Deemed credit on duty-paid inputs cannot be denied merely because the intermediate product was exempt or unnamed in the notification.

Deemed credit under Notification No. 7/2001-C.E. could not be denied merely because unprocessed pile fabrics were not expressly named as an input, since the notification operated on the basis that specified inputs had gone into manufacture of the processed fabric. Credit also could not be refused because no duty was paid on the intermediate unprocessed pile fabrics, as duty-paid viscose yarn was used and the processed pile fabrics were cleared on payment of duty. The impugned order was set aside and relief was granted to the assessee.

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Issues: (i) Whether deemed credit under Notification No. 7/2001-C.E. dated 1-3-2001 could be denied on the ground that unprocessed pile fabrics were not specifically mentioned as an input. (ii) Whether deemed credit could be denied because no duty was paid on the intermediate product, namely unprocessed pile fabrics.

Issue (i): Whether deemed credit under Notification No. 7/2001-C.E. dated 1-3-2001 could be denied on the ground that unprocessed pile fabrics were not specifically mentioned as an input.

Analysis: The Notification was treated as operating on the footing that specified inputs had gone into the manufacture of the processed fabric. The absence of an express mention of unprocessed pile fabrics as an input did not restrict the scope of the Notification merely because the wording differed from an earlier notification. The denial of credit on this ground was therefore not sustainable.

Conclusion: The first ground for denial was rejected and deemed credit was held admissible in favour of the assessee.

Issue (ii): Whether deemed credit could be denied because no duty was paid on the intermediate product, namely unprocessed pile fabrics.

Analysis: Unprocessed pile fabrics were only an intermediate product. The viscose yarn used as input was duty paid and the processed pile fabrics were cleared on payment of duty. Credit could not be denied merely because the intermediate product itself suffered no duty, as credit is available where duty paid inputs are used in the manufacture of an intermediate product that is further used in the manufacture of a dutiable final product.

Conclusion: The second ground for denial was rejected and deemed credit was held admissible in favour of the assessee.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Deemed credit cannot be denied where duty paid inputs are used in manufacture and the intermediate product is consumed in the production of a dutiable final product, and an unexpressed input description in the notification does not by itself justify denial when the notification is otherwise applicable.

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