By TIOL News Service

MUMBAI, MAY 11, 2017: THE importers acquired two rigs on ‘bare boat charter' terms from M/s Triangle Drilling Ltd and had them transported from Brazil under tow by MV Mighty Servant 3 which was anchored 20 miles off the coast of Daman without entering the territorial waters.

Vide notification 516/86-Cus dated 13.12.1986, goods imported in connection with offshore oil exploration and exploitation were exempted from the whole of duty of customs.

The agents of tow vessel filed Import General Manifest (IGM) declaring the two rigs as cargo for discharge off the harbor at Bombay. The cargo was off-loaded at the anchor location without filing a bill of entry. Norbe-II remained in the waters off India between 1 st November 1988 and 21 st December 1992 of which for 5 months and 21 days till 21 st April 1989 it operated in the designated area. Norbe-V operated in Indian waters between 18th October 1988 and 20th December 1992 in non-designated area save for 15 months and 6 days, between 24th September 1990 and 30th December 1991, in designated areas.

On completion of the lease period, the rigs were returned to the owners who had it despatched under tow on 21 st of December 1992.

SCNs dated 10.09.2003 and 29.09.2003 were issued by Commissioner of Customs (Preventive), Mumbai demanding duty and proposing confiscation of the rigs for having been un-authorisedly importedand clandestinely cleared, in contravention of the extant Import-Export Policy and Customs Act, 1962.

The impugned orders held that the duty liability of Rs.85,90,07,461/- crystallised upon entry of the rigs in designated areas; that these had been wrongly declared as cargo in the manifest, that the customs procedure had not been complied with, that the certificates furnished by the importers were forged, that, in the light of questionability of the certificate, there was no necessity to carry out verification of handwriting, that the failure of witness to appear for cross-examination would not vitiate the proceedings and that, in accordance with the decision of Supreme Court in Commissioner of Customs v. Virgo Steels - 2002-TIOL-1572-SC-CUS-LB, the bar of limitation of time would not apply to recovery u/s 12 of Customs Act, 1962. The goods were held liable for confiscation and the adjudicating authority imposed a fine in lieu of confiscation in the absence of the rigs. Penalty of Rs.15 crores was imposed on the appellant and Rs.1 crore on the Chairman u/s 112 and 114 of Customs Act, 1962.

In the appeal before CESTAT, the primary ground taken is that Commissioner of Customs (Preventive), Mumbai was devoid of jurisdictional competence to initiate proceedings against the importer and the imported goods.

It is submitted that recovery of duty and confiscation proceedings could be triggered only upon import of goods into India within the meaning of such in the Customs Act, 1962 and in the present case the rigs had operated only in the designated area of the Exclusive Economic Zone (EEZ) without entering the territorial waters.

It is further contended that the empowerment of Commissioner of Customs (Preventive), Mumbai being restricted to the three districts of Mumbai, Thane and Raigad and, by any stretch, extendable to another twelve nautical miles into the waters from the appropriate baseline within which area the rigs had never brought into, impugned proceedings under Customs Act, 1962, was in excess of jurisdiction.

After considering the exhaustive submissions made by both sides, the Member (T) writing for the Bench in a detailed order observed thus -

+ Commissioner of Customs (Preventive), Mumbai is an officer of customs and appointed as Commissioner as per section 4 of Customs Act, 1962. However, the jurisdiction of the said Commissioner is restricted to the geographical boundaries specified in the notification issued under section 4 of Customs Act, 1962. It is not in dispute that the jurisdiction is limited to the districts of Mumbai, Thane and Raigad. The imported goods that were held liable for confiscation were, admittedly, never, and physically could not ever have been, stored or used in the land area of these three districts. It is the submission of Revenue that the geographical boundaries extend into the sea.

+ The three districts are not creations of a Central law but owe their provenance to the laws of the State of Maharashtra . We find ourselves unable to confer sanctity to this claim (of Revenue) as the inclusion of waters, whether territorial or of the exclusive economic zone, in the definition of India cannot extend to the states that compose the Union because the states are deprived of jurisdiction over the waters adjoining their respective coastlines.

+ This has been settled by the Hon'ble Supreme Court, in Republic of Italy & others v. Union of India & others [Order dated 18th January 2013 in WP (Civil) No, 35 of 2012], holding that the investigative and policing authority of State of Kerala does not extend beyond the coastline. The jurisdiction claimed for the adjudicating authority by derivation is, therefore, not tenable . Neither are the seas or oceans amenable to delineation of boundaries for carving out as adjuncts of the land boundaries of the three districts over which the Commissioner of Customs (Preventive) is empowered to enforce the Customs Act, 1962.

+ It is clear from the specific assignment of jurisdiction to Commissioner of Customs, Mumbai over designated areas in the exclusive economic zone that exclusion of jurisdiction of Commissioner of Customs (Preventive), Mumbai beyond the districts of Mumbai, Thane and Raigad is deliberate and, therefore, cannot be derived or appropriated for any purpose, laudable or otherwise.

+ None other than Commissioner of Customs, Mumbai or any authority vested with all-India jurisdiction is empowered to exercise powers under section 111 or to assess and recover duty in relation to the goods that were imported and deployed in the designated areas.

+ There are two parallel proceedings in the impugned order - one pertaining to confiscation of the imported goods under section 111 of Customs Act, 1962 and the other demanding duty on the said goods. The statute, while barring recovery of duty on goods imported beyond a period of five years immediately preceding the notice, does not impose any timeframe within which confiscation proceedings can be initiated. The imports have, indisputably, taken place well before the outer limit prescribed in extreme circumstances in section 28 of Customs Act, 1962.

+ While considering submission pertaining to non-compliance with the essential pre-conditions for invoking section 28 of Customs Act, 1962 which the Tribunal had held to have eroded the legality of recovery, it was ruled that section 28 is a procedural provision and any violation of the procedure merely renders the proceedings to be voidable without robbing the jurisdiction of the competent official. At no point did the decision [ in re Virgo Steels - 2002-TIOL-1572-SC-CUS-LB accord its stamp of approval to substitution of the recovery provision, viz., section 28 of Customs Act, 1962, with the charging provision, viz., section 12 of Customs Act, 1962. The adjudicating authority is, therefore, on a footing that is entirely unsound in seeking to invoke section 12 of Customs Act, 1962; section 28 is the only perceptible provision for recovery of duty that has not been paid or has been short-paid on imported goods.

The demand of duty is, therefore, without authority of law and is liable to be set aside.

++ The adjudicating authority has referred to the aforesaid provision (viz. section 125) to claim that, akin to absence of time bar for recovery under section 125 of Customs Act, 1962, recourse to section 12 is also not hindered by any bar of limitation. … It needs noting that neither does section 125 of Customs Act specify the authority to determine the duty nor does it vest the obligation in a ‘proper officer'; consequently, section 125 of Customs Act, 1962, does not empower determination or assessment and cannot be resorted to except when duty has been already been assessed but foregone at the time of import. Needless to state, the liability to pay the duty is a condition of redemption and is not enforceable when the goods are, themselves, not available for confiscation. It is acknowledged that the imported platform rig was no longer available at the time of commencement of investigations and was never seized; nor was it available for confiscation. Naturally, redemption on payment of fine was beyond the realm of the possible and no longer is it possible to insist upon liability to pay the duty.

The demand of duty, imposition of penalty and order of confiscation was set aside.

The Appeals are allowed.

(See 2017-TIOL-1585-CESTAT-MUM)