Legal fiction in exemption notifications can not be ignored; benefit allowed without proof of prior duty payment.

An exemption notification that expressly creates a legal fiction deeming textile yarn or fabrics to be duty paid must be applied with full effect, so exemption on processed knitted fabrics and knitted garments cannot be denied merely because documentary proof of prior duty payment on grey fabrics is not produced. The settled position of the larger bench and the Supreme Court left no room to insist on such proof as a condition for benefit under the notifications. The exemption was therefore available, the demand was set aside, and the assessee's appeal succeeded.

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Issues: Whether the assessee was entitled to exemption under Notification No. 14/2002-CE and Notification No. 15/2002-CE on processed knitted fabrics and knitted garments notwithstanding absence of documentary proof of duty payment on the grey fabrics.

Analysis: The exemption notifications contained Explanation II, which created a legal fiction that textile yarn or fabrics would be treated as duty paid even without production of proof of duty payment. The condition in the notifications was to be read in the light of that fiction and the words used in the notification could not be ignored. The issue had already been settled by the larger bench and the Supreme Court, which held that the exemption was available to the assessees and that the fiction had to be given full effect. The contention based on denial of exemption for want of proof of duty paid on inputs was therefore no longer open.

Conclusion: The assessee was entitled to the exemption under the notifications, and the demand against the assessee was set aside.

Final Conclusion: The assessee succeeded in its appeal, while the Revenue's appeal failed, resulting in grant of exemption relief and affirmation of the assessee's entitlement to the notification benefit.

Ratio Decidendi: Where an exemption notification expressly creates a legal fiction deeming duty-paid status, that fiction must be given full effect and the benefit of exemption cannot be denied merely because documentary proof of prior duty payment is not produced.

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