Deemed credit on job-work processed fabrics remained admissible because returned goods were not treated as fresh inputs.

Grey fabrics initially received as input and sent for part processing to a job worker remained the same input stream when returned; their re-entry did not constitute receipt of a fresh input under Explanation II to Notification No. 29/96-C.E. (N.T.). Explanation II was held to apply only where partly processed duty-paid fabrics are directly supplied as such to the assessee. The reasoning that a contrary view would unjustifiably differentiate integrated processors from those using job work was accepted. Deemed credit therefore remained admissible and the revenue's challenge to denial of credit failed.

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Issues: Whether deemed credit under Notification No. 29/96-C.E. (N.T.) dated 23-9-96 was inadmissible because the fabrics received back from the job worker were processed goods and whether the second receipt of such fabrics constituted receipt of a fresh input within Explanation-II.

Analysis: The relevant notification did not define the scope of the term "input". The respondents initially received grey fabrics and carried out part of the processing in their factory, while the remaining processes were done by a job worker. On return from the job worker, the fabrics were treated as a continuation of the same input stream and not as a new and independent input. Explanation-II was held applicable only where partly processed duty-paid fabrics were directly supplied to the respondents as such. The reasoning that denial of credit would discriminate between integrated and unintegrated processors was also accepted.

Conclusion: The second entry of the fabrics from the job worker did not amount to receipt of a fresh input for the purposes of Explanation-II, and deemed credit remained admissible.

Final Conclusion: The revenue appeal failed and the denial of deemed credit was upheld as unsustainable.

Ratio Decidendi: Where grey fabrics are initially received as input and the partially processed fabrics are merely returned after intermediate job-work processing, the re-entry of such goods is not a fresh receipt of input so as to attract the exclusion in Explanation-II to the deemed credit notification.

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