Concessional duty on processed knitted fabrics upheld where grey market-purchased fabric was treated as deemed duty paid.

Concessional duty under Notification No. 14/02-C.E. applied to processed knitted or crocheted fabrics, other than cotton, when made from fabrics treated as duty paid. Explanation II, read with Explanation VII, deemed textile yarn, fibre or fabric to be duty paid without documentary proof, and the Board circular took market-purchased yarn, fibre and fabric as deemed duty paid. Grey fabric bought from the market was not to be treated as non-duty paid merely because it was exempt under another entry. Processed knitted fabrics manufactured from such grey fabric therefore satisfied the notification conditions and were eligible for the concessional rate.

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Issues: Whether processed knitted fabrics manufactured out of grey or unprocessed fabrics purchased from the market were eligible for concessional duty under Notification No. 14/02-C.E. dated 1-3-2002.

Analysis: The notification granted concessional duty to processed knitted or crocheted fabrics, other than cotton, if made from fabrics on which appropriate duty had been paid. Explanation II, read with Explanation VII, deemed textile yarn, fibre or fabric to be duty paid for the purposes of the notification even without production of documentary proof. The Board circular also treated yarn, fibre and fabrics bought from the market as deemed duty paid. The condition attached to the exemption for unprocessed knitted fabrics was not an unconditional exemption, and market-purchased grey fabric could not be treated as non-duty paid merely because it was exempt under another entry. The processed fabrics manufactured from grey fabric purchased from the market therefore satisfied the notification conditions.

Conclusion: The concessional rate of duty was admissible on the processed fabrics made from grey fabric purchased from the market, and the Revenue's challenge failed.

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