Deemed credit for grey fabrics after scouring upheld, and alleged extra job charges held not separately dutiable.

Grey fabrics that remained grey after scouring were held not to become processed fabrics for the purpose of excluding deemed credit under Notification No. 29/96-C.E., because scouring was treated as a cleansing treatment and not further processing. The assessee therefore satisfied the notification conditions and was entitled to deemed credit. On valuation, where duty had already been discharged on the processed fabrics on the declared market price, supported by joint declarations and price lists, alleged additional processing charges did not attract separate central excise duty. The impugned order was set aside, the appeals were allowed, and consequential penalties were deleted.

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Issues: (i) Whether the assessee was entitled to deemed credit under Notification No. 29/96-C.E. in respect of grey fabrics received after scouring from the merchant manufacturer; and (ii) whether additional processing charges received by the job worker were liable to central excise duty when duty had been paid on the market price declared by the merchant manufacturer.

Issue (i): Whether the assessee was entitled to deemed credit under Notification No. 29/96-C.E. in respect of grey fabrics received after scouring from the merchant manufacturer.

Analysis: The notification granted deemed credit where the inputs and final products fell within the prescribed textile headings. The dispute turned on whether scouring converted grey fabrics into processed fabrics so as to exclude the assessee from the notification. Scouring was treated as a cleansing or washing treatment to remove impurities and not as processing that changes grey fabrics into processed fabrics. Explanation II to the notification excluded cases where processed fabric itself was used as an input for further processing, which did not apply on the facts. The goods continued to remain grey fabrics after scouring, and the assessee therefore satisfied the notification conditions.

Conclusion: The assessee was entitled to deemed credit under Notification No. 29/96-C.E.

Issue (ii): Whether additional processing charges received by the job worker were liable to central excise duty when duty had been paid on the market price declared by the merchant manufacturer.

Analysis: The record showed that duty had been discharged on the processed fabrics on the basis of the market price declared by the merchant manufacturer, supported by joint declarations and price lists. In that situation, the alleged additional charges did not establish any further duty liability, since the declared selling price already reflected the value of the processed goods. The lower authorities had not disputed the factual basis of the declared valuation.

Conclusion: The additional processing charges were not separately liable to central excise duty on the facts of the case.

Final Conclusion: The impugned order was unsustainable and was set aside, resulting in allowance of the appeals and deletion of the consequential penalties.

Ratio Decidendi: Grey fabrics that remain grey fabrics after scouring do not become processed fabrics for the purpose of excluding deemed credit under the textile notification, and where duty is already paid on the declared market price of the processed goods, no separate duty can be fastened on alleged additional job charges.

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