Custom, Excise & Service Tax Tribunal
Chowgule &Amp; Co. Pvt. Ltd. vs Cce Goa on 10 May, 2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
WEST ZONAL BENCH
Custom Appeal No. 146 of 2012
(Arising out of Order-in-Appeal No. GOA/CUS/GSK/58/2011 dated
17.11.2011passed by the Commissioner of Customs& Central Excise
(Appeals),Panaji, Goa)
M/s Chowgule and Company Pvt Limited .....Appellant
Chowgule House, Marmagao Harbour,
Goa
Vs.
Commissioner of Customs& CENTRAL .....Respondent
EXCISE, Goa ICE House, EDC Complex, Plot no. 6, Patto Panaji, Goa APPEARANCE:
Shri HK Maingi, Advocate with Shri CS Biradar, Advocate for the appellant Ms PV Sekhar, Joint Commissioner (AR) for the respondent CORAM: Hon'ble Mr CJ Mathew, Member (Technical) Hon'ble Mr Ajay Sharma, Member (Judicial) FINAL ORDER No: A/85900 / 2019 DATE OF HEARING: 14.01.2019 DATE OF DECISION: 10.05.2019 PER: C J MATHEW The root of the dispute in this appeal of M/s Chowgule and -2- C/146/2012 Company Pvt Ltd is the statutory provision under Customs Act, 1962 that is liable to be invoked for levy of duty on goods recovered from a ship that was wrecked off the shores of India; the appellant contends that the demand of `98,79,542/-, as duties of customs, assessed as though the ship itself was imported for breaking, instead of recourse to section 21 of Customs Act, 1962 applicable for wrecks, has been erroneously upheld in order-in-appeal no. GOA/CUS/GSK/58/2011 dated 17th November 2011 of Commissioner of Customs & Central Excise (Appeals), Goa. The liability was computed on 'light displacement tonnage' of 10243.60 metric tons of the vessel though, according to the appellant, nothing, in excess of `10,61,460.90, paid on assessment of ten bills of entry for clearance of 732.60 metric tons between 1987 and 2005, was due.
2. To winnow the core of the tortuous history of this assessment from the recitals of Learned Counsel for appellant and of Learned Authorised Representative, including the appeal to the highest court of the land on more than one occasion, it would be worth recalling the brief facts, the legal framework, the postulates that guided the customs authorities and the peculiarities of the impugned import. Though MV Maratha Transhipper entered Indian waters as early as 11th October 1969, owing to dispute by the importer that vessel was exempted from duty, it took the course of a writ petition and appeal therefrom to secure compliance with section 46 of Customs Act, 1962 through -3- C/146/2012 judgement dated 19th February 1987 in civil appeal no. 179/1985. Though, again, the importer initially insisted on filing the required declarations in the format applicable at the time of first entry, the bill of entry was remedied on 23rd March 1987 and provisionally assessed to duty liability of `38699926.23 on 26th March 1987. During the pendency of judicial challenge to this assessment, appellant was, on various occasions, directed to make deposits totalling `1,17,10,522.19 along with bank guarantee for the remainder. Finally, the dispute was resolved by the Hon'ble Supreme Court on 18th March 1998, in civil appeal no. 3409/1987, holding that the benefit of exemption, in notification no. 262/58 dated 11th October 1958, must be extended to the imported ship as 'ocean going vessel.'
3. In the meanwhile, on 28th May 1985, the vessel had run aground in Indian waters off Marmagoa port and, compelled by statutory mandate, the importer undertook responsibility for salvage to clear the navigation channel by engaging professional salvers who were, contractually and upto an agreed ceiling, bound to discharge liability. Even as the provisionally assessed bill of entry for the import of the vessel was yet pending finalisation, the importer, with judicial sanction, commenced filing bills of entry for the recoveries effected during salvage. The jurisdictional authorities, by now having relinquished claim on the bank guarantee, were far from satisfied by this piece-meal discharge of duty liability and, by invoking the -4- C/146/2012 contingency in the proviso of notification no. 262/58 dated 11th October 1958, initiated proceedings under section 28 of Customs Act, 1962 in show cause notice dated 11th November 1985 which culminated in the upholding of the demand leading to this appeal. These, then, are the relevant facts.
4. The antediluvian Ark built by Noah which, according to biblical narrative, in negotiating the deluge that covered the earth and found its final resting place on Mount Ararat, having preceded the divinely frustrated construction of the Tower of Babel, was, probably, the only watercraft that did not present a dilemma. However, since the dawn of national administrations, the dual aspect of merchant vessels in international trade has. While it was acceptable for cargo to be subject to 'customary tribute', it would have been repugnant to charge that on a conveyance calling at ports for a time; moreover, fastening of levy on a mode of transport, whose existence was entirely dependent on keeping as little contact with the landmass as commercial and technical considerations permit, did not particularly appeal to reason. Except on occasions of entry into ports, or voyaging in territorial waters, vessels are beyond the pale of municipal laws. In such an existence, with much of the span expended in high seas, a vessel is very much a person, referred to in the feminine, and represented by a master wielding enormous powers that are vested in him by the written and unwritten law of marine conventions and -5- C/146/2012 customs. The tenuous link with the owner is only of commercial relevance. At the same time, that vessels are manufactured and are traded in a manner similar to goods is undeniable. The statutes governing the levy and collection of customs duties generally take note of this distinction. In the erstwhile Sea Customs Act, 1878, 'vessels', having been defined, could not be included for coverage of duty that was liable on 'goods' which remained undefined. Tax policy, with limited objectives, did not encompass import or export of vessels within it. The successor Customs Act, 1962 did not define 'vessels' but placed them within the inclusive confines of section 2(9) and section 2(22) defining 'conveyance' and 'goods' respectively implying that a vessel entering the customs territory as 'goods' could now be a subject of tax policy. The present controversy, like many other contemporaneous disputes, revolves around the claim, and rejection, of this distinction and, invariably, in the context of such tax policy which for decades carefully exempted 'ocean going vessels.'
5. Despite the exemption, the lack of definition for 'ocean going vessel' as well as absence in the relevant statutes sufficed to stoke controversy. The definition of 'foreign going vessel' in section 2 (21) of Customs Act, 1962 is not an acceptable substitute because chapter VI, dealing with provisions relating to conveyances carrying imported or exported goods, has not deployed this expression. Nor does that expression surface anywhere else in the Customs Act, 1962 except in -6- C/146/2012 the context of privileges accorded to 'stores' in section 87 and section 89 therein. With the enumeration of vessels of every kind in chapter 89 of First Schedule to Customs Tariff Act, 1975, description in any other statute is, for tax policy formulation, superfluous. We are unsure if the relevant taxing entry in the erstwhile First Schedule or Second Schedule to Indian Tariff Act, 1934 may have warranted this description. The existence of a taxing entry for 'ocean going vessels' in the First Schedule to Indian Tariff Act, 1934 deeming such vessels to be goods and, hence, liable to duty has not been suggested. Indeed, the absence of such in the record of proceedings should suffice to indicate the lack of it. It does not, therefore, surprise us that attempts to curtail the benefit of the notification owing to this ambiguity has caused many disputes. We shall, by the by, revert to this.
6. As a persistent thorn in the procurement of vessels, the evolution of the exemption may well be worth unravelling. In the absence of any other authoritative source, we draw upon the facts recorded in different judicial rulings to enlighten us. The Tribunal, in Collector of Customs v. Salim Abbas Bhai [1990 (46) ELT 458 (Tri- Del)], referring to item 76(1) in the Indian Customs Tariff Guide (6th edition), noted that exemption to all 'ocean going vessels' and entitlement of equipment to drawback of seven-eighth of duty paid on import upon installation on board as authorized by India, Com. DO 484 of 21st June, 1923. Despite this unqualified exclusion of vessels -7- C/146/2012 from levy as goods in the erstwhile statute, the Central Government, in exercise of powers under section 23 of Sea Customs Act,1878 chose to notify the impugned exemption that employed this undefined expression and deployed a contingency for crystallising duty liability. In Union of India v. Jalyan Udyog [1994 SCC (1) 318], the Hon'ble Supreme Court noticed the substitution of the original 'Provided that any such vessel subsequently broken up shall be chargeable with duty which would be payable on her if she were imported to be broken up.' in notification no. 262/58 dated 11th October 1958 with 'Provided that the duty of Customs shall be levied on the vessel if it is broken up as if it were then imported to be broken up' by notification no. 162/65-Cus dated 16th October 1965 after the successor statute, with the overlap of vessels in 'conveyances' and 'goods', came into force. Even after the Customs Tariff Act, 1975 replaced the Indian Tariff Act, 1934, this exemption to 'ocean going vessels' continued to be in force until superseded by notification no. 133/87-Cus dated 19th March 1987 in exercise of powers conferred by section 25 of Customs Act, 1962. From the decision in Mustan Taherbhai v. Collector Customs [2006 ECR 561 Tri Mumbai], we learn that the Tribunal also noticed the exemption, under a newly minted section 100A of Sea Customs Act, 1878, from payment of customs duty on 'ocean going vessels' cleared from bonded premises -8- C/146/2012 by notification no. 118/59-Cus which was superseded by notification no. 163/65. It cannot have been a coincidence that the two notifications dealing with 'ocean going vessels', of which one was intended for ships manufactured under section 65 of Customs Act, 1962 in customs bond, were issued simultaneously to clear the air. The Tribunal, in Vipul Shipyard v. Collector of Central Excise [1985 (19) ELT 122 Tri-Del], also took note that exemptions from excise duty did resort to the expression 'ocean going vessels.' This would lead us to surmise that the impugned exemption was an exercise to formalise free movement of vessels with formulation of a tax policy, and other policies that go hand-in-hand with sovereignty, on shipping. The treatment of ships for breaking appears to have been aligned, and articulated, for domestic manufacture and for imports, in 1965. We shall turn to that presently after considering the postulates apparent in the proceedings initiated by customs authorities.
7. Learned Counsel for the appellant contends that the Hon'ble High Court of Karnataka, in Commissioner of Customs, Bangalore v. Symphony Services Corporation India Pvt Ltd [2012 (275) ELT 369 (Kar)], has held that relinquishment of title vests the goods in the government with attendant escapement from duty for the importer. It is also submitted that remission, under section 23 of Customs Act, 1962, is available when the imported goods are of no commercial use to the importer. Learned Authorised Representative placed reliance -9- C/146/2012 on the decision of the Hon'ble High Court of Karnataka in Antarctica Ltd v. Union of India [2010 (258) ELT 206 (Cal.)], on the decision of the Tribunal in Sandoz Pvt Ltd v. Commissioner of Central Excise, Belapur [2014 (308) ELT 617 (Tri-Bom)] and that of the Hon'ble Supreme Court in SK Pattanaik v. State of Orissa [2000 (115) ELT 9 (SC)].
8. The attempt of Revenue, as revealed in the impugned order and as argued by Learned Authorized Representative, is to demonstrate that the vessel, having breached the statutory obligation to be presented for assessment, as prescribed in section 46 and section 17 of Customs Act, 1962, on first arrival in Indian waters by arrogating eligibility in the impugned exemption notification, should, by taking that temporary privilege to its logical conclusion, be assessed to duty as applicable to ships for breaking. Urging that the law permits only one of these two alternatives, reliance was placed on the decision of the Hon'ble High Court of Bombay in Khanbhai Essofbhai v. Union of India [1989 (41) ELT 239 (Bom)]. Continuing in that vein, it was submitted by Learned Authorized Representative that the exemption in the notification is effective only as long as the ship is a conveyance and that any other disposal would render it liable to duty that was foregone initially.
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9. Though it is now common ground that, at the time of its first arrival in 1969, MV Maratha Transhipper, as a fully functional conveyance, was eligible for exemption from duties, it is still contended on behalf of Revenue, as the first of the postulates, that the intent of notification was deferment of chargeability to duty till, and if, such vessel is broken up. The other postulate in controversy, derived from the decision of the Hon'ble High Court of Bombay in re Khanbhai Essofbhai, is that a wrecked vessel must be assessed to duty as though imported for breaking up.
10. That MV Maratha Transhipper had not been imported in 1969 for breaking up is not in doubt; the dispute was over the claim that it was an 'ocean going vessel.' Further discussion of that aspect, as well as that of purported deferment of duty, is academic as the Hon'ble Supreme Court did, in Chowgule & Co Private Ltd Etc v. Union of India & others [1987 SCR (2) 351], adjudge the eligibility for exemption from duty at the time of import. The position of law settled, in re Jalyan Udyog, by the Hon'ble Supreme Court is that the exemption applies unconditionally at the time of import and that the vessel, if intended to be broken, must be subject to assessment separately as though imported afresh for that purpose. The concern here is, thus, restricted to the continuing operation, and admissibility, of the notification in 1985 when the vessel was wrecked.
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11. It has been suggested by Learned Authorized Representative that the adjudicating authority has correctly considered the wrecking of the vessel as the 'breaking up' envisaged in the notification as, on the date of filing of bill of entry, the vessel was no longer 'ocean going' and the salvage of the vessel for dislodging it from the navigation channel, though under statutory obligation, as breaking up of the vessel. The adjudicating authority, too, inferred, that the filing of a few bills of entry in pursuance thereof, was an admission of such event. In our opinion, reliance on the decision of the Hon'ble High Court of Bombay in re Khanbhai Essofbhai is misplaced as there is a substantive difference between the two: in that matter, the issue in question was not the importation or eligibility for free importation in the hands of the owner but the escapement from duty on an entire vessel to be broken up by a salvager awarded to the contractor for that work. Here, the intent to salve is not evident and, admittedly, was forced on the appellant for the limited objective of clearing the navigation channel and not for retrieval and commercial appropriation of the vessel in its entirety. 'Wreck' is not defined in Customs Act, 1962 though section 21 does acknowledge the uniqueness of that expression; the need for such may not have been felt in the taxing statute as a comprehensive law to govern maritime matters enacted earlier, the Merchant Shipping Act, 1958, has, in section 3(58), by including
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C/146/2012 '(e) a vessel abandoned without hope or intention of recovery', in defining 'wreck.'
12. Undoubtedly, wrecking and breaking up of a vessel have the same consequence of extinguishing a conveyance but the substantial difference between them is that former is often an accidental occurrence while the latter is deliberate with the usual risk and return implicit in a commercial transaction. It is not, as the adjudicating authority appears to believe, merely a transformation of an unseaworthy vessel that, arising from failure to comply with condition of exemption accorded to 'ocean going vessels', must burden the owner with duty liability otherwise foregone earlier.
13. The process of import of the functioning vessel was commenced after its demise as a vessel. Whether it be considered thereafter as import of ship for breaking or as a wreck, the assessment of the bill of entry filed in March, 1987 ceased prematurely and without finalisation upon issue of impugned show cause notice. The consequence of the impugned show cause notice must now be dealt with in the light of heading no. 8908 in the First Schedule to Customs Tariff Act, 1975 and the definition of 'wreck' supra.
14. The exemption notification operated, not for vessels that were entered for breaking up, but for functional vessels that were
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C/146/2012 subsequently taken for breaking. In the present instance, the vessel had not been salvaged in full and, therefore, never intended for breaking up. Breaking up of a vessel is a commercial activity with returns from disposal of the various parts within the territory of India and liable to ad valorem duty arising from section 14 of Customs Act, 1962. The process of assessment requires valuation that was based on the tonnage of the vessel, irrespective of the recovery, because various components, classifiable under different tariff headings, that would emerge from the process of breaking up has all the promise of an assessment nightmare. A wreck that could not be subject to such valuation on the basis of tonnage cannot be considered as vessel for breaking up which itself is a fiction incorporated in law owing to the peculiarity of life cycle of vessels.
15. The existence of a vessel is contingent upon it never entering a landmass. Once it is irretrievably grounded, it is no longer a vessel. Though legends, such as that of Flying Dutchman and Mary Celeste, abound in the mariners' world, shipbreaking, as a thriving industry, is indispensable. Vessels may also be declared to be unseaworthy in mandatory inspections. Vessels may become commercially or operationally unviable. In stark contrast with manufacture, Daltonian principles require transformation of such former vessels by disaggregation. A vessel can be broken up only on land and once a ship has been led on its 'funeral' voyage, it ceases to exist as a
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C/146/2012 conveyance and, indeed, a vessel itself. It cannot, thereafter, be classified under chapter 89 of Customs Tariff Act, 1975. Before that emplacement on firm ground, the vessel is de-registered, its power supply switched off and its crew disbanded for evermore. With no master, the 'she' will soon become an 'it.' If the ship is to be charged to duty in its created form, it must be subject to duties while it is yet so; the alternative poses problems for levy of customs duties as the next phase is transformation by dismantling. Hence, the deliberate inclusion of 'ships intended for breaking up' as heading no. 8908 of First Schedule to Customs Tariff Act, 1975 for imposition of levy with the end use as a critical characteristic; a not uncoincidental congruity of the only two inevitables, death and taxation, attributed to Christopher Bullock in The Cobbler of Preston (1716).
16. The intent of importing the impugned vessel for breaking up is not on record to evince. Intent is an inextricable element of heading no. 8908 of the First Schedule to Customs Tariff Act, 1975 and, absent such qualification, the sole alternative is heading no. 8901 of the First Schedule to Customs Tariff Act, 1975 which cannot apply to wrecks. The impugned order has erred by considering only these two alternatives. The admittance of bills of entry to which section 21 of Customs Act, 1962 applies suffices for consideration of the third option. The disposal of articles that were landed India on salvage from the vessel would need appropriate treatment under Customs Act,
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C/146/2012 1962. There is, obviously, no dispute that the salvaged parts of the wreck have not originated in India. Duty liability arises on presentation of goods for import; it is the parts of the vessel that were removed from wreck that were presented for import. Accordingly, the liability to duty would arise through section 21 of Customs Act, 1962 read with section 12 of Customs Act, 1962. As the vessel that was imported originally into India was exempted from duty, there was no requirement to file bill of entry and, consequently, no breach of the provisions of the said exemption notification. In the absence of the breach of any of the conditions, penalty cannot be imposed.
17. The impugned order, and that of the original authority, suffers from flaws by imputing motives and by drawing inferences from particular acts on the part of the importer as is evident from the finding that '27 The Noticee has indirectly accepted that duty is payable on the wreckage when they requested for remission of duty under Section 23 vide letter dated 04.06.1998, The vessel became a wreck in 1985 and the request for remission was after salvaging a part of the wreckage from 1986 to 1998. Moreover, as required under Section 23 of the Customs Act, 1962, the Noticee has not shown to the satisfaction of the Assistant/ Dy. Commissioner with supporting evidence, that the imported goods have been lost. Therefore, no reference was made to the Noticee for granting permission for remission of duty on the wreckage which was intentionally not salvaged. If
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C/146/2012 they had relinquished the title to the goods in 1998 due to inability to salvage the wreck, the same should have been intimated to the Hon'ble High Court before its Order dated 17.12.2003, enclosing a copy of the approval of the Department Further, the Noticee's submissions are contradictory, to the extent that they state that they had relinquished the title in 1998 as the wreck could not be salvaged and then they, submit that they were forced to engage another contractor to salvage the balance portion of the wreck in view of the insistence of the MPT to do so and thereafter go to clear 213 tonnes of wreck/part of the wreckage as admitted by them. In view of the above, the question of relinquishment does not arise as they have gone against their statement. The Noticee did not challenge or stay the order of the Hon'ble High Court dated 17.12.2003, to salvage the wreck as they commenced salvage operations and salvaged part of the wreck in view of the said Order. Therefore, their reliance on Tribunal Judgement in the case of Chowgule Brothers V/s Goa, to whom Notification. No. 133/87-Cus dated 21.3.1987 and not Notification No.262/58-Cus dated 11.10.1958 was applicable, cannot be relied upon, as contended by the Noticee.
28.From the above discussions, it appears that the Noticee bought a second hand used vessel, used it for about 16 years during the span of its economic viability and then left it to suffer at the vagaries of nature knowing fully well that the nature's fury was enough to sink the vessel. This can be construed as a ploy with an intent to evade payment of Customs duties to the Government as the transhippers normally conduct repairs during the off season as all port operations are closed. It is also likely that the vessel was fully insured and sufficient
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C/146/2012 compensation claimed by the Noticee. Only on MPT's insistence and that too due to occurrence of a major casualty did the Noticee try to salvage the wreck. The salvaging operation was a mere eyewash as they salvaged only a meagre 10% inspite of the whole wreckage being secured by the salvagers as reported by MPT in their report dated 12.07.2000. The Noticee has intentionally not salvaged the whole wreck in order to avoid paying the duty even though the Hon'ble High Court had directed to salvage the wreckage and then claim the money lying with the Court.
29. The MPT furnished a certificate dated 20.08.2005, informing that the navigation path is clear, but nowhere has any competent authority declared that the entire wreckage cannot be salvaged. In fact, the salvagers had secured the entire wreck before the monsoons for salvaging the same after the monsoons as reported by MPT in their report dated 12.07.2000. Therefore the entire wreck should have been salvaged.' instead of testing the facts against the provisions of Customs Act, 1962 and settled law. There is no duty liability on goods that are not sought to be cleared for home consumption. Wrecks are not imported but any wreck or part thereof sought to be imported are. To that extent, remission on the wreck that remains has no consequence. The discharge of duty liability on the goods that were removed from the wreck and whose quantity or value is not in dispute, would be the appropriate discharge of appropriate duties.
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18. In our opinion, the adjudication has forayed into areas that should not have been. The impugned order is therefore set aside and remanded back to the original authority with a direction to restrict the decision to the contents of such bills of entry that were presented or such bills of entry that should have been presented under section 21 of Customs Act, 1962. As this matter has been pending for long the adjudicating authority is advised to complete the proceedings within 180 days of receipt of this order. Appeal is accordingly disposed of.
(Order pronounced in open court on 10/05/2019) (C J Mathew) Member (Technical) (Ajay Sharma) Member (Judicial) //SR02050305