Incidental by-product clearance on nil duty does not justify fresh duty on input already used in manufacture.

Duty could not be levied again on pig iron used to manufacture steel ingots where the principal final product had borne duty and only an incidental steel scrap/by-product was cleared under exemption or on nil duty. The note applies the principle that a minor by-product does not alter the duty position of the input already consumed in manufacture, and that the assessee should not be placed at a disadvantage because the process followed the accepted "latter the better" approach with excise concurrence. On that basis, the demand on pig iron was stated to be unsustainable and consequential relief followed.

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Issues: Whether duty could be demanded on the quantity of pig iron used in the manufacture of steel ingots on the ground that steel melting scrap had been cleared under exemption and the "latter the better" principle was inapplicable.

Analysis: The liability to duty on the disputed pig iron had already been examined in the assessee's own case for an earlier period. The governing principle applied was that where duty on the input stage had not escaped and the final product had borne duty, the incidental emergence and clearance of a minor by-product or scrap on nil duty did not justify a second levy on the same input. The assessee could not be placed in a worse position merely because the manufacturing process followed the "latter the better" approach with the concurrence of the excise authorities, and the incidental steel scrap did not change the duty position of the pig iron used to make the steel ingots.

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

Final Conclusion: The appeal succeeded and the duty demand was set aside, with consequential relief as available.

Ratio Decidendi: An incidental by-product cleared on nil duty does not permit a fresh levy on the input already used in manufacture where the principal final product has borne duty and the manufacturing method was accepted by the excise authorities.

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