Custom, Excise & Service Tax Tribunal
L&T Sapura Shipping P. Ltd vs Commissioner Of Customs (Import), ... on 13 June, 2016
IN THE CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
Appeal No.
C/86738 to 86742/15
C/86765/15
- Mum
(Arising out Order-in-Original No. 32/2015/CAC/CC(I) /AB/GR.VB dated 04.06.2015 passed by the CC (Import), Mumbai)
For approval and signature:
Honble Shri M.V. Ravindran, Member (Judicial)
Honble Shri C.J. Mathew, Member (Technical)
1. Whether Press Reporters may be allowed to see No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the No CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy Yes
of the Order?
4. Whether Order is to be circulated to the Departmental Yes
authorities?
L&T Sapura Shipping P. Ltd.
Larsen & Toubro Ltd.
Ashwini Kumar
K. Poojary
Gac Shipping India Pvt. Ltd.
Sachin Sain
Appellant
Vs.
Commissioner of Customs (Import), Mumbai
Respondent
Appearance:
Shri V.S. Nankani, Sr. Advocate with Shri J.H. Motwani, Advocate for the appellant for 1 to 5 Shri T. Viswanathan, Advocate with Srinidhi G., Advocate for appellant no. 6 Shri V.K. Singh, Spl. Counsel for the respondent CORAM:
Honble Shri M.V. Ravindran, Member (Judicial) Honble Shri C.J. Mathew, Member (Technical) Date of hearing : 01-04-2016 Date of decision : 13.06.2016 O R D E R No: ..
Per: M.V. Ravindran This appeal is directed against Order-in-Original No. 32/2015/CAC/CC(I) /AB/GR.VB dated 04.06.2015.
2. Since all these appeals are arising out of common order in original they are being disposed of by a common order.
3. The brief facts are pursuant to a specific information that M/s. L&T Sapura Shipping Pvt. Ltd. have imported a heavy duty crane cum pipe laying ship in the guise of self propelled ship with intention to evade huge amount of duty; investigations were initiated by the officers of SIIB of Customs. The preliminary investigation revealed that M/s. L&T Sapura Shipping filed B/E No.2003235 dated 02.12.2010 in respect of MV LTS 3000describing the vessel as One unit self propelled Ship LTS 3000 with essential spares accessories, cons and provisions. The invoice No. IN/LTD3000/005 dated 12.11.2010 however showed the description as M.V. LTS 3000 IMO Number 9446843 Type : Heavy Lift Pipe lay Vessel. The vessel was examined on first check basis and the Group Appraiser objected to the classification and directed the importer to classify the vessel under CTH 89 05. Thereafter the CHA vide letter dated 15.12.2010 requested to amend the description from permanent import of one unit self propelled ship LTS 3000 with essential spares accessories cons and provisions to MV LTS3000 IMO No.9446843, Built 2010, Indonesia, Type Heavy Lift Pipe Lay Vessel GT-30628T NT-9188T (Temporary import on re-export basis) along with some additional quantity of various fuel and consumables. The request was allowed.
4. Pending investigation in the matter Appellant filed a writ petition before the Honble Bombay High Court. Honble high Court approved the provisional release of goods, as proposed by the respondents, on 24.12.2010 on the following conditions:
(i). Cash deposit of Rs 5 crores.
(ii). Bank guarantee of 20% of provisional duty.
(iii). Bond of full value of the goods.
Appellant complied with the above condition and goods were released.
5. In this case appellant claimed benefit under Sl. No.214 of Notification No.21/2002-Cus as amended which exempts goods specified in List 12 required in connection with petroleum operations undertaken under petroleum exploration licenses or mining leases, as the case may be, issued or renewed after the 1st of April, 1999 as granted by the Government of India or any State Government to the oil and Natural Gas Corporation or oil India Limited on nomination basis with the conditions as enumerated in condition Sl. No.29. The condition No.29 requires that the goods are imported by the Oil and Natural Gas Corporation or Oil India Ltd. (hereinafter referred to as the licensee) or a sub-contractor of the licensee.
6. The investigations carried out revealed that :
(i) The vessel LTS 3000 was imported permanently on full payment to the supplier and it was registered at Indian Register of Shipping on 18.11.2010;
(ii) The importer had submitted two different invoices one before Customs and other before DGH. Both these documents were filed by M/s. GAC Shipping (India) PVT Ltd. CHA on behalf of the importer. The Invoice submitted to Customs and DGH though had same number and date, the contents like name of the consignee, CIF value and additional information related to offshore activities were found to be different. Both these invoices were signed by Shri Ashiwini Kumar, CEO of M/s. OIF as well as of M/s. L&TSSPL.
(iii) The Bill of Entry was filed on 02.12.2010 and the application for Essentiality Certificate was filed on 03.12.2010. The Essentiality Certificate having importers name as M/s. L&T Sapura Shipping Pvt. Ltd. was issued on 06.2.2010. This essentiality Certificate was issued subject to Notification No.21/2002 ( as amended by notification No.26/2003Cus) dt.01.03.2002 as per Sl. No.214 of the Table, List 12 condition. no.29
(iv) In the instant case, Ministry of Petroleum had given a contract to M/s. ONGC Ltd . M/s. L&T Ltd. are sub-contractor of M/s. ONGC Ltd. And M/s. L&TSSPL, the importer is only a vessel owning company. It is evident from the above conditions that the importer has to be the sub-contractor of licensee. In view of these conditions other than the licensee or Sub-Contractor of the licensee (M/s. ONGC Ltd.) no importer can avail the benefit of duty exemption on the strength of Essentiality certificate. The importer M/s. L&TSSPL is not a bonafide sub-contractor of M/s. ONGC Ltd,. Therefore, benefit of notification 21/2002-Cus Sl. No. 214 is not eligible to m/s. L&TSSPL as they did not fulfill condition 29 of the said notification.
6. The Appellant L&T SSPL have interalia made the following submissions in their grounds of Appeal:
(i) The Honble Bombay high Court in the matter of WP No.2959 of 2011 in para 9 of its order dated 21.04.2011 while granting provisional release of the said vessel expressly stated that for the purpose of Customs Act what is relevant is whether the vessel is essential for the petroleum project and it is not relevant as to who is the contractor executing the work on behalf of ONGC. The said vessel was used for petroleum operations.
7. All the appellants contested the show-cause notice on merits as also on various grounds like the ship was ocean going vessel, no penalty is imposable as it is a question of interpretation of the benefits of the notification. The Adjudicating Authority did not agree with the contention raised by the appellants. The Adjudicating Authority by the impugned order in original denied the benefit of Notification 21/02-Cus confirmed the demand of customs duty along the interest, imposed equivalent penalty on L&T Sapura Shipping P. Ltd. (hereinafter referred to as the main appellant) also imposed penalties on other appellants. Besides confiscating the vessel with an option to redeem the same on payment of redemption fine.
8. Ld. Shri V.S. Nankani, Sr. Advocate with Shri J.H. Motwani, Advocate and Shri T. Viswanathan, Advocate with Srinidhi G., Advocate appeared for the appellant while revenue was represented by Shri V.K. Singh, Special counsel.
9. Ld. Counsel after taking us through the records of the case submits that the issue is regarding denial of benefit of Notification 21/02-Cus on the vessel imported by the main appellant as also the classification of the said vessel.
9.1. It is his submission that ONGC was a licensee of government of India for exploration of oil and gas in the Mumbai High and had by contract dated 16.10.2009 awarded the said contract to Larsen & Toubro Ltd. for MHN Process Platform & Living Quarters project. The project also had a clause for getting the work done through the sub-contractors as is evident from clause no.5.2.2. It is his submission that in pursuance of this clause the main appellant was appointed by Larsen & Toubro Ltd. to undertake the various works in relation to the contract. It is his submission that the benefit of Notification 21/02-Cus at sr. No. 214 is applicable to the main appellants vessel as the said work undertaken by the main appellant is in respect of exploration/petroleum operation of ONGC. He would then take us through the exemption notification. It is his submission that the terms contractor and sub-contractor as indicated in the Notification have not been defined anywhere in the Act as well as in the notification. It is his submission that notification requires three conditions to be satisfied if the exemption is claimed from the payment of duty. They are:-
(i) An Essentiality Certificate from Directorate General of Hydrocarbon, certifying that the goods are required for petroleum operations which is fulfilled by the appellant (as can be seen from the certificate issued at Page 114 of the Appeal);
(ii) Affidavit from ONGC that the sub-contractor is their bona fide sub-contractor (evident from the affidavit at Page 382 of the Appeal); and
(iii) Undertaking from ONGC that in case conditions of notification were not complied by sub-contractor then duty, fine or penalty that may become payable ONGC (which is satisfied by the undertaking as annexed at Page 383 of the Appeal.) 9.2. It is his submission that all the conditions pertaining to benefit of notification were satisfied by the appellant and hence the denial of benefit of notification exempting the said vessel from the payment of customs duty is wrong. It is his submission that the vessel is undisputedly used to carry out offshore petroleum operation by the appellant as sub-contractor of L&T Ltd. He would then draw our attention to the meaning of the sub-contractor in Blacks Law Dictionary and model contract published by Government under New Exploration Licensing Policy (NELP) program and in Advanced Law Lexicon by P. Ramanatha Aiyer. It is his submission that the sub-contractor will include any person who enters into the contract with the contractor for carrying out or for the supply of labour for carrying out the whole or part of work undertaken by the contractor under a contract. He would submit that the Revenue has not disputed the fact that L&T has appointed the main appellant as sub-contractor after seeking approval from ONGC by letter dated 31.08.2010. (Annexure 1- Page 78 of the Appeal memo); that appointment of main appellant was in pursuance to clause 5.2.2 of the contract which empowers L&T the main contractor to sub-contract portion of work with certain conditions specified therein; ONGC has accepted the proposal of availment of customs duty exemption and contract L&T to take necessary action with regard to implementation of contract. This letter dated 18.10.2010 at page 85 of appeal memo; the contractor L&T vide letter dated 03.12.2010 requested ONGC to process the Essentiality Certificate application for importation of vessel without payment of duty. He would submit that the licensee ONGC always understood the Appellant as a bona fide sub-contractor and the Essentiality Certificate was issued by DGH on the basis. It is his submission that this Essentiality Certificate was produced at the time of clearance of the vessel. He would submit that the revenue authorities after initiation of the investigation directed the DGH to cancel the Essentiality Certificate given to L&T. The said Essentiality Certificate was cancelled by DGH which was challenged by the appellant in writ petition before the High Court of Bombay and their Lordships stuck down the cancellation of the certificate and restored the Essentiality Certificate, which would mean that the vessel which has been imported by the main appellant is used for petroleum operation of ONGC. He would then draw our attention to affidavit filed by the officers of ONGC before High Court on this point and submits that before the higher court it is admitted that the main appellant is a bonafide sub-contractor of L&T in terms of condition no. 29 of Notification 21/02-Cus dated 01.03.2002.
9.3. It is his submission that the Adjudicating Authority has not appreciated the fact that ONGC never disputed the claim of the main appellant as being bona fide subcontractor; nor disputed the Vessel LTS 3000 was approved by ONGC for their installation activity; that Appellant, being a sub-contractor of L&T was treated as sub-contractor of L&T was treated as a sub-contractor of ONGC by implication and conduct on the part of ONGC. It is also his submission that its general practice of ONGC, the DGH and the Customs Department, to treat sub-contractor of a sub-contractor as a sub-contractor of the main contractor and thus, exemption is routinely extended.
9.4. It is his submission that the appellant has complied with the conditions of notification, as the main ground of the revenue that the Essentiality Certificate of DGH cancelled, is no more available as it is struck down by the High Court of Bombay. It is his further submission that the CBEC by circular no. 21/2013-Cus dated 16.5.2013 on the same issue clarified that for the extension of the benefit of notification, non-mentioning of the name of the contractor in the agreement cannot be a ground for denying the benefit of exemption and should be allowed based on the Essentiality Certificate issued by the DGH. He would submit that the Adjudicating Authority has not considered this direction of CBEC in its correct prospective and it is settled law that the Adjudicating Authority should follow the circular issued by the CBEC.
9.5. The Essentiality Certificate as issued by the DGH if held as valid, department has precluded from going into the background of the same and denying the benefit of the exemption notification. He would submit that the High Court in CCI, Mumbai v. Tullow India Operations Ltd reported in 2005 (189) ELT 401 has held so. As it is undisputed exemption which is granted by Notification 21/02-Cus sr. No. 214 is for usage of 9000 for petroleum purposes.
9.6. It is his further submission that the Adjudicating Authority has erred and wrongly classified the vessel imported by the main appellant under Chapter heading 8905. He submits that the main appellant claimed the classification of the vessel under 8901 or alternatively 8906.
9.7. It is his submission that in terms of the technical specifications of vessel LTS 3000, which he took us through and submitted that it is a self propelled ocean going vessel having capacity to conduct multiple functions to which navigation along with pipe laying being primary functions. The vessel is also designed to carry cargo for the purpose of laying pipes and further lay pipes on the sea bed. He would submit that the classification under 8905 as proposed by the revenue in the impugned order is totally incorrect as vessel LTS 3000 navigation is not subsidiary to the main function as is the requirement of the Tariff 8905. It is his further submission that to get classified under Tariff 8905, the vessel has to be stationary while performing the main function, in the case in hand vessel is required to navigate its way to lay pipes on the ocean bed. It means that navigation is its primary function. Subsequently he would take us through HSN explanatory notes to submit that the classification as proposed by the revenue is incorrect. It is his further submission that the vessel LTS 3000 has a crane and is equipped with pipe laying equipment and is a self-propelled ship, registered under the Merchant Shipping Act, as an ocean going vessel. He would submit that the Indian Register of Shipping class have certified the ship LTS 3000 with SUL and IY, DP(1) class notations. These notations are assigned to sea-going and the same indicates that the hull and its appendages and equipment meet the Rule requirements for assignment of this Character of Class. Notation IY is assigned to self-propelled seagoing crafts. He also drew our attention to the registration of the shipping by the Indian Registrar of Shipping for Cargo Ship certificate has classified LTS 3000 as cargo ship other than any of the above. He would submit that all these things indicate LTS 3000 is an Ocean Going Vessel and a Cargo ship and hence merits classification under CTH 8901 or 8906 but not under 8905. For this proposition he relied upon the judgment of the Tribunal in the following cases:
* HAL Offshore Ltd. 2014 (303) ELT 119;
* J.M.Baxi & Co. 2015 (318) ELT 688; and * CGU Logistic Ltd. v. Commissioner 2011 (274) E.L.T. 75 9.8. As regards the claim for classification under 8906, he submits that the said entry specifically covers cable ships for laying under water cables; that it is undisputed that LTS3000 is a pipe laying ship for laying pipes under water. He would submit that the classification of the ship is accepted 8901 and 8906 they carry nil rate of duty and entire demand needs to be set aside. As regards the penalty imposed, he submits that the entire issue is of interpretation, hence penalties imposed are unwarranted. On confiscation it is submitted that there is no mis-declaration as the vessel was declared self-propelled ship LTS 3000 with essential spare accessories cons and provisions. Since it is undisputed that the vessel is self-propelled ship there is no mis-declaration and confiscation was uncalled for.
10. Ld. Counsel appearing for appellant Shri Sachin Sain after adopting all the submissions made by the ld. senior advocate submits that the entire Order-in-Original is nothing but a verbatim reproduction of show-cause notice and there is no reasoning given to arrive at the conclusion. He would submit that this would prove that the impugned order was passed without giving due consideration to the submissions made by appellants. He would submit that there is no dispute that the imported vessel is for petroleum operation and there is no need to mention sub-contractors name in the agreement between ONGC and L&T which is the primary objection of the revenue in the case. He would submit that the penalty imposed on the appellant is totally unwarranted as all the actions of the appellant are in compliance with what was required as a employee of ONGC for implementation of the agreement between ONGC and L&T. As regards the affidavit, it is his submission that it has been filed and submitted to DGH, clearly states that L&T is sub-contractor of L&T and never contended that main appellant is a sub-contractor of ONGC. The affidavit did not misguide the DGH. He relies upon the decision of the Tribunal in Schlumberger Asia Services P. Ltd. for the proposition that name of sub-contractor need not be mentioned in the agreement between L&T and ONGC; relies on the judgment of Tribunal in J.M.Baxi & Co.(supra). For the proposition that no penalty can be imposed on the person who has not dealt with the goods and merely discharged his duty obligation; ONGC - 1995 (79) ELT 117 for the proposition that no penalty can be imposed on PSU or its employees. He would rely on the Essentiality Certificate issued by the DGH dated 29.10.2012 wherein the name of the sub-contractor and contractor are clearly mentioned and main appellants name is mentioned as importer, and submits that the list clearly indicates that the vessel is imported are required for petroleum operation undertaken under EEL/ Mining lease granted by the Government of India/ State Government.
11. Ld. Special counsel after taking us through the findings recorded by the Adjudicating Authority and also taking us through the records, grounds of appeal taken by the appellant submits that in this case four parties are involved:-
(i) M/s ONGC Licencee
(ii) M/s L&T contractor for the project.
(iii) M/s L&T Sapura Off Shore Pvt Ltd ( claimed sub contractor)
(iv) M/s L&T Sapura Shipping Pvt. Ltd. owner and importer of the goods.
He would submit that L&T Sapura Shipping Pvt. Ltd, the main appellant has claimed import of the goods under Sl. No.214 of Notification No.21/2002-Cus as amended at nil rate of duty claiming that the vessel is required in connection with petroleum operations undertaken under petroleum exploration licenses or mining leases given to ONGC. It is his submission that the benefit is subject to fulfillment of condition laid down at sl. no. 29 and the Appellant who has imported goods is neither contractor nor sub-contractor of the licensee. He would submit that Shri Sachin Sain, General Manager, (Projects) of ONGC in his statement recorded stated that the ONGC Ltd. was not aware in advance that M/s. L & T Ltd. is sub-contracting the job to M/s. L & T Sapura Shipping Pvt. Ltd. and the main appellant was apparently referred first time by L & T Ltd. during submission of their request for issue of Essentiality Certificate.
11.1. It is his submission that on investigation into the import of LTS 3000 various facts emerged they are as under:
a. The main appellant has entered wrong description in the Bill of entry.
b. The main appellant had purchased the vessel from M/s. Offshore International FZC, UAE and had remitted full and final payment after due permission from RBI.
c. The invoice No. IN/LTS 3000/005 dated 12.11.2010 submitted along with the application for obtaining Essentiality Certificate was different from what was submitted with the Bank and Customs.
d. A sub-contractor can be engaged as per the agreement entered between ONGC and L&T; that the said clause at 5.2.2(ii) was never fulfilled by L&T as the main appellant as critical ingredients for appointment of sub-contractor are not met by the main appellant.
11.2. It is his submission that Essentiality Certificate issued to the main appellant is in violation of the condition 29 stipulated in Notification No.21/2002 and main appellants are not entitled to benefit of exemption. For this purpose he placed reliance on the judgments of the apex court in Gammon India Ltd vs. CC , Mumbai 2011(2690 ELT 289(SC). It is settled law that an exemption is an exemption and should be construed strictly. For this purpose, he placed reliance on the following judgement:-
(a) Jairaj Ispat Vs. CCE, Hyderabad-2001(127)E.L.T. 722
(b) Novapan India Ltd vs. CCE Hyderabad 1994 (73) 769(SC)
(c) Golden Dew Tea Factory Vs. commissioner of C.Ex. Coimbatore-2007(219) ELT 362.
11.3. It is his submission that reliance placed by the ld. Counsel on the judgment of Bombay High Court is incorrect as High Court had specifically stated the views expressed by the judgement are prima facie views and it left the issue of deciding the main appellant is a sub-contractor or otherwise to the authorities.
11.4. As regards classification of the vessel, it is his submission that has a special crane having capacity to lift 3000 Mt and is fitted with pipe laying equipments, and it is appropriately classifiable under heading 8905 and not definitely classified under headings 8901 or 8906.
11.5. As regards penalty imposed on various appellants, he reiterates the finding of the Adjudicating Authority.
12. We have considered the submissions at length by both sides and perused the records.
13. On consideration of the submissions made by both sides and perusal of the records, the following issues needs to be decided by us:
i) Whether the impugned vessel i.e. LTS 3000 is classifiable under CTH 8901 or 8906 as claimed by the main appellant or 8905 as held by the Adjudicating Authority.
ii) Whether the main appellant is eligible for benefit of Notification 21/02-Cus at Sr.no.214.
13.1. Benefit of Notification 21/02-Cus The Adjudicating Authority has held that the main appellant is not eligible to avail the benefit of Notification 21/02-Cus (sr.no. 214) on the ground that the main appellant is not a sub-contractor and is only an importer and various statements recorded of the officials of ONGC indicate that appointment of main appellant as sub-contractor was in accordance with the agreement entered by ONGC with L&T Ltd.
13.2. We find that the Adjudicating Authority has totally misdirected his finding on this point after misconstruing the facts. In order to appreciate the correct position, whether the main appellant is eligible for the benefit of Notification 21/02-Cus in respect of the vessel imported by him, it is required that the undisputed facts needs to be recorded. They are
1) The vessel LTS 3000 is renewed for conducting petroleum operation as per the agreement entered by ONGC with L&T
2) The said vessel was used for the petroleum operation as per the agreement entered by ONGC.
On the background of such facts it is to be seen whether the benefit of Notification 21/02-Cus needs to be extended to the appellant or not. The said Sr.no. 214 in Notification 21/02-Cus reads as under:-
214Goods specified in List 12 required in connection with petroleum operations undertaken under petroleum exploration licences or mining leases, as the case may be, issued or renewed after the 1st of April, 1999 and granted by the Government of India or any State Government to the Oil and Natural Gas Corporation or Oil India Ltd. on nomination basis.29
A plain reading of entry 214 would specifically indicate that the goods which are required in connection with the petroleum operations undertaken under petroleum exploration licences are exempt from payment of duty if they fulfil the condition as mentioned at Condition no. 29. It is undisputed that ONGC are licensee for petroleum operations undertaken under petroleum exploration licences or mining lease post 01.04.1999 granted by the Government of India. The condition as reproduced above, of the notification, clearly indicates that the goods can be imported by ONGC or a sub-contractor which are used in connection with the petroleum operations to be undertaken. In the case in hand it is undisputed that vessel LTS 3000 is used in the petroleum operations as can be ascertained from the Essentiality Certificate issued by the DGH. Clause (c) of condition no. 29 is being disputed by the revenue that the appellant herein is not a sub-contractor. On plain reading of the affidavit filed by the respondent officer i.e. Shri Rajeev Kumar, DGM (E) of ONGC before the Hon'ble High Court in writ petition no. 2980 of 2011 on oath states that It was pointed out that in the request for issue of essentiality certificate, correct facts had been disclosed i.e. the vessel LTS 3000 is being imported on re-export basis for the purposes of carrying out obligation under the Contract dated 16th October, 2009. Further, in the application besides listing the vessel LTS 3000 in respect of which essentiality certificate was requested, the sub-contractors name was shown as L&T Ltd. while the importers name was shown as L&T Sapura Shipping P. Ltd. This was on the basis that the contractor viz. 1st petitioner i.e. M/s. Larsen & Toubro is the person who is over all in charge in executing the contract and had engaged the services of 2nd petitioner viz. L&T Sapura Shipping P. Ltd. as its agents for importing the vessel viz. LTS 3000 for the purposes of execution of the contract. This understanding is also fortified/ supported by the affidavit submitted to the Dy. Commissioner of Custom wherein also it was stated that L&T Ltd. i.e. 1st petitioner is our contractor for the MHN process platform and Living Quarter project. (As reproduced from affidavit at page 384 onwards at page 394 & 395 of the appeal memorandum) 13.3. From the above reproduced portion of the affidavit filed by the responsible officer of ONGC before the High Court in a writ petition connected to the issue in hand, would indicate that ONGC had always considered the main appellant as sub-contractor. In pursuance to an application made by the said ONGC for issuing the Essentiality Certificate DGH had issued the Essentiality Certificate which reads as under:-
Sub: Essentiality' Certificate for Import of Goods in terms of Notification No. 21/2002 Customs dated 01-03-2002 amended vide Notification No. 26/2003-Customs dt. 1-3-2003 (S.No. 214 of Table, List 12 and Condition No. 29) Ref: Petroleum operations undertaken under Petroleum Exploration Licenses/Mining Lease issued or renewed after the 1st of April, 99 and granted by Govt. of India/State Govt. to ONGC/OIL (Licensee) on nomination basis. OIL AND NATURAL GAS CORPORATION LTD Operator's Name: OIL AND NATURAL GAS CORPORATION LTD Importer's Name: Land T Sapura Shipping Pvt. Ltd Total CIF Value: INR 7490834074.42 Blocks: PEL-ML-ONGC Contracts Dated: Contract No. MR/OW/MM/MNP-MLQ/16/2008 Dated 16.10.2009 Invoice No.: IN/LTS3000/005 dtd 12/11/2010, 185753 dtd 12/11/2010, 80515386 dtd 12/11/2010,80515948 dtd 12/11.'/2010, IV071542 dtd 12/11/2010 This is to certify that imported goods, as per attached list, are required for petroleum operations undertaken under PELl Mining Lease issued or renewed after the 1st of April, 99 and granted by Govt. of India/State Govt. and have been imported for execution of contract as per subject and reference matter mentioned above.
This has reference to said Notification No. 21/2002 Customs dated 01-03-2002 amended vide Notification No. 26/2003-Customs dated 1-3-2003 as per S. No. 214 of the Table, List 12, Condition 29 issued by Ministry of Finance (Department of Revenue), New Delhi.
This certificate is valid for a period of six months from the date of issue. 13.4. A plain reading of the Essentiality Certificate as reproduced hereinabove would indicate that the vessel LTS 3000 is required for the petroleum operations undertaken by the ONGC. This Essentiality Certificate is affirmed as correct Essentiality Certificate by the High Court of Bombay in the case of L&T Ltd. in a writ petition in favour of petitioner, (reported at 2013 (298) ELT 217 (Bom). The issue of Essentiality Certificate now stands decided in favour of the main appellant as there is no dispute that the Essentiality Certificate as required under notification is on records accepted as correct certificate.
13.5. The second requirement of the condition of notification is that an affidavit has to be filed by ONGC to the effect that the sub-contractor is bona fide sub-contractor of the licensee of the lessee. It is to be seen that ONGC has filed an affidavit dated 19.10.2010 to Dy. Commissioner of Customs, Mumbai regarding that the main appellant is sub-contractor of L&T Ltd. in terms of condition no. 29 of the notification, scanned copy of the same is reproduced:
The above said affidavit was accepted by the department while extending the benefit of notification but subsequently contradicted on the ground that the said affidavit was incorrect as it is not being in consonance with the clauses of agreement entered by the ONGC with L&T. It is the finding that as per clause 5.2.2. various conditions needs to be fulfilled for accepting the main appellant as the sub-contractor. We fail to understand the finding recorded by the Adjudicating Authority and as also canvassed by the ld. Special counsel on this point. ONGC in pursuance to the contract entered by them with L&T has accepted the proposal that the main appellant herein is a sub-contractor, which is evident by the affidavit filed by ONGC before the High Court of Bombay also before the Dy. Commissioner of Customs for the satisfaction of condition 29 of the said notification . Such an affidavit cannot be disputed by the revenue based upon the clauses of the agreement. In our view, whether the main appellant is a sub-contractor of ONGC or otherwise, is a dispute that cannot be adjudicated by the departmental authorities, more so when it is impliedly accepted by the ONGC that the main appellant is a sub-contractor of ONGC.
13.6. The condition which requires to be fulfilled as per condition 29 is regarding an undertaking from the licensee to lessee binding them to pay duty, fine or penalty if any of the condition of the notification are not complied with by such sub-contractor or licensee or lessee. We find that ONGC has filed the undertaking to Dy. Commissioner of Customs as is evident from page 383 of the appeal memo which we reproduce:-
To The Deputy Commissioner of Customs, Mumbai UNDERTAKING Sub: Undertaking in terms of Notification 21/02-Cus dated 01/03/2002 as amended by notification no. 26/2003-Cus dt. 01/03/2003 Sl.No. 214 of the table of import MHN- Process Platform & Living Quarters project is awarded to M/s. Larsen & Toubro Ltd., Mumbai on turnkey basis. M/s. Larsen & Toubro Ltd. has engaged L&T Sapura Shipping P. Ltd. for execution of said job.
We hereby declare that items vide B/L No................. dated................ and invoice no. IN/LTS3000/005 dtd. 12.11.2010. 185753 dtd. 12.11.2010, 80515386 dtd. 12.11.2010, 80515948 dtd. 12.11.2010, IV071542 dtd. 12.11.2010 are being imported by L&T Sapura Shipping P. Ltd. and the goods will be used for Mumbai High North Filed, MHN Process Platform & Living Quarters project (MNP & LQ) project, west coast of India as per the terms and conditions of the contract MR/OW/MM/MNP-MLQ/16/2008 dated 16.10.2009.
Oil and Natural Gas Corporation Ltd. (ONGC) will pay any duties, fines that may become payable in the event L&T Sapura Shipping P. Ltd. does not comply with the terms of Notification 21/02-Cus dated 01.3.2002 as amended by Notification 26/03-Cus dt.01.03.2003 Sl.No. 214 of the table of import. The said undertaking categorically states that the main appellant is a sub-contractor. It is also on record that none of the conditions of the said notification are contravened or violated by the main appellant. Assuming that there is nothing on record to indicate, as such, even if there is a violation of condition of notification, the customs duty liability gets fastened on ONGC and not the main appellant.
13.7. Be that as it may, there is no dispute as to the fact that the vessel LTS 3000 was used only for the petroleum operations as per the contract awarded to L&T. The exemption granted by the notification is to be extended to the goods to be used in connection with petroleum operations under petroleum exploration licence which is undisputedly complied with by the imported vessel LTS 3000. We find strong force in the submission made by the counsel that the terms contractor and sub-contractor have not been defined under Customs Act, nor in the notification or any other statute, in such a situation the meaning needs to be looked into the various dictionaries. On reading the definition of sub-contractor in Blacks Law Dictionary, which reads as a sub-contractor is one who is awarded a portion of an existing contract by a contractor in the case in hand the appellant is sub-contractor as per the agreement entered by ONGC with L&T. 13.8. In the case in hand, since it is not in dispute that the vessel was used for petroleum operations as per the Essentiality Certificate granted by the DGH; the question of denying the benefit of Notification 21/02-Cus does not arise. In an yet another angle to the entire issue, it is to be considered from the fact that a clarification was sought from CBEC on the point as to whether each sub-contractor of a contractor is required to enter into contract with the Government of India or his name should figure in the contract agreement signed by the Government of India for availing the benefit of exemption under Notification 21/02-Cus it was clarified by CBEC in a Circular dated 16.05.2013 in para 2.4 which reads as under:-
2.4 Whether each sub-contractor (of a contractor) is required to enter into a contract with the GOI or his name should figure in the contract agreement signed between the contractor and GOI for availing the benefit of this exemption.
2.4.1 Field formations are not allowing the benefit of exemption to imports made by the sub-contractor if his name does not figure in the contract signed between the GOI and the Contractor on the ground that as per the condition of the exemption, the importer is required to produce a certificate from DG, Hydrocarbons, that the imported goods have been imported under a contract signed under the New Exploration Licensing Policy, and containing the name of such sub-contractor.
2.4.2 The condition (c)(i) in all the Sl. Nos. of the said notification requires that the importer should produce an EC, which should indicate that the goods have been imported under a contract entered between the Government and the contractor; and it should also contain the name of the sub-contractor. The requirement of containing the name of the subcontractor is in the EC issued by the DG Hydrocarbons and not in the original contract entered into by the contractor with the GOI. If the sub-contractor is required to enter into a contract with the GOI, then the condition viz an affidavit to the effect that such subcontractor is a bona-fide sub-contractor of the contractor would be superfluous. Moreover, at the time of entering into contract, the contractor normally does not know the name of his subcontractor. Hence, it is not possible to include his name in the original contract.
2.4.3 It is, therefore, clarified that non-mention of the name of sub-contractor in the agreement signed between the contractor and GOI cannot be a ground for denying the benefit of the exemption and that the exemption should be allowed based on the EC issued by the DG, Hydrocarbons.
3. The above position may be brought to the notice of formations under your charge. Difficulties, if any, faced in the implementation of the instructions may be brought to the notice of the Ministry at an early date. CBEC in the above said clarification has specifically stated that non-mentioning the name of the sub-contractor in the agreement cannot be a ground for denying the benefit of exemption and same should be allowed based on the Essentiality Certificate issued by DGH. The case in hand the CBEC squarely covers the issue in favour of the main appellant. The Adjudicating Authority has erred in not following the direction of CBEC when the facts are so very clear in the case in hand.
14. Classification The Adjudicating Authority has decided the classification of the vessel LTS 3000 under 8905. While the appellant has claimed the 8901 or 8906. In order to appreciate the competing tariff heading it is required that the said chapter headings be reproduced:-
Tariff item Description of goods Unit Rate of Duty (Std.) (1) (2) (3) (4) 8901 Cruise ships, excursion, boats, ferry boats, cargo ships, barges and similar vessels for the transport of persons or goods 8901 10
- Cruise ships, excursion boats and similar vessels principally designed for the transport of persons; ferry boats of all kinds:
8901 10 10
- Ships U 10% Tariff item Description of goods Unit Rate of Duty (Std.) 8905 Light-vessels, fire-floats, dredgers, floating cranes, and other vessels the navigability of which is subsidiary to their main function; floating docks; floating or submersible drilling or production platforms.
8905 10 00
- Dredgers U 10% 8905 20 00
- Floating or submersible drilling or production platforms U 10% 8905 90
- Other :
U 10% 8905 90 10
- Floating docks U 10% 8905 90 90
- Other U 10% The finding of the Adjudicating Authority that the said vessel LTS 3000 merits classification under chapter 8905 is totally incorrect inasmuch the chapter heading starts with the clause that it covers light vessel, fire floats, dredgers, etc. the navigability of which is subsidiary to the main function. The understanding of the ld. Adjudicating Authority that vessel LTS 3000 having a crane fitted to it would fall under floating cranes seems to be incorrect as it is on record that vessel LTS 3000 is self navigating ocean going vessel. This fact is clearly ascertainable from the certificate of class as given by the Indian Register of Shipping which we reproduce:
It is also to be noted that the Indian Register of Shipping has also regarded or registered for the purpose of safety consideration that the vessel LTS 3000 is cargo ship other than any of the above. It is noted that the certificate of class recorded by the Indian Register of Shipping specifically indicates the vessel is sea going vessel. It is common sense that sea going vessel means a vessel for which navigation is primary function and other activities are secondary. It is also on record and admitted that the vessel LTS 3000 is used for laying the underwater pipes on the ocean sea bed which requires navigation from point to point. The self propelled nature of vessel LTS 3000 is not at all disputed by any of the lower authorities.
15. In our view the classification of the vessel LTS 3000 under 8905 by the revenue authorities is totally incorrect. We are fortified in our view by the judgment of this Tribunal in HAL Offshore Ltd. (supra) and J.M.Baxi & Co. (supra). We reproduce the relevant paras from the decision of J.M.Baxi & Co.
4.1 The competing? entries of classification are CTH 8905 and CTH 8906 and they are reproduced below :-
Tariff item Description of goods 8905 Light-vessels, fire-floats, dredgers, floating cranes, and other vessels the navigability of which is subsidiary to their main function; floating docks; floating or submersible drilling or production platforms.
8905 10 00
- Dredgers 8905 20 00
- Floating or submersible drilling or production platforms 8905 90
- Other :
8905 90 10
- Floating docks 8905 90 90
- Other 8906 Other vessels, including warships and lifeboats other than rowing boats 8906 10 00
- Warships 8906 90 00
- Other 4.2 According to? HSN Explanatory Notes, heading 8905 covers vessel which perform their main function in a stationary position. The vessels covered by the said entry include light vessels, fire-floats, dredgers, floating cranes, floating docks; floating or submersible drilling or production platforms and all other vessels which perform their main function in a stationary position. On the contrary the vessel under import undertakes seismic survey of the sea bed and its subterranean surface in large area running into hundreds of square kilometres. Such survey vessels, cannot obviously perform the function if it remains in a stationary position. This is material and significant difference in the nature of the function undertaken by Geo Hind Sagar when compared with the vessels of CTH 8905. Further from the contracts entered into with ONGC and NACOR, it is seen that the vessel should possess significant navigational capability to undertake and perform the tasks assigned and there are specific standards laid down in this regard. If the vessel has to undertake the survey at constant speed and depth, its navigability cannot be said to be subsidiary to its main function and both are equally important. Further as per HSN Explanatory Note, vessels falling under CTH 8906 include scientific research vessels; laboratory ships, weather ships, etc., within its ambit. It is a settled position in law as held by the Honble Apex Court in the case of Collector of Central Excise, Shillong v. Wood Craft Products Ltd. [2002-TIOL-278-SC-CX-LB = 1995 (77) E.L.T. 23 (S.C.)] that for resolving any dispute relating to tariff, classification, a safe guide is the internationally accepted nomenclature emerging from the HSN.
4.3 From the? various certificates given by the authorities (both in India and abroad) including Indian Registry of Shipping and the professional surveyors who have undertaken the examination and classification of the vessel, the vessel in question is a seismic research vessel. Seismic research is scientific research and therefore, the vessel is a scientific research vessel. There is no evidence produced by the Revenue to the contrary by way of any expert opinion and therefore, the contention of the Revenue that the vessel merits classification under CTH 8905 does not have any sound basis and accordingly, we reject this contention. An argument has been advanced by the Revenue to the effect that a survey vessel cannot be equated with a research vessel. We do not find any rational basis for this argument. The purpose of any scientific survey is to gather reliable data and from the analysis of the data, scientifically valid conclusions can be drawn. Thus collection of data is an integral part of any empirical scientific research and cannot be treated as a separate or distinct activity. The relevant paras from HAL Offshore Ltd.:-
7.9 Now let us see whether there is any merit in the? Revenues case for classifying these vessels under CTH 8905. The said heading covers light vessels, fire floats, dredgers, floating cranes, and other vessels the navigability of which is subsidiary to their main function; floating docks; floating or submersible drilling or production platforms. The types of vessels specified in this heading are essentially stationary vessels and they do not have any navigational capability. Even when they have such capability, the same is subsidiary to their main function. From the class certificates issued by the Indian Registry and Bureaus Veritas, it is seen that the vessels are SUPPLY VESSELS with unrestricted navigation. In other words, navigation is not subsidiary to their main function. The safety certificate issued by the Mercantile Marine Dept. of the Ministry of Shipping and Transport clearly mentions these vessels as Other Cargo ships, which again proves that the impugned vessels do not fall under the purview of CTH 8905. The technical features of the vessels also indicate that these vessels are self-propelled and have modern navigation and communication systems installed. Even the contract given by the ONGC shows that these vessels have to undertake inspection, maintenance and repair functions over a 4000 Km area. Can a vessel without propulsion and navigational capability undertake such operations? Common sense gives the answer in the negative. But common sense is quite uncommon, as the popular saying goes. Thus we have no hesitation in our mind to conclude, after going through all the evidences available on record, that the impugned vessels are rightly classifiable under CRH 8901 of the Customs Tariff and not under CTH 8905 and we hold accordingly.
7.10 The appellants have also relied on the decision of? this Tribunal in the CGU Logistics v. CC, Mumbai reported in 2011 (274) E.L.T. 75 wherein the classification of a transshipment vessel was considered. The competing classifications were Headings 8901 and 8905 as in the present case. The vessel in that case was a self-propelled one with dedicated conveyor system in a stationary position, designed for short trade with service speed of 7 knots, having no hatches to store cargo and not competent to cruise with loaded cargo in the high seas. After taking into the functions of the vessel and the certificates issued by the Mercantile Marine Dept., this Tribunal held that the vessel was classifiable under CTH 8901, on the ground that the vessel was not always in stationary position while carrying out transshipment of cargo and some modes of transshipment involved navigation. In the case before us, the vessels are self-propelled, have capacity for carrying cargo and persons and have unrestricted navigational capability. The certificates issued by the Indian Registry of Shipping and Mercantile Marine Dept. also classify the vessel as supply vessel. Therefore, the ratio of the above decision applies squarely and the impugned vessels merit classification under CTH 8901.
The above reproduced paragraphs from the judgment clearly indicate that the navigability is the prime function for classification of a vessel in a specific heading. The question of classifying the vessel in this case under 8905 does not arise. We are fortified in this view by the HSN explanatory notes to chapter 8905, which states that the vessels covered under this heading normally function or perform other main function in a stationary position. In the case in hand, it is admitted fact that the vessel is continuously moving while laying the pipes and undertaking any operation in relation to the petroleum exploration.
16. We also note that the HSN explanatory notes can be relied upon to come to a correct classification is a settled law. A plain reading of inclusions of the vessel in chapter heading 8905 would mean that the vessel should be undertaking or performing function in a stationary position, which in the case in hand is absent. We find that the HSN explanatory notes 8906 has indicated that cable ships, laying underwater cables for telecommunication are covered under CTH 8906. In the case in hand the vessel LTS 3000 is laying under water pipes which may not be of laying of underwater cables but definitely laying the pipes under water on the ocean bed is an activity undertaken. In our considered view, the classification of the vessel LTS 3000 would be correct under 8901 or 8906 but not definitely under 8905 as has been held by the Adjudicating Authority. If the classification of the vessel falls under chapter heading 8901 or 8906, the duty liability is nil is undisputed.
17. Since we have come to a conclusion that the benefit of notification as well as the classification is in favour of the main appellant herein, the question of confiscation of the said vessel does not arise. Accordingly, the confiscation is held as unsustainable and is set aside. Another important factor is that the said vessel is ocean going vessel is that the vessel has been re-exported as is informed to us and is undertaking the job of laying pipes somewhere abroad. As we have set aside the duty liability on merits itself, we find the penalty imposed on the main appellant as well as other appellants are unwarranted and liable to be set aside and we do so.
18. In sum, the impugned order is set aside and the appeals are allowed with consequential relief, if any.
(Pronounced in Court on ...........................) (C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial) //SR 2 C/86738-86742/15