Deemed credit cannot be denied to a processor solely because the exporter's rebate claim was supported by forged documents.

Deemed credit under Notification No. 6/2002-CE (NT) could not be denied to a processor merely because the merchant exporter's rebate claim was based on forged documents. The Tribunal held that where the processor had received grey fabrics, processed them, and cleared the finished goods on payment of duty, the exporter's fraud did not by itself displace the processor's entitlement. In the absence of evidence showing non-receipt of inputs or non-duty-paid clearance of the processed goods, the credit remained allowable and the demand, interest, and penalties could not be sustained.

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Issues: Whether the appellant was entitled to deemed credit under Notification No. 6/2002-CE (NT) dated 01.03.2002 notwithstanding the fraud committed by the merchant exporter and the alleged non-transport of grey fabrics.

Analysis: The dispute turned on whether the credit availed by the processor could be denied merely because the exporter's rebate claims were found to be based on forged documents. The Tribunal held that the appellant had received grey fabrics, processed them, and cleared the finished goods on payment of duty. The fact that the exporter's rebate documents were forged did not, by itself, establish that the appellant had not received the inputs or that the processed fabrics were not cleared on duty. Following earlier Tribunal decisions on similar facts, it was held that the credit was allowable and that correlation issues in the exporter's fraud did not defeat the processor's entitlement.

Conclusion: The appellant was entitled to deemed credit under the notification, and the demand, interest, and penalties could not be sustained.

Final Conclusion: The impugned order was set aside and the appeal was allowed.

Ratio Decidendi: Deemed credit cannot be denied to a processor who has received and processed goods and cleared the final product on duty merely because the merchant exporter's rebate claim was based on forged documents, unless the denial is supported by evidence displacing the processor's actual receipt and duty-paid clearance.

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