2005 (1) TMI 491 - AT - Central Excise

Summary

Issues:
- Whether ship breaking activities resulting in the realization of scrap amounts to manufacture and attracts Central Excise duties?

Analysis:
The main issue in this appeal was whether ship breaking activities, including dismantling, breaking, and cutting of ships, leading to the production of ferrous and non-ferrous scrap, amounted to manufacturing and thus attracted Central Excise duties. The appellant, engaged in ship breaking, was served with a Demand-cum-Show Cause Notice requiring them to explain why Central Excise duty should not be demanded on the clearance of iron and steel scrap. The appellant argued that the scrap generated from duty-paid inputs was exempted under a specific notification, and they had already paid customs duty inclusive of Central Excise duty. They also mentioned a judgment of the Gujarat High Court and instructions from the Central Board of Excise and Customs regarding the levy of excise duty on ship scrap.

The Commissioner-II, Central Excise, Mumbai, held that ship breaking activities did amount to manufacture under the Central Excise & Salt Act, 1944, as it involved the production of various types of scrap. It was determined that the scrap generated during ship breaking had to discharge the appropriate rate of duty under the Central Excise Tariff, and the unit undertaking such activities was obligated to obtain a Central Excise license. The Commissioner rejected exemption claims due to the absence of original duty-paying documents and clarified that certain instructions applied only to parties who had filed writ petitions before the Gujarat High Court. Consequently, the duty demand against the appellant was confirmed as proposed in the Show Cause Notice.

However, after considering various factors, including circulars, telexes, and previous court decisions, the Tribunal observed that the demand of duty could not be confirmed against the appellant. The decision was influenced by the Circular of the Central Board of Excise and Customs, Ministry's telex, and orders from the Gujarat High Court. Citing a specific case, the Tribunal allowed the appeal, ultimately ruling in favor of the appellant on January 7, 2005.