. The trade notice issued on the basis of Board clarification also recognised that where the inputs were partially processed fabrics and were cleared after final processing on payment of duty, credit of actual duty paid earlier on such partially processed fabrics would remain available under Rule 57A(1). Reading the notification and the trade notice together, the legal position was that a manufacturer clearing processed fabrics from partially processed fabric inputs could avail input credit on the partially processed fabrics and deemed credit on the processed fabrics cleared.

Conclusion: The denial of deemed credit was unsustainable and the assessee was entitled to the benefit claimed.

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