CBEC not to pursue notices against ship-breakers for CVD

The tax department has asked officers not to pursue Show Cause Notices (SCNs) issued to the ship breaking industry for non-payment of Countervailing Duty (CVD) till the matter is decided by the Supreme Court.
The bone of contention between the industry and the revenue department is whether ship breaking is a manufacturing activity and can excise duty be levied on it.
"... It has been decided that all Show Cause Notices for non payment of CVD... Shall be kept in call book till the SLP (Special Leave Petition) filed by the department in the Supreme Court is decided," said a notification of Central Board of Excise and Customs (CBEC).

As per the notification, ship breaking units would be entitled to avail 100 per cent credit of the CVD paid with effect from March 1, 2015.
The Gujarat High Court in the Shivam Engineering Company case had held that "since the vessels and other floating structures for 'breaking-up' are not manufactured in India, no excise duty is leviable and consequently no additional duty under the Customs Tariff Act can be levied on import of such goods".
The High Court judgement was based on the presumption that when articles which are not produced or manufactured can't be subjected to levy of excise duty, then on the import of like articles no additional duty (CVD) can be levied under the Customs Tariff Act.

CVD is imposed on imports to balance the price of the same product of domestic producers and the price of foreign producers.
Commenting on this, Nangia & Co Senior Manager Tanushree Roy said the notification is a welcome step as it "removes the anomaly existing in the Cenvat Credit Rules 2004 which denied/ reduced the benefit of cenvat credit for the assesses".
It would also restrict further litigation in the matter till the SLP is disposed off by the Supreme Court, Roy added.