2003 (2) TMI 132 - AT - Central Excise

Issues Involved
1. Eligibility for deemed Modvat credit on inputs obtained from ship-breaking yards.
2. Applicability of deemed credit beyond the clearance limit of Rs. 75 lakhs under Notification 1/93-CE.
3. Existence and necessity of documents evidencing payment of duty for availing deemed credit.
4. Classification and duty status of ship-breaking scrap.
5. Penalties under Rule 173Q(1) for wrongful availment of credit.

Detailed Analysis

1. Eligibility for Deemed Modvat Credit on Inputs Obtained from Ship-Breaking Yards
The core issue was whether inputs obtained from ship-breaking yards qualified for deemed Modvat credit under the Government of India order TS/36/94-TRU dated 1-3-1994. The order allowed deemed credit of Rs. 920/- per tonne for certain inputs without the necessity of producing documents evidencing payment of duty. The Assistant Collector initially denied this credit, citing that ship-breaking yards were customs areas and the goods were non-duty paid. However, the Commissioner (Appeals) overturned this, noting that the order did not specifically exclude ship-breaking scrap and that the goods were not removed from the tariff despite the deletion of certain tariff entries.

2. Applicability of Deemed Credit Beyond the Clearance Limit of Rs. 75 Lakhs Under Notification 1/93-CE
The Revenue argued that deemed credit should not be available once the unit's clearance exceeded Rs. 75 lakhs, as per Notification 1/93-CE. The Commissioner (Appeals) disagreed, stating that the benefit should continue until the clearance reached Rs. 2 crores. The Tribunal, however, upheld the Revenue's interpretation based on the larger bench decision in Digambar Foundry, which held that the benefit ceases once the clearance limit of Rs. 75 lakhs is crossed.

3. Existence and Necessity of Documents Evidencing Payment of Duty for Availing Deemed Credit
The Assistant Collector held that even though the order waived the need for documents evidencing duty payment, the existence of such documents was still a precondition. The Commissioner (Appeals) and the Tribunal disagreed, noting that the waiver of document production implied that such documents were not necessary for availing deemed credit.

4. Classification and Duty Status of Ship-Breaking Scrap
The Assistant Collector argued that ship-breaking scrap was non-duty paid due to the deletion of specific tariff entries and exemption under Notification 45/94-CE. The Commissioner (Appeals) refuted this by stating that the deletion of tariff entries did not remove the goods from the tariff and that the goods still fell under other headings. The Tribunal supported this view, stating that the removal of tariff entries did not spell exclusion from deemed credit benefits.

5. Penalties Under Rule 173Q(1) for Wrongful Availment of Credit
The Assistant Collector imposed penalties under Rule 173Q(1) for wrongful availment of credit. The Commissioner (Appeals) set aside these penalties, and the Tribunal upheld this decision, noting that the assessees were entitled to the deemed credit as per the order dated 1-3-1994.

Conclusion
The Tribunal concluded that:
1. Assessees were entitled to deemed Modvat credit on inputs obtained from ship-breaking yards as per the order dated 1-3-1994.
2. The benefit was available only up to the clearance limit of Rs. 75 lakhs.
3. The existence of documents evidencing payment of duty was not necessary for availing deemed credit.
4. The classification and duty status of ship-breaking scrap did not exclude it from deemed credit benefits.
5. Penalties for wrongful availment of credit were not justified.

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