Selection of input encoding

XSLT processor select encoding automatically from XML declaration or encoding declaration

not every XML tool supports your preferred encoding

many XSLT processors allow you to change parser

e.g. you can use Crimson parser with Saxon:

java -cp /path/to/saxon.jar:/path/to/crimson.jar com.icl.saxon.StyleSheet 
     -x org.apache.crimson.parser.XMLReaderImpl 
     -y org.apache.crimson.parser.XMLReaderImpl parameters

meta tag with output encoding is placed automatically in generated HTML