Cus - It is common sense that sea going vessel means vessel for which navigation is primary function and other activities are secondary – merely since vessel has crane fitted, classification by AA under CTH8905 is totally incorrect: CESTAT
By TIOL News Service
MUMBAI, JUNE 24, 2016: PURSUANT to an information that M/s. L&T Sapura Shipping Pvt. Ltd. have imported a heavy duty crane cum pipe laying ship in the guise of self propelled ship with intention to evade huge amount of duty, investigations were initiated by the officers of SIIB of Customs.
Appellant claimed benefit under Sl. No. 214 of Notification No. 21/2002-Cus as amended. The condition No. 29 required that the goods are imported by Oil and Natural Gas Corporation or Oil India Ltd. (licensee) or a sub-contractor of the licensee.
The preliminary investigation revealed that the appellant filed B/E dated 02.12.2010 in respect of MV LTS 3000 describing the vessel as "One unit self propelled Ship "LTS 3000" with essential spares, accessories and provisions. The invoice dated 12.11.2010 however showed the description as "M.V. LTS 3000 IMO Number 9446843 Type: Heavy Lift Pipe lay Vessel".
The vessel was examined on first check basis and the Group Appraiser objected to the classification and directed the importer to classify the vessel under CTH 89 05. Thereafter, the CHA vide letter dated 15.12.2010 requested to amend the description from ‘permanent import of one unit self propelled ship "LTS 3000" with essential spares, accessories, cons and provisions' to "MV LTS 3000 IMO No. 9446843, Built 2010, Indonesia, Type – Heavy Lift Pipe Lay Vessel GT – 30628T NT-9188T (Temporary import on re-export basis) along with some additional quantity of various fuel and consumables. This request was allowed.
Pending investigation, Appellant filed a writ petition before the Bombay High Court and the High Court approved provisional release of goods, on the following conditions:
(i) Cash deposit of Rs 5 crores
(ii) Bank guarantee of 20% of provisional duty
(iii) Bond of full value of the goods.
Appellant complied with the above condition and goods were released.
Pursuant to the investigations SCN came to be issued and the adjudicating inter alia while confirming the demand of Customs duty and imposing penalty etc. held –
++ As the imported vessel has a special crane having capacity to lift 3000 Mt and is fitted with pipe laying equipments, it is appropriately classifiable under heading 8905 and not classifiable under headings 8901 or 8906.
++ Ministry of Petroleum had given a contract to M/s. ONGC Ltd. M/s. L&T Ltd. are sub-contractor of M/s. ONGC Ltd. and M/s. L&TSSPL the importer is only a vessel owning company. It is evident from the conditions (to the notification) that the importer has to be the sub-contractor of licensee. In view of these conditions, other than the licensee or Sub-Contractor of the licensee (M/s. ONGC Ltd.) no importer can avail the benefit of duty exemption on the strength of Essentiality certificate. The importer M/s. L&TSSPL is not a bonafide sub-contractor of M/s. ONGC Ltd. Therefore, benefit of notification 21/2002-CusSl. No. 214 is not eligible to M/s. L&TSSPL as they did not fulfill condition 29 of the said notification.
Against this order passed by the CC (Import), Mumbai, the appellant is before the CESTAT.
After considering the exhaustive submissions made by both sides, the Bench observed –
Exemption:
| Whether the main appellant is eligible for benefit of Notification 21/02-Cus at Sr. no. 214. |
++ Clause (c) of condition no. 29 is being disputed by the revenue that the appellant herein is not a sub-contractor.
++ A plain reading of the Essentiality Certificate issued by DGH would indicate that the vessel LTS 3000 is required for the petroleum operations undertaken by the ONGC. The issue of Essentiality Certificate now stands decided in favour of the main appellant [in Writ Petition]as there is no dispute that the Essentiality Certificate as required under notification is on records accepted as correct certificate.
++ The second requirement of the condition of notification is that an affidavit has to be filed by ONGC to the effect that the sub-contractor is bona fide sub-contractor of the licensee of the lessee. It is seen that ONGC has filed an affidavit dated 19.10.2010 to Dy. Commissioner of Customs, Mumbai regarding that the main appellant is sub-contractor of L&T Ltd. in terms of condition no. 29 of the notification.
++ The above said affidavit was accepted by the department while extending the benefit of notification but subsequently contradicted on the ground that the said affidavit was incorrect as it is not in consonance with the clauses of agreement entered by the ONGC with L&T.
++ ONGC in pursuance to the contract entered by them with L&T has accepted the proposal that the main appellant herein is a sub-contractor, which is evident by the affidavit filed by ONGC before the High Court of Bombay also before the Dy. Commissioner of Customs for the satisfaction of condition 29 of the said notification. Such an affidavit cannot be disputed by the revenue based upon the clauses of the agreement. In our view, whether the main appellant is a sub-contractor of ONGC or otherwise, is a dispute that cannot be adjudicated by the departmental authorities, more so when it is impliedly accepted by the ONGC that the main appellant is a sub-contractor of ONGC.
++ Be that as it may, there is no dispute as to the fact that the vessel LTS 3000 was used only for the petroleum operations as per the contract awarded to L&T. The exemption granted by the notification is to be extended to the goods to be used in connection with petroleum operations under petroleum exploration licence which is undisputedly complied with by the imported vessel LTS 3000. We find strong force in the submission made by the counsel that the terms contractor and sub-contractor have not been defined under Customs Act, nor in the notification or any other statute, in such a situation the meaning needs to be looked into the various dictionaries. On reading the definition of ‘sub-contractor' in Black's Law Dictionary which reads as "a sub-contractor is one who is awarded a portion of an existing contract by a contractor" in the case in hand the appellant is sub-contractor as per the agreement entered by ONGC with L&T.
++ Since it is not in dispute that the vessel was used for petroleum operations as per the Essentiality Certificate granted by the DGH, the question of denying the benefit of Notification 21/02-Cus does not arise.
++ It was clarified by CBEC in a Circular 21/2013-Cus dated 16.05.2013 [paragraph 2.4.3] that non-mention of the name of sub-contractor in the agreement signed between the contractor and GOI cannot be a ground for denying the benefit of the exemption and that the exemption should be allowed based on the EC issued by the DG, Hydrocarbons.
++ The Adjudicating Authority has erred in not following the direction of CBEC when the facts are so very clear in the case in hand.
Classification:
| Whether under CTH 8901 or 8906 as claimed by the main appellant or 8905 as held by the AA? |
++ The finding of the Adjudicating Authority that the said vessel LTS 3000 merits classification under chapter 8905 is totally incorrect inasmuch the chapter heading starts with the clause that it covers light vessel, fire floats, dredgers, etc. the navigability of which is subsidiary to the main function. The understanding of the ld. Adjudicating Authority that vessel LTS 3000 having a crane fitted to it would fall under floating cranes seems to be incorrect as it is on record that vessel LTS 3000 is self navigating ocean going vessel. This fact is clearly ascertainable from the certificate of class as given by the Indian Register of Shipping.
++ It is also to be noted that the Indian Register of Shipping has also regarded or registered for the purpose of safety consideration that the vessel LTS 3000 is cargo ship other than any of the above. It is noted that the certificate of class recorded by the Indian Register of Shipping specifically indicates the vessel is sea going vessel. It is common sense that sea going vessel means a vessel for which navigation is primary function and other activities are secondary. It is also on record and admitted that the vessel LTS 3000 is used for laying the underwater pipes on the ocean seabed which requires navigation from point to point. The self propelled nature of vessel LTS 3000 is not at all disputed by any of the lower authorities.
++ We find that the HSN explanatory notes 8906 has indicated that cable ships, laying underwater cables for telecommunication are covered under CTH 8906. In the case in hand the vessel LTS 3000 is laying under water pipes which may not be of laying of underwater cables but definitely laying the pipes under water on the ocean bed is an activity undertaken. In our considered view, the classification of the vessel LTS 3000 would be correct under 8901 or 8906 but not definitely under 8905 as has been held by the Adjudicating Authority. If the classification of the vessel falls under chapter heading 8901 or 8906, the duty liability is ‘nil' is undisputed.
Confiscation& Penalty:
As the benefit of notification as well as the classification is in favour of the main appellant herein, the question of confiscation of the said vessel does not arise. The confiscation is held as unsustainable and is set aside. As the duty liability has been set aside on merits itself, the penalty imposed on the main appellant as well as other appellants are unwarranted and set aside.
The appeals were allowed with consequential relief.
(See 2016-TIOL-1519-CESTAT-MUM)
