Deemed credit on embedded inputs supports export rebate for processed cotton fabrics where duty incidence passes through grey fabrics.

Export rebate on processed cotton fabrics was upheld because deemed credit under the relevant notifications treated yarn, dyes, chemicals and packing material as inputs and cotton fabrics as final products. Credit could not be denied merely because the inputs were not directly used in the processing stage of grey fabrics, since the duty incidence on those inputs was embedded in the intermediate grey fabrics used to manufacture the exported product. Prior Tribunal precedent on the same factual matrix was followed, and the rebate claim was sustained.

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Issues: Whether the respondents were entitled to rebate on exported processed cotton fabrics when the duty paid on the final product was discharged through deemed credit, and whether credit of duty paid on yarn, dyes, chemicals and packing material used in the manufacture of grey fabrics could be denied on the ground that the grey fabrics were non-duty paid and the inputs were not directly used in the processing stage.

Analysis: The dispute had already been considered in earlier Tribunal decisions dealing with the same factual situation. The processed fabrics were exported on payment of duty, and the deemed credit scheme under the relevant notifications treated yarn, dyes and chemicals as inputs and cotton fabrics as final products. The fact that the processors did not directly use yarn and other materials in the processing of grey fabrics did not defeat entitlement, because the duty incidence on such inputs was embedded in the grey fabrics used for further processing. The earlier decisions holding that deemed credit was available where duty paid yarn formed part of the final processed fabrics were found fully applicable.

Conclusion: The respondents were entitled to the rebate claim, and the Revenue's appeals were rejected.

Final Conclusion: The orders granting rebate were affirmed, and the benefit of deemed credit for duty-paid inputs embedded in grey fabrics was upheld for the exported processed fabrics.

Ratio Decidendi: Where the same issue has already been settled by binding or consistently followed Tribunal precedent, and the factual matrix is identical, deemed credit cannot be denied merely because the inputs were not directly used at the final processing stage if the duty incidence on those inputs is contained in the intermediate goods used for manufacture of the exported product.

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