Duty-paid inputs for exemption; nil-rated clearances remain non-duty paid and cannot claim the benefit.

An exemption under Notification No. 202/88-C.E. applied only to final products manufactured from inputs on which excise duty had already been paid, and inputs cleared at nil rate of duty were treated as non-duty paid. The explanatory deeming clause did not extend the benefit to clearly recognizable non-duty paid stocks, and the later omission of the express reference to nil-rated stocks in Notification No. 63/91-C.E. did not change that position. The Board circular supported this interpretation. Accordingly, nil-rated inputs did not satisfy the duty-paid condition for exemption, and the demand remained sustainable.

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Issues: Whether the assessee was entitled to the benefit of Notification No. 202/88-C.E. where the inputs were cleared at nil rate of duty and were not duty-paid.

Analysis: The exemption under Notification No. 202/88-C.E. applied only when the final products were manufactured from specified inputs on which duty of excise had already been paid. The explanatory clause created a deeming fiction for stocks of inputs in the country, except those clearly recognizable as non-duty paid. After the amendment by Notification No. 63/91-C.E., the phrase excluding stocks charged to nil rate of duty was omitted, but the remaining explanation still excluded clearly recognizable non-duty paid inputs. In the light of the binding interpretation of the phrase "duty paid" and the clarification that nil-rated goods cannot be treated as duty paid, inputs cleared at nil rate remained non-duty paid for purposes of the exemption. The Board circular also supported this interpretation.

Conclusion: The assessee was not entitled to the exemption, and the demand was sustainable.

Ratio Decidendi: Where an exemption notification requires duty-paid inputs, goods cleared at nil rate of duty are to be treated as non-duty paid and do not satisfy the condition for exemption, notwithstanding a deeming explanation in the notification.

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