2023 (3) TMI 636 - AT - Central Excise

Wrongful availment of CENVAT Credit - seeking recovery alongwith penalty - SCN alleged that Respondent has wrongly availed cenvat credit of the CVD paid on Bunkers viz. Fuel Oil, Marine Gas Oil, Lube Oil etc. in violation of provisions of Rule 3 read with Rule 2 (k) and Explanation III to sub-rule (3) of Rule 6 of the Cenvat Credit Rules, 2004 as the same were not their “input” used in or in relation to manufacture of their final products - HELD THAT:- Section XV covers all goods and materials falling under section 72 to 83 of the Schedule 1 appended to the Central Excise Tariff Act, 1985. Thus, all such goods and materials obtained by such process are considered as ‘excisable goods being subject to levy of duties of excise as per section 2 (d) of the Central Excise Act, 1944. As a corollary the goods and materials, except those covered under section XV (Chapter 72 to 83) are considered as non-excisable irrespective of the fact that they are obtained by breaking up of ships. Thus, Fuels and Oils are non-excisable. It is in this context the cenvat credit of CVD paid on fuel and oils was denied to the Respondent by the adjudicating authority.

It is clear that Fuel and Oils are by-product that are inevitably required to be removed from the ship in the course of commencing the activity of breaking the ship and if that be so, there is no reason for denial of cenvat credit of CVD paid on any part of the Ship including its stores viz. fuel and oil on the ground that they do not form part and parcel of the ship or that they are removed at a stage before commencing the activity of breaking ship or that their classification is under different heading. It is settled law that in the course of manufacturing activity any by-product emerges; cenvat credit on that part which pertains to by-product cannot be denied on the ground that such by-products are non-excisable goods or that they are not used in or in relation to manufacturing activity of manufacturer of excisable goods.

There can be no doubt that for the purpose of carrying out the manufacturing activity as envisaged under note 9 to section xv viz. obtaining goods and material by breaking of ship, the entire ship as imported is the “input” for a ship breaker. Ordinarily, ship when imported for breaking purpose would contain fuel and oil whether in the engine, machinery or in the bunker/tanks. There is no reason to treat the same not part of the ship imported for breaking purpose. It has been rightly held by Learned Commissioner (Appeals) that removal of fuel and oil is the initiation of ship breaking activity and cannot be said as separate activity.

The impugned order is required to be upheld and appeal of department is liable to be dismissed.