Deemed duty-paid textile inputs under Notification No. 14/2002-CE support concessional duty without duty documents.

Notification No. 14/2002-CE was construed to allow the concessional duty benefit where textile fabrics were procured from the market without duty-paying documents, because Explanation II created a deeming fiction that such yarn or fabrics would be treated as duty paid. The condition requiring appropriate duty payment had to be read harmoniously with that explanation, and the benefit was linked to non-availment of Cenvat credit rather than documentary proof of duty payment. A literal reading that excluded market-purchased grey fabrics would make the explanation redundant and create repeated duty incidence in the textile processing chain, so the demand was held unsustainable.

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Issues: Whether the appellants were entitled to the concessional rate of duty under Notification No. 14/2002-CE where the textile fabrics used as inputs were procured from the market and no duty-paying documents were produced, having regard to Explanation II and the condition in the notification.

Analysis: The condition in the notification requiring use of textile fabrics on which appropriate duty had been paid had to be read harmoniously with Explanation II, which created a deeming fiction that textile yarn or fabrics would be treated as duty paid even without production of documents evidencing payment of duty. The legislative intent, as reflected in the budget explanatory notes, was to grant the benefit so long as Cenvat credit was not availed, and not to insist on documentary proof of duty payment. A literal construction that treated all market-purchased grey fabrics as non-duty paid would render the explanation redundant and produce an anomalous result by forcing repeated duty incidence in the textile processing chain.

Conclusion: The appellants were entitled to the benefit of the notification and the fabric received for processing had to be treated as deemed duty paid. The demand was unsustainable.

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