Deemed Credit for Textile Processors allowed where yarn or fibres are contained in processed fabrics under the notification scheme.

Under Notification No. 6/2002-C.E. (N.T.) read with Rule 11 of the Cenvat Credit Rules, deemed credit was available where declared inputs such as yarn or fibres were contained in the processed final product, even if the intermediate fabrics were not separately listed as inputs. The scheme treated deemed credit as a substitute for duty paid on textile inputs, and a restrictive reading that excluded processors of grey cotton and man-made fabrics would undermine the notification's purpose and render it partly redundant. On that construction, denial of deemed credit was unsustainable.

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Issues: Whether independent processors of grey cotton and man-made fabrics were entitled to deemed credit under Notification No. 6/2002-C.E. (N.T.) even though fabrics were not separately listed as inputs, where the declared inputs were yarn or fibres contained in the processed fabrics.

Analysis: Rule 11 of the Cenvat Credit Rules, 2002 empowered the Central Government to declare inputs on which duty would be deemed to have been paid and to allow credit even where the declared inputs were not used directly, so long as they were contained in the final products. The notification issued under that rule specified yarn and fibres as declared inputs for processed fabrics. The scheme was supported by the Budget speech and the Board circular, both of which treated deemed credit as substituting duty paid on yarn and other textile inputs. A construction that denied credit merely because fabrics were not separately listed as inputs would defeat the scheme and render the notification partly redundant.

Conclusion: The processors were eligible for deemed credit under Notification No. 6/2002-C.E. (N.T.), and the denial of credit was unsustainable.

Ratio Decidendi: Where a notification issued under the Cenvat Credit Rules declares yarn or fibres as inputs and the processed final product contains those declared inputs, deemed credit cannot be denied merely because the intermediate fabrics are not separately named as inputs in the notification.

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