In A move that could have drastic implications for Asias largest ship-breaking industry located at Alang, the Central Excise department has written to the Union Ministry of Finance (MoF) to amend regulations and bring all inputs from the ships arriving at the yard for scrapping, under the ambit of excise duty.

The move follows ship-breakers in Alang going on a strike on December 21 after the Central Excise issued them a notice to produce ship-wise breakups of the material obtained from each dismantled ship.

Raju, the Central Excise Commissioner for Ahmedabad said a letter has been sent to the MoF requesting it to find a concrete way to control the amount of credit being given to ship-breakers on the materials.

We have requested to bring scrap and goods under 100 per cent duty. We have suggested to remove the non-dutiable clauses so that the ship-breakers pay duty on all materials without any exemption. Further, we have asked for a viable decision to control the amount of credit ship-breakers take from the government.
The Excise Department had addressed this issue to the Centre last year too, but no concrete decision followed. The issue

The Central Excise and ship-breakers face relates to the excess amount the government spends on giving Cenvat credit to ship-breakers at Alang.

The ship-breakers have been taking 100 per cent cenvat credit on the Excise duty they pay to the department.

After a ship is dismantled, the proportion in which inputs come out is usually in the ratio of 70:30. The goods in ratio of 70 per cent come under the category on which excise has to be paid to the government. The remaining 30 per cent scrap and other materials is exempted from duty.

The ship-breakers collect Cenvat credit from the Centre on the excise duty they pay on the materials from the dismantled ships.

The Excise Department has said that Rs 400 crore was collected last year as countervailing duty on international ships. Each yard at Alang is allowed to dismantle two to three ships at a time. There are 127 ship breaking plots at the yard.

Excise officials added that if 30 per cent ratio is considered for the non-excisable items, then the Centre has to pay Rs 160 crore extra as Cenvat credit to the ship-breakers.

The practice of giving 100 per cent credit to ship-breakers is leading to a loss for the Centre, given that Alang has dismantled 380 international vessels in the last one year.

The Alang-Sosiyo Ship-Recycling Association at Bhavnagar has suggested the Excise Department that they keep the excisable/non-excisable ratio at 90:10 so that the exempted materials comes to as little as 10 per cent. But the Excise Department wants the government to change the laws on the ground that if all materials come under excise duty, then the government will not have to pay credit for non-excisable inputs.