2004 (8) TMI 549 - AT - Central Excise

Summary

Issues:
1. Whether ship breaking activity constitutes manufacture.
2. Validity of duty imposition on scrap generated from ship breaking.
3. Effect of High Court undertaking and Board orders on duty waiver.

Analysis:

Issue 1: Ship Breaking Activity as Manufacture
The appellant challenged Order-in-Original No. 13/97, which considered ship breaking as an activity of manufacture and imposed duty on the scrap generated. The contention was that the High Court of Gujarat had previously addressed this issue, and the Government of India undertook not to recover amounts for the relevant period, leading to a consent order. Subsequently, the Board issued an order directing duty waiver on ship scrap for the period in question. The Commissioner confirmed that the appellants were entitled to exemption under Notification No. 386/86-C.E. and relevant Board Circular. The Tribunal noted the Government's consent before the High Court and the subsequent Board orders, concluding that demands for duty cannot be upheld.

Issue 2: Duty Imposition on Scrap
The Tribunal considered the specific exemption provisions under Notification No. 386/86-C.E. and the Board Circular, which entitled the appellants to duty exemption on the scrap generated and cleared during the relevant period. The Commissioner's confirmation of this exemption further supported the appellant's claim. Consequently, the Tribunal held that the demands for duty on the ship scrap were not sustainable in light of the legal provisions and orders issued by the Government and the Board.

Issue 3: High Court Undertaking and Board Orders
The Tribunal emphasized the significance of the Government's undertaking before the High Court of Gujarat, wherein it agreed not to press for duty on scrap generated from ship breaking activities. This undertaking led to the issuance of orders by the Board to drop proceedings and waive duty on the ship scrap. The Commissioner's communication also reiterated the appellants' eligibility for duty exemption in accordance with the relevant notification and circular. Considering these factors, the Tribunal allowed the appeal, recognizing the impact of the High Court undertaking and subsequent Board orders on the duty liability of the appellants.

Overall, the Tribunal's decision favored the appellant, emphasizing the legal implications of the High Court undertaking, Board orders, and the entitlement to duty exemption under the relevant provisions. The judgment highlighted the importance of governmental commitments and legal provisions in determining the duty liability on scrap generated from ship breaking activities.