Deemed duty-paid inputs exemption turns on proof of clearly recognisable non-duty-paid scrap before duty demand can stand.

An exemption notification deemed all inputs to be duty paid unless they were clearly recognisable as non-duty-paid materials. Brass rods made from assorted brass scrap and dross did not fall within that exception because the record showed no category-wise sorting or source-based identification of any specific input as clearly non-duty paid, and the materials were not shown to be merely brass dross. On that basis, the duty demand and penalties were held unsustainable, and the appeals succeeded.

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Issues: Whether brass rods manufactured from assorted brass scrap and dross were denied exemption on the ground that the inputs were clearly recognisable as non-duty paid.

Analysis: The exemption notification treated all inputs in the country as duty paid by a deeming provision, subject only to the exception that clearly recognisable non-duty-paid inputs would fall outside the benefit. The record showed that the inputs were an amalgam of different kinds of scrap and dross, and no category-wise sorting or source-based identification had been made to establish that any specific inputs were clearly recognisable as non-duty paid. The materials on record also indicated that the inputs were not merely brass dross and could not be treated as conclusively non-duty paid.

Conclusion: The demand of duty and the penalties were not sustainable, and the appeals succeeded.

Ratio Decidendi: Where an exemption notification deems all inputs to be duty paid unless they are clearly recognisable as non-duty paid, the Revenue must establish that specific inputs fall within that exception before duty demand and penalty can be upheld.

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