2003 (11) TMI 269 - AT - Central Excise

Summary

Issues:
1. Eligibility of ship broker to take credit under 57AB of duty paid on lubricating oil in ship's engine room tanks.
2. Interpretation of Circular 37/96 regarding classification of fuel and oil in ship machinery.
3. Status of oil contained in tanks in ship's engine room for Modvat credit eligibility.

Analysis:
1. The appeal before the Appellate Tribunal concerned the eligibility of a ship broker to claim credit under 57AB for duty paid on lubricating oil in the ship's engine room tanks. The Commissioner (Appeals) had initially held the appeal liable for dismissal due to non-compliance with deposit requirements but also delved into the merits of the case. The Tribunal clarified that if the duty deposit was made as per the Commissioner's order, the appeal could not be dismissed for non-compliance. Since the issue could be easily resolved on merits, the Tribunal proceeded with the analysis.

2. The appellant relied on a decision by the Delhi Bench of the Tribunal regarding the classification of fuel and oil in ship machinery. The Tribunal accepted the appellant's plea that engine tanks should be considered as containing fuel and oil integral to the vessel machinery. The Circular 37/96 explained the classification of fuel and oil in ship machinery as an integral part of the vessel under Heading 89.08. However, the reasoning behind the World Customs Organisation's classification was not available, leading the Tribunal to question the validity of this classification.

3. The Tribunal analyzed the status of oil in tanks in the ship's engine room for Modvat credit eligibility. It was clarified that the oil in these tanks, although located in the engine room, did not qualify as integral to the engine. The record indicated that the ship's engines were marine diesel internal combustion engines fueled by light diesel oil, with the oil in the tank serving to lubricate moving parts. The oil in tanks outside the engine could not be considered integral to the engine and was not eligible for duty payment. The Tribunal dismissed the appeal, emphasizing that the duty paid on oil could not be utilized for duty payment on resulting scrap when the ship is broken up.