Customs, Excise and Gold Tribunal - Mumbai
Goa Paints And Allied Products vs Commissioner Of C. Ex. on 11 August, 2000
Equivalent citations: 2001(127)ELT489(TRI-MUMBAI)
ORDER J.H. Joglekar, Member (T)
1. This bunch of appeals involves the same issue where the appellant is the same. These appeals are therefore being disposed of vide this common order.
2. We have heard Shri J.J. Bhatt, Senior Counsel appearing along with Shri M.P. Baxi and Shri Siraj Salilkar, Advocates. The revenue's arguments were advanced by Shri Deepak Kumar, Senior Departmental Representative.
3. The appellants manufactured paints. Certain paints were supplied by them to the Indian Navy free of duty in terms of notification 70/77-C.E., dated 7-5-1977 and entry at Sr. No. 3 of notification 64/95-C.E., dated 16-3-1995. The first named notification exempted "goods supplied as stores for consumption on board a vessel of the Indian Navy". The entry in the second named notification was worded identically.
4. Twelve show cause notices were issued during the period 13-9-1993 to 14-6-1995 covering the period September, 1993 to June, 1995. Eleven show cause notices were answerable to the jurisdictional Assistant Collector. The allegations made were identical. It was alleged that the paint was supplied by the appellants to Goa Shipyard Ltd. who in turn had used the goods for painting the Indian Naval ships during their construction. In some of the show cause notices it was alleged that the goods were supplied to the Naval Chemical and Metallurgical Laboratory and after undertaking test they were supplied to Naval Dockyard, Vishakhapattanam where the paint was used for application on naval platforms (submarines). The 12th show cause notice (dated 4-10-1995) alleged that such goods were used for painting and maintenance of the existing ships. This notice was answerable to the Additional Commissioner of Central Excise. The show cause notice mentioned that the use as was described thereunder did not amount to that specified as the qualifying use in the subject notifications. On these grounds duties totally amounting to Rs. 32,09,933.86 were demanded in the 11 show cause notices answerable to the Assistant Collector. On similar grounds duty amounting to Rs. 6,40,541 /- was demanded in the show cause notice answerable to the Additional Collector.
5. After hearing the concerned persons the Assistant Commissioner confirmed the demands. He interpreted the wording "on board" to mean that the goods should be used for fitment or maintenance of the vessel or be physically consumed by the crew members. He ruled that paint used during construction of a vessel could not be titled as "stores" and could be called as "consumables". He accepted that the goods supplied to Mazgaon Docks or Goa Shipyard were the property of Indian Navy and held that such supply did not amount to supply as stores on board. He also held that docking platforms were not "ships" inasmuch as they were not self-propelled. Citing the Supreme Court judgment in the case of Rajasthan Spinning Mills v. CCE 1995 (77) E.L.T. 474 (S.C.) he opted for! liberal construction of the term used in the notification and held that the goods did not pass muster. He therefore confirmed the duty on the goods so cleared. When these clearances were taken into account he found that the assessees had crossed the limits specified as eligible clearances in notification 1/93 and confirmed the duty not paid on that ground also.
6. The Additional Commissioner also heard the assessees. He did not accept the assessees' contention that the certificates issued by the Indian Navy which categorically stated and certified that such paints were exclusively used on board the Indian naval ships amounted to fulfilment of obligation cast by the notification. He held that in spite of the certificates it was incumbent upon the assessees to verify the correctness of the certificate. He held that presumption was not sufficient to discharge the burden and therefore proceeded to confirm the demand. He also imposed a penalty of Rs. 1,000/-.
7. The orders of the Commissioner (Appeals) now impugned before us deal with both these orders passed by the Assistant Commissioner and the Additional Commissioner. The Commissioner (Appeals) in interpreting the wording of the notification held that it was not proved that the contested goods had reached in naval ships as "stores" nor was there any evidence that these paints were for consumption on board the ship. He observed that the certification of the naval authorities show their intention and therefore the conditions of the notification were not satisfied. He observed that it should have been evident to the appellant that the certification of the naval authorities was not adequate and therefore they should not have made the clearance without payment of duty. On these observations he upheld the lower orders resulting in the present appeals before us.
8. One of the observations made by the Assistant Commissioner was that pontoons and platforms could not qualify for the term "ships" as the same were not self-propelled. We find from the structure of the Tariff as amplified by the HSN that the word "pontoons" is capable of being interpreted differently. Where pontoons are used to describe flatdecked vessels used for transport of persons or goods they are classifiable under heading 89.01. Where they are designed to serve as bases for floating grains etc. they merit classification under heading 89.05. Pontoons used for supporting platform fall under the description 'other floating structures'. The chapter heading is "ships, boards and floating structures". The word 'ship' has not been defined anywhere but chapter note 1 gives a very wide meaning to the term. A ship is described as a vessel of any kind employed in navigation including floating structures. The judgment of the Bombay High Court in the case of Amership Management Pvt. Ltd. v. UOI 1996 (86) E.L.T. 15 refers to the meaning of the word "vessel". The word vessel is of very wide description and includes the phrase "ship". The definition of ship excludes only a sailing vessel. In this judgment the High Court had declared oil rigs to be considered as vessel for purposes of Customs Act as being floating structures, Using the phrases in the merchant shipping and the lack of exclusive definition in the structure of the tariff it would not be correct to hold that just because the pontoons could not propel themselves they would cease to qualify for the term 'ship'.
9. The phrase "platform for submarines", gives an impression that it is merely a floating structure but in the proceedings the statement of Lieutenant Harish has been cited to the effect that the phrase refers to the inside of the submarine.
10. In the orders leading to these appeals, "stores" or "ships stores" have been interpreted to the exclusion of paints supplied by the assessees. The phrase 'ships stores' has been defined in section 2(38) of the Customs Act as "goods for use in a vessel or aircraft and includes fuel and spare parts and other articles of equipment, whether or not for immediate fittings". The definition is very wide and merely illustrates certain goods but does not exclude any goods as long as they are for use in a vessel. The phrase "whether or not for immediate fittings" would not only include parts but also those goods which are not immediately required but may be a requirement in future.
11. The notification requires "consumption on board". Specific query was made as to the meaning of the phrase "on board". It would appear that for goods to qualify for this phrase, a vessel must be in existence and that this phrase would not admit inclusion of any goods for consumption in a vessel not yet manufactured. Neither side could supply any material case law or judgment to give definition precisely of the phrase "on board the vessel". The C.B.E.C. Circular F.No. 208/60/88-C.E., dated 30-12-1988 also does not clarify this question. The circular admits any goods for the consumption of the crew members as ships stores and thus supports the presumption that the wording would apply where a ship is already in existence. At a later stage we would revert to this issue.
12. The word "supplied" also came in for discussion. Two judgments of the Tribunal came to notice. In the judgment reported in 1999 (112) E.L.T. 292 (CCE v. Impreg & Insulations) the Tribunal held that where polyester resins supplied to a manufacturer who made strips out of those and then supplied those strips to the Indian Navy the benefit of notification 70/77 was not admissible. The judgment cannot be applied because the goods which were supplied underwent a total change during the transit clearly removing them from the benefit of the notification. The second judgment is more relevant and that is CCE v. Moosa Haji Patrawala Pvt. Ltd., 1999 (114) E.L.T. 620. In this case certain machines were supplied by the manufacturer to another company who in turn supplied the same to the Indian Navy. The Tribunal observed that it was an admitted fact that the goods had not been supplied to the Navy but to Voltas Ltd. On this ground the benefit was denied. We are handicapped in application of this judgment since the facts as were before the lower authorities are not spelt out in the Tribunal's judgment. In the present case we have seen certain certificates issued by the Navl Authorities. The wording in a typical certificate says -
"It is certified that goods purchased from M/s. Goa Paints & Allied Products, Panjim against M/s. Goa Shipyard Ltd., Vasco-da-Gama, Goa Purchase Order No. 06WS/MB-96/924, dated 9-7-1993 are exclusively for use on Board Indian Naval Ships and may be exempted from Excise Duty."
In their correspondence with the Excise Authorities also this point was made specifically by the Naval Authorities. The orders were thus placed on the shipyards who undertook the work. The payment were made by the shipyards which were ultimately reimbursed by the Indian Navy. The shipyards were thus working as contractors for the Indian Navy. The Indian Naval ships were being built or maintained by them and therefore the paints supplied by the appellants were used by them in the work. As we observed earlier the relationship between Voltas Ltd., Mazgaon Docks and Indian Navy does not come out from the cited judgment. The subject notifications do not speak of supply to the Indian Navy. Therefore the route taken for the goods for which the exemption sought is not a material factor in examining the eligibility of the goods to the notification.
13. We thus find that the paints could be termed as stores as long as they were consumed in a vessel of the Indian Navy and the manufacturer who supplied these goods could benefit from the subject notifications.
14. The word "consumption" used in the notification has to be interpreted in a wider sense as dictated by the Supreme Court in their judgment reported in 1998 (99) E.L.T. 3 [UOI v. VM. Salgaoncar & Bros. (P) Ltd.]. The Supreme Court defined it as "any sort of utilization". The paint as long as it was used on the body of the naval ship would thus qualify for the phrase "consumed".
15. Both sides in attempting to interpret the phrase used in these notifications took recourse to the entries at other serial numbers in the notification 64/95. Substantial arguments were made for interpreting the words "used", "meant for use", "intended for use" and "designed for use". Shri Deepak Kumar avered that where these words are deliberately used in these notifications a stricter construction should be put on the word "consumption". Shri Bhatt on the other hand urged that as long as the word "supplied" was used it was not material as to whether it was used or not. It was his case that in such a situation there was no need even for certification of end use by the Navy. He draws strength from the Supreme Court judgment in the case of The Slate of Haryana v. Dalmia Dadri Cement Ltd., 1988 (14) ECR 292. We feel that we need not go into these arguments since we have already given our mind on the interpretation of the notification.
16. We come back to the question as to the meaning of the phrase "on board the vessel". Our presumption is that the phrase refers to a ship already in existence. It is indirectly mentioned in the Board circular referred to above. It would therefore not be possible to extend the benefit of this notification to the goods which are admittedly supplied for use in a ship under construction.
17. Now we come to the quantifications. The benefit of the exemption notification would accrue to paint used on the ships already in existence. The duty quantifiable on such goods would come to Rs. 10,02,156.56. Consequentially the inadmissible benefit would amount to Rs. 28,48,318.30.
18. Substantial arguments were advanced on the sustainability of this portion of the duty short levied. Shri Bhatt urged that the appellants were justified in clearing the goods so supplied without payment of duty in the face of the certification made by the Naval Authorities that the goods were meant exclusively for consumption of Indian Naval vessels and the categorical statement made by the Indian Navy that the benefit of the subject notification was available. He stated that nothing more was required to be done by the manufacturer in these circumstances. It is his case that in the situation where a manufacturer relies upon the statements so made by the Naval Authorities he should not be called upon to make amends in the benefit claimed by him.
19. Rule 173F of the Central Excise Rules requires a manufacturer to determine the duty payable by him. In doing so he has to take into account the existence of the exemption notifications and has also to make an educated and calculated guess as to his eligibility for those notifications. Where he makes an error in judgment he would pay for it. It is likely and it is clear in the present case that the error in his judgment arose out of his reliance on the certification made by the Indian Navy. In such a situation where the demand is made for an extended period the demand would not survive. But in the present case it is not denied that the various demands made by the show cause notices were within the statutory period. It is urged that in denying the exemption at this stage a wrong would be done to the assessee if confirmation is made. We see the logic in the statement made by Shri Bhatt but are unable to offer any redressal to the assessee. The Supreme Court in the case of Novapan India Ltd. v. CCE., 1994 (73) E.L.T. 769 held that at the stage of determination of the benefit to the assessee the language of the exemption notification should be strictly construed but once the provision is found applicable full effect should be given thereto. In view of the language of the show cause notices it is clear that the benefit as claimed by the assessee was extended to him. RT 12 assessments also were duly finalised. Prima facie it appeared that the goods cleared were within the parameters of the language of the notification before the subsequent distinction between ships under construction and already constructed came to light. Therefore it cannot be said that the Revenue had made an error in initially extending the benefit of the notification and then later in challenging the benefit already taken.
20. The Tribunal is a creature of statute and is limited by the authority which it derives from the statute. In a case where it is apparent that the burden of extra duty is being cast upon the assessee on a ground not foreseen by him or in fact on a ground not foreseeable by anyone at the time of availment of notification, the Tribunal would be unable to give any relief. The only relief that the Tribunal can give is setting aside the penalty imposed in this situation.
21. We therefore hold that out of the duty confirmed in the impugned order of Rs. 32,09,934/-, the demand for Rs. 28,48,318.30 thus sustains. The appeal on this ground is allowed in part. The penalty imposed and maintained in the impugned order is set aside.