1989 (6) TMI 183 - AT - Central Excise

Issues Involved:
1. Whether materials procured from breaking of ocean-going ships qualify for exemption under Notification No. 208/83-C.E., dated 1-8-1983.
2. Whether the inputs used by the respondents were duty paid or non-duty paid stocks.
3. Interpretation and applicability of Notification No. 208/83-C.E., dated 1-8-1983.

Issue 1: Exemption under Notification No. 208/83-C.E., dated 1-8-1983

The primary issue was whether materials procured from breaking of ocean-going unworthy ships for manufacturing M.S. round bars by the respondents attract the exemption under Notification No. 208/83-C.E., dated 1-8-1983. The appellants contended that the activity of ship breaking is considered as 'manufacture' under Section 2(f) of the Central Excises and Salt Act, 1944, and the resulting iron scrap is distinct from the ship and leviable to Central Excise Duty under Tariff Item 25. They argued that the scrap was cleared without payment of Central Excise duty, making it non-duty paid stock, thereby disentitling the respondents from the duty exemption benefit under the said notification.

Issue 2: Duty Paid or Non-Duty Paid Stocks

The respondents argued that the inputs procured from the ship breaking units were not scrap but bars, rods, and rolling materials, which need to be re-rolled and not melted. They asserted that these materials are 'nil duty' inputs and not non-duty materials. They contended that all materials available in the market are either duty paid or 'nil duty' materials, and since the Department had not seized these materials, it indicated they were 'nil duty' materials. The respondents further argued that the ship breaking units had already paid customs duty before breaking the ships, implying that the materials retrieved from such ship breaking were deemed duty paid.

Issue 3: Interpretation and Applicability of Notification No. 208/83-C.E., dated 1-8-1983

The Assistant Collector of Central Excise had held that the re-rollable scrap used in manufacturing M.S. round bars had arisen from breaking up old ships. Since the ship breaking unit did not pay Central Excise duty on the re-rollable scrap under Central Excise Tariff Item 25, the entire quantity supplied by these units was identifiable as non-duty paid stock for the purpose of Notification No. 208/83-C.E., dated 1-8-1983. The Collector (Appeals), however, held that the inputs had paid duty under the Customs Tariff Act and were recognisable as duty paid stock, thus setting aside the Assistant Collector's order.

Detailed Analysis:

1. Exemption under Notification No. 208/83-C.E., dated 1-8-1983

The Tribunal examined whether the materials from ship breaking qualified for exemption under the notification. The notification exempts final products specified in Column (3) of the table appended to the Notification and falling under Item 25 of the First Schedule to the Central Excises and Salt Act, 1944, provided such final products are made from inputs described in Column (2) and falling under Tariff Item 25 on which excise duty or additional customs duty has been paid. The Tribunal found that the inputs from ship breaking units had not discharged Central Excise duty under Tariff Item 25, thus not fulfilling the condition laid down in the notification's proviso.

2. Duty Paid or Non-Duty Paid Stocks

The Tribunal considered the respondents' argument that the materials were 'nil duty' inputs and not non-duty materials. However, it noted that the ship breaking units paid customs duty on the ship under Heading 89.04 and additional customs duty under Item 68 of the Central Excise Tariff, but not under Tariff Item 25. Therefore, the inputs were clearly recognisable as non-duty paid for the purpose of the notification. The Tribunal concluded that the inputs supplied by the ship breaking units were non-duty paid, distinguishing them from other market-purchased inputs.

3. Interpretation and Applicability of Notification No. 208/83-C.E., dated 1-8-1983

The Tribunal agreed with the Assistant Collector's observation that the re-rollable scrap from ship breaking was non-duty paid stock. It found no material to hold that market-purchased inputs were identifiable as non-duty paid, whereas the ship breaking inputs were clearly identifiable as non-duty paid. Consequently, the Tribunal set aside the Collector (Appeals)'s order and restored the Assistant Collector's order, denying the exemption under Notification No. 208/83-C.E., dated 1-8-1983, to the M.S. round bars manufactured from ship breaking inputs.

Conclusion:

The Tribunal allowed the appeals filed by the Revenue, setting aside the impugned orders of the Collector (Appeals) and restoring the Assistant Collector's order, thereby denying the benefit of Notification No. 208/83-C.E., dated 1-8-1983, to the respondents' M.S. round bars manufactured from ship breaking inputs.

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