Modvat credit on ship-breaking scrap depends on proof that the scrap came from an Indian ship; unclear records require remand.

Modvat credit on ship-breaking scrap was stated to be restricted under Notification No. 5/94-C.E. (N.T.) only where the scrap was obtained from breaking up an Indian ship, with the ceiling of duty paid or Rs. 920 per tonne applying in that situation. Where the record did not clearly establish whether the scrap came from an Indian ship or a foreign ship, the factual basis for the restriction was treated as unproved. In that circumstance, the proper course was remand to the jurisdictional authority for fresh adjudication after hearing the assessee, rather than a final denial of credit on the existing record.

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Issues: Whether Modvat credit on ship-breaking scrap was restricted under Notification No. 5/94-C.E. (N.T.) dated 01.03.1994 only when the scrap was obtained from breaking up an Indian ship, and whether the matter required remand for fresh determination.

Analysis: The restriction to Rs. 920 per tonne or the actual duty paid, whichever was less, applied only where the scrap was obtained from breaking up of an Indian-made ship. The record did not contain any clear finding that the disputed scrap had been obtained from an Indian ship. The appellate record also did not satisfactorily establish whether the scrap came from an Indian ship or a foreign ship, and the material produced was insufficient for a firm conclusion. In these circumstances, the proper course was to send the matter back to the jurisdictional authority for reconsideration after giving the assessee an opportunity of hearing.

Conclusion: The assessee was not finally denied Modvat credit on merits, and the dispute was remanded for fresh adjudication in accordance with law.

Final Conclusion: The credit restriction could not be upheld on the existing record, and the controversy over the source of the scrap was left to be redetermined by the adjudicating authority.

Ratio Decidendi: A Modvat credit restriction tied to ship-breaking scrap applies only when the factual foundation for that restriction is clearly established; where the source of the scrap is not conclusively found, remand for fresh adjudication is appropriate.

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