Deemed Modvat credit for job-work fabric processing allowed where only an intermediate stage was outsourced under the notification.

Deemed Modvat credit under Notification No. 29/96-CE (NT) remained available to a fabric processor on job work, because grey fabrics were first received and only an intermediate processing stage was outsourced before completion. Explanation II, which excluded cases where processed fabrics were used as an input for further processing, was held not to apply where the fabrics were not received as fully processed goods within the exclusion. The denial of the notification benefit was therefore unsustainable, and the assessee was entitled to deemed credit.

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Issues: Whether a processor of fabrics on job work basis was entitled to deemed Modvat credit under Notification No. 29/96-CE (NT) when grey fabrics were received first and semi-processed fabrics were sent to another job worker for an intermediate process before completion of processing.

Analysis: The notification granted deemed credit for dyes, chemicals and consumables used in the manufacture of processed fabrics, but its Explanation II excluded cases where processed fabrics were used as an input for further processing. The Tribunal held that the assessee had initially received grey fabrics and the return of partly processed fabrics from another job worker after an intermediate process did not amount to receipt of processed fabrics within the meaning of the exclusion. The exclusion could not be construed so as to defeat the benefit merely because one intermediate process was outsourced on job work basis.

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

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