Exemption for molten iron in continuous manufacture applies where the Department cannot prove a reliable shortage or clandestine removal.

Molten iron used within a factory in a continuous manufacturing process for pig iron was covered by the exemption under Notification No. 54/65 to the extent specified. The Department's duty demand based on an alleged difference between molten iron dispatched from the blast furnace and that received at the steel melting shop failed because the quantified shortage was not satisfactorily established, no statutory requirement supported the intermediate-stage records relied on, and the assessee's explanation of loss through skull formation, spillage and slag was not disproved. In the absence of proof of clandestine removal or any reliable factual basis for the differential, the proposed duty demand was unsustainable.

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Issues: Whether duty could be sustained on the alleged difference between molten iron dispatched from the blast furnace and molten iron received at the steel melting shop, and whether the exemption for molten iron used in the factory for manufacture of pig iron applied.

Analysis: The record showed that the material in question was molten iron used within the factory for manufacture of pig iron in a continuous process. The demand was based on records maintained by the assessee, but the basis for arriving at the differential quantity was not satisfactorily established. There was no statutory requirement to maintain the particular intermediate-stage records relied upon by the Department. The explanation of loss by skull formation, spillage and slag during transit and transfer was not shown to be improbable, and the Department did not prove clandestine removal or any contrary factual basis to displace the assessee's explanation. Notification No. 54/65 dated 20-3-1965 exempted molten iron used in the factory for manufacture of pig iron from duty to the extent stated therein.

Conclusion: The duty demand was not sustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: In a continuous manufacturing process, duty cannot be confirmed on an unproved notional difference in intermediate molten material when the exemption applies and the Department fails to establish clandestine removal or a reliable basis for the quantified shortage.

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