Deemed credit on grey fabrics remains admissible where duty-paid declared inputs are contained in the final product.

Deemed credit was held admissible on grey fabrics received for processing under Chapter Heading 5207.20 because they were manufactured from duty-paid yarn and fibres that were declared inputs. The Board's circular clarified that deemed credit is available even when declared inputs are contained in the final product rather than used directly in manufacture, and that specific mention of the intermediate goods in the notification is not required. On that basis, the Revenue's objection failed and the credit remained allowable.

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Issues: Whether deemed credit was admissible on grey fabrics received for processing and falling under Chapter Heading 5207.20, in view of Notification No. 6/2002-C.E. (N.T.) dated 01.03.2002 and Circular No. 702/18/2003-CX dated 13.03.2003.

Analysis: The authorities below had allowed credit relying on the Board's circular, which clarified that although grey fabrics were not specifically included as declared inputs in the notification, they were made out of duty-paid yarn/fibres that were declared inputs and had suffered excise duty. The circular further clarified that deemed credit is admissible even where the declared inputs are not used directly in manufacture, but are contained in the final product. On that basis, the grey fabrics were treated as eligible for deemed credit.

Conclusion: The deemed credit availed on grey fabrics was admissible and the Revenue's challenge failed.

Ratio Decidendi: Where a Board circular clarifies that goods manufactured from duty-paid declared inputs remain eligible for deemed credit even if the inputs are contained in, rather than directly used in, the final product, the credit cannot be disallowed merely because the intermediate goods are not expressly named in the notification.

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