Duty-paid input requirement bars exemption for ship-breaking scrap and affects aggregate-clearance computation under the small-scale notification.

Exemption under Notification No. 202/88-C.E. was available only to duty-paid inputs, so ship-breaking scrap cleared under exemption under Notification No. 44/93-C.E. did not qualify. The Tribunal followed earlier decisions on the same point and distinguished the Supreme Court decision cited by the assessee on facts. Because the scrap was ineligible for the first exemption, its clearances had to be included in the aggregate value for exemption under Notification No. 1/93-C.E., and the consequential demand was sustainable.

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Issues: (i) Whether ship-breaking scrap used as input was eligible for exemption under Notification No. 202/88-C.E. when such scrap had been cleared without payment of duty under Notification No. 44/93-C.E.; and (ii) whether denial of that exemption justified inclusion of the clearances in the aggregate value for exemption under Notification No. 1/93-C.E.

Issue (i): Whether ship-breaking scrap used as input was eligible for exemption under Notification No. 202/88-C.E. when such scrap had been cleared without payment of duty under Notification No. 44/93-C.E.

Analysis: The exemption under Notification No. 202/88-C.E. was available only to inputs on which duty had already been paid. The scrap used by the respondent was ship-breaking material, and it was not disputed that it had been cleared during the relevant period under an exemption notification. The material therefore did not satisfy the condition of being duty-paid inputs. The earlier decisions of the Tribunal on the same question were followed, and the Supreme Court decision relied upon by the respondent was distinguished on facts.

Conclusion: The respondent was not entitled to exemption under Notification No. 202/88-C.E. in respect of the ship-breaking scrap.

Issue (ii): Whether denial of that exemption justified inclusion of the clearances in the aggregate value for exemption under Notification No. 1/93-C.E.

Analysis: Once the clearances were held ineligible for the benefit of Notification No. 202/88-C.E., their value had to be taken into account for computing the aggregate value of clearances under Notification No. 1/93-C.E. The consequence of the first finding thus directly affected the eligibility under the second notification.

Conclusion: The value of the clearances was rightly included for the purpose of Notification No. 1/93-C.E., and the consequential demand was sustainable.

Final Conclusion: The exemption claim failed, the demands were restored, and the Revenue's appeals succeeded.

Ratio Decidendi: Exemption available to inputs under a notification conditioned on prior payment of duty cannot be claimed for scrap that was itself cleared under an exemption and was not duty-paid.

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