2000 (8) TMI 164 - AT - Central Excise

Summary

Issues Involved:
1. Eligibility for exemption notifications 70/77-C.E. and 64/95-C.E.
2. Interpretation of terms "on board," "stores," and "consumption."
3. Classification of pontoons and platforms as "ships."
4. Validity of certificates issued by the Indian Navy.
5. Quantification of duty and penalty.

Summary:

1. Eligibility for Exemption Notifications:
The appellants manufactured paints supplied to the Indian Navy free of duty u/s notification 70/77-C.E. and 64/95-C.E. Twelve show cause notices were issued alleging improper use of exemptions, demanding duties totaling Rs. 32,09,933.86 and Rs. 6,40,541/-.

2. Interpretation of Terms:
The Assistant Commissioner interpreted "on board" to mean goods used for fitment or maintenance of the vessel or consumed by crew members. Paint used during construction was not considered "stores" but "consumables." The term "stores" was defined u/s 2(38) of the Customs Act as goods for use in a vessel, including fuel, spare parts, and other articles of equipment.

3. Classification of Pontoons and Platforms:
The Assistant Commissioner ruled that pontoons and platforms were not "ships" as they were not self-propelled. However, the Tribunal found that pontoons used for transport or as bases for floating structures could be classified under headings 89.01 and 89.05, respectively, and thus could qualify as "ships."

4. Validity of Certificates:
The Additional Commissioner did not accept the certificates issued by the Indian Navy as sufficient proof of compliance with the notification. The Tribunal, however, noted that the certificates indicated the paints were exclusively for use on board Indian Naval ships, and the shipyards acted as contractors for the Navy.

5. Quantification of Duty and Penalty:
The Tribunal held that paints used on existing ships qualified for exemption, while those for ships under construction did not. The duty quantifiable on eligible goods was Rs. 10,02,156.56, making the inadmissible benefit Rs. 28,48,318.30. The Tribunal set aside the penalty imposed, acknowledging the manufacturer's reliance on Navy certifications but upheld the duty demand for Rs. 28,48,318.30.