By TIOL News Service

MUMBAI, JAN 09, 2016: THE Tug 'Ocean Garnet' was imported and brought into India on contract with Hardy Exploration and Production India Ltd. in November 1997 at Chennai Port. No import duty was payable on ships imported during that period. The Tug was purchased by the appellant on 18/3/1998 and was thereafter regularly used in coastal runs in India and the port clearances were being granted for such coastal runs on numerous occasions over a period of 14 years. At the time of initial import in 1997, Customs duty on bunkers and consumables was paid for dutiable items. Customs authorities did not insist on filing of Bill of Entry at that time. By Notification No. 17/2001-Cus dated 1/3/2001 complete exemption from payment of Custom duty was withdrawn and duty of 5% was introduced.

This Tug was 'abruptly' seized on 20/12/2011 by Customs Preventive. However, it was allowed provisional release on the condition of filing the Bill of Entry, submission of bond of 100% AV which was taken to be the value of Tug in 1997, Bank guarantee of 10% of assessable value and payment of appropriate duty at 15.14% on the assessable value.

Against this order the appellant approached the Bombay High Court, who directed the Customs authorities to allow release of the seized tug without payment of Customs duty and on execution of Bank Guarantee of Rs.10 Lakhs and a Bond.

In its order, the High Court observed that "…as the Custom Authorities have permitted the use of the vessel all these years as imported goods...... Custom authorities are not justified in abruptly seizing the vessel in question...... The Revenue is not justified in demanding duty for provisional release of the vessel...prima facie it is not undisputed that on the date of initial import on all these ocean going vessels there was total exemption on payment of duty".

In adjudication proceedings,the Commissioner confiscated the vessel with an option to redeem on payment of redemption fine of Rs. 55 lakhs. He confirmed the demand of duty of Rs. 92,46,015/- under Section 125(2). He also imposed penalty of Rs. 18 Lakhs on the appellant under Section 112(a), penalty of Rs. 5 Lakhs on the Dy. Managing Director under Section 112(a)/(b) and under Section 114 AA and Rs. 5 lakhs on the Shipping Agent under Section 112(a).

While arriving at such conclusion, the adjudicating authority has pointed to the statutory requirement of filing IGM under Section 30 of the Customs Act.

The Commissioner also referred to the Import Manifest Vessels Regulations, 1971 which provides the format and procedure for filing the Import Manifest in respect of the imported goods. The finding is that if the vessel was brought as imported 'goods' itself and not as a conveyance only, it should have been specifically mentioned in the IGM. This was not done; instead the IGM only declared the imported cargo, that is, the ship stores and fuel. In other words, the IGM showed the vessel as a 'conveyance' carrying stores and fuel and not as 'goods' as defined in section 2(22) of the Customs Act, 1962.

Therefore, according to the Commissioner, it was incumbent upon the appellant to present a Bill of Entry in terms of Section 46 declaring the import of such vessel in the Bill of Entry as goods imported. Failure to do so, according to the Commissioner rendered the vessel liable to confiscation under Section 111(f) for contravention of Sections 32 & 34 of the Customs Act.

Aggrieved, the appellant and its Director are in appeal before the CESTAT.

Revenue also wants a few improvements in the order - (i) Duty ought to have been charged under Section 28(4) of the Customs Act and not under Section 125(2) which is only an enabling provision for recovery of duty. The importer willfully suppressed the fact that the vessel was imported as "goods" for home consumption; (ii) penalty equal to the duty amount ought to have been imposed in terms of Section 114A of the Act; (iii) The vessel was liable to confiscation under Section 111(j) also because the same was removed from Customs area without the permission of the proper officer.

After hearing both sides, the CESTAT observed -

Merits:

+ When the impugned vessel was imported 14 years ago in 1997, it was exempted from Customs duty and although IGM was filed in respect of stores when the vessel was imported at Chennai, no IGM was filed for the vessel as "goods" imported into India. Neither was any Bill of Entry filed for the vessel as 'goods'.

+ The vessel was seized and as a pre-condition for provisional release, the owner was asked to file a Bill of Entry in 2012. The question which arises for our consideration is whether the vessel can be confiscated for non-filing of Bill of Entry in 1997 and whether duty can be demanded in 2012, the exemption having been withdrawn in 2000.

+ It is emphasized by the appellant that as a matter of general practice, when the vessels themselves were exempted from Customs duty, no IGM or Bill of Entry was filed declaring them as "goods" imported into the country.

+ We note that in the case of a vessel, the concept of 'unloading' is not the same as the usual concept of unloading of goods from a vessel. The moment a vessel enters the port, and a Bill of Entry is filed for stores and fuel, which are assessed for duty purpose, it is clear that the vessel has entered the territorial waters and becomes chargeable to duty under Section 12 of the Customs Act. It is not disputed in the present case that the Bill of Entry was filed for the stores and the fuel at the time of first import.

+ The fact remains that the vessel was converted to the Indian Flag in 1998 and was granted coastal runs between Indian Ports with the knowledge of Customs. Generally, we find that Customs board a vessel when it enters the port and, therefore, should have been aware of import of the vessel as 'goods'. The fact that it did many coastal runs and called on various ports in the preceding 14 years itself shows that the Customs were aware that this vessel had been imported into India. After a gap of 14 years when duty has become imposable on import of a vessel, Revenue's stand that since IGM/Bill of Entry was not filed in 1997& duty must be paid now is not reasonable.

+ As regards confiscation, even if the vessel is treated as goods, it was not liable to duty at the time of its import in 1997. Therefore, the vessel cannot be treated as dutiable goods. Therefore clearly Section 111(f) is not applicable and goods are not liable to confiscation. Contravention of Section 32 is not possible as there is no question of 'unloading' a vessel. Therefore the finding that the vessel is liable for confiscation for violation of Section 32 is also not sustainable. [Associated Cement Companies Ltd. Vs. Commissioner of Customs - 2002-TIOL-08-SC-CUS-LB refers]

+ In the present case, the vessel admittedly was imported in 1997 and remained on coastal runs thereafter. Board Circular 16/2012 dated 13.6.2012 does not require that vessels imported earlier and used in coastal runs should file Bill of Entry now. Instead of acting on Board instructions issued for streamlining the procedures, the Customs showed misdirected enthusiasm in asking vessels which were imported when there was no duty, to pay duty now. Such over enthusiasm leads to harassment. In our view, duty is not required to be paid. Accordingly, the violation of Section 111 (j) and consequent confiscation does not arise.

+ When by general practice the IGM/Bill of Entry was not filed for vessel imported into India when the duty was Nil, the proposition that duty may be levied after 14 years when the Bill of Entry was got filed would lead to a anachronistic situation.

+ When Customs never insisted on filing a Bill of Entry for the import of the vessel and Customs continued to give clearance for coastal runs we hold that there was no deliberate suppression of facts to invoke the provisions of Section 28(4) for demanding duty.

Jurisdiction:

The case of Revenue is that the appellant did not file the IGM/Bill of Entry at the time of import at Chennai. We find that the Commissioner of Customs at Mumbai does not have jurisdiction over Chennai port. Therefore, neither could he have issued a Show Cause Notice proposing confiscation and penalty for a contravention committed in Chennai jurisdiction. Nor could he have adjudicated the case without authority under the Act. On this ground too, we set aside the impugned order as beyond jurisdiction and illegal.

The Party's Appeals were allowed and the Revenue appeal was dismissed.

(See 2016-TIOL-93-CESTAT-MUM)