ORDER
S.S. Sekhon, Member (T)
1. The appellants have filed this appeal against the orders of the Commissioner dated 5-3-2001, who confirmed a demand for duty of Rs. 26,25,001 /- and equivalent penalty under Section 11AC, Rs. 3,00,000/- under Rule 173Q(1) of the Central Excise Rules, 1944 with interest at 24% on the sum of Rs. 26,25,001/- consequent to show cause notice bearing No. HQPS No. 116/98, dt. 14-9-1999.
2. The brief facts of the case are as follows :-
(a) The appellant, under the administrative control of Ministry of Shipping acquired a dredger, ‘TSD Mondovi-II’ of 2500 Cu-M Hopper capacity from the Marmugoa Port Trust at the cost of Rs. 320.31 lakhs with interest, by a sale note dated 23-9-92. While undergoing afloat repairs, it capsized and sank in the West Basin of Hindustan Shipyard Ltd., Visakhapatnam on 26th March, 1995 and became unworthy of any further use. It was decided by the appellants to decommission and dispose of the same on “As is where is and no complaint” basis. M/s.
Hindustan Shipyard Ltd. (HSL), offered a sum of Rs. 90 lakhs to break the sunken wreck and sell it as scrap. The offer was accepted. As M/s. Mazagon Dock Ltd., who had constructed the Dredger, confirmed that the Dredger “MONDOVI-II” was not constructed in bond, the appellants by letter dated 29-5-96 to, the Assistant; Commissioner of Central Excise, Visakhapatnam, requested their opinion regarding Central Excise liability for disposal of the wreck of dredger Mondovi-II for scrapping. The Superintendent Central Excise Division, Visakhapatnam in the office of the Asstt. Commissioner of Central Excise Division, Visakhapatnam, wrote a letter dated 6-6-96 addressed to the appellants and clarified that as per Central Excise Tariff Act, in 1995-96, all goods and materials obtained by breaking up of ships, boats and other floating structures falling under Chapter sub-heading 7230.00 are dutiable at a rate of 15% ad valorem. The appellants requested the Asstt. Commissioner of Customs, Bombay to give the exemption letter with regard to payment of Customs duty in view of the fact that Customs duty had already been paid. This was followed by another letter dated 26-6-96 for issue of NOC for disposal of the dredger. The Asstt. Commissioner of Customs Preventive (General), Mumbai wrote to the appellants that dredger Mondovi-II was not constructed in bond and the Customs duty on imported components has been paid for home consumption. He further confirmed that the Customs Department does not have any objection for disposal of the said dredger. M/s. HSL agreed to take up the breaking operation at M/s. HSL yard and for sale of the scrap. The price agreed was Rs. 90 lakhs towards cost of the vessel. It was confirmed by M/s. HSL that customs duty at 5% and CVD at 15% on sale proceeds of the above ship breaking will be made by M/s. HSL. This offer was accepted and confirmed by the appellants. By letter dated 26-10-98 the Asstt. Commissioner (Preventive) in the office of the Commissioner of Central Excise and Customs, Visakhapatnam called upon the appellants to provide information regarding this sale of dredger Mondovi-II. He also requested for copies of the documents regarding the purchase of dredger by the appellants and copies of documents like invoice, sale agreement, etc., for sale of the dredger to HSL. The appellants by their detailed letter dated 13-11-98 informed the Assistant Commissioner about the purchase of the dredger and subsequent disposal of the dredger.
(b) In letter dated 13-11-98, they informed the Central Excise authorities regarding the disposal of dredger IV to M/s. Steel Industries Kerala Ltd., through M/s. MSTC Ltd., Visakhapatnam, pursuant to sale order No. 2453, dated 22-10-97 for-scrapping. The job of disposal of the dreger IV was through M/s. MSTC, a Government of India Enterprise, Ministry of Surface Transport by its letter dated 24-2-97 accorded permission to dispose of dredger IV on “as is where is basis”. This letter was issued with the concurrence of the Ministry of Finance by their order dated 18-2-97. M/s. MSTC floated tenders. By the letter dated 13-10-97, M/s. Steel Industrials Kerala Ltd., a Public Sector Undertaking of Government of Kerala, and a registered ship breakers with M/s. MSTC offered to purchase the appellants’ dredger IV for a sum of Rs. 85.05 lakhs which was the highest offer and delivery order dated 24-
11-97, M/s. MSTC sold the dredger IV to M/s. Steel Industrials Kerala Ltd., on “As is where is no complaint basis”.
(c) Show cause notice was issued on 14-9-99 on the ground that vessels and other floating structures for breaking up are classified under Chapter sub-heading No. 8908.00 of the Schedule to the Central Excise Tariff Act, 1985 and are dutiable. The dredgers in question, which are cleared for breaking up after use fall under the above said Chapter sub-heading and chargeable to Central Excise Tariff Act, 1985. A “dredger for breaking up” is distinctly different from a new dredger and is marketable as such. Hence, the Department proposed to classify the goods under Chapter sub-heading No. 8908.00 attracting Central Excise duty at 15% ad valorem.
(d) The Commissioner adjudicated the case, confirmed the demand of duty and imposed penalty.
3. We have heard both sides and considered the matter and find –
(a) The dredger Mandovi-II never reached the ‘presentation status’ as ‘fit for Breaking’ required for classification under 89.08 of Tariff Act, 1985. In fact the appellants had all intention and desire to repair the same and use it as a ‘dredger’. There was no intention to present the same for the purpose of being broken up. As we cannot find that dredger Mandovi-II which sank in the Vishakapatnam Ship Repair Yard while undergoing repairs to have reached the stage of marketability as on entity under Heading 8908.00 as ‘Vessels and other floating structures for breaking up’; and therefore duty determination on the sunken wreck of the entity ‘dredger Mandovi II’ cannot be made as for Vessels or a floating structures ‘fit for breaking’. The ‘scrap’ so obtained by salvage, from the sunken wreck may not be ‘Goods and Materials’ obtained by breaking up ships, boats and other floating structures liable for duty under Heading 7327.00 since, it will be obtained from a sunken wreck and not a ship/boat or other floating structure. A dead body without life is known and understood as a caracassor and cadaver and not referred to as known when living. Similarly a sunken wreck cannot be understood as a vessel/boat or and a floating structure. Even if duty was to be recovered, it should have been directed at M/s. Hindustan Shipyard, who have caused the dredger to be fit for breaking up as they were repairing it when and which caused it to sink, and would thus be manufacturers of entity under Heading 8908.00 or liable for duty if any, on salvaged scrap under Heading 73.27.
(b) As regards ‘Dredger II’, the same has been disposed off by the appellants on ‘As it where is no complaint basis’. Since it was no longer found to be fit for optimal Technical performance as dredger and was a commercial decision to dispose it. The gradual technical failure to not meet desired standard of performance, was a result of its use as a dredger engaged in the process it was meant to perform. No evidence was led, by both sides, as how at the stage of its disposal by the appellants, this dredger became ‘fit for breaking’. The impugned order talks about the knowledge on part of the assessee that it was not seaworthy. However no evidence was brought forth in the order or before us, how
under law or and in commercial use, a vessel not seaworthy could not be refurnished and be made seaworthy once again and it would be fit for breaking only. Therefore, we are not able to come to a conclusion that the entity ‘Dredge II’ had reached the status to qualify for classification under Heading 89.08; since a vessel when made and launched has to eventually be ‘fit for breaking’ after its useful allocated life span/ if it does not meet an accident and sinks as a wreck. At what stage this liability for reclassification of a dredger under. Heading 8908 comes when it is cleared on discharge of duty under Heading 8905 is not clear from the findings or and the show cause notice. The notice only states “Vessels and other floating structures for breaking up are classified under Chapter heading 8908.00 of the Schedule to the Central Excise Tariff Act, 1985 and are dutiable. Hence dredgers which are cleared for breaking up after use, falls under chapter sub-heading 8908.00.” This charge in the show cause notice does not fix the point for this clearance after use. Can every second in the life of a dredger launched and used, be an event for duty under Heading 89.08 ? Surely that cannot be the intention. Thus we are not able to find material to uphold the classification of this vessel at the time of disposal under Heading 89.08 of Central Excise Tariff Act, 1985 and order recovery of duty under that heading.
(c) In view of our findings on facts, of consideration of the stage of presentation, of the entities in question, do not entitle the same to be eligible for classification under 8908.00, to attract levy of duty thereunder, we do not uphold the demands and consequential penalties and interests as arrived at by the learned Adjudicator.
(d) In view of our findings, we do not intend to go into the question raised before us, by the learned Senior Advocate for the appellants, as regards no processing undertaken by us to render the dredgers falling under Heading 8905.00 to again be liable for duty under Heading 8908.00 of Central Excise Tariff Act, 1985 and the issue of time-bar limitation of the demands.
4. In view of our findings that classification under Heading 8908.00
of Central Excise Tariff Act, 1985 is not called for in the facts of this case, we
set aside the order and allow the appeal.