Modvat credit on scrap from imported ships remains available where duty-paid documents confirm the source and notification limits do not apply.

The second proviso to Notification No. 177/86-C.E. was clarified as inapplicable to scrap obtained from breaking up imported ships in India, and applicable only to scrap generated from breaking up Indian ships. Where duty-paying documents showed that the scrap came from imported ships, Modvat credit remained available on the duty-paid scrap. The earlier final order had omitted this material clarification, so rectification was warranted to reflect the correct position and permit credit in favour of the assessee.

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Issues: Whether the restriction on Modvat credit under Notification No. 177/86-C.E. applied to scrap obtained from breaking up imported ships in India, and whether the final order required rectification to allow credit on the duty actually paid.

Analysis: The Trade Notice clarified that the restriction in the second proviso to Notification No. 177/86-C.E. would not apply to scrap obtained from breaking up imported ships in India, and would apply only to scrap generated by breaking up Indian ships. The duty-paying documents were available and showed that the scrap had been obtained from imported ships. On that basis, the earlier final order had omitted a material clarification that directly governed the availability of credit.

Conclusion: The restriction did not apply to the scrap in question, and Modvat credit on the duty-paid scrap was permissible. The rectification application was therefore allowed in favour of the assessee.

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