Excise exemption for products made from rejected rails depends on whether the rails are unserviceable under the notification.

Iron and steel products made from second class rejected rails could qualify for excise exemption under Notification No. 206/63, as amended, because the amendment treated scrap, obsolete, second-hand and unserviceable rails as old and used re-rollable scrap. The decisive question was whether the rails used were unserviceable; the term was read in its ordinary sense, and rails rejected as defective or unfit for use were within it. On the evidence, the purchased rails were rejected second class rails and were unserviceable, so the deeming fiction applied and the finished products fell within the exemption from duty under Tariff Item 26AA(ia).

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Issues: Whether iron and steel products manufactured from second class rejected rails purchased from Hindustan Steel Ltd. were entitled to exemption from excise duty under Notification No. 206/63, as amended by Notification No. 123/65, on the footing that such rails were deemed to be old and used re-rollable scrap.

Analysis: The notification exempted iron or steel products falling under Tariff Item 26AA(ia) when manufactured from specified materials, including old and used re-rollable scrap. The explanatory amendment created a legal fiction by deeming scrap, obsolete, second hand and unserviceable rails, irrespective of length or description, to be old and used re-rollable scrap for the purposes of the notification. The decisive question was whether the second class rejected rails used by the assessee were unserviceable rails. The expression had to be understood in its ordinary and popular sense in the context of rails, and rails rejected by the railway as defective or unfit for use could properly be treated as unserviceable. On the evidence, the rails purchased and used by the assessee were rejected second class rails and were unserviceable within the meaning of the notification. Once that was so, the legal fiction operated fully and the products made from such rails were covered by the exemption.

Conclusion: The products manufactured by the assessee were exempt from the whole of the excise duty leviable under Tariff Item 26AA(ia), and the demand notice could not be sustained.

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