Navy ship-store exemption applies only to direct supplies on board vessels, not to goods for under-construction ships.

Notification No. 64/95 exempts goods supplied as stores for consumption on board Indian Navy vessels, and the exemption applies where Navy certificates support direct supply to the vessels. Goods supplied to shipbuilders for vessels under construction do not qualify, so the exemption is unavailable for those clearances. Where exempt and ineligible clearances are mixed, duty must be confined to the ineligible portion and recomputed after allowing SSI exemption and cum-duty treatment. No penalty is warranted on the stated facts. The article concludes that the exemption is limited to certified ship-store supplies for the Navy, with the remaining demand restricted and remanded for recomputation.

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Issues: (i) Whether the benefit of Notification No. 64/95 dated 16.03.1995 was admissible for goods supplied as ship stores to Indian Navy vessels on the basis of Navy certificates; (ii) Whether the benefit could extend to goods supplied to vessels under construction and the consequential demand, SSI exemption, cum-duty benefit and penalty.

Issue (i): Whether the benefit of Notification No. 64/95 dated 16.03.1995 was admissible for goods supplied as ship stores to Indian Navy vessels on the basis of Navy certificates.

Analysis: The notification grants exemption to goods supplied as stores for consumption on board a vessel of the Indian Navy. The governing principle, as settled by the Supreme Court, is that goods supplied directly to the Indian Navy as ship stores qualify, whereas goods supplied to ship builders for use in manufacture or construction of ships do not. On the facts, the clearances supported by certificates issued by the Naval authorities established that the relevant supplies were made as ship stores for the Navy.

Conclusion: The exemption was allowable for the clearances supported by Navy certificates and was correctly admissible to that extent.

Issue (ii): Whether the benefit could extend to goods supplied to vessels under construction and the consequential demand, SSI exemption, cum-duty benefit and penalty.

Analysis: Supplies attributable to under-construction vessels were not covered by the notification and the assessee fairly accepted that such goods were not eligible for exemption. The demand, however, had to be recomputed by confining it only to the ineligible clearances and by extending the benefit of SSI exemption and cum-duty treatment. In the absence of warranting circumstances, no penalty was justified.

Conclusion: The demand was sustained only for ineligible supplies to under-construction vessels, with reworking of duty after SSI and cum-duty benefits, and penalty was set aside.

Final Conclusion: The appeals succeeded in part, exemption was granted for certified Navy ship-store clearances, and the remaining demand was restricted and remanded for recomputation with ancillary reliefs.

Ratio Decidendi: Exemption for Navy ship stores applies only to goods supplied directly as stores for consumption on board Indian Navy vessels, and not to goods supplied to ship builders for under-construction vessels; where exempt and ineligible clearances are mixed, the duty must be confined to the ineligible portion with applicable consequential reliefs.

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