Ship breaking company entitled to cenvat credit on fuel oil in imported ship's bunker under Rule 2(a) CCR 2004

CESTAT Ahmedabad dismissed Revenue's appeal regarding ship breaking company's eligibility for cenvat credit on CVD paid for fuel oil, high speed oil, and lubrication oil in imported ship's engine room bunker. The tribunal held that fuel oil forms part of the ship and qualifies as input service under Rule 2(a) of CCR, 2004 for manufacturing excisable products. Following precedent in Priya Holding case and Navyug Ship Breaking Co., the tribunal ruled fuel oil cannot be treated differently from the entire ship, making cenvat credit allowable per circular 1014/2/2016-CX dated 1-2-2016.

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Issues:
Whether the ship breaking company is eligible for cenvat credit of CVD on fuel oil, High Speed Oil, and lubrication oil inside the engine room bunker available on the ship imported for breaking.

Analysis:
The issue before the Tribunal was whether the respondent ship breaking company could avail cenvat credit of CVD on fuel oil, High Speed Oil, and lubrication oil inside the engine room bunker on the ship imported for breaking. The Revenue appellant argued that the appellate authority wrongly relied on a judgment not related to cenvat credit, thus challenging the legality of the order. On the other hand, the respondent's counsel relied on various judgments and circulars to support their case, including the case of Priya Holdings and a circular dated 01.02.2016. The Commissioner (Appeals) had held that the fuel oil in the engine room is part of the ship imported for breaking, and thus, no discrimination should be made between the ship and the fuel oil for cenvat purposes.

The Tribunal considered the submissions and records and found that the key issue was whether the fuel oil and bunker in the engine room, on which CVD was paid, were eligible for cenvat credit against ship breaking and excise duty. The Tribunal noted that the case of Priya Holdings directly supported the respondent's case. Additionally, the Tribunal referred to the case of Navyug Ship Breaking Co., where it was held that obtaining goods by breaking a ship amounted to a manufacturing activity subject to central excise duty. The Tribunal emphasized that fuel and oils, being non-excisable, were required to be removed from the ship for safe ship breaking operation, making them eligible for cenvat credit.

The Tribunal further elaborated on the concept that any by-product emerging during manufacturing activity should not be denied cenvat credit. It cited the CBEC Manual for supplementary instructions to support the admissibility of cenvat credit on inputs contained in by-products. The Tribunal concluded that the entire ship, including fuel and oil, was an input for ship breakers, and the removal of fuel and oil was part of the ship breaking activity. Therefore, the Tribunal upheld the impugned order, dismissing the revenue's appeal and affirming the legality of the Commissioner (Appeals) order.

In conclusion, the Tribunal upheld the decision in favor of the respondent ship breaking company, following the precedent set by previous judgments and circulars. The order passed by the Commissioner (Appeals) was deemed correct and legal, leading to the dismissal of the revenue's appeal.

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