Textile exemption notification applies when no CENVAT credit is taken and duty-paid status is deemed by legal fiction.

Knitted garments made from duty-paid yarn qualified for Notification No. 15/2002-CE where no CENVAT credit was taken, because Explanation II created a legal fiction deeming textile yarns or fabrics to be duty paid even without documentary proof of duty payment. The optional textile duty scheme allowed assessees either to avail credit and pay concessional duty or forgo credit and obtain exemption, and the explanatory material showed that proof of actual payment was not intended to be insisted upon. The assessees having followed the no-credit route, the exemption was available and denial of the notification benefit was unsustainable.

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Issues: Whether knitted garments were entitled to the benefit of Notification No. 15/2002-CE where the fabrics were manufactured from duty-paid yarn, no CENVAT credit was taken, and Explanation II deemed textile yarns or fabrics to be duty paid even without documentary proof of payment of duty.

Analysis: The notifications introduced an optional textile duty scheme under which assessees could either avail CENVAT credit and pay duty at the concessional rate, or forgo credit and obtain complete exemption. The explanatory notes showed that the intention behind Explanation II was to permit clearance without insisting on proof of payment of duty and to create a legal fiction that yarns or fabrics were duty paid for the purposes of the notification. That fiction was meant to operate fully and had to be given its logical effect. Condition No. 3 was also understood as inserted to address the earlier interpretation of the phrase requiring actual payment of duty, while the assessee in the present cases had not taken credit and satisfied the scheme contemplated by the notifications.

Conclusion: The benefit of Notification No. 15/2002-CE was available to the assessees, and the denial of exemption was unsustainable.

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