The Ship Breaking Mystery - Board Clears the Mist
THE CBEC in a Circular answers the questions raised above.
Board has received references regarding the judgement of the Gujarat High Court reported in 2014-TIOL-1563-HC-AHM-CUS.
It seems after the judgement;
(i) Show Cause Notices have been issued to importers who are not paying CVD demanding CVD from them as department has appealed against the order of the High Court of Gujarat.
(ii) Show Cause Notices for wrong availment of CENVAT credit have been issued to those importers who are paying CVD voluntarily and taking CENVAT credit and utilising the same for payment of Central Excise duty liability arising due to breaking of vessels.
On these situations, Board has decided that:
1. All Show Cause Notices issued for non-payment of CVD [(i) above] shall be kept in call book till the SLP filed by the department in the Supreme Court is decided.
2. Show Cause Notice denying Cenvat Credit of CVD paid voluntarily by the importers at the time of import is not warranted. It is well settled position in law that a buyer may avail Cenvat Credit, if supplier has paid duty.Thus, once the importer has paid CVD on import of ship, Cenvat Credit of that CVD cannot be denied for payment of Central Excise duty on breaking of that ship. Show Cause Notices already issued for denying Cenvat Credit may be decided in light of these instructions and in future such Show Cause Notices may not be issued.
Significance of 1.3.2015: By Notification No. 6/2015-CENT dated 1.3.2015, an explanation was added to Rule 6(1) of the CENVAT Credit Rules - For the purpose of this rule, exempted goods or final products as defined in clause (d) and (h) of rule 2 shall include non-excisable goods cleared for a consideration from the factory. By this explanation, credit is required to be reversed even for non- excisable goods produced as byproducts in the process of manufacture of excisable goods. This amendment has brought non-excisable goods and exempt goods at par and no credit is now available on either of them.
So for ship breaking, while the credit allowed is 85%, the units are required to reverse proportionate credit for products emerging like furniture, wooden panels etc., This anomaly existed from 1.3.2015, which the Board has now corrected. Now, the 85% restriction is removed retrospectively with effect from 1.3.2015.
It is immaterial here whether the Government has the power to amend a rule retrospectively. As this is a beneficial amendment, no assessee will challenge it and the Government which issued it is not expected to contest it.
CBEC Circular No. 1014/2/2016., Dated: February 01, 2016