Deemed duty-paid textile inputs can satisfy exemption conditions where the notification's legal fiction applies to processed knitted fabrics.

Processed knitted fabrics were held entitled to exemption under Notification No. 14/2002-CE because Explanation II deemed textile yarns or fabrics to have been duty paid even without proof of actual payment. The condition requiring duty-paid inputs had to be read with that legal fiction, so exemption could not be denied merely because the grey fabrics were received from another unit under an exemption scheme. The reasoning followed the Larger Bench in Arvind Products Ltd. and the Supreme Court in Sports & Leisure Apparel Ltd., which gave full effect to the deeming provision.

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Issues: Whether processed knitted fabrics were entitled to exemption under Notification No. 14/2002-CE dated 01/03/2002 despite grey fabrics having been received from another unit without payment of excise duty, in view of Explanation II deeming textile yarns or fabrics to have been duty paid.

Analysis: The exemption was denied on the footing that condition No. 3 required duty-paid input fabrics. However, Explanation II to the notification created a legal fiction that textile yarns or fabrics shall be deemed to have been duty paid even without documentary proof of actual duty payment. The condition was therefore to be read in light of that deeming provision, and the availability of exemption could not be denied merely because the grey fabrics were cleared under the same exemption scheme. The Larger Bench decision in Arvind Products Ltd. and the Supreme Court decision in Sports & Leisure Apparel Ltd. recognized that the notification intended such fabrics to be treated as duty paid for the purpose of the exemption.

Conclusion: The grey fabrics were deemed duty paid, condition No. 3 stood satisfied, and the appellant was entitled to exemption under Notification No. 14/2002-CE.

Ratio Decidendi: Where an exemption notification contains an explanation deeming textile yarns or fabrics to have been duty paid, the beneficiary cannot be denied the exemption on the ground that the input fabrics were not actually duty paid, since the legal fiction must be given full effect.

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