Circular No. 345/61/97-CX
dated 23/10/97
F.No. 267/43/96-CX.8

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise & Customs, New Delhi

Subject : Clarification reg. Reversal of Modvat Credit on non-excisable items removed from the ship in the process of breaking

In the budget of 1995, ship breading activity was defined as an activity of manufacture by virtue of note 7 in Section XV of the Schedule to the Central Excise tariff Act, 1985. consequent to this two questions arose:

(i)    Whether the items emerging during the course of ship breaking falling outside the ambit of Section XV of the Schedule to the Central Excise Tariff Act, 1985 would be treated as excisable and are chargeable to Central Excise Duty.

(ii)    Whether a ship breaker who has paid CVD would be entitled to modvat credit of the entire CVD paid on the ship or credit will have to be restricted to the extent of inputs contained in goods and materials falling under Section XV of the Schedule.

2.  Director General of Inspection has conducted a study on this issue and a view has been taken that the goods and materials recovered during the course of ship breading which are outside the ambit of Section XV of the Schedule to the Central Excise Tariff Act, 1985 are non-excisable goods as there is no entry in the Tariff which describes the act of obtaining these items as an activity of manufacture. Moreover, entire ship except ship stores are classifiable under 8908 is an input taking part in the activity of ship breaking under Rule 57A of the Central Excise Rules, 1944.

Hence, the provisions of Rule 57C of the Central Excise Rules regarding the non-admissibility of modvat credit of duty paid on inputs going into finished excisable goods which are exempted from payment of duty or chargeable to nil rate of duty will not apply in the case of non-excisable goods.

3.  Accordingly, I am directed to say that the entire credit will be available in this case and no reversal is warranted.

4.  Law Ministry has also concurred with the above view.

5.  All pending disputes may be resolved in light of aforesaid clarification.

(Mallika Arya)
Under Secretary to the Government of India

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