Composite textile mill exemption under Notification 14/2002-C.E. upheld despite nil duty on captive consumed inputs.

Composite textile mills remained eligible for the concessional exemption under Notification No. 14/2002-C.E. for grey processed fabric even though captive consumption of cotton yarn and base fabric was exempt under Notification No. 22/96-CE. The Tribunal held that the requirement of payment of appropriate duty was satisfied where the duty payable, read with the applicable exemption, was nil, and that the intermediate exemption did not defeat the later notification's benefit. Relying on the Board circular and consistent treatment of similarly placed units, it found the contrary departmental view unsustainable and upheld the exemption.

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Issues: Whether the assessee was entitled to the benefit of Notification No. 14/2002-C.E. dated 01.03.2002 in respect of grey processed fabric when the captive consumption of cotton yarn was exempted under Notification No. 22/96-CE dated 23.07.1996.

Analysis: The Tribunal held that the exemption under Notification No. 22/96-CE for captively consumed yarn and base fabric did not defeat the condition in Notification No. 14/2002-C.E. requiring payment of appropriate duty, because the duty payable read with the applicable exemption notification was nil. Reliance was placed on the Board circular clarifying that composite textile mills remained entitled to the concessional notification even where the intermediate products were exempted from duty, and the Tribunal also noted that similarly placed units had been extended the benefit. The contrary view of the Commissioner was found unsustainable.

Conclusion: The assessee was entitled to the benefit of Notification No. 14/2002-C.E., and the denial of exemption was set aside.

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