Old Lead Acid Batteries Recovered from Ship Breaking Not Excisable: CESTAT Holds Removal Does Not Amount to Manufacture [Read Order]

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that old Lead Acid Batteries recovered from ship breaking are not excisable as their removal does not amount to manufacture under the Central Excise Act.

Madhav Industrial Corporation, the appellant, is engaged in ship-breaking activities and recovers various materials, including old and used Lead Acid Batteries, from dismantled ships. During audit, the department found that the appellant had cleared these batteries without paying excise duty by treating them as non-excisable goods.

The department issued a show cause notice demanding duty, interest, and penalty, alleging that the goods were excisable in view of Note 9 of Section XV of the Central Excise Tariff Act.

The adjudicating authority confirmed the demand, holding that obtaining goods by breaking ships amounts to manufacture. The Commissioner (Appeals) upheld this view. Aggrieved by the order, the appellant approached the CESTAT.

The appellant’s counsel argued that the goods were only removed as such from ships and had not undergone any process amounting to manufacture. They submitted that Lead Acid Batteries fall under Chapter 85.07 of the Central Excise Tariff Act and are not covered by Section XV, which includes Chapters 72 to 83.

The counsel also referred to CBEC Circular No. 345/61/97-CX, which clarified that goods recovered during ship breaking, falling outside Section XV, are non-excisable.

The revenue counsel argued that Note 9 of Section XV deems goods obtained by breaking ships as manufactured products and that the batteries should be treated as lead scrap under Heading 78.02, making them dutiable.

The two-member bench comprising Dr. Ajaya Krishna Vishvesha (Judicial Member) and Satendra Vikram Singh (Technical Member) observed that Lead Acid Batteries fall under Chapter 85.07 and are not covered by Section XV. It explained that Note 9 of Section XV applies only to goods of Chapters 72 to 83 and cannot extend to goods falling under Chapter 85.

The tribunal pointed out that the appellant merely removed the batteries from ships without any further processing. It explained that such removal cannot be considered manufacture under the Central Excise Act. The tribunal also observed that goods must be classified in the form in which they are cleared and not based on their future use.

The activity did not amount to manufacture, so the goods were held to be non-excisable and the demand of duty, interest, and penalty was set aside.

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