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Having given our anxious consideration to the rival contentions, we find that the CEGAT has patently erred in sustaining the impugned demands of excise duty even for the period of six months prior to the dates of respective show cause notices. At the outset, we may note that it is not in dispute between the parties that the appellant which is a wholly owned Government of India company, in the process of manufacturing the final product at its Durgapur Steel Plant produces as an input for captive consumption molten metal called pig iron. This pig iron as an input results in manufacture of two excisable commodities, namely, steel ingot as well as melting scrap. We may, for the purpose of the present proceedings, proceed on the basis that steel melting scrap which gets manufactured is an excisable commodity and has its own market if not captively consumed. However, the moot question remains as to whether the input of pig iron ultimately bears full burden of excise duty as leviable on the said pig iron at a stage when the said input results into the final product. We may note at this stage that at the relevant time, the tariff, item concerned which made the input of pig iron exigible to excise duty was Tariff Item 25 and rate of duty was Rs.70/- per metric ton. The final products which resulted by utilising this input, as noted above, were steel ingots as well as steel melting scrap. Both of them were covered by Tariff Item 26 and were liable to tax @ Rs.350/- per metric ton. There was Tariff Item 26AA which dealt with iron or steel products which were manufactured by utilising steel melting scrap as an input by the appellant-company and those steel products enumerated in the said Entry 26AA were of various types and were liable to bear excise duty as mentioned in the said tariff item. The short question for our consideration is whether pig iron in crude form which was utilised as an input by the appellant- company in manufacturing the final products of steel ingots and steel melting scrap had been subjected to full payment of excise duty under Tariff Item 25, if not at an earlier stage when it was manufactured, it least at a latter stage when it got embedded in steel melting ingots and steel melting scrap. It has to be appreciated that it is not the case of the department not is there anything on record to indicate that out of the input of crude iron or pig iron, a particular portion thereof was separately utilised by the appellant as an input for manufacturing steel ingots was in uniform, composite and a combined process and in the said process of manufacturing steel melting scrap. In fact the entire process of manufacturing steel ingots was a uniform, composite and a combined process and in the said process of manufacturing of steel ingots the entire input of crude iron got exhausted and utilised but in the very same process two commodities emerged, namely, steel ingot and steel melting scrap. There is a substance in the contention of the learned counsel for the appellant that the integrated steel plant like DSP owned by the appellant was meant to produce pig iron and various steel products. However, the process was such that certain amount of scrap arises due to technological necessity and it was not a conscious production and, still it might be excise duty under the concerned Tariff Item 26. We are not concerned in the present proceedings with the taxability of the final product, the steel melting scrap, as admittedly the said steel melting scrap as a final product is not liable to pay any liable duty and is exigible to nil duty on account of exemption Notification no.150/77 dated 1.6.1977. It is not in dispute between the parties that steel melting scrap which is the final by-product in the process of manufacture of steel ingots undertaken by the appellant by utilising the input of pig iron has earned full exemption from payment of excise duty under the aforesaid notification. In fact, that is the very basis of the show cause notices. The department accepts that steel melting scrap is not liable to pay any excise duty but its contention is that the proportionate input of pig iron which was embedded in the said field final product and which by itself did not bear any duty earlier though it was liable to pay duty under Tariff Item 25 had escaped excise duty thereon. If that is so, the question remains whether the remaining and the main final product, namely, steel ingot, which was exigible to central excise as per Tariff Item 26 @ Rs.350/- per metric ton and which had utilised the same input of crude iron, namely, pig iron could be said to have accounted for payment of excise duty on input of crude iron which was fully utilised by it when it got manufactured in the steel melting furnace as a result of the same and uniform manufacturing process. The basis of the impugned show cause notices which in their turn got upheld by the CEGAT to the extent of six months demands prior to the dates of issue of these notices, being Notification No.18/71 dated 27.3.1971 is, therefore, required to be reproduced. The said notification reads as under|-

The moot question that survives for our consideration is as to whether the input of pig iron which itself was an exigible commodity as per Tariff Item 25 had been subjected to the requisite excise duty by way of deferred payment of duty not at the time of manufacture of crude iron but at the time when it got embedded in the final product of steel ingots. In order to answer this question, we may take a single illustration. Let us assume that 100 metric tons of iron in crude form i.e. pig iron manufactured by the appellant at a given point of time which was being utilised by it in the uniform manufacturing process for ultimately producing the steel ingots out of it. As per Tariff Item 25 the rate of excise duty was Rs.70/- per metric ton on pig iron. Therefore, 100 metric ton of pig iron when manufactured would have been liable to pay excise duty of Rs.7,000/-. would have been available to the appellant to be adjusted against the final product, namely, the steel ingot was cleared by it. For the purpose of this illustration, let us assume that by utilising 100 metric tons of pig iron, 90 metric tons of steel ingot and 10 metric tons of steel melting scarp emerged. So far as 10 metric tons of scarp was concerned, it was not exigible to excise duty payable thereon as per Tariff Item 26 was Rs. 350/- per metric ton. Therefore, accordingly 90 metric tons of steel ingots would have been required to bear total excise duty of Rs.31,500/- (90 metric tons x Rs.350/-). Towards this total liability of Rs. 31,500/- of excise duty on the final product of the steel ingots, the appellant would have been entitled to a set off Rs.7,000/- in all as it had utilised 100 metric tons of pig iron as input for manufacturing this 90 metric tons of steel ingots especially in the absence of there being any bifurcation of the input of pig iron between the final emerging products, namely, 90 metric tons of steel ingots on the one hand and 10 metric tons of steel scarp on the other. But that would have been possible if the input of 100 metric tons of pig iron had already been subjected to payment of excise duty at the time of clearance for captive consumption. Then in that case the net duty liability on 90 metric tons of steel ingots would have been Rs.24,500/- only (Rs.31,500- Rs.7,000/-). However, the set off of Rs. 7,000/- in all is not available to the appellant on the excise duty payable on 90 metric tons of steel ingots as at the relevant time when the input of pig iron was manufactured, the same had admittedly not borne any duty and the payment of duty was deferred. Therefore the notification No.18/71 dated 23.3.1971 could not be of any avail to the appellant. The net result was that the appellant had to pay the full duty of Rs.31,500/- on the 90 metric tons of steel ingots which had utilised non-duty paid 100 metric tons of pig iron. In the process the appellant accounted for full duty payable on steel ingots of 90 metric tons i.e. Rs.24,500/- and also accounted for full duty on the input of 100 metric tons of pig iron i.e. Rs.7,000/-. A conjoint operation of Notification No.18/71 dated 23.7.1971 and Tariff item 26, therefore, projects the following picture. Excise duty payable on final output of steel ingots would work out to Rs.350/- per metric ton consisting of Rs. 70/- per metric ton being the duty on the embedded input of pig iron had suffered the octroi duty at the time of its clearance for captive consumption, the appellant would have been required to pay only Rs.280/- per metric ton as excise duty on the final product of steel ingots. On the other hand, if input of pig iron had not borne such duty on its clearance for captive consumption, and the duty thereon was deferred, the steel ingots on clearance would bear full bear duty Rs.350/- per metric ton which in its turn would result in deferred payment of excise duty on input of pig iron on Rs. 70/- per metric ton. Thus as per the illustration under consideration, if the Notification No.18/71 dated 23.3.1971 operated in the field, the department would have got Rs. 7000/- by way of excise duty on the manufacture of input of pig iron of 100 metric tons when it was cleared for captive consumption and it would have got excise duty of Rs.24,500/- on 90 metric tons of steel ingots in the light of the set off permissible under the said Notification i.e. in all Rs.31,500/-. If the benefit of the said notification was not available . As a matter of fact it is not available as the input of 100 metric tons pig iron had not borne any duty at the relevant time and the department had permitted the appellant to adjust it ultimately at the stage of manufacture of final product of 90 metric tons steel ingots which utilised the entire 100 metric tons of pig iron for its production, in the absence of separate bifurcation, the net result would still remain the same. Full excise duty of Rs.31,500/- on 90 metric tons of steel ingots @ Rs.350/- per metric ton without giving any benefit of adjustment would become available to the department. In either case, the appellant would be out of pocket to the requisite amount of Rs. 31,500/- by way of excise duty which would fully meet the department's demand of the full excise duty of Rs. 7000/- payable on the total input of 100 metric tons of pig iron. When the amount of excise duty so recovered on 90 metric tons of steel ingots which had exhausted the entire pig iron, accounted for fully duty on the entire quantity of input of pig iron, it is difficult to appreciate as to how the very same quantity of 100 metric tons of pig iron as input can again be subjected to excise duty because a further unintended product of 10 metric tons of steel scarp also resulted from the very same process of manufacture undertaken by the appellant in its steel making furnace. Consequently, it must be held that the impugned demands of excise duty twice on the input of pig iron utilised by the appellant in manufacturing the final product of steel ingots and which in the same process as a by-product of steel ingots and which was fully exempted from excise duty on account of the concerned exemption notification.