Process loss in manufacture may still qualify for exemption, but only if wastage occurred during the manufacturing process.

An adjudicating authority may address an assessee's reply that clinker was wasted during cement manufacture without going beyond the scope of the show cause notices. Process loss in manufacture is recognised, so exact material-to-output correlation is not required; clinker wasted or destroyed in the manufacturing process may still qualify as used in manufacture for exemption purposes. However, exemption is unavailable if the clinker was never taken into the manufacturing process. Because the actual factual position was not established, the exemption issue required fresh verification and was remanded for factual determination.

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Issues: (i) Whether the adjudicating authority travelled beyond the scope of the show cause notices while dealing with the plea of wastage of clinker in manufacture; (ii) Whether clinker shown as wasted or destroyed during conversion into cement was eligible for exemption under the notification.

Issue (i): Whether the adjudicating authority travelled beyond the scope of the show cause notices while dealing with the plea of wastage of clinker in manufacture.

Analysis: The notices alleged that a quantity of clinker had not been used in the manufacture of cement and had been shown as wasted or destroyed. When the assessee raised the plea of wastage during manufacture, the authority was entitled to meet that contention and record findings on it. Consideration of such a reply did not amount to travelling beyond the scope of the notices.

Conclusion: The objection that the lower authorities went beyond the scope of the show cause notices was rejected.

Issue (ii): Whether clinker shown as wasted or destroyed during conversion into cement was eligible for exemption under the notification.

Analysis: The governing principle is that process loss in manufacture is a recognized phenomenon and an exact mathematical correlation between raw material consumed and finished product is not required. If the clinker was taken into the manufacturing process and was wasted or destroyed in that process, the benefit of the notification would still apply to that quantity as having been used in the manufacture of cement. If, however, the quantity shown as wasted was never taken for use in manufacture, the exemption would not be available. The actual factual position had not been established and required verification by the adjudicating authority.

Conclusion: The question was remanded for factual determination as to whether the clinker was lost in the manufacturing process or was never used in manufacture.

Final Conclusion: The dispute on exemption could not be finally decided on the existing record and required fresh factual inquiry, while the procedural objection against the notices failed.

Ratio Decidendi: Raw material lost in the course of manufacture may still be regarded as used in manufacture for purposes of exemption, but entitlement depends on proof that the loss occurred during the manufacturing process.

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