2001 (10) TMI 209 - AT - Central Excise

Summary

Issues:
Interpretation of Clause (2) of Notification No. 5/94-C.E. dated 1-3-94 under Rule 57A of Central Excise Rules, 1944 regarding Modvat credit eligibility for scrap obtained from ships.

Analysis:

1. The appellant, a small scale manufacturer, received "ship breaking up scrap" from suppliers and claimed Modvat credit on the Central Excise duty paid on the scrap. However, a show-cause notice alleged that the appellant was not entitled to full credit as per Notification No. 5/94. The Assistant Commissioner confirmed the recovery order and imposed a penalty, leading to an appeal by the appellant.

2. The appellant contended that the credit restriction under Clause (2) of the notification applies only to scrap obtained from ships manufactured in India. The appellant cited a Tribunal decision to support this argument. However, the Departmental Representative argued that the restriction is not limited to ships manufactured in India for certain inputs.

3. The Tribunal reviewed the appellant's grounds of appeal and the cited Tribunal decision. It noted that the earlier Tribunal decision was based on a Trade Notice, which cannot modify statutory provisions. The Tribunal rejected the appellant's interpretation and emphasized that the restriction under Clause (2) applies to specific inputs obtained from the breaking up of ships.

4. The Tribunal analyzed Clause (2) of the notification, highlighting that the qualification 'manufactured in India' is linked to the inputs falling under specific headings, not to the ships themselves. The Tribunal clarified that the restriction on Modvat credit is related to the inputs used in the manufacture of final products, irrespective of the origin of the ships from which the scrap is obtained.

5. Ultimately, the Tribunal found no merit in the appellant's appeal and dismissed it, upholding the decision of the Assistant Commissioner. The Tribunal's analysis emphasized the statutory interpretation of the notification and clarified that the restriction on Modvat credit eligibility is based on the nature of the inputs used in manufacturing final products, rather than the origin of the ships providing the scrap.