Case Law Details
C.C.E. & S.T.-Bhavnagar Vs Hariyana Ship Demolition P Ltd (CESTAT Ahmedabad)
CESTAT Ahmedabad held that the fuel oil lying in the engine room is part and parcel of the ship which is imported for breaking and hence CENVAT Credit is duly admissible on the same.
Facts- The issue involved in the present case is that whether the respondent (ship breaking company) is eligible to avail cenvat credit of CVD on fuel oil, High Speed Oil and lubrication oil inside the engine room bunker available on the ship imported for breaking, in as much as, the said goods form part of ship and input service under Rule 2 (a) of CCR, 2004 used in process of manufacture of final excisable product in breaking of ship.
Conclusion- The tribunal in the case of Navyug Ship Breaking Co. has held that Fuel and Oils are by- product that are inevitably required to be removed from the ship in the course of commencing the activity of breaking the ship and if that be so, there is no reason for denial of cenvat credit of CVD paid on any part of the Ship including its stores viz. fuel and oil on the ground that they do not form part and parcel of the ship or that they are removed at a stage before commencing the activity of breaking ship or that their classification is under different heading. It is settled law that in the course of manufacturing activity any by-product emerges; cenvat credit on that part which pertains to by-product cannot be denied on the ground that such by-products are non-excisable goods or that they are not used in or in relation to manufacturing activity of manufacturer of excisable goods.
Held that the fuel oil lying in the engine room is part and parcel of the ship which is imported for breaking which means the fuel oil cannot be given different treatment than the entire ship. Consequently, for the purpose of cenvat also no discrimination can be made between the entire ship and the bunker lying in the engine room.
FULL TEXT OF THE CESTAT AHMEDABAD ORDER
The issue involved in the present case is that whether the respondent (ship breaking company) is eligible to avail cenvat credit of CVD on fuel oil, High Speed Oil and lubrication oil inside the engine room bunker available on the ship imported for breaking, in as much as, the said goods form part of ship and input service under Rule 2 (a) of CCR, 2004 used in process of manufacture of final excisable product in breaking of ship.
2. Shri R.K Agarwal, Learned Superintendent (AR) appearing on behalf of the Revenue appellant reiterates the grounds of appeal. He submits that the appellate authority has wrongly relied upon the judgment of Hon’ble Gujarat High Court in the case of Priya Holdings vs. Commissioner of Customs Preventive, Jamnagar – 2013 (288) ELT 347 (Guj.) for the reason that the said judgement is not on the issue of cenvat credit. Therefore, the entire order is based on such judgment is not legal and correct and the same deserves to be set aside.
3. Ms. Dimple Ghoul, Learned Counsel appearing on behalf of the assessee at the outset submits that the Commissioner (Appeals) has relied upon the judgment of Hon’ble Gujarat High Court in the case of Priya Holding (Supra) wherein it was held that the fuel oil lying in the engine room is part and parcel of the entire ship imported for breaking, therefore, no different treatment can be given for the purpose of cenvat to the entire ship and the fuel oil. She further submits that the very specific issue of cenvat credit on the fuel involved in the present was also considered by this Tribunal in the case of Navyug Ship Breaking Co. – 2023 (3) TMI 636. She also placed reliance on the following judgments and the board circular:-
- CCE & ST, Bhavnagar v Navyug Ship Breaking company [2023 (3) TMI 636- CESTAT AHMEDABADJ
- Circular No. 1014/2/2016 C Ex dated 01.02.2016
- Priya Holding (P) Ltd. v Commr of Customs [2013 (288) ELT 347 (Guj)]-
- Circular No. 345/61/97-CX dated 23-10-1997
- Comma of Cuss. v Sahibabad Ship Breaking [2002 (140) ELT 135 (T- Mum)]
- Navyug Ship Breaking Co v Comr. of Custom, Jamnagar [(2023) 5 Centex 236 (Tri. Ahd)]
- Mahalaxmi ship Breaking Corp v Comr. of Cuss, Bhavnagar [2023 (384) ELT 482 (SC) –
- Commr of Custom, Jamnagar v Inductor Steel Ltd [(2023)6 CENTAX 166 (SC)]
4. We have carefully considered the submission made by both sides and perused the records. We find that the issue to be decided is whether the fuel oil and bunker lying in the engine room on which the CVD was paid is eligible for the cenvat credit against the ship breaking and excise duty paid thereon. We find that the Commissioner (Appeals) has relied upon the case of Priya Holding (Supra) wherein it was held that the fuel oil lying in the engine room is part and parcel of the ship which is imported for breaking which means the fuel oil cannot be given different treatment than the entire ship. Consequently, for the purpose of cenvat also no discrimination can be made between the entire ship and the bunker lying in the engine room. Therefore, the case of Priya Blue holding directly supports the case of the respondent. Moreover, on a very identical issue, the tribunal in the case of Navyug Ship Breaking Co. (Supra) passed the following order:-
“5 . We have carefully considered the rival submissions and perused the records. It can be seen that obtaining of goods and material by process of breaking ship is deemed as manufacturing activity liable to central excise duty as per section note 9 of section XV of Central Excise Tariff Act, 1985 which reads as under:
“in relation to the products of this section, the process of obtaining goods and material by breaking up of ships, boats and floating structure shall amount to ‘manufacture’.
Section XV covers all goods and materials falling under section 72 to 83 of the Schedule 1 appended to the Central Excise Tariff Act, 1985. Thus, all such goods and materials obtained by such process are considered as ‘excisable goods being subject to levy of duties of excise as per section 2 (d) of the Central Excise Act. 1944. As a corollary the goods and materials, except those covered under section XV (Chapter 72 to 83) are considered as non-excisable irrespective of the fact that they are obtained by breaking up of ships. Thus, Fuels and Oils are non-excisable. It is in this context the cenvat credit of CVD paid on fuel and oils was denied to the Respondent by the adjudicating authority. The case of the department mainly is that fuel and oils are removed as such from the ship before commencing the breaking activity and are not specified products of section XV amounting to manufacture and hence the same cannot be “input’ for the Respondent for the process of obtaining goods and materials by breaking ship. However, as can be observed from the appeal memo itself fuel and oils for the use of ship, found as store in the ship when brought for breaking purposes are inevitably required to be removed for efficient and safe operation of breaking of ship. This position is also specifically admitted in the appeal memo in para 3.4.4. In this background, it is clear that Fuel and Oils are by- product that are inevitably required to be removed from the ship in the course of commencing the activity of breaking the ship and if that be so, there is no reason for denial of cenvat credit of CVD paid on any part of the Ship including its stores viz. fuel and oil on the ground that they do not form part and parcel of the ship or that they are removed at a stage before commencing the activity of breaking ship or that their classification is under different heading. It is settled law that in the course of manufacturing activity any by-product emerges; cenvat credit on that part which pertains to by-product cannot be denied on the ground that such by-products are non-excisable goods or that they are not used in or in relation to manufacturing activity of manufacturer of excisable goods. This was made clear by para 3.7 of CBEC Manual for supplementary instructions that states as follows:
“CENVAT credit is also admissible in respect of the amount of inputs contained in any of the waste, refuse or by-product. Similarly, CENVAT is not be denied if the inputs are used in any intermediate of the final product even if such intermediate is exempt from payment of duty. The basic idea is that CENVAT credit is admissible so long as the inputs are used in or in relation to the manufacture of final products, and whether directly or indirectly.”
5.1 There can be no doubt that for the purpose of carrying out the manufacturing activity as envisaged under note 9 to section xv viz. obtaining goods and material by breaking of ship, the entire ship as imported is the “input” for a ship breaker. Ordinarily, ship when imported for breaking purpose would contain fuel and oil whether in the engine, machinery or in the bunker/tanks. There is no reason to treat the same not part of the ship imported for breaking purpose. It has been rightly held by Learned Commissioner (Appeals) that removal of fuel and oil is the initiation of ship breaking activity and cannot be said as separate activity. Further, Learned Commissioner (Appeals) has rightly held that in view of para 6 of the circular no. 1014/2/2016-CX., dated 1-2-2016, that cenvat credit of CVD paid on fuel & oils cannot be denied to the Respondent.
06. In view of foregaing discussion, impugned order is required to be upheld and appeal of department is liable to be dismissed. Accordingly, we uphold the impugned order and dismiss the revenue’s appeal. CO also stand disposed of.”
4.1 From the above decision, the issue in hand has already been decided in the favour of the assessee. Therefore, following the ratio of the above judgment, there is no reason to deviate from the view taken therein. Hence, the order passed by the Commissioner (Appeals) is correct and legal which does not require any interference.
5. Accordingly, the impugned order is upheld. Revenue’s appeal is dismissed.
(Order pronounced in the open Court on 12.11.2024)
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