Modvat credit on scrap from imported ships was not restricted by Notification 177/86; higher credit rate sustained.

Modvat credit on scrap obtained by breaking up imported ships, boats and floating structures was held admissible at the higher rate, because Notification No. 177/86 applied only to similar goods manufactured in India and did not govern imported vessels. The Tribunal followed earlier decisions on the same issue and accepted that the materials in question arose from breaking up imported structures. On that basis, the restriction to the lower rate was inapplicable, and the order allowing credit at Rs. 600 PMT was sustained.

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Issues: Whether Modvat credit was admissible at Rs. 600 PMT on scrap obtained by breaking up imported ships, boats and floating structures, or was restricted to Rs. 500 PMT under Notification No. 177/86 dated 1-3-1986.

Analysis: The materials in question were received from breaking up ships, boats and other floating structures imported into India. Notification No. 177/86 applied to goods and materials obtained by breaking up ships, boats and floating structures manufactured in India and therefore did not govern the imported category. The Tribunal followed earlier decisions on the same question and accepted the respondents' claim regarding the origin of the materials.

Conclusion: The respondents were entitled to Modvat credit at Rs. 600 PMT and Notification No. 177/86 was not applicable.

Final Conclusion: The appeals failed and the order allowing credit at the higher rate was sustained.

Ratio Decidendi: Where the goods are obtained by breaking up ships, boats or floating structures imported into India, a notification confined to similar goods manufactured in India does not restrict Modvat credit for such imported-material scrap.

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