Duty-paid yarn exemption applies despite an intermediate twisting stage where the basic input remains duty paid and credit is not taken.

Dyed polyester filament yarn was treated as eligible for exemption under Notification No. 6/2002-CE because Condition No. 31 required manufacture out of duty-paid texturised or draw-twisted yarn and compliance with the CENVAT credit bar in dyeing. The intervening twisted yarn stage did not change the duty-paid character of the principal input, and the notification was read as a whole to focus on the basic input rather than every intermediate stage. On that reasoning, the existence of an exempt or nil-rated intermediate process did not defeat the exemption, and the condition was held satisfied.

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Issues: Whether dyed polyester filament yarn was entitled to exemption under Notification No. 6/2002-CE dated 01.03.2002 when the basic input was duty-paid texturised yarn but an intermediate twisted yarn stage was involved, and whether condition No. 31 stood satisfied.

Analysis: Condition No. 31 required the goods to be manufactured out of texturised or draw-twisted yarn falling under Chapter 54 on which appropriate duty had already been paid, and no CENVAT credit was to be availed in the dyeing process. The decisive fact was that the final dyed yarn was manufactured from duty-paid texturised yarn, and the intervening twisting stage did not alter the duty-paid character of the principal input. The exemption notification was read as a whole, and the existence of an intermediate exempt stage was held not to defeat the exemption where the basic input remained duty paid and no input credit was taken. The cited precedents supported the view that the relevant test is whether the final product is manufactured out of duty-paid yarn, not whether duty was paid at every intermediate stage.

Conclusion: Condition No. 31 was satisfied, and the exemption was available to the assessee.

Ratio Decidendi: Where an exemption notification grants relief to goods manufactured out of duty-paid yarn, the presence of an intermediate process involving exempt or nil-rated yarn does not defeat the exemption if the basic input is duty paid and the prescribed credit bar is complied with.

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