Exemption for knitted garments requires actual excise duty on fabrics; deeming fiction only waives proof, not the duty condition.

Exemption for knitted garments under Notification No. 15/2000-C.E. depended on manufacture from knitted or crocheted textile fabrics on which the appropriate excise duty had actually been paid and on which no Cenvat credit had been taken. The deeming explanation merely dispensed with proof of duty payment through documents; it did not remove the substantive condition of actual duty incidence on the fabrics. The later amendment deleting part of that condition was not treated as clarificatory or retrospective. On this interpretation, the duty demand was sustained, while penalties were set aside because the dispute was purely interpretational.

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Issues: Whether knitted garments manufactured from knitted fabrics exempt under another notification were eligible for exemption under Notification No. 15/2000-C.E. when the fabrics had not suffered actual payment of excise duty, whether the deeming explanation dispensed only with proof of duty payment, and whether penalties were sustainable.

Analysis: The exemption for articles of apparel knitted or crocheted was conditional upon manufacture from knitted or crocheted textile fabrics on which the appropriate duty of excise had been paid and on which no Cenvat credit had been taken. The deeming explanation only relaxed the requirement of producing duty-paying documents; it did not dispense with the substantive requirement that the fabrics must actually have suffered the appropriate duty. The later amendment deleting part of the condition was held not to be clarificatory or retrospective. Since the issue turned on interpretation of the exemption notification, penalty was found unwarranted.

Conclusion: The duty demand was sustained, but the penalties were set aside.

Ratio Decidendi: A deeming provision in an exemption notification that treats textile fabrics as duty paid only removes the need for documentary proof and does not override the substantive condition that the goods must have actually suffered the appropriate excise duty; where the dispute is purely interpretational, penalty is not justified.

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