In a recent decision the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ), Ahmedabad Bench ruled that the ship being imported for breaking up, fuels and oils available on the ship and the entire ship, including items on board are “input”.
The respondent, Navyug Ship Breaking Company, during the period was engaged in the breaking of ships imported for breaking purpose at their plot at the ship-breaking yard, where the goods and material is obtained by way of breaking the ship. The Ship imported for breaking purpose contain items viz. Fuel Oil, Marine Gas Oil, Lubricating Oil etc which are used as fuel for the ship or for the generation of electricity.
Show cause notice was issued to Respondent calling upon to show cause as to why wrongly availed cenvat credit totally amounting to Rs. 50 lakhs should not be demanded and recovered from them.
The Commissioner (Appeals) after hearing the parties and considering various arguments advanced, set aside the Order of the Adjudicating Authority and held that when the ship is imported for breaking up, the fuels & oils available on the ship even as stores form part of the ship and entire ship including items on board are therefore “input” for the process of obtaining goods and material by breaking up of ship.
G. Kirupanandan, Assistant Commissioner on behalf of the Department while reiterating the grounds of appeal, submitted that impugned Order holding that when the ship imported for breaking up, the fuel and oils available on the ship even as stores form part of the ship and is an “input” within the meaning of Cenvat Credit Rules, 2004 is incorrect.
The Counsel argued that such oils are considered as “store” only and by no stretch of imagination, a part of ship, because, once activity of breaking up of ship is commenced; such fuel & oil are no longer required.
J C Patel, Advocate for the Respondent submitted that that fuel and oil so obtained and sold by the importer is a by-product of the ship breaking activity which amounts to manufacture and that it is settled position of law that in the course of manufacturing activity any by-product emerges cenvat credit on that part of input cannot be denied.
The Two-member Bench of the Tribunal comprising Ramesh Nair, Judicial Member and Raju, Technical Member observed that “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.”
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