Custom, Excise & Service Tax Tribunal
Vijayan C D Souza vs Mumbai on 2 May, 2013
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
Applications:
in
Appeals
C/1011/2012
C/1012/2012
C/Stay-94240 to 94242/2013
C/1035, 1036, 1293, 1302, 1334, 1341,1342/2012
& C/86212, 86213 & 86214/2013
C/Stay-94243, 94244 & 94246/2013
C/1294 to 1296, 1303, 1335, 1337 & 1336/2012
& C/86218, 86215 & 8616/2013
[Arising out of Orders-in-Original No: 56/2012/CAC/CC(I)/AB/ Gr.VB dated 28/09/2012; 58/2012/CAC/CC(I)/ AB/ Gr.VB dated 05/10/2012; 59/2012/CAC/CC(I)/AB/ Gr.VB dated 09/10/2012; 50/2012/CAC/CC(I)/AB/ Gr.VB dated 01/09/2012; 55/2012/CAC/ CC(I)/AB/ Gr.VB dated 28/09/2012; 60/2012/CAC/ CC(I)/AB/ Gr.VB dated 05/10/2012; 61/2012/CAC/ CC(I)/AB/ Gr.VB dated 10/10/2012; 81/2012/CAC/ CC(I)/AB/ Gr.VB dated 21/12/2012; 84/2012/CAC/ CC(I)/AB/ Gr.VB dated 20/12/2012 and 85/2012/CAC/ CC(I)/AB/ Gr.VB dated 21/12/2012 passed by the Commissioner of Customs (Import), Mumbai.]
For approval and signature:
Honble Shri P.R. Chandrasekharan, Member (Technical)
Honble Shri Anil Choudhary, Member (Judicial)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Shipping Corporation of India Ltd.
Capt. K. Devdas
J.M. Baxi & Company
Vijayan C DSouza
Appellants
Vs
Commissioner of Customs (Import)
Mumbai
Respondent
Appearance:
Shri Vipin Kumar Jain, with Shri Vishal Agarwal and Shri Krishna Kumar, Advocates for the appellants
Shri K.M. Mondal, Special Consultant for the respondent
CORAM:
Honble Shri P.R. Chandrasekharan, Member (Technical)
Honble Shri Anil Choudhary, Member (Judicial)
Date of hearing: 02/05/2013
Date of decision: 09/07/2013
ORDER NO: ____________________________
Per: P.R. Chandrasekharan:
There are 22 appeals and 6 stay applications arising from 10 orders-in-original passed by the Commissioner of Customs (Imports), New Custom House, Mumbai. The details of the orders and the connected appeals and stay applications are given below:
S. No.
Order-in-Original No. & date
Name of Vessel
Appellant
Appeal No.
1.
56/2012/CAC/ CC(I)/AB/Gr.VB dated 28/09/2012
Smit Lumba
Shipping Corporation of India
C/1011/2012
Capt K.Devdas
C/1012/2012
J.M. Baxi & Co.
C/1293/2012
Mr. Vijayan C DSouza
C/1294/2012
2.
58/2012/CAC/CC(I)/ AB/ Gr.VB dated 05/10/2012
Posh Giant I
J.M. Baxi & Co.
C/1035/2012
Mr. Vijayan C DSouza
C/1295/2012
3.
59/2012/CAC/ CC(I)/AB/ Gr.VB dated 09/10/2012
Salvaree
J.M. Baxi & Co.
C/1036/2012
Mr. Vijayan C DSouza
C/1296/2012
4.
50/2012/CAC/ CC(I)/AB/ Gr.VB dated 01/09/2012
Smit Lynx
J.M. Baxi & Co.
C/1302/2012
Mr. Vijayan C DSouza
C/1303/2012
5.
55/2012/CAC/ CC(I)/AB/ Gr.VB dated 28/09/2012
Union Boxer
J.M. Baxi & Co.
C/1334/2012
Mr. Vijayan C DSouza
C/1335/2012
6.
60/2012/CAC/ CC(I)/AB/ Gr.VB dated 05/10/2012
Giant - 2
J.M. Baxi & Co.
C/1341/2012
Mr. Vijayan C DSouza
C/1336/2012
7.
61/2012/CAC/ CC(I)/AB/ Gr.VB dated 10/10/2012
Smit Borneo
J.M. Baxi & Co.
C/1342/2012
Mr. Vijayan C DSouza
C/1337/2012
8.
81/2012/CAC/ CC(I)/AB/ Gr.VB dated 21/12/2012
Seacor Valor
J.M. Baxi & Co.
C/86212/2013
Mr. Vijayan C DSouza
C/86215/2013
9.
84/2012/CAC/CC(I)/AB/Gr. VB dated 20/12/2012
Smit Cyclone
J.M. Baxi & Co.
C/86214/2013
Mr. Vijayan C DSouza
C/86216/2013
10.
85/2012/CAC/ CC(I)/AB/Gr.VB dated 21/12/2012
Mastas Star
J.M. Baxi & Co.
C/86213/2013
Mr. Vijayan C DSouza
C/86218/2013
2. As the issue involved is common in all these appeals, they are taken up together for consideration.
3. This batch of appeals relates to 10 foreign flag vessels which were imported into India for the purpose of undertaking salvage and similar emergency towing operations. Of the 10 vessels, demand of duty in respect of nine vessels has been raised against J.M. Baxi & Co. who are the shipping agents for the foreign vessel owners while demand of duty for the 10th vessel has been raised on Shipping Corporation of India. The remaining appeals are of M/s. J.M. Baxi & Co., Mr. Vijayan C. DSouza, Vice President of M/s. J.M. Baxi & Co. and Capt. K. Devdas, of the Shipping Corporation of India Ltd. who are aggrieved by the personal penalties imposed under various orders. The date of arrival for these vessels and the date of departure, the date on which the show cause notices were issued as well as the provisions of the Customs Act in terms of which duty demand has been confirmed are as per the table below:
S. No.
Order-in-Original No. & date
Name of Vessel
Date of Arrival
Date of Departure
Date of SCN
Provi-sions of Customs Act
1.
56/2012/CAC/CC(I)/AB/Gr.VB dated 28/09/2012
Smit Lumba
21/06/2011
20/09/2011
08/12/2011
Section 28(8)
2.
58/2012/CAC/CC(I)/ AB/ Gr.VB dated 05/10/2012
Posh Giant I
04/02/2011
19/03/2011
28/03/2012
Section 28(8)
3.
59/2012/CAC/ CC(I)/AB/ Gr.VB dated 09/10/2012
Salvaree
23/12/2010
19/03/2011
28/03/2012
Section 28(8)
4.
50/2012/CAC/ CC(I)/AB/ Gr.VB dated 01/09/2012
Smit Lynx
04/02/2011
26/03/2011
07/05/2012
Section 125(2)
5.
55/2012/CAC/ CC(I)/AB/ Gr.VB dated 28/09/2012
Union Boxer
16/01/2011
28/03/2011
07/05/2012
Section 125(2)
6.
60/2012/CAC/ CC(I)/AB/ Gr.VB dated 05/10/2012
Giant - 2
16/01/2011
26/03/2011
28/03/2012
Section 125(2)
7.
61/2012/CAC/ CC(I)/AB/ Gr.VB dated 10/10/2012
Smit Borneo
23/12/2010
28/03/2011
28/03/2012
Section 125(2)
8.
81/2012/CAC/ CC(I)/AB/ Gr.VB dated 21/12/2012
Seacor Valor
28/08/2008
02/09/2008
21/12/2012
Section 125(2)
9.
84/2012/CAC/CC(I)/AB/Gr. VB dated 20/12/2012
Smit Cyclone
24/06/2010
31/07/2010
28/03/2012
Section 125(2)
10.
85/2012/CAC/ CC(I)/AB/ Gr.VB dated 21/12/2012
Mastas Star
29/08/2008
03/10/2008
24/12/2012
Section 125(2)
3.1. From the above table it may be seen that, barring three vessels, namely, Sumit Lumba, Posh Giant I and Salvaree which were seized by the Customs authorities, the demand for duty in respect of remaining seven vessels has been confirmed under Section 125(2) of the Customs Act, 1962. These seven vessels were never seized by the Customs and consequently no confiscation has been ordered by the Commissioner in the adjudication orders passed by him in respect of these vessels. However, duty demand has been confirmed invoking the provisions of Section 125(2) of the Customs Act, 1962.
3.2. As regards the three vessels, which were seized by the Customs authorities, the duty demands have been confirmed under Section 28(8) of the Customs Act, 1962. Of the three vessels, Posh Giant I and Salvaree were seized by the Customs when they returned to India after completion of the first salvage job for which they had earlier come and gone and the third vessel, Smit Lumba, was seized almost immediately after its arrival for emergency towing operations. The said vessel was brought to the country by the Shipping Corporation of India to operationalise the Disaster Management Programme, conceived by the Ministry of Shipping, which envisaged provision of emergency towing services to be provided on the Western Coast of India during the monsoon of 2011. The said operations were undertaken pursuant to the approval given by the Union Government.
3.3. The main issue involved in these appeals is whether Customs duty was payable on the import of these 10 vessels in question by treating them as goods. The appellants contention is that the vessels in question were only conveyances and not goods and, therefore, there was no need or requirement to file any Bill of Entry in respect of these vessels themselves. In all 10 cases, it is an accepted position that necessary formalities in compliance to the Customs laws and procedures in force relating to conveyances were followed diligently by making full disclosure not only of the nature and character of the vessels but also the purpose for which they were brought in. These formalities included:
(i) filing of prior IGM for these vessels declaring cargo;
(ii) filing of prior Bill of Entry in each case offering to pay customs duty on bunkers and stores on board;
(iii) applying for and obtaining licence for temporary stay from the office of Directorate General of Shipping;
(iv) filing of applications seeking conversion of the status of the vessel from foreign run to coastal run in each case;
(v) boarding of the vessels by the Customs Officers for physically verifying the declarations made in the IGM and for taking inventory of the goods on board such vessels;
(vi) filing of arrival report with the Customs Officers immediately on arrival of the vessels in Indian waters;
(vii) obtaining formal orders/permission from the Customs authorities granting conversion of the vessels from foreign run to coastal run;
(viii) payment of duty as assessed on the bunkers and stores on board;
(ix) filing of final entry IGM with the Customs authorities along with full particulars of the vessels, the cargo carrying capacity, description of equipments on board, etc; and
(x) obtaining inward clearance certificate from the import department of the Custom House.
3.4. After completing the above formalities and procedures, the vessels were used in Indian waters for conducting salvage operations in 9 cases and in the case of Sumit Lumba the vessel was used a stand-bye for undertaking emergency towing operations in case of accident or mishap in accordance with the Disaster Management plan of the Ministry of Shipping. After completion of the assignments, the following formalities were completed, while sending the vessels back out of India.
(a) filing of applications for re-conversion of the vessels from coastal run to foreign run;
(b) obtaining permission from the Superintendent of Customs (Preventive) granting re-conversion from coastal run to foreign run; and
(c) obtaining port clearance certificate under Section 42 of the Customs Act, 1962 from the Assistant/Deputy Commissioner of Customs confirming the compliance of all required procedures.
3.5. The above procedures were in conformity with the requirements/ provisions relating to conveyances carrying imported or export goods as envisaged in Chapter IV of the Customs Act, 1962 (starting from Section 29 and ending with Section 43).
4. The appellants contention is that, in respect of foreign flag vessels, which comes into the country for a temporary period, the Customs practice has been to demand payment of duty only on the stores and bunkers on conversion from foreign-run to coastal-run. These procedures have been laid down from time-to-time vide Circulars No. 433/1/81-Cus-IV dated 22/01/1985, 58/97 dated 06/11/1997, and Public Notice No. 6 dated 20/01/1998 issued by the Mumbai Customhouse. These circulars and public notice provided that in respect of foreign flag vessels, which are being converted from foreign-run to coastal-run, the requirement of filing of a Bill of Entry and paying duty is confined to stores and bunkers on board such vessels. None of these circulars/public notices envisaged filing of Bill of Entry for the vessels per se or payment of duty on the vessels themselves by treating them as goods.
4.1. It is contended by the appellants that genesis of the entire issue has arisen from Boards Circular No. 450/79/2010-Cus-IV dated 23/09/2010 which dealt with a situation wherein certain ship owners of Indian flag vessels had imported the vessels without filing Bill of Entry and IGM. The said circular cited the definition of imported goods and stated that the expression goods included inter alia vessels. Accordingly, the said circular clarified that Indian flag vessels were required to file Bill of Entry at the time of arrival into India as they were imported goods. Though the said circular pertained to Indian flag vessels, the Mumbai Custom House took the view that the said circular applies even to foreign flag vessels which were temporarily converted from foreign-run to coastal-run and accordingly, the Mumbai Custom House issued a Public Notice No. 81/2011-12 dated 22/09/2011. However, this view of the Mumbai Custom House was not shared by other Custom Houses in India. In view of the divergent of opinions/practices among different Custom Houses, the matter was referred to the Board again and the CBEC issued Circular No. 16/2002 dated 13/06/2012 clarifying that the requirement of Bill of Entry for the vessels at the time of conversion from foreign-run to coastal-run was to be applied only w.e.f. 17/03/2012. It was further clarified by the Board that in respect of foreign flag vessels, there was no requirement of filing any Bill of Entry for the vessels and consequently paying duty thereon. The said circular also clarified that the requirement of filing of Bill of Entry by treating the vessels as goods also apply to vessels which were brought in India for the first time for registration as Indian flag ships and vessels which were brought into India for breaking up. In respect of vessels for conversion into coastal-run, it clarified that the requirement of filing Bill of Entry and paying duty on such vessels was made effective only from 17/03/2012.
4.2. The appellant further contends that in the present case all the 10 vessels were foreign flag vessels and had been converted from foreign-run to coastal-run by the Customs Officers prior to 17/03/2012 and, therefore, the entire matter is covered and resolved by the Boards circular dated 13/06/2012 (supra). In spite of the same, the learned Commissioner passed orders not only confirming the demands of duty but also imposing penalties and in three cases, ordering confiscation and imposing fine in lieu of confiscation.
4.3. The appellants contentions can be summarized as follows:
(a) Customs duty liability arises in respect of goods cleared for home consumption;
(b) Vessel is a conveyance and, therefore, they are not goods cleared for home consumption;
(c) The Boards circular No. 16/2012 dated 13/06/2012 has set out guidelines as to when a conveyance can be considered as goods cleared for home consumption and the said circular clarifies that only in three situations Customs duty would be leviable, namely,
(i) vessels entered into India for the first time for being registered with the Mercantile Department as Indian ship;
(ii) vessels and other floating structures brought into India for breaking up; and
(iii) vessels for conversion from coastal run.
4.4. As far as the third category, namely, vessels for conversion into coastal-run is concerned, the said circular in unequivocal terms state that such vessels can be considered as goods for home consumption only w.e.f. 17/03/2012 and prior to that date there was no requirement of filing of Bill of Entry and payment of any duty. It is the contention of the appellants that there was no mis-representation, whatsoever, on their behalf and all the facts were duly declared and disclosed to the department on arrival of the vessels and necessary permissions were granted by the Customs after verifying all the documents as also physically boarding and inspecting the vessels. The vessels were brought temporarily into India as is evident from the licences issued by the Director General of Shipping as also the application for conversion into coastal-run. Since the vessels in question cannot be considered as goods cleared for home consumption, no Customs duty is leviable.
4.5. The Customs have been following the practice of insisting upon filing of a Bill of Entry when a vessel is imported for the first time into India for the purpose of oil exploration. Therefore, the requirement of filing of Bill of Entry relates to vessels brought to India for oil exploration. However, Customs were never insisting upon filing of a Bill of Entry in respect of other cases.
4.6. In respect of confirmation of customs duty in three cases under Section 28, limitation provided under the said Section would apply. Inasmuch as there has been no willful mis-statement or suppression of facts on the part of the appellant, extended period of limitation cannot be invoked. In the balance 7 cases, where there has been no confiscation at all, duty demand under Section 125(2) cannot be sustained because without there being any seizure there cannot be any confiscation of the goods and if there cannot be any confiscation, the question of payment of redemption fine would not arise and consequently there cannot be any duty demand under Section 125(2) as the said provision envisages payment of fine consequent upon confiscation, along with payment of customs duty. Thus, only in the case of Smit Lumba, where the import has been made by the Shipping Corporation of India, the demand is within the normal period of limitation and the appellant was permitted to file a post-Bill of Entry wherein Shipping Corporation of India claimed benefit of Notification No. 27/2002-Cus dated 01/03/2002. The same was not extended to the appellant. Therefore, at the time of re-export, Shipping Corporation of India filed a drawback shipping bill which has also not been sanctioned yet. The appellant also relies on the decision of the honble apex Court in the case of Share Medical Care vs. Union of India 2007 (209) ELT 321 wherein it was held that the exemption, even if not claimed at the initial stage can be claimed subsequently also. The appellant also submits that there was a well set and established practice with respect to conveyances coming into India and the appellants had acted in accordance with the set and established practice of the Customs of filing a Bill of Entry only for the stores and bunkers on arrival of the vessels in India for a temporary period. It is a settled position in law that neither the provisions relating to confiscation nor those relating to penalties can be invoked in a situation wherein an assessee has acted based on a practice being followed by the Customs and they rely upon the decisions of the Tribunal in the case of Gauri Enterprises 2002 (145) ELT 706; Mercantile Express Company Ltd. 1978 (2) ELT J552; New India Rubber Works 1972 (72) ELT 840 and Noble Asset Company Ltd. 2006 (205) ELT 901.
4.7. In the light of the above submissions the appellants pray for setting aside the impugned orders and allowing the appeals with consequential relief in accordance with law.
5. Special Consultant for the Revenue makes the following submissions:
5.1. In respect of three vessels, show cause notices were issued demanding duty under Section 28(4) and the same have been confirmed by the adjudicating authority under Section 28(8) of the Customs Act, 1962. In respect of the remaining vessels, duty has been confirmed under Section 125(2) even though the demand was raised under Section 28(4) of the Act. The issue that merits consideration is whether Customs duty was at all payable in respect of the vessels. If the answer is yes, then the duty demand cannot be assailed and he relies on the decision of the honble apex Court in the case of JK Steel Ltd. vs. Union of India 1978 (2) ELT J355 and the decision of this Tribunal in the case of Commissioner of Central Excise vs. Mihir Textiles Ltd. 1991 (52) ELT 89. It is also submitted that in three cases, duty has been paid during investigation and that duty is legally payable on the vessels as goods at the time of import and the same has already been paid, the same should remain with the exchequer. He relies on the decision of the honble apex Court in the case of Supreme Woollen Mills Ltd. vs. Commissioner of Customs, Nhava Sheva 2004 (167) ELT 439 and also on the decision of the Tribunal in the case of India Cement Ltd. vs. Commissioner of Central Excise, Madras, 1984 (18) ELT 499.
5.2. It is contended that in the case Smit Lumba, the Shipping Corporation of India, amended the IGM and filed a Bill of Entry No. 4468239 dated 26/08/2011 and paid the requisite Customs duty. The show cause notice dated 08/12/2011 issued to Shipping Corporation of India is well within the time limit from the relevant date i.e., from the date of filing of the Bill of Entry. In the remaining cases the relevant date would be the date of payment of the duty as prescribed under clause (d) Explanation (1) to sub-section (ii) to Section 28 and if the date of show cause notice is reckoned from the date of payment, it may be seen that the show cause notices have been issued well within the limitation of time.
5.3. As regards the benefit of exemption under Notification No. 27/2002-Cus dated 01/03/2002 and the claim of drawback, the learned consultant leaves the decision to the Tribunal.
5.4. As regards the Boards Circular No. 16/2012-Cus dated 13/06/2012 is concerned, the learned special consultant submits that the said circular applies to foreign-going vessels i.e., conveyances and not to goods imported for home consumption and, therefore, this circular has no application to the facts of the present case.
5.5. With regard to the imposition of penalties, he submits that M/s. J.M. Baxi & Company is a well established CHA who are well aware of the Customs practices and procedures and, therefore, they ought to have filed the IGM and Bill of Entry declaring the vessels as goods for home consumption. Even though J.M. Baxi and Company knew that the three tugs, namely, Salvaree, Smit Lumba and Union Boxer brought the three barges in tow, namely, Posh Giant I, Smit Borneo and Giant 2, the IGMs were filed only for the tugs and it did not mention the barges which were brought in tow and separate IGMs were filed for the barges giving an impression that these barges are foreign going vessels. It is also submitted that despite knowing that the vessels were never intended for coastal-run in India and there was no need for obtaining any licence from Director General of Shipping and applying for conversion of the vessels from foreign-run to coastal-run, these formalities were undertaken to give an impression that the vessels are foreign-going vessels. These omissions and lapses on the part of the appellants and its officers are serious and clearly indicate their mala fide intention to evade customs duty by willful mis-statement to the Customs and, therefore, imposition of penalty on them is justified.
5.6. In view of the foregoing, the learned Special Consultant prays for sustaining the impugned orders.
6. We have considered the submissions made by both the sides very carefully. As regards the stay petitions filed in few cases, since we are taking up the appeals themselves for consideration, we waive the requirement of pre-deposit of the dues adjudged.
6.1. We notice that, in respect of the following vessels, namely, Smit Lynx, Union Boxer, Smit Borneo, Giant 2, Mastas Star, Seacor Valor and Smit Cyclone, these vessels were never seized at all and in the adjudication orders passed, the Commissioner had not confiscated these vessels inasmuch as they were not available for confiscation. However, demands of duty on these vessels have been confirmed under the provisions of Section 125(2) of the Customs Act, 1962. The said Section provides for recovery of duty only in a case where the goods are confiscated and a fine in lieu of confiscation is imposed under Section 125(1). In such a situation, the owner of such goods or the person form whom the goods have been seized would, in addition to the fine, be liable to any duty and charges payable on such goods. In other words, provisions of Section 125(2) are attracted only when goods are confiscated and an option to redeem the goods on payment of fine in lieu of confiscation, is given. In the case before us, in respect of the seven vessels mentioned above, there is no confiscation of the goods and consequently, there is also no order imposing any fine in lieu of confiscation. In view of the legal position as discussed above, the demand of duty on these seven vessels is clearly unsustainable in law. In all these cases, it is seen that the duty demands were made in the show cause notices under Section 28(4). However, since the show cause notices were issued beyond the normal period of limitation and duty demands could not have been confirmed under Section 28(8), the Commissioner resorted to confirmation of duty demand under Section 125(2) which does not prescribe any time-limit. From the facts of the case, it is seen that these vessels on arrival, after completing all the formalities, were converted from foreign-run to coastal-run for undertaking salvage operations. After completing the salvage operations and obtaining the requisite permissions and clearances from Customs authorities, the vessels went back within a short period of 1 to 2 months. However, the show cause notices were issued one year after the vessels went back from India (beyond the period of 6 months, the normal period of limitation for duty demand). Therefore, the duty demands are clearly time-barred as there was no suppression on the part of the appellants. Accordingly we set aside these duty demands.
6.2. The next issue is regarding demand of duty on Smit Lumba imported by M/s Shipping Corporation of India and Posh Giant 1 and Salvaree imported by M/s J.M. Baxi & Co. The contention of the appellant is that the vessels in question are mere conveyances and not goods and that on arrival, there was no need to file bills of entry in respect of the vessels themselves. It is also contended that all the formalities envisaged in Chapter VI of the Customs Act relating to Provisions Relating to Conveyances Carrying Imported or Exported Goods under sections 29 to 43 have been completed and bills of entry for stores and bunkers were filed and the same were assessed to duty which was discharged. Reliance is also placed on the CBEC circular dated 13/06/2012 in support of their contention that there was no requirement of filing of IGM and filing of B/E for the vessel prior to 17/03/2012 in respect of such vessels. The Revenue on the other hand contends that the vessel was brought for the purpose of salvage operations in the territorial waters of India and was never intended to be used for any other purpose. Thus, the vessels were brought into India for home consumption and therefore, have to be treated as goods. Revenue relies on the judgments of the Apex Court in the case of Chowgule & Co. [1987 (28) ELT 39 (SC)] and U.O.I. vs. V.M. Salgaoncar & Bros.(P) Ltd. [1998(99) ELT 3 (SC)] wherein it was held that if vessels are imported for use in India, the same would amount to home consumption and duty liability would be attracted.
6.3. We have carefully examined the rival contentions. It would be useful to see the definitions of conveyance and goods for the purposes of Customs Act. Section 2(9) defines - conveyance includes a vessel, an aircraft and a vehicle. As per Section 2 (22) goods includes (a) vessels, aircrafts and vehicles; (b) stores; (c) baggage; (d) currency and negotiable instruments; and (e) any other kind of moveable property. It can thus be seen that the term goods is far wider in scope and coverage than conveyance and goods includes conveyance. While all conveyances are goods, the reverse is not true. Though the Customs Act does not define conveyance specifically, the ordinary dictionary meaning of the term conveyance as per Oxford English Dictionary is - the action or process of transporting or carrying someone or something from one place to another: a means of transport; a vehicle . As per the cargo declaration form filed at the time of the arrival of these vessels, cargo was declared as Nil. There was also no passenger manifest filed for carriage of persons. Thus the said vessels Smit Lumba, Posh Giant 1 and Salvaree were neither carrying any cargo nor any passengers and therefore, they did not come into India as a conveyance. Further, two of these vessels were tugs and one a barge. As per HSN Explanatory Notes while barges are vessels for the transport of persons or goods falling under CTH 89.01, tugs fall under CTH 89.04 and are designed to assist ships in distress and are not designed for the transport of persons or goods. Thus the argument of the appellant that the vessels came as conveyances and not as goods has no merit at all and has to be rejected. It is an undisputed fact that the said vessels were brought into India for salvage operations in Indian territorial waters. In other words, the said vessels were imported into India for home consumption. If that be so, they are liable to customs duty at the rate and value prevalent on the date of importation.
6.4. In Re. Sea Customs Act, S.20 [AIR 1963 SC 1760] the honble Supreme Court held as follows:-
Truly speaking, the imposition of import duty, by and large, results in a condition which must be fulfilled before the goods can be brought inside the Customs barriers, i.e., before they form part of the mass of goods within the country.
It would appear to us that the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country, the taxable event reached at the time when the goods reach the customs barriers and the bill of entry for home consumption is filed.
The honble High Court of Delhi in UOI vs. Khalil Kacherim [1983 (13) ELT 941 Del] held as follows:-
Import is not merely the bringing into India but comprises something more, i.e., incorporating and mixing up of the goods imported with the mass of the property in local area.
Unless, therefore, the goods are brought into the country for the purpose of use, enjoyment, consumption, sale or distribution so that they are incorporated in and mixed up with the mass of the property in the country, they cannot be said to have been imported or brought into the country. .
If we apply the ratio of the above judgments to the facts of the present case, it can be easily seen that the appellant had imported the vessels for home consumption and therefore, they have to be treated as goods and accordingly, they are liable to pay the applicable customs duty on import.
6.5. In the Chowgule & Co. Pvt. Ltd. case cited supra, the Supreme Court had occasion to consider when a vessel can be considered as goods and the Court held as follows:-
Thus, the test laid down for deciding whether a vessel is for the purposes of the Customs Act an ocean-going vessel or "goods for home consumption" is the primary use of the vessel; if the predominant or the primary use of the vessel is to transverse the open seas, the vessel, will be an ocean-going vessel, but if it is brought into India primarily for use in India, then such vessel will be "goods for home consumption", notwithstanding that occasionally or incidentally they are used outside India.
The same view was taken in the V.M. Salgaonkar & Bros. (P) Ltd. case cited supra.
6.6. There are customs duty exemptions available on vessels imported for temporary use. For example, barges or pontoons imported along with ships for more speedy unloading of imported goods and loading of export goods are exempt from import duty if they are re-exported by the same ship which brought them or by any other ship under the same shipping agency within two months from the date of importation vide Sl. No. 350 of the Table annexed to Notification No. 21/02-Cus dated 1-3-2002 as amended. Similar exemptions are available in respect of vessels imported for temporary use under the said notification under other entries in the said notification. If the barges imported for temporary use were to be treated as conveyances and not as goods as contended by the appellants, there was no need for these exemptions at all. These exemptions provided in the statute clearly shows the hollowness of the claim of the appellant that there was a long standing practice of treating tugs and barges imported for use in India as conveyances.
6.7. The appellant has also taken the plea that their vessel was on coastal run and due permissions were obtained from the competent authorities. No doubt, in these cases, both the Directorate General of Shipping as also the Customs authorities have granted permission for conversion of the vessels from foreign run to coastal run. As per Section 2(7) of the Customs Act, coastal goods means goods, other than imported goods, transported in a vessel from one port in India to another. As per Section 3(1-A) of the Merchant Shipping Act, 1958, coasting ship means a ship exclusively employed in trading between any port or place in India and any other port or place on the continent of India or between ports or places in India. Further as per section 3(2) of the said Act, coasting trade of India means the carriage by sea of passengers or goods from any port or place in India to any other port or place on the continent of India. In the facts of the case before us, 7 out of the ten vessels are tugs which are not designed to carry goods or passengers and 3 are barges but they were not engaged in transport of goods or passengers from one port of India to another. Thus by no stretch of imagination, it can be considered that any of these vessels were on the coastal run as defined in law. Therefore, merely because permissions were given for conversion, albeit wrongly, they do not become coastal vessels as defined in law. Thus the arguments advanced by the appellant in this regard are completely misplaced and merits rejection.
6.8. The appellant has also placed reliance on the Circular dated 13/06/2012 issued by the Board in support of their contention that there was no requirement of filing of IGM and B/E in respect of foreign flag vessels. Relevant extracts from the said circular is reproduced below:
Subject: Procedure followed for import of Indian vessels and filing of Import General Manifest, Bill of Entry regarding.
I am directed to invite your attention to the Boards instruction issued vide F.No.450/79/2010-Cus.IV dated 23.09.2010 which state that the requirement for filing Import General Manifest (IGM) and Bill of Entry should be complied with even in cases, where goods are exempt from payment of any duty. The jurisdictional Commissioners were also instructed to review the situation, and take appropriate action for past cases, including adjudication, if warranted, in case of non-fulfillment of aforesaid filing of documents.
2. In this regard, certain difficulties have been brought to the notice of the Board by the trade and Indian Ship Owners Association stating that the Customs field formations are insisting on filing of IGM and Bill of Entry even in respect of those vessels that were imported in the past and which were exempt from payment of import duty.
3.1 In this regard, it is stated that as the provisions of Section 29 of the Customs Act, 1962 read with Section 2 (22) and 2(25), the term imported goods, interalia, includes vessels entering India from any place outside the country (India). These vessels may fall into any of the following category (i) Foreign flag vessels i.e., vessels that have been registered outside India and which carry imported/ exported goods or passengers, during its foreign run (voyage from a port outside India to an Indian port, whether touching any intermediate port in India or not); (ii) Vessel entering India for the first time on arrival in the country, for registration as Indian Flag vessel; (iii) Vessels which are intended for conversion from foreign run to coastal run/ trade (voyage between two or more Indian ports); and (iv) Vessels which are brought into India for breaking up.
3.2 Foreign flag vessels: These are the vessels that are registered abroad and its entry into the country is for carrying cargo or passengers, as a conveyance. Hence, there is no requirement for filing an IGM, Bill of Entry, for foreign flag vessel which is being used as conveyance. However, the requirement for filing an import manifest in the prescribed manner for the goods or passengers which are being carried in the vessel, on its entry into an Indian port in terms of the provisions under Section 30 of the Customs Act needs to be complied with.
3.3 ..
3.4 Vessels for conversion into coastal run: Any vessel could be used for coastal run/ trade after obtaining requisite clearance from Director General of Shipping and on fulfilment of certain specified conditions under Section 407 of the Merchant Shipping Act, 1958. In case of foreign going vessel, exemption from import duties, including CVD, have been extended vide serial No.462 of notification No.12/2012-Cus. dated 17.03.2012, subject to prescribed conditions, which binds the importer to file fresh Bill of Entry at the time of its conversion for coastal run/ trade and payment of applicable duty on such conversion of vessel for costal run/ trade. Similarly, excise duty is also payable on vessels which are being used for coastal trade vide serial No.306 of notification No.12/2012-Cus. dated 17.03.2012. Hence, if any Indian Flag vessel which is used for time being as foreign going vessel is converted for use in coastal trade or any vessel which is to be used for coastal trade, there is a need to file a Bill of Entry for payment of applicable duty as CVD.
3.5 ...
4. In view of the above, it is clarified that in respect of foreign flag vessels, for Indian flag vessels, there is no requirement of filing of IGM and Bill of Entry, since its usage is as conveyance. In respect of Indian flag vessels and vessels for breaking up as explained in para 3.3 and 3.5 above, the importer has to file IGM and Bill of Entry, under the provisions of the Customs Act, 1962. As regards the vessel for conversion into costal run/ trade as detailed in para 3.4, since the changes in the duty structure for levy of CVD on vessels which are being converted for coastal trade was initially imposed from 1.3.2011, and subsequently retrospective exemption has been provided for the period 1.3.2011 to 16.3.2011 vide clause 129 of the Finance Act, 2012, the requirement for filing IGM and Bill of Entry may be insisted in all such cases w.e.f. 17.03.2012, that is the date from which levy of CVD has come into force.
5. It is also clarified that all vessels including foreign going vessels for its entry into / exit from the country during its journey as foreign going vessel and the Indian flag vessel / Indian Ship for subsequent use as foreign going vessel would not require filing of IGM and Bill of Entry as conveyance, since the same are not imported goods to be cleared for home consumption.
6. Accordingly, the field formations may adjudicate the cases involving any violation where the IGM or Bill of Entry in respect of import of vessel were not filed at the time of import, on its first arrival in India or on its conversion into coastal trade and appropriate penal action be taken against the offenders.
6.9. From a reading of the above circular, it may be seen that the above instructions pertain to foreign flag vessels which are registered abroad and its entry into the country is for carrying cargo or passengers, as a conveyance. From the records of the case, it is more than evident that none the 10 vessels imported by the appellant satisfied this condition. None of these vessels satisfied the condition of a vessel on coastal run as defined in law. The cargo and passenger declarations made in respect of these vessels also show that they were not carrying any cargo or passengers. Thus the clarifications issued in the above circular do not apply to the vessels under importation at all. In any case, clarifications issued by the Board do not determine the duty liability. Duty liability has to be determined strictly in terms of the provisions of law and duty liability also does not depend upon whether the appellant has filed a bill of entry or not. It is the import of the goods for home consumption that attracts duty liability and in the present case, we are satisfied that the taxable event has taken place.
6.10. With regard to the vessels Posh Giant I and Salvaree, in addition to the grounds cited above, the question of time bar has also been raised by the appellants. These vessels arrived in India on 04/02/2011 and 23/12/2010 respectively and after obtaining the requisite permissions and completing all the formalities they were converted into coastal-run. After completing the salvage operations, the vessels went back within the permitted period after obtaining prior clearance from the Customs authorities. No duty demand or proposal to impose penalties were raised during this period. However, when the vessels came back subsequently, they were seized and show cause notices were issued demanding duty under Section 28(4) and the duty demands were confirmed under section 28(8). However, since the goods have been confiscated and option to redeem the goods have been given on payment of fine in lieu of confiscation under section 125(2) of the Customs Act, the appellants are liable to pay duty when the option for redemption is exercised. From the records of the case it is seen that the appellants have discharged the duty liability at the time of provisional release of the goods. There is no time limit for demand of duty under section 125(2). Therefore, even though the duty demand has been made and confirmed under a wrong or incorrect provision of law, the demand is sustainable in law. A three judges bench of the honble Apex Court, in the case of J.K. Steel Limited (supra), while considering central excise duty demand under a wrong provision of the Central Excise Rules, held as follows:-
If the exercise of a power can be traced to a legitimate source, the fact that the same was purported to have been exercised under a different power does not vitiate the exercise of the power in question. This is a well-settled position of law. In this connection reference may be made to the decisions of this Court in P. Balakotaiah v. U.O.I. [1958 SCR 1052] and Afzal Ulah v. State of U.P. [1964 - 4 SCR 991]
The same ratio was followed by this Tribunal in the Mihir Textiles case cited supra.
6.11. The honble High Court of Kerala, in AIR 1966 Kerala 121 while considering the consequence of time bar held as follows:-
But, in so far as the particular remedial right to which it applies is concerned, limitation undoubtedly extinguishes the right. It is, however, important to remember that limitation extinguishes only the particular remedial right, which is its victim and that, since it leaves the substantive right unaffected, that right can still be enforced in other ways, if other ways are available, not merely indirectly by the enforcement of lien or by obtaining a fresh promise, or by reason of payment notwithstanding the bar being safe from recall, but also in a positive and direct manner.
This Tribunal, in the case of India Cements Ltd. vs. CCE, Madras [1984 (18) ELT 499] followed the above ratio and allowed retention by Revenue of the duty paid by the appellant even though the duty demand was time barred. In Supreme Woollen Mills Ltd. vs. CC, Nhava Sheva [2004 (167) ELT 439], this Tribunal took the view that-
once duty legally payable by importer has been paid, question as to whether there was any provision in the Act at the relevant time for demanding duty or not is irrelevant.
6.12. In the light of the above discussions, import duty demand on vessels Smit Lumba, imported by the Shipping Corporation of India and Posh Giant 1 and Salvaree imported by M/s. J.M. Baxi & Co. are sustainable in law and the appellants are liable to pay customs duty in accordance with law. The appellants have not disputed either the valuation or the duty calculations adopted for confirmation of demand. However, the appellants have claimed that they would be eligible for the benefit of notification No. 27/2002-Cus as amended. The said notification provides for duty concessions on Machinery, equipment or tools, falling under Chapters 84,85,90 or any other Chapter of the First Schedule to the Customs Tariff Act,1975 subject to the conditions that - the goods have been taken on lease by the importer for use after importation; the importer makes a declaration at the time of import that the goods are being imported temporarily for execution of a contract; the said goods are re-exported within six months of the date of importation or within such extended period not exceeding one year from the date of importation, as the Assistant Commissioner of Customs or Deputy Commissioner of Customs, as the case may be, may allow. The concessional rate of duty prescribed is fifteen per cent. of the aggregate of the duties of customs, which would be leviable, in the case of goods which are re-exported within six months of the date of importation. In the case of goods which are re-exported after six months, but within one year of the date of importation, the rate of duty chargeable would be thirty per cent. of the aggregate of the duties of customs. To be eligible for the concession, the goods should be either machinery, equipment or tools. Tugs and barges can, by no stretch of imagination, be considered as falling in this category. They fall under Chapter 89 as Ships, boats and floating structures. Therefore, in our view, the appellant would not be eligible for any duty concession under the said notification and the claim in this regard is not sustainable.
6.13. The Appellants have alternatively argued that drawback of the duty would be available under section 74 of the Customs Act in as much as the vessels have gone back after the salvage operations, within a period 3 months from the date of their importation. There is merit in this argument. The ld. Consultant for the Revenue has not contested this point and has left the issue for appropriate decision by this Tribunal. We find that under section 74(2) read with notification No. 19/65-Cus dated 16/02/1965 as amended, if the imported goods are re-exported as such within a period of 3 months from the date of importation, 95% of the import duty paid is eligible as drawback to the exporter. In the present case, there is no dispute that the vessels have been re-exported within a period of 3 months from their date of importation. In the case of Sedco Forex International Drilling Inc. vs. CC, Mumbai [2001 (135) ELT 625], in a similar situation, this Tribunal directed the revenue to recompute the duty liability after taking into the drawback. Following the said decision, in the present appeals also, we direct the Revenue to work out the duty liability after taking into account the drawback that the appellants would be entitled to, after completing the necessary formalities, if any required.
6.14. In the appeals before us, there is no confiscation in respect of 7 vessels and a question may arise whether penalty is imposable in such cases. It is the liability to confiscation which attracts penalty and not actual confiscation as held by the honble Madras High Court in the case of Dadha Pharma Private Ltd. vs. Secretary to Govt. of India [2000 (126) ELT 535 (Mad)] as follows:-
14. A careful reading of the sections would clearly show that it is the liability to confiscation that is spoken to and not the actual confiscation. Therefore, it would mean that the power to adjudicate upon for the imposition of penalty for improper importation springs from the liability to confiscate, and not actual confiscation. This is because not only section 110 occurs under a different chapter, but the purpose of that section relates only to seizure about which I have already noted. There again the words are any goods are liable to confiscation under this Act. Merely because the department by reason of its inaction is not in a position to seize the goods, does not and cannot disable it adjudicating upon the liability for action under section 111 read with section 112 of the Act. In other words, the language of both the sections above referred to does not warrant the actual confiscation, but merely speaks of the liability of the goods being confiscated. This is the plain and most unambiguous meaning of the phraseology liable to confiscation spoken in these two sections.
6.15. The next issue for consideration is whether the vessels are liable to confiscation under the Customs Act or not . The vessels, Smit Lumba, Posh Giant I and Salvaree have been confiscated under the provisions of section 111 (f), 111(g) and 111(h) of the Customs Act. In respect of the other 7 vessels, they have also been held liable to confiscation under the same provisions. Section 111(g) is attracted when any dutiable goods or prohibited goods are unloaded from a conveyance in contravention of the provisions of section 32. Since the case of the Customs is that the impugned vessels are not conveyances, there cannot be any violation of section 111(g) as no unloading has taken place from a conveyance. Similarly, violation of 111(h) can also not be alleged for the reason that the said section is attracted when dutiable or prohibited goods are unloaded or attempted to be unloaded in contravention of the provisions of section 33 or 34. While section 33 deals with unloading of goods at places other than approved places and section 34 deals with unloading in the presence of Customs Officers. In the present case, there is no unloading of any goods at all from these vessels. The vessels themselves were inspected by the Customs Officers before grant of permission for conversion into Coastal run. For the ship stores, the appellants have obtained the requisite permissions. Therefore, the liability to confiscation under these two provisions does not arise. With regard to confiscation under section 111(f), the said section deals with requirement of filing of an import manifest for the vessel. In the present case, it is a fact that the appellants had not filed any IGM for the vessels per se nor did they file any bills of entry for the import of the vessels. Therefore, confiscation under section 111(f) is sustainable in law. Since the non-filing of the IGM and bills of entry were with the knowledge of the Customs Authorities and the transactions were declared to the Customs, no mens rea can be attributed to the appellants. This fact should be given due consideration while imposing redemption fine in lieu of confiscation and penalty on the appellants.
6.16. The following redemption fines and penalties have been imposed on the appellants in respect of the 10 vessels.
S. No.
Name of the vessel
Redemption fine imposed (`. Crore)
Penalty on the main appellant (` Crore)
Penalty on the co-appellants
(` Crore)
1
Smit Lumba
3
9.88
0. 25 on Captain Devdas;
1.5 on J M Baxi: and
0.15 on V.C. DSouza
2
Posh Giant I
5
10.87
0.25 on V.C. DSouza
3
Salvaree
2
3.21
0.10 on V.C. DSouza
4
Smit Lynx
-
1 0.25 on V.C. DSouza 5 Union Boxer
-
1.5 0.25 on V.C. DSouza 6 Giant - 2
-
1.25 0.25 on V.C. DSouza 7 Smit Borneo
-
1.75 0.25 on V.C. DSouza 8 Seacor Valor
-
1.25 0.25 on V.C. DSouza 9 Smit Cyclone
-
1.25 0.25 on V.C. DSouza 10 Mastas Star
-
1.25 0.25 on V.C. DSouza 6.17. In the present case, we notice that the adjudicating authority has imposed a redemption fine of ` 3 Crore, ` 5 Crore and ` 2 Crore in respect of the 3 seized vessels. While imposing fine, the consideration that is relevant is the profit margin on the goods. Since the imported vessels are not meant for sale, it may not be possible to make any estimate of the profit margin. Therefore, what is relevant is the duty amount sought to be saved by the appellant in respect of the transaction. Since all the three vessels have been re-exported within a period of 3 months from the date of importation, the appellant would have been eligible to claim drawback of the import duties paid. For re-exportation within a period of 3 months, eligible drawback amount is 95% of the duty paid. Thus, the appellant has sought to save only 5% of the duty involved. Therefore, this is the amount that could be considered for imposition of fine. On this basis, the reasonable fine amount would work out to `50 lakhs each on Smit Lumba and Posh Giant 1 and ` 15 lakhs on Salvaree. Accordingly we reduce the redemption fine to Rs. 50 lakhs each on Smit Lumba and Posh Giant 1 and Rs. 15 lakhs on Salvaree. The same logic would apply in the case of imposition of penalty also. Accordingly we impose a penalty of Rs. 50 lakhs on Shipping Corporation of India under Section 112(a) of the Customs Act in respect of import of Tug Smit Lumba, a penalty of Rs. 50 lakhs and Rs. 15 lakhs respectively in respect of import of vessels Posh Giant I and Salvaree on M/s J. M. Baxi & Co., under section 112(a) of the Customs Act. Imposition of penalty under section 114A in these cases is not sustainable as there was no mens rea on the part of the appellant to willfully evade any customs duty. However penalty under section 112(a) is sustainable as the said section does not require any mens rea on the part of the appellants and mere violation of the statutory provisions would suffice. The decisions of the honble Apex Court in the case of Gujarat Travancore Agency v. CIT [(1989) 177 ITR 455 (SC)] and Chairman, SEBI v. Sriram Mutual Fund & Anr. [2006-TIOL-72-SC-SEBI] refer and ratio of the same would apply. Following the above principle, in respect of balance 7 vessels which were not confiscated, we reduce the penalties on the importer/agent (M/s J.M. Baxi & Co.) to Rs.5 lakhs each. In the facts and circumstances of the case, we do not deem it necessary to impose separate penalties on the co-appellants who are employees of the appellants and accordingly we set aside the same.
7. To sum up, our findings and conclusions are given below:-
(1) Custom duty demands on vessels Smit Lumba, Posh Giant I and Salvaree are upheld. However, the same shall be re-computed taking into account the drawback of duty admissible under section 74 of the Customs Act, 1962, on re-export of such vessels, in accordance with law.
(2) Customs duty demands on the balance 7 vessels, namely, Smit Lynx, Union Boxer, Smit Borneo, Giant 2, Mastas Star, Seacor Valor and Smit Cyclone are not sustainable in law and accordingly, they are set aside.
(3) Confiscation of vessels Smit Lumba, Posh Giant I and Salvaree under section 111(f) of the Customs Act is upheld. The liability to confiscation of the balance 7 vessels mentioned supra under section 111(f) ibid is also upheld.
(4) Redemption fine on the 3 confiscated vessels and penalties on the importer/agent in respect of all the 10 vessels are reduced to the extent indicated in the Table below:
S. No. Name of the vessel Redemption fine in Rs. lakhs Penalty on the importer/agent in Rs. lakhs 1 Smit Lumba 50 50 2 Posh Giant I 50 50 3 Salvaree 15 15 4 Smit Lynx
-5 5
Union Boxer
-5 6
Giant - 2
-5 7
Smit Borneo
-5 8
Seacor Valor
-5 9
Smit Cyclone
-5 10
Mastas Star
-5
(5) Penalties on the co-appellants are set aside.
8. The stay applications are also disposed of.
(Pronounced in Court on 09/07/2013) (Anil Choudhary) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) */as 39