Exemption for ship stores denied where goods were for construction, but cum duty valuation and Modvat credit were allowed subject to verification.

Goods supplied as stores for ships under construction did not qualify for exemption under Notification No. 64/95-CE because the benefit applies only to stores for consumption on board a vessel, and the notification's factual conditions were not met. Once exemption was denied, assessable value had to be redetermined on a cum duty basis, and Modvat credit was available in principle subject to verification of duty-paying documents. Penalty was not restored, as the circumstances were found insufficient for penal action. The matter was remanded for recomputation of duty with cum duty adjustment and examination of credit entitlement.

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Issues: (i) Whether the goods supplied as stores were eligible for exemption under Notification No. 64/95-CE when the supply was for ships under construction; (ii) whether the assessable value was required to be treated as cum duty price and the respondents were entitled to Modvat credit on verification of duty-paying documents; (iii) whether penalty was liable to be restored.

Issue (i): Whether the goods supplied as stores were eligible for exemption under Notification No. 64/95-CE when the supply was for ships under construction.

Analysis: The exemption applied only to goods supplied as stores for consumption on board a vessel, and not to goods supplied for construction of ships or vessels. The Tribunal relied on the settled position that certificates issued under the notification do not extend exemption where the factual requirement of supply for consumption on board is not met. Since there was no evidence that the control panels were not meant for ships under construction, the conditions of the notification were not satisfied.

Conclusion: The benefit of exemption under Notification No. 64/95-CE was not available, and the finding was against the assessee on this issue.

Issue (ii): Whether the assessable value was required to be treated as cum duty price and the respondents were entitled to Modvat credit on verification of duty-paying documents.

Analysis: Once exemption was denied, the price had to be examined on the basis that it included duty element, in accordance with the settled principle governing cum duty pricing. The claim for Modvat credit was also recognised as allowable in principle, but only subject to production and verification of the relevant duty-paying documents.

Conclusion: The respondents were entitled to cum duty price adjustment and to Modvat credit subject to verification, in favour of the assessee.

Issue (iii): Whether penalty was liable to be restored.

Analysis: The Tribunal found that the circumstances did not justify penal action and declined to restore the penalty imposed by the adjudicating authority.

Conclusion: Penalty was not restored, in favour of the assessee.

Final Conclusion: The exemption claim failed, but the matter was sent back for redetermination of duty with cum duty price adjustment and examination of Modvat credit, while penalty was declined.

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