Duty-paid inputs exemption denied for ship-breaker scrap; extended limitation upheld because the claim lacked bona fides.

Exemption under Notification No. 208/83-C.E. was unavailable where re-rollable scrap was obtained directly from ship-breakers and remained recognisable as non-duty paid, because the notification required inputs that had already suffered duty. A trade notice on proforma credit under Rule 56A could not override the express terms of the notification, and the fact that no credit was taken did not cure the absence of duty payment on the inputs. The extended period of limitation under the proviso to Section 11A was also upheld, as the claim of bona fide belief was rejected on the footing that the exemption was plainly inapplicable.

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Issues: (i) Whether the appellant was entitled to exemption under Notification No. 208/83-C.E. when the re-rollable scrap was directly obtained from ship-breakers and was clearly recognisable as non-duty paid; (ii) Whether the demand was barred by limitation and the extended period under the proviso to Section 11A could be invoked.

Issue (i): Whether the appellant was entitled to exemption under Notification No. 208/83-C.E. when the re-rollable scrap was directly obtained from ship-breakers and was clearly recognisable as non-duty paid.

Analysis: The exemption required that the inputs must have already suffered duty. The material received directly from ship-breakers retained its identity as such throughout transit and was not duty paid. The trade notice relied upon by the appellant related to proforma credit under Rule 56A and could not override the express language of the notification. The fact that no credit had been taken was irrelevant where duty itself had not been paid on the inputs.

Conclusion: The appellant was not entitled to the exemption on the scrap obtained directly from ship-breakers when duty had not been paid on those inputs.

Issue (ii): Whether the demand was barred by limitation and the extended period under the proviso to Section 11A could be invoked.

Analysis: The appellant's reliance on a bona fide impression was rejected because the notification clearly excluded inputs recognisable as non-duty paid. The departmental circular concerning proforma credit did not reasonably support the appellant's stand on exemption. In the circumstances, the appellant's conduct could not displace the finding of liability for the extended period.

Conclusion: The extended period of limitation was available and the demand was not time-barred.

Final Conclusion: The appeal failed on both exemption and limitation, and the demand was sustained.

Ratio Decidendi: Where an exemption notification requires inputs to have suffered duty, goods directly obtained as non-duty-paid scrap cannot qualify merely because no credit was taken, and a departmental clarification on proforma credit does not defeat the express terms of the notification or bar the extended period where the claim lacks bona fides.

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