2025 (3) TMI 4 - AT - Central Excise

Appellants entitled to 85% Cenvat Credit on fuel oil for ship breaking; by-products eligible despite non-excisable status.

Marinelines Ship Breakers Pvt Ltd Versus C.C.E. & S.T. -Bhavnagar And Shree Kamal Kumar Khemka M/s Marinelines Ship Breakers Pvt. Ltd. Versus C.C.E. & S.T. -Bhavnagar

The Court concluded that the appellants are entitled to Cenvat Credit on fuel oil in engine parts of a vessel brought for breaking purposes, allowing ... CENVAT Credit - fuel oil in engine parts of the vessel brought for breaking purposes - Whether the fuel oil in the engine parts of the vessel is considered part of the ship and thus not eligible for Cenvat Credit? - HELD THAT:- Division Bench of this Tribunal in the decision of Navyug Ship Breaking Company [2023 (3) TMI 636 - CESTAT AHMEDABAD] has held that 'It has been rightly held by Learned Commissioner (Appeals) that removal of fuel and oil is the initiation of ship breaking activity and cannot be said as separate activity.' Conclusion - The Cenvat Credit on the oil brought in the ship engine when used for ship breaking purposes to the extent of 85%. Appeal allowed. The issues presented and considered in the judgment are:1. Whether the appellants are entitled to Cenvat Credit on fuel oil in engine parts of a vessel brought for breaking purposes.2. Whether the fuel oil in the engine parts of the vessel is considered part of the ship and thus not eligible for Cenvat Credit.3. The applicability of previous judgments by the Hon'ble Gujarat High Court and the Hon'ble Supreme Court on similar matters.The detailed analysis of the issues is as follows:The Court considered the stand of the department that the appellants are not entitled to Cenvat Credit on fuel oil in engine parts of a vessel brought for breaking purposes, as the fuel is considered part of the ship based on previous judgments. The department's argument was supported by the decisions of the Hon'ble Gujarat High Court and the Hon'ble Supreme Court, which classified the oil in the engine of the vessel under Chapter Heading 89.08 when imported into India. The department's viewpoint was that fuel oil being part of the vessel is not eligible for Cenvat Credit.The appellant's advocate rebutted the department's case by referring to a specific judgment that dealt with the issue of Cenvat Credit availability. The advocate acknowledged that the appellants could only claim 85% credit of the oil that is part of the engine. However, he argued that this limitation was not a point of contention in the present litigation.The Court examined the arguments presented by both parties and referred to a previous decision of the Tribunal regarding ship breaking activities. The Tribunal's decision clarified that obtaining goods and materials through the process of breaking a ship amounts to a manufacturing activity liable to central excise duty. It was noted that fuels and oils are non-excisable goods and considered as a by-product that needs to be removed from the ship during the breaking process. The Court emphasized that Cenvat Credit cannot be denied on the grounds that the by-products are non-excisable goods or that they are not directly used in the manufacturing activity.Based on the analysis of the legal framework and precedents, the Court concluded that the appellants are entitled to Cenvat Credit on the oil brought into the ship engine for breaking purposes to the extent of 85%. The Court upheld the impugned order and dismissed the revenue's appeal, allowing the appeal in the specified terms.The significant holdings of the judgment include the principle that by-products emerging during manufacturing activities are eligible for Cenvat Credit, even if they are non-excisable goods. The final determination was to permit Cenvat Credit on the oil in the ship engine used for breaking purposes to the extent of 85%.In conclusion, the Court's decision clarified the eligibility of Cenvat Credit on fuel oil in engine parts of a vessel brought for breaking purposes, emphasizing the principles established in previous judgments and the application of law to the facts of the case.