2019 (11) TMI 22 - AT - Customs

Classification of goods - Whether the vessel mercury focus (formerly known as Transocean Mercury) imported by the appellants which initially underwent repairs in the Cochin Shipyard and later moved to the site of exploration merits to be called as a foreign going vessel or it is to be treated as goods for the purposes of Customs Act 1962? - HELD THAT - It is seen that the rig has arrived on MV Talisman. In the cargo declaration filed for the MV Talisman the said rig was not mentioned as Cargo. However a separate IGM appears to have been filed for the rig itself claiming the same to be calling on Cochin Shipyard Ltd. for repairs. The Department disputes that the appellants have not declared the vessel and the tug as goods having been imported in the country. Though in terms of the Production Sharing Contract (PSC) dated 02.03.2007 they were very much aware that the said vessel and the tug were to be used in the country for petroleum operations. Whether the appellants required to declare the vessel and the tug as goods in the IGM and to this extent is there any misdeclaration by the appellants? - Confiscation under Sections 111(d)(f)(g) and(h) of the Customs Act 1962 - HELD THAT - Both sides do not dispute the fact that the rig and the tug are vessels. They have been brought to Cochin Shipyard with an understanding on the part of the appellants that the same will be deployed to undertake Petroleum operations in the block allotted to them albeit after repairs - Once the nature of the vessel was not that of a foreign going vessel it acquires the nature of a vessel imported for the purpose of use in India. Therefore it requires to fulfil the conditions of import. As the vessel was not categorically declared as goods intended for import in the IGM filed on behalf of the appellants contravention of section 30 32 etc. of Customs Act have taken place. Looking into the facts of the case that the appellants have taken the plea of confusion in the Customs practices itself; that the appellants have been regularly keeping the Department to notice of all the activities and that the officers have boarded the vessels and supervised the supply of ship stores and spares to Transocean Mercury and MV Shunter we find that redemption fine imposed on appellants in lieu of confiscation of Transocean Mercury and MV Shunter can be reduced. Whether the benefit of Notification No.12/2012 (Sl.No.359) dated 17.03.2012 is applicable to the appellants in respect of the vessel and the Tug? - HELD THAT - It is not the case of the Department that the said Transocean Mercury and MV Shunter were put in to use for Petroleum operations without the essentiality certificate. On the contrary the Department s contention was that the goods were imported for Petroleum operations and as such their declarations in the IGM in 2011 were incorrect. On completion of the repairs the appellants filed a Bill of Entry for clearance of Transocean Mercury and to facilitate the filing of Bill of Entry amendment to IGM was also requested and accordingly granted. Only after the goods obtained the essentiality certificate they were put to the intended use. Therefore we find that the exemption is correctly availed - there is no infirmity in the filing of Bill of Entry in 2012 and allowing the exemption to Transocean Mercury and MV Shunter available as per Notification No. 12/2012-Cus dated 17.03.2012. Whether the said vessel and the tug MV Shunter which was brought to tow the above vessel is to be considered as a supply vessel meriting classification under 89.01 of Customs Tariff Act 1975? - HELD THAT - As the Tug is a supply vessel a few additional features to tow it is correctly classifiable under CTH 8901. Therefore we hold that the exemption under Notification 12/2012-Cus dated 17.03.2012 is available to the appellants on MV Shunter . Classification of the supply vessel is thus answered. Whether the appellants are eligible to avail the exemption available for ship stores consumables spare parts etc.? - HELD THAT - The vessels were not foreign going vessels so as to be eligible for free supply of bunkers and ship stores - The impugned vessel is not a foreign going vessel; we find that such ship stores supplied to a vessel which is not a foreign going vessel are not applicable for exemption thereof. Whether the penalties imposed on different parties are sustainable? - HELD THAT - The benefit under Notification 12/2012-Cus dated 17.03.2012 is available to the appellants M/s Focus Energy on the Rig Transocean Mercury and the AHTS M. V. Shunter and that they are not liable to pay any duty in this regard. Therefore the penalty imposed on M/s Focus Energy under Section 114A is set aside. As above we find that there was a mis-declaration on the part of the appellants and the shipping agents as far as the nature of the Rig Transocean Mercury and the AHTS M. V. Shunter is concerned and the same have become liable for confiscation. There were reasons for the captain to be unsure/unaware of the procedures to be followed in such cases and as such ignorance of CBEC Circular 58/97 dated 06-11-1997 is understandable. Therefore we find that penalty imposed on him can be reduced. Appeal allowed in part.

Summary

Issues Involved:
1. Classification of the vessel "Mercury Focus" as a foreign-going vessel or goods.
2. Requirement for declaring the vessel and tug as goods in the IGM and related misdeclaration.
3. Applicability of Notification No.12/2012 (Sl.No.359) dated 17.03.2012 for exemption.
4. Classification of the tug "MV Shunter" under Customs Tariff Act, 1975.
5. Validity of amendments to the IGM.
6. Eligibility for exemption on ship stores, consumables, and spare parts.
7. Sustainability of penalties imposed on various parties.

Detailed Analysis:

1. Classification of the Vessel:
The vessel "Mercury Focus" was initially brought for repairs and later moved for exploration. It was argued that while undergoing repairs, it retains its character as a foreign-going vessel. However, the Tribunal referenced the case of Aban Loyd Chiles Offshore Ltd., holding that a rig entering Indian territorial waters for repairs loses its character as a foreign-going vessel. Thus, the vessel is treated as goods, not a foreign-going vessel.

2. Declaration and Misdeclaration in IGM:
The appellants did not declare the vessel and tug as goods in the IGM, violating Sections 30 and 32 of the Customs Act. Despite informing the customs about the vessel's activities, the non-declaration in the IGM was considered a misdeclaration, rendering the goods liable for confiscation under Sections 111(f), 111(g), and 111(h) of the Customs Act.

3. Applicability of Notification No.12/2012:
The exemption was initially denied as the essentiality certificate was obtained in 2012, while the import occurred in 2011. However, the Tribunal held that the exemption is applicable as the vessel and tug were not put to use for petroleum operations without the essentiality certificate. The exemption was correctly availed when the essentiality certificate was obtained before deployment for petroleum operations.

4. Classification of the Tug "MV Shunter":
The tug was classified under CTH 8901 as a supply vessel with additional features for towing. Documents such as the class notation certificate and safety management certificate supported this classification. The Tribunal upheld this classification, making it eligible for exemption under Notification No.12/2012.

5. Validity of Amendments to the IGM:
The amendments to the IGM were initially allowed by the lower authorities but later contested by the department. The Tribunal found that the amendments were permissible under Section 30(3) of the Customs Act, as there was no fraudulent intention. The lower authorities' decision to allow the amendments was upheld.

6. Exemption on Ship Stores and Consumables:
The Tribunal held that the vessels were not foreign-going vessels, thus not eligible for free supply of bunkers and ship stores. The demand for duty on ship stores and spares supplied to the vessels was upheld but limited to the normal period, as the activities were within the knowledge of customs.

7. Penalties:
The penalty on M/s Focus Energy was set aside as they were eligible for exemption. However, penalties on other parties were reduced, considering the nature of the misdeclaration and the lack of personal or professional gain. The penalties were reduced for M/s DB Khona, M/s GAC Shipping, and the Master of AHTS MV Shunter.

Conclusion:
The appeals were partly allowed, with the Tribunal reducing penalties and upholding the eligibility for exemption under Notification No.12/2012. The issue of duty on ship stores and spares was remanded back for re-determination for the normal period. The amendments to the IGM were upheld as valid.