Deemed credit for non-composite mills applies where declared inputs are contained in grey fabric used to make the final product.

Deemed credit under Notification No. 6/2002-C.E. (N.T.) is available to a non-composite mill where the declared inputs are not directly used in the final processed fabric but are contained in grey fabric used as an intermediate product. Rule 11 of the Cenvat Credit Rules, 2002 permits deemed credit when the declared inputs are contained in the final product, and the notification distinguishes between composite and non-composite mills on that basis. Grey fabric made from yarn or fibre satisfies the scheme because the final processed fabric contains those inputs; a narrower reading would make the non-composite mill entry redundant. Deemed credit is therefore correctly allowed.

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Issues: Whether deemed credit under Notification No. 6/2002-C.E. (N.T.) is available to a non-composite mill where the declared inputs are not directly used in the final processed fabric but are contained in grey fabric used as an intermediate product.

Analysis: Rule 11 of the Cenvat Credit Rules, 2002 permits deemed credit even where the declared inputs are not used directly by the manufacturer of the final products, provided they are contained in the final products. The notification was issued under that rule and makes a distinction between composite mills and non-composite mills. Grey fabric, though not expressly listed as an input, is made from yarn or fibre which are the declared inputs, and the final processed fabric contains those inputs. A contrary construction would render the entry for non-composite mills redundant and defeat the scheme of the notification.

Conclusion: Deemed credit was correctly allowed, and the Revenue's challenge fails.

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