By TIOL News Service

MUMBAI, JULY 13, 2015: THE appellant had purchased the vessel 'Offshore Hunter' from Kuwaiti Oil Tanker Company, Kuwait in the year 2008. The vessel was registered with Kuwaiti Registry on 02/05/1994 as a supply vessel. The vessel was brought to India and registered with the Mercantile Marine Department which is the Registrar of Indian Ships under the Merchant Shipping Act, 1958 on 2.9.2008 as on 'offshore supply vessel'. After physical first check examination by the Customs, the vessel was cleared under CTH 8901 1010 attracting nil duty under customs notification 21/2002 (serial number 352) and nil SAD under notification 20/2006 (serial number 1).

After four years, the Department viewed that the classification of the vessel had been mis-declared and the correct classification should be CTH 8904 0000 as a tug.

Since the vessel was engaged abroad, the appellant could not present the vessel for scrutiny and paid customs duty of Rs.1,19,27,707/- Under Protest.

Thereafter the vessel was seized and released on provisional basis on furnishing of bank guarantee for Rs.63,74,363/- and a bond of Rs 12,74,87,250.

After issue of show cause notice the case was adjudicated by the Commissioner holding the classification of the vessel 'Offshore Hunter' under CTH 8904, denying benefit of Notification No. 21/2002-Cus and 20/2006-Cus, confiscating the vehicle with option to redeem on payment of redemption fine, demanding differential duty and interest and imposing penalty on importer and Directors.

After considering the elaborate submissions made by both sides the Bench observed –

++ We find that the earliest paper describing the vessel is a Certificate of Kuwaiti Registry which indicates the type of ship as 'supply vessel'. Revenue does not attach any importance to this certificate because it dates back to 1994. But at the same time Revenue has not been able to question the genuineness of this certificate or to produce any evidence that the certificate does not describe the vessel as it was in 1994.

++ The Certificate of Indian Registry dt 2-9-2008 in which the Registrar of Indian Ships certifies the particulars of a ship under the Merchant Shipping Act 1958 describes the vessel 'offshore hunter' as an OSV i.e. Offshore Supply Vessel.

++ During investigations the Department raised this issue with the Mercantile Marine Department under Ministry of Shipping, Government of India who clarified on 29/6/12 that "There is no restriction for an offshore supply vessel to undertake towing operations if duly certified so by the class. Indian register of shipping, a 'recognized organization' under M.S. Act, is the authorized professional agency to carry out survey of constructional part and they have categorised the vessel. The vessel is an 'Offshore Supply Vessel" having towing facilities". Much as we appreciate the efforts of Ld AR in showing us various documents to prove that the vessel is a tug, we find it difficult to ignore the clarification given by the Ministry of Shipping.

++ It is true that the towing plans describe the vessel as a tug. But as we have noted above, the Registrar of Indian ships has himself issued the 'Certificate of Indian Registry' which describes the vessel as an offshore supply vessel. Therefore, just because the towing plans describe the vessel as a tug, it does not have to be classified as a tug. To our mind, the reasonable explanation for describing the vessel as a tug in the towing plan is that the vessel was being used for towage operations even though it is a supply vessel. But that by itself does not necessarily lead to the classification or description of the vessel as a tug.

++ We find that the Commissioner in his Order has merely given the technical details of the vessel in question such as engine strength generator capacity etc. but he does not say how the engine strength is disproportionate to the size of the vessel. Neither does he explain whether the vessel in question has a specially shaped and strengthened hull. No technical clarification is forthcoming from the Commissioner's Order as to how the specifications of the vessel in question are actually different from those of supply vessel. In fact, the HSN Explanatory notes on chapter 8904 further state that 'The vessels of this heading are not designed for the transport of persons or goods....' The appellant have explained how the vessel in question is designed for transport of goods and cargo. …Therefore it is clear that the vessel was used for carrying persons and cargo although at times it was also used for towing operations.

++ To decide the issue at hand, in the absence of any technical document of the design of the vessel, we have to rely on the Certificate of Indian Registry issued under the Merchant Shipping Act 1958. The description retrieved from the web-site QUASIS by Revenue cannot be preferred over the certificate given by the Registrar of Indian Ships. In any case it describes the vessel as tug/supply ship and not as tug alone. Moreover a disclaimer is claimed by the web-site regarding the information given by it.

++ In our considered view and on the basis of the analysis above, we find that the heading 8901 provides the more specific description. Therefore there is no doubt about the applicability of Rule 3a which states that the heading which provides the most specific description shall be preferred. In the present case, the vessel is designed as a supply vessel for transport of persons as per the Certificate of Indian Registry. … As the vessel in question is a supply vessel used for transport of persons and goods, the correct classification would be CSTH 89019000 (which is rejected by the Commissioner in para 476) which covers "Other vessels for transport of the goods and other vessels for transport of both persons and goods." And the goods falling under CTH 8901 are exempted under Not 21/2002 read with Notification No. 20/2006.

++ The Custom officers were free to examine the vessel with respect to any documents for the purpose of determination of classification. …Therefore we hold that there is no misdeclaration whatsoever. Consequently there is no question of confiscation and option to redeem on payment of redemption fine.

The Bench also added that the statements of the Directors have been misinterpreted by the Department.

The order passed by the Commissioner was set aside and the appeal was allowed, both, on merits as well as on time bar, with consequential relief.

(See 2015-TIOL-1405-CESTAT-MUM )