1994 (12) TMI 186 - AT - Central Excise

Interpretation of Modvat Credit for Ship Breaking Material: Excess Credit Disallowed, Penalty Not Warranted

The judgment clarified the interpretation of Notification No. 177/86 on Modvat credit for ship breaking material, disallowed excess credit taken by the ... Modvat credit Issues:1. Interpretation of Notification No. 177/86 regarding Modvat credit on ship breaking material.2. Admissibility of excess Modvat credit taken by the appellant.3. Applicability of different rates of duty on scrap from Indian and foreign ships.4. Consideration of relevant trade notices and previous judgments.5. Imposition of penalty under Rule 173Q of the Central Excise Rules, 1944.Analysis:1. The Addl. Collector held that Modvat Credit on ship breaking material is restricted to Rs. 500 per M.T. or actual duty paid, whichever is less, as per Notification No. 177/86-CX. The appellant had taken excess credit exceeding the limit, which was not admissible. The Addl. Collector ordered recovery of the excess credit and imposed a personal penalty.2. Central Excise Officers found that the appellant had taken excess Modvat credit during September to October 1990. The appellant was alleged to have taken credit exceeding Rs. 500 per M.T., which was not permissible under the notification. A show cause notice was issued, and upon non-appearance of the appellant, recovery of the excess credit was ordered.3. The appellant argued that different rates of duty were applicable to scrap from Indian and foreign ships, citing Notification No. 65/89. However, it was clarified that the case for input duty credit fell under Notification No. 177/86, which specified the eligible inputs for credit.4. The appellant relied on a previous Tribunal decision and a trade notice to support their contention that the restriction on Modvat credit did not apply to material from breaking up of imported ships. However, after considering the arguments, case law, and trade notice, it was determined that the restriction of Rs. 500 applied irrespective of the origin of the ship.5. The judgment concluded that the appellant was entitled to the benefit under Notification No. 177/86 with the restriction of Rs. 500 as the upper limit for the relevant period. The disallowed credit amount was specified, and it was held that no penalty was warranted due to the incorrect classification of goods during the material period.In summary, the judgment clarified the interpretation of Notification No. 177/86 regarding Modvat credit on ship breaking material, disallowed excess credit taken by the appellant, and emphasized the applicability of the Rs. 500 limit irrespective of the origin of the ship. The decision modified the impugned order, disallowed the excess credit, and concluded that no penalty was justified in the circumstances.