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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether the credit restriction in proviso 2 to Notification No. 5/94-C.E. (N.T.) limiting Modvat credit to Rs. 920 per tonne or actual duty paid, whichever is less, applies to scrap generated from breaking imported ships and floating structures.
Analysis: The restriction in the notification was construed as applicable only to inputs obtained from breaking ships, boats and other floating structures manufactured in India. The phrase "as are manufactured in India" was read as qualifying the ships, boats and floating structures and not the imported inputs themselves, because in the case of imported ships the duty element arises as additional duty at the time of import. The earlier line of Tribunal decisions supporting this construction was preferred, while the contrary decision was treated as rendered without notice of the earlier authorities. Support was also drawn from departmental clarifications and trade notices taking the same view, and the Revenue was held not entitled to adopt a contrary stand.
Conclusion: The credit restriction did not apply to scrap obtained from breaking imported ships, and the disallowance of excess Modvat credit was unsustainable.
Ratio Decidendi: Where an exemption or credit-restriction notification expressly limits its operation to goods manufactured in India, that restriction cannot be extended to imported goods or scrap arising from breaking imported vessels.
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