Exemption under Notification No. 202/88-CE cannot be denied without proof that inputs were clearly recognizable as non-duty paid.

Notification No. 202/88-CE extended exemption to specified final products made from inputs in Chapters 72 and 73 that had already suffered duty. The explanation created a presumption that all domestic stocks of such inputs were duty paid unless clearly recognizable as non-duty paid. Old railway rails bought in auction were not shown by the Department to be clearly recognizable as non-duty paid, and the adverse finding rested on assumption rather than evidence. In that setting, the exemption could not be denied, and the benefit of the notification was held to apply to the assessee.

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Issues: Whether the benefit of Notification No. 202/88-CE dated 20.5.1988 could be denied in respect of MS round bars manufactured from old railway rails purchased in auction, and whether the Department had to establish that the inputs were clearly recognizable as non-duty paid.

Analysis: The notification granted exemption to specified final products made from specified inputs falling within Chapters 72 and 73, provided the inputs had already suffered duty. Its explanation created a statutory presumption that all stocks of inputs in the country, except those clearly recognizable as non-duty paid, were to be deemed duty paid. Old rails purchased from railway auction were not shown by the adjudicating authority, the appellate authority, or the Tribunal to be clearly recognizable as non-duty paid. The finding that the rails were not duty paid was based on assumption and not on material. In the absence of proof by the Department that the goods had not suffered duty or were recognizable as non-duty paid, the benefit of the notification could not be denied.

Conclusion: The notification benefit was wrongly denied, and the issue was decided in favour of the assessee.

Ratio Decidendi: Under Notification No. 202/88-CE, inputs are deemed duty paid unless the Department proves that they are clearly recognizable as non-duty paid; mere auction sale of used railway materials does not displace that presumption.

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