Deemed credit on grey fabrics as inputs allowed under the applicable notification, not the provision for finished goods in stock.

Grey fabrics held as inputs, not finished goods, were eligible for deemed credit under Notification No. 35/2003-C.E. (N.T.) when the prescribed declaration was filed. Notification No. 6/2002-C.E. (N.T.) was treated as governing finished goods lying in stock, whereas credit on inputs contained in fabrics had to be considered under the provision applicable to such inputs. The clarification issued by the Government was read as supporting credit on inputs and on inputs contained in finished goods in stock. On that basis, the benefit under Notification No. 35/2003-C.E. (N.T.) was correctly allowed.

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Issues: Whether the respondents were entitled to deemed credit on grey fabrics lying in stock as inputs under Notification No. 35/2003-C.E. (N.T.) instead of being governed by Notification No. 6/2002-C.E. (N.T.).

Analysis: The credit claimed related to grey fabrics, which were used as inputs for the manufacture of man-made fabrics and cotton fabrics. The distinction drawn was that Notification No. 6/2002-C.E. (N.T.) applied to finished goods lying in stock, while the credit on inputs contained in fabrics had to be determined under the relevant provision governing such inputs. On the facts found, the grey fabrics were inputs and not the finished products of the respondents, and the clarification issued by the Government supported allowance of credit on inputs and inputs contained in finished goods lying in stock on the prescribed declaration being filed.

Conclusion: The respondents were correctly granted the benefit of Notification No. 35/2003-C.E. (N.T.), and the Revenue's challenge failed.

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