Customs, Excise and Gold Tribunal - Mumbai
Aban Loyd Chiles Offshore Ltd., P. ... vs Commissioner Of Customs on 25 June, 2003
ORDER
Gowri Shankar, Member (Technical)
1. We are concerned with the rig imported by Aban Lloyd Chiles Offshore Ltd. This company, which was at that time engaged in the business of offshore oil and gas exploratory drilling and related activities on contract for the Oil & Natural Gas Corporation Ltd. (ONGC for short). It purchased in July 1987 a rig, Grifin Alexander III, from Griffin Alexander Drilling Co. for a price of US$ 5.39 million. The rig was towed directly to the drilling site at Bombay High in October 1987. In February 1996, this importer wrote to the Commissioner of Customs, Mumbai, asking for permission to import the rig into Mumbai for carrying out repairs and re-export in terms of the provisions of Notification No. 153/94-Cus. It is not clear if there was any reply to this letter. However, it is not in dispute that the rig was towed into the waters comprising Mumbai Port on 12-11-1996 and after it was repaired, taken out of the territorial waters of India. It was once again imported in India on 9th December 1998, being towed into Indian territorial waters by two tugs of the ONGC, mv Malaviya IV and SCI-05. After repairs, the rig was again towed out of the Indian territorial waters. Investigations by the Customs authorities into these two cases of importation lead them to conclude that there has been contravention by these appellants and others with regard to these two acts of bringing the rig into India. The rig was formally placed under seizure on 27th March 1999 but subsequently, following writ petitions filed by these appellants before the Bombay High Court, permitted to be used on payment of an amount of Rs. 1.0 crore and execution of a Bond for its value. A notice was issued on 23rd September 1999 to these appellants, alleging that the importation that took place in 1996 and 1998 were contrary to the provisions of law, and proposing confiscation of the rig under Clauses (a), (b), (g), (h), (j) and (o) of Section 111 of the Act and Clause (a) of Section 113 of the Act, demanding duty amounting to Rs. 27.91 crores, proposing interest under Section 28A on the duty amount and penalty on the importer under Section 112 of the Act. Copies of the notice endorsed to M.A. Abraham, appellant's Chairman & Managing Director, P. Venkateswaran, its Vice President, and A.P. Sandhu, its General Manager, and proposed penalties on them under Section 112. Penalty was also proposed upon ONGC under Section 112 and confiscation, under Section 115, of the three vessels, Malaviya IV owned by Great Eastern Shipping Co. Ltd., SCI-05 owned by Shipping Corporation of India Ltd. and Nand Heera owned by Essar Shipping Ltd., which were utilized for towing the rig in 1996 and 1998. After considering the causes shown by the parties, the Commissioner has passed the order impugned in these appeals. He has found that the rig was carried and brought to Mumbai on three occasions, in February 1996, on 9th November 1996 and on 9th December 1998.. It was not declared in the Import General Manifest of the towing rigs, as was required under Section 46. Such formalities as filing the bill of entry were not undertaken and therefore the rig was ordered for confiscation under Clauses (f), (g), (j), (h) and (j) of Section 111. He has also held that the rig was imported for home consumption and hence the appellants were liable to pay duty on the value of Rs. 44,40,28,320/-, determined by depreciating the value by 70% from the built cost of the rig. Therefore he confirmed the demand for duty amounting to Rs. 27.91 crores, confiscation of the rig and given the option of redeeming it by payment of fine of Rs. 2.0 crores, exonerated P.A. Abraham, Managing Director of the company, imposed penalties of Rs. 50,000/- each on P. Venkateswaran and A.P. Sandhu, ordered confiscation of the three towing vessels but permitted them to be redeemed on payment of fine of Rs. 1.0 lakh each and imposed penalties on ONGC, and Benny Ltd., the importer's agent.
2. The main contention of the counsel for Aban Lloyds Chiles Offshore Ltd. are as follows: A drilling rig has been held by the Bombay High Court, in its judgment in Amership Management Pvt. Ltd. v. UOI, 1996 (86) ELT 15, to be a foreign going vessel or aircraft. The Calcutta High Court in Scindia Steamship Co. Ltd. v. CC, 1988 (36) ELT 581, held that a foreign going vessel does not cease to be so when it enters Indian territorial waters for repairs. The long-standing practice in the Customs Department was recognized by the Tribunal in its decision in Sedco Forex International Drilling Inc. v. CC, for a manifest and bill of entry not to be filed on importation of drilling rigs. Therefore, no duty is payable and no penalty is imposable. Alternatively, the value determined by the Commissioner by depreciation from the cost of construction is incorrect. The method, adopted by the Commissioner, of starting with the originally built cost in 1982 of US$ 34.50 million and allowing depreciation to the extent of 70% is incorrect. The appellant purchased the rig in 1987 at Rs. 7.11 crores approx. and, by applying Rule 3 of the Customs Valuation Rules, this transaction value should be accepted. It is further contended that the benefit of drawback under Section 76 of the Act, which would be available as the rig was exported after import on each occasion, has not been considered. Confiscation of the vessels is questioned on the ground that permission was sought by appellant's letter dated 12th February 1996 for importing the rig into India for repairs and re-exporting it and the notice itself acknowledges that permission was granted by the Assistant Commissioner under Section 43 of the Act. Hence there is no contravention of any of the provisions of Section 111. Penalty is also questioned.
3. The Departmental Representative contends that the judgment of the Bombay High Court in Amership Management Pvt. Ltd. would not be relevant because the court has not considered whether a rig was a foreign going vessel when it operates in the territorial waters of India. In a subsequent judgment in Pride Foramer v. UOI and Ors., AIR 2001 Bom 332, the High Court, after taking into consideration the judgment in the case of Amership Management Pvt. Ltd., has held that the rigs operating in designated areas were not foreign going vessels as the designated areas are deemed to be Indian territory. Therefore, when the rig was brought into Indian territorial waters, it ceased to be a foreign going vessel. As to valuation, it contends that the price paid for the purchase of the rig in 1987 is not relevant to the import made in 1998. The value of the imported goods, in terms of Section 14(i) of the Act and the Rule 4 of the Customs Valuation Rules, should be the price at which such goods are ordinarily sold at the time and place of importation in the case of international sale. The Commissioner has rightly determined the value by providing for depreciation to the maximum extent of 70% of the cost of construction of the rig in 1982. It cites the case of Supreme Court in Gajra Bevel Gears v. CC, 2000 (115) ELT 612, and the Tribunal's decision in Rishi Gases (P) Ltd. v. CC, 1992 (60) ELT 273. The benefit of drawback under Section 74 of the Act will not be available in respect of the company as the formalities required were not followed during its re-export. We, therefore, justify the imposition of penalty.
4. It is not disputed that when the rig was engaged in drilling of such activities outside Indian territorial waters and while not being in areas under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, it was a foreign going vessel. The question is whether it ceases to be a foreign going vessel when it enters into Indian territorial waters for purposes of repairs. In Amership Management Pvt. Ltd. v. UOI, 1996 (86) ELT 15, the Bombay High Court had for consideration a question as to whether customs duty was payable on parts of drilling rigs imported into Mumbai for transhipment to the places and locations of the oil rigs. It was a contention the writ petition that the oil rigs were foreign going vessels and, therefore, by application of Section 86(2) of the Act, these parts, which were ship's stores, were liable to duty. The court noted that a vessel, as commercially understood, would also include a sailing vessel or other vessels not necessarily fitted with mechanical means of propulsion. It noted the requirement for an international loadline certificate for a rig and its description in the insurance policy and the fact that foreign governments have considered oil rigs and other factors to be vessels, and concluded that oil rigs were vessels. It noted that a rig stationed beyond Indian territorial waters, engaged in any other operation, satisfied the definition contained in Section 2 (21) of Foreign Going Vessels Act. It concluded that the spare parts imported for transhipment and shipment to these rigs would therefore be stores and entitled to be cleared without payment of duty. This judgment therefore is the authority for the proposition that a drilling rig, when engaged in drilling operations outside the territorial waters of India, is a foreign going vessel.
5. In Scindia Steam Navigation Co. Ltd. v. CC, 1988 (36) ELT 581, a learned single judge of the Calcutta High Court held that a foreign going vessel which was dry-docked in Calcutta Port for purposes of repairs did not lose its character as a foreign going vessel during the period of dry-docking and repairs. He accepted the contention of the petitioner that even while the vessel was undergoing repairs, preparations were made to carry the cargo to foreign ports. Therefore, it did not cease to be a foreign going vessel. In Pride Foramer v. UOI, AIR 2001 Bom 332, the Bombay High Court, after taking note in the judgment in Amership Management Pvt. Ltd., said that the imported stores supplied to a rig located in an area designated under the Act 80 of 1976 would not fall within Section 86 of the Act. It relied upon the judgment of the Division Bench of the Court in Salgaonkar Engineering v. OJF Gomes, 1984 (86) Bom LR 127, to say that it is only that vessel which is actually carrying at a given point of time the goods or passengers between a port in India and a port outside India is a foreign going vessel.
6. Section 2(21) of the Act defines a foreign going vessel or aircraft to mean any vessel or aircraft for the time being engaged in the carriage of goods or passengers between any port or aircraft in India and any port or airport outside India, whether touching any intermediate port or airport in India or not, and as including one any naval vessel of a foreign Government taking part in any naval exercises; ii) any vessel engaged in fishing or any other operation outside the territorial waters of India; (iii) any vessel or aircraft proceeding to a place outside India for any purpose whatsoever. The definition thus in two parts. The main definition applies to a vessel or aircraft for the time being engaged carrying goods or passengers between any port or airport in India and any - port or airport outside India. The expanded definition includes vessels which are undertaking activities entirely unconnected with carriage of goods or of passengers between India and a foreign country. Each of the first two clauses of the expanded definition applies to a specific situation, and the third to any vessel or aircraft proceeding to a place outside India for any purpose whatsoever. A vessel may be termed a foreign going vessel either because it falls within the first part of the definition or within any of the three clauses of the latter part.
7. In Amership Management Pvt. Ltd., the Bombay High Court evidently found that a rig engaged in drilling or survey operations outside Indian territorial waters was a foreign going vessel, because of Clause (2) of Sub-section 24. The ship which came in for repairs, which was under consideration in Scindia Steam Navigation Co. Ltd. was held to be a foreign going vessel, not because it is engaged in any operation outside India but because it fell in the first part of the definition, that it was for the time being engaged in the carriage of goods or passengers between any port in India or any port outside India. Thus, a ship that is engaged in carriage of cargo or passengers between Mumbai and Abu Dhabi is a foreign going vessel covered by the first par of the definition and would be as such a foreign going vessel throughout the length of its voyage, if, during its voyage between these two ports, it touches other Indian ports. The judgment in Scindia Steam Navigation Co. Ltd. is based on the view that, despite being dry-docked for repairs, the ship was still engaged in the carriage of goods between Calcutta and the foreign port. A rig has been held in Amership Management Pvt. Ltd. as a foreign going vessel because it was engaged in the operations outside Indian territorial waters in view of Clause (2) of the extended definition. It would not be appropriate to apply the first part of the definition while considering the second. Each of the three clauses of the extended definition has nothing to do with the main part of the definition and applied in different situations of facts. Each of these situations must be considered on its own merit. It would therefore not be possible to say that a craft which is anchored without undertaking any operation whatsoever for long periods outside the territorial waters is a foreign going vessel. So also, when a rig enters Indian territorial waters for purposes of repairs, it is obviously not engaged in any operation outside India and loses its character of foreign going vessel. It may no doubt resume its character as a foreign going vessel when it leaves Indian territorial waters and resumes its operation. This is in fact the view taken in Salgaonkar Engineering v. OJF Gomes. We, therefore, do not find it possible to say that the rig, on the occasion when it entered Indian territorial waters, was a foreign going vessel.
8. The next contention is that the rig had not been imported. It was bought into India for purposes of use and only brought in for repair. It was not meant for home consumption and therefore a bill of entry was not required to be filed. A related contention is also raised, that the act of importation in regard to the rig had not been completed. The judgment of the Supreme Court in Apar Pvt. Ltd. 1999 (112) ELT 3 is relied upon to say that while the act of importation commences, when the goods entered the territorial waters of India, it continues and these completed only when the goods merge with the mass of the goods in the country. This merging, it is contended, has not taken place.
9. The departmental representative contends that when the rig came into India, it lost its character as rig and became goods. Therefore its importation is complete. He relies upon the decision of the Tribunal in Sedco Forex v. CCE, 2001 (135) ELT 2625 and upon the judgment of the Court in UOI v. Mustafa and Najibhai Trading Co. 1998 (101) ELT 529.
10. In the latter judgment, the Supreme court said at page 542 that a vessel which arrived at the outer anchorage of the Bombay port had come into port because the anchorage was part of that port. This judgment has no particular relevance to the facts before us. It is not the appellant's case that the rig had not entered the Bombay Port but that despite such entry, the import, as defined by the Supreme Court, has not taken place. In its judgment in Chougule & Co. v. UOI 1987 (28) ELT 39, the Supreme Court had for consideration whether two transhipers which entered India were goods intended for home consumption and a bill of entry was required to be filed with regard to it. The court could not find any justification for holding the vessels were not goods for the purposes of Section 46(1) of the Act and therefore addressed the question as to whether the vessels which were to be used in Indian territorial waters for topping of bulk carriers could be said to be vessels for home consumption merely on that account. It said that for the purposes of levy of customs duty in order to determine whether imported goods are "goods for home consumption." It said, "The primary intended use of the goods when they are brought into Indian territorial waters has to be ascertained. "If the goods are intended to be primarily used in India, they are goods for home consumption notwithstanding that they may also be used for the same or other purposes outside India. The question whether goods not intended to be primarily used in India but used occasionally for short periods in India also fall within the meaning of the expression "goods for home consumption" has not been examined. We have only considered the question whether the goods brought into India for use primarily or goods for home consumption notwithstanding that they are occasionally or incidentally used outside India." In UOI v. V.M. Salagaonkar & Bros. Pvt. Ltd. 1998 (99) ELT 3, the Supreme Court said that in the context in which the expression "home consumption" is used in Section 46, it does not warrant the construction that the commodity should have been completely used up. Even putting the commodity to any kind of utility would amount to home consumption.
11. As we understand from these judgments, if the goods are imported with the intention of putting them to any kind of use in India, they are goods for home consumption. Even if the vessel is used occasionally for short periods in India it would be goods for home consumption. However the rig, the "goods" under consideration by us here was not intended to be used in India at all even for a short period and was not in fact so used. It was only brought into India for the purposes of repair. It surely cannot be said that a rig brought into India for repairs and taken out after the repairs were completed was intended to be used in India. It is precisely because it could not be properly put to use that repair became necessary. It Sedco Forex, the Tribunal was concerned with a drilling rig which had been imported into India in pursuance of a contract signed with the Oil & Natural Gas Commission for oil exploration and exploitation. The Tribunal noted that rigs are capable of use for offshore oi exploration or exploitation in the Indian waters and therefore concluded that it could not be said that the rig was not intended for use in India, and thus, it would not follow that it had not merged with the mass of the goods in the country. It must be emphasised that the rig under consideration in Sedco Forex was brought into India in the course of fulfilment of a contract with the Oil & Natural Gas Commission and later on with Enron Power and Gas Co. Unlike in that case, the rig under consideration here had not entered the territorial waters for purposes of oil exploration or exploitation. It had entered the territorial waters for purposes of repair. It was not in the process of transiting through Indian waters for the purpose of going from one point to another for drilling. This being the case, it cannot be said that the rig was goods imported for home consumption and the goods covered by Section 46(1) of the Act. So also, the ratio of the Supreme Court's judgment holding that while the act of importation commences when the goods enter the territorial waters, it continues and is completed only when it merged with the mass of the goods in the country will apply to the facts before us. The rig entered the country without such entry being planned due to circumstances beyond the control of its owners or characters. Therefore, applying the common ratio of these judgments, it will follow that its import had not been completed. The question of payment of duty on the rig also will not arise. We may however mention in passing that even if the rig was liable to duty, it will be entered into drawback under the provisions of Section 74 of the Act, since it was not used in the country for the short duration. This is in fact what had been held in Sedco Forex. The fact that a shipping bill was not filed for its clearance therefore will not, as we have held earlier, be an obstacle.
12. This brings the question of liability of the rig to confiscation and the penalty imposed on its owners and others. The Commissioner has found contravention of the provisions of Clauses (f), (g), (h) and (j) of Section 111 of the Act. These clauses relate respectively to any dutiable or prohibited goods required to be mentioned under the regulations in an import manifest or import manifests which are not so mentioned; the goods which are unloaded from a conveyance in contravention of the provisions of Section 32; dutiable or prohibited goods unloaded or attempted to be unloaded in contravention of the provisions of Section 33 & 34, and goods removed or attempted to be removed from a customs area or warehouse without a proper officer's permission. It appears to us that, notwithstanding with the applicability of the judgment of the Supreme Court to the effect that the import of the goods had not completed, the provisions of Section 11 will be attracted. The section applies to goods brought from a place outside India and this clearly covers the goods under consideration. The contravention of Clause (f) has been established as the goods entered the transit or transhipment is required to be mentioned in the manifest. Clause (g) will also be attracted as the goods were unloaded without the permission of the proper officer as required in Section 32. The goods were also loaded or unloaded except under supervision of a proper officer. Clause (h) will therefore apply. Clause (j) also will apply as the goods were removed without the permission of a proper officer. The rig therefore becomes liable to confiscation. We do not find any deliberate intention on the part of the importer to contravene these regulations although there has been clear negligence and disregard of the rules. Having regard to these facts, we reduce the fine for redemption of the rig from Rs. 2 crores to Rs. 10 lakhs.
13. Having regard to the fact that there was no deliberate intent to evade duty attributed to the importer, we do not think any justification for penalty upon the importer or its employees. We set aside these penalties.
14. In our decision in Sedco Forex, we had found that the owner of the towing vessel could not be expected to be aware of the complexity of the law, and noting the absence of any intent, set aside the confiscation of the towing vessel and penalty. The same position would not apply here. Since the towing vessel Malaviya IV was on charter to Oil & Natural Gas Commission, the owner of the tug, Great Eastern Shipping Co., would have no knowledge of the intended use to which it was to be put. However, Oil & Natural Gas Commission being the person in charge of the vessel would have been fully aware of it. The rig would have been towed by the tug on its specific directions. In these circumstances, we confirm the confiscation of the tug, but reduce the fine to redeem it on payment of fine of Rs. 50,000/-.