Underground Pass. Speak to Koftic before the bridge to get damp cloth. Use this on Dragon arrows to get Dragon fire arrows. Then make into Dragon fire arrows by using them on a fire.
Uses:
Can be used as range ammunition. Designed for shooting down the bridge during the Underground Pass quest. Dragon arrows can only be fired from the Dark bow.
Notes:
Can make multiples, even after the quest if you enjoy the fire aspect of the arrows. However, a lit arrow does no extra damage nor give any extra bonuses than a normal arrow of the same type.