Exemption notification legal fiction preserves benefit even where inputs were not separately shown as duty paid.

An exemption under Notification No. 14/2002-CE could not be denied merely because the intermediate or input goods were not separately shown as duty paid. The controlling interpretation treated the notification's explanation as creating a legal fiction for textile goods, so the condition of appropriate duty was satisfied within the scheme even without independent documentary proof of duty on the inputs. On that basis, the demand for duty, interest and penalty based on the contrary view was not sustainable.

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Issues: Whether the assessees were entitled to exemption under Notification No. 14/2002-CE where the intermediate or input goods had not suffered excise duty, and whether the duty demand, interest and penalty could survive on that basis.

Analysis: The liability turned on the construction of the exemption notification and the effect of the deeming provision introduced for textile goods. The controlling position had already been settled by the Supreme Court, which held that the explanation to the notification created a legal fiction and that the benefit of exemption could not be denied merely because documentary proof of duty payment on inputs was absent or because the inputs were not independently subjected to duty. The later clarification and the Larger Bench view, as approved by the Supreme Court, reinforced that the condition of appropriate duty was satisfied for the purpose of the notification scheme.

Conclusion: The assessees were entitled to the exemption under Notification No. 14/2002-CE, and the demand of duty, interest and penalty based on the contrary view could not be sustained.

Ratio Decidendi: Where an exemption notification creates a legal fiction deeming inputs or intermediates to have suffered duty for the purpose of the exemption condition, the benefit cannot be denied solely because the inputs were exempt or not shown as duty paid.

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