Higher Modvat credit on ship-breaking scrap sustained where the Department failed to prove domestic ship manufacture.

Higher Modvat credit on ship-breaking scrap of iron and steel was upheld because the record, including gate passes, showed the scrap originated from imported ships and duty had been paid under the relevant exemption notifications. The restrictive portion of Notification No. 177/86 could not be applied without evidence from the Department that the scrap was generated from ships or floating structures manufactured in India. In the absence of such proof, the assessee's entitlement to the higher credit was sustained and the Revenue challenge failed.

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Issues: Whether the respondents were entitled to higher Modvat credit on ship-breaking scrap of iron and steel, and whether the Department had proved that the scrap fell within the restrictive portion of Notification No. 177/86.

Analysis: The Tribunal relied on its earlier decisions and the supporting gate passes showing that the scrap had been obtained from imported ships and that duty had been paid under Notifications No. 65/89 or No. 62/90, which apply to scrap arising from breaking of imported ships. It was also noted that higher Modvat credit cannot be denied unless the Department adduces evidence to show that the scrap was generated from ships or other floating structures manufactured in India so as to attract the restriction in Notification No. 177/86. In the present case, no such evidence was produced, while the record indicated that the scrap emanated from imported ships.

Conclusion: The respondents were entitled to the higher Modvat credit and the Revenue's challenge failed.

Final Conclusion: The appeal was rejected and the assessee's entitlement to higher Modvat credit was sustained.

Ratio Decidendi: Higher Modvat credit on ship-breaking scrap cannot be denied under a restrictive notification unless the Department proves, by evidence, that the scrap was generated from domestically manufactured ships or floating structures rather than imported ships.

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