TMI Blog2006 (4) TMI 370X X X X Extracts X X X X X X X X Extracts X X X X ..... nts, before us : Appeal No. Appellant Order of the Respondent C/392/05 M/s. Noble Asset Company Limited (hereinafter referred to as Noble). (i) Rig Noble Jimmy Puckett/Essar Explorer confiscated under section 111(d), (f), (g), (h) and (o) and under section 113 (d), (f), (g) and (h) of the Customs Act, 1962 and was allowed to be released on a fine of Rs. 15 Crores under section 125 (2) of the Customs Act, 1962. (ii) Customs duty of Rs. 75,54,22,673/- under Section 12 read with Section 125(2) of Customs Act, 1962 confirmed along with interest for import in December, 1997. (iii) Customs duty of Rs. 86,14,64,958/- under section 12 read with section 28, read with section 125(2) of the Customs Act, 1962 confirmed along with interest, for import in April, 1999 this duty was to be paid if duty at Sl.No.(ii) was not paid. (iv) Penalty of Rs. 2,00,00,000/- u/s 112 and or u/s. 114 of Customs Act, 1962. C/606/05 M/s. Neptune Exploration and Industries Limited (hereinafter referred to as Neptune). Penalty of Rs. 50,00,000/- u/s. 112 and/or u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited. Penalty of Rs. 2,00,000/- u/s. 112 and/or u/s. 114 of Customs Act, 1962. C/657/05 Mr. U.K. Suvarna, Senior Executive, M/s. Arya Offshore Services Private Limited. Penalty of Rs. 1,00,000/- u/s. 112 and/or u/s. 114 of Customs Act, 1962. C/658/05 Mr. Siddharth Roy, Chief Executive Officer, M/s. Arya Offshore Services Private Limited. Penalty of Rs. 1,00,000/- u/s. 112 and/or u/s. 114 of Customs Act, 1962. 2. The factual background briefly stated necessary for deciding the issues, is as follows : (a) Sometime in December, 1986, Essar was awarded, a letter of indent, by ONGC for carrying out offshore drilling in Bombay High. Based on this letter, Essar applied for an Import licence which was issued to it, by the CCI E in March 1987, permitting import of a second hand offshore rig. (b) In May, 1987, Essar filed a Bill of Entry No. 010586, seeking clearance of the second hand rig Essar Explorer , claiming exemption from the whole of duties of customs in terms of Notification 516/86 dated 30th December, 1986. Along with the bill of entry, Essar also filed the requis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non designated area. After purchase of rig by Noble, if was renamed as Noble Jimmy Puckett . (i) In February, 1997, Essar made applications to DGFT, New Delhi, informing DGFT of its intentions to sell the rig and simultaneously executing bare board charter. These letters sought no-objection from DGFT to export the said rig. Essar wrote several reminders thereafter to the DGFT. (j) On 12th November, 1997, Noble entered into an agreement with Neptune, to give Neptune, the said rig on hire for carrying on ONGC operations after its bare board charter with Essar expired. On 6th December, 1997, Essar s contract with ONGC came to an end. On this day, the rig was working at HY Platform , a non-designated area. On 11th December, 1997, Essar delivered the rig to Noble in international waters at the location RB 199A (non-designated area). (k) On 30th December 1997, the rig was deployed by Neptune for ONGC at Platform NE which is a designated area. In October 1998, ONGC renewed its contract with Neptune, for a period of 2 years, in terms of the agreement between them, the rig required certain repairs before commencement of the new contract. Accordingly the rig was sent t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In so far as the demand for duty is concerned the following arguments were advanced on behalf on the appellants. (i) that the scheme of the Customs Act, 1962 was so designed that only rigs which are brought into the country for first time require filing of a bill of entry and can be considered as goods. Once cleared as goods, they cease to be imported goods and are to be treated as a vessel and no bill of entry or shipping bill is required to be filed for their subsequent movements. Also no IGM/EGM is required to be filed for the movements in and out of India as such IGM/EGM is required to be filed when vessel is carrying goods on it. In support of this contention reliance was placed on the decision of the Bombay High Court in the case of Amarship Management Pvt. Ltd. v. Union of India - 1996 (86) E.L.T. 15. It was also submitted that even the show cause notice as well as the adjudication order in para 63(ii) and 149 respectively accept that at the relevant time there was a practice in the customs to treat a rig as a vessel. (ii) the demand for duty was unsustainable as according to the practice of the Customs with regard to oil rigs (as recorded in the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also incorrect, as the Finance Acts under which such duties are leviable have not been made applicable and extended to the Exclusive Economic Zone, as in the case of Customs Acts, 1962. (vi) that the notice was barred by limitation and demands were even beyond the extended period of limitation of Section 28 of Customs Act, 1962. (vii) In addition to the aforesaid submission, on behalf of Essar it was submitted that the demand for duty against it was unsustainable as, in terms of Section 125(2) of the Customs Act 1962, Customs duty could be demanded only from the owner or from the person from whose possession goods are seized. Since Essar was neither the owner nor the person from whose possession the rig was seized, the provisions of Section 125(2) in terms of hich demand has been compared against it was not sustainable. (viii) In so far as December 97 demand on Noble was concerned, it was contended when the rig was re-delivered by Essar to Noble, the same was working at Hy Platform a non-designated area and was from the said platform moved to a location RB 199A a non-designated area for delivery. It was submitted that as the delivery of the rig took place in int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 1996 also overlooks the fact that the Import Control Act, 1947 had not been extended to the Exclusive Economic Zone of India as required vide The Territorial Waters Continental Shelf Economic Exclusive Zone Other Maritime Zones Act, 1976 and, therefore, insofar as the EXIM Policy is concerned, the said zone in the High Seas EEZ was not a part of India and consequently the act of bringing the rig into EEZ and its movement within the EEZ or even its movement to international waters did not amount to import or export so as to require any import licence or any permission from the Licensing authority. (iv) The finding regarding confiscation of the rig is also unsustainable in view of the fact that the Import Control Act, 1947, in terms of which the Handbook of Procedures (1985-88) was issued, had been repealed in 1992. As a result of such repeal, action for any alleged violation of the Handbook of Procedures under the repealed Act could be taken. (v) In any case, the violation alleged is purely technical in nature in view of the fact that the rig continued to be deployed for offshore exploration work for another one year after its sale, and had in essence satisfied t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Commissioner of Customs (Imports), Mumbai who has jurisdiction over the Exclusive Economic Zone of India. (D) Shri K.M. Mondal, Consultant appearing for the Revenue submitted as under: (a) That a rig cannot be held to be an ocean going vessel. In support of this contention he relied upon the decision of the Bombay High Court in the case of Pride Former - 2004 (148) E.L.T. 19 (Bom). (b) The decision in the case of Sedco Forex International Drilling Inc. v. Commissioner of Customs, Mumbai, reported in 2001 (135) E.L.T. 625 (Tri-Mumbai) was not applicable to the facts of the instant case, as the movement of the rig was between a designated and a non-designated area in the EEZ unlike in the instant case where the rig had come into India from a place even beyond the EEZ, i.e. beyond India. (c) The licence in terms of which Essar has imported the rig is subject to actual user condition and the said condition could not be relaxed by mere fact that when the rig was sold the actual user condition had been done away with. (d) That the rig was liable to confiscation for non filing of bill of entry/shipping bill for various movements in and out of the desi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to deal with the issues raised before us. (a) The first, and preliminary issue would be to determine if the entire proceedings are vitiated for want of jurisdiction. It is submitted that the Commissioner of Customs (Preventive), whose officers seized the rig on 12-5-2001, while it was outside the territorial waters of India, but within the Exclusive Economic Zone (EEZ) did not have the jurisdiction either to seize the rig or issue a notice or to adjudicate the case. It was submitted that under Section 110 as well as under Sections 28 and 125 of the Customs Act, it is only the proper officer of the Customs who could have either seized the goods or issued a notice for demanding duty on the said rig. The territorial jurisdictions of different officers of Customs are prescribed by notification issued under section 4 of the Customs Act, 1962. The territorial jurisdiction of the Commissioner of Customs (Preventive) is confined to the districts of Mumbai, Thane and Raigad. Only the jurisdiction of the Commissioner of Customs (Imports), Mumbai, on the other hand is extended specifically to the Port of Mumbai as well as the designated areas in the EEZ of the coast of India. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Sea Coast i.e. Territorial waters of India from the base line of tide mark coast line of the said district. The territory of a district of a State of India cannot extend beyond the territorial waters of India. Nothing has been shown to us that the territory of districts of Maharashtra State and jurisdiction of such Districts extends to and cover the co-ordinates where the seizure was effected in this case and that the said location would thus be within the jurisdiction as notified for Commissioner of Customs Preventive, Mumbai. The deeming fiction prescribed in the Territorial Waters Continental Shelf Economic Exclusive Zone and Other Maritime Zones Act, 1986 applies for the purpose of territorial jurisdiction of India, and it is only the Union Government which is empowered to extend the laws of such locations, not the State of Maharashtra or the territory of any particular district. We therefore hold that the EEZ, i.e. both designated as well as non-designated areas not established to be within the notified territorial jurisdiction of the Commissioner of Customs (Preventive). Such being the position, seizure of the rig on 12-5-2001, as well as the subsequent issue of the show ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce they are no more imported goods... It has been argued by the appellants that in the present case, the rig was imported by Essar in the year 1987. A Bill of Entry was filed for seeking its clearance. The rig was cleared for home consumption after due assessment of the said Bill of Entry. Thereafter, the said rig has been deployed on various locations and wells where ONGC had been carrying on oil exploration work. Some of these High Seas off-shore locations were falling within the designated areas and some others were outside such areas (non designated areas). It is on record that during the period 1987 to 1996 as many as 59 movements took place from non-designated areas to designated areas and vice versa. These movements all took place as per the instructions of ONGC even though technically each such act of the rig entering into designated area from a non-designated area could have amounted to an act of import lew of duty as per the Revenue s contention and consequent Drawback eligibility which would arise under Section 74 of Customs Act, 1962. (ii) However, no duty has been demanded in respect of all such movements ostensibly, on the basis of the practice referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rought into the country for the first time, the same are liable for payment of duty as any other goods. Once such goods have been assessed to duty cleared, they are no longer remain imported goods by virtue of the definition of imported goods in Section 2(25) which states that imported goods means goods brought into India from a place outside but does not include goods which have been cleared for home consumption. Therefore once any vessel e.g. the rig in the present case, is brought into India and assessed to duty and cleared for home consumption it would cease to be imported goods. Subsequently, if it acquires the characteristic of foreign going vessel, is not liable for payment of customs duty for the movements in and out of the country. In this regard, the definition of foreign going vessel is relevant. The definition states that foreign going vessel includes inter alia any vessel engaged in fishing or any other operation outside the territorial waters of India. The Bombay High Court in the case of Amarship Management Pvt. Ltd. v. Union of India - 1996 (86) E.L.T. 15 (Bom.) has already held that rig is a foreign going vessel. This judgment of the Bombay High Court has not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... area beyond EEZ could be liable to import duty, but for the scheme of the Customs Act, as discussed above, as well as the established practice followed by the Customs, there can be no demand for duty for the said movements. In our view, the nature of the rig as a vessel as well as a foreign going vessel, does not change by the extent of distance by its movement out from the territorial waters of India. It is not disputed by Revenue that non-designated areas are no different from a foreign country, as they are both places situated outside India for Customs purpose. The practice which has been referred to in Sedco Forex s case and which applies to all conveyance and vessels is not a practice which has evolved on account of off-shore oil exploration in the EEZ. This practice is much older and has existed much prior to discovery of oil and gas in High Seas termed locally as Bombay High. We therefore do not accept the contention of the Revenue that the practice referred to Sedco Forex s case applies only if movement of the rig was within the EEZ (i.e. between a designated and non-designated area) and not when such movement was from a different place of country into India. (iv) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006, would be liable to pay duty on the full value of that ship and the Shipping Company would then become entitled to refund of the said amount as Drawback, on May 6, 2006, under Section 74 of the Act, of the duty paid, when it left the Port goes back to international waters/foreign port. The entire course of international trade would be unnecessarily hampered and the Customs department would be only busy in collecting the duty on day one and refunding the same on day five or earlier. It is possibly for this reason that the practice of non-levy of duty on vessels on their subsequent movements in and out of India evolved, i.e., once such vessel had been assessed to duty and cleared for home consumption, further levy Drawback liabilities not called for. (vi) The question whether the change of ownership of a vessel, after its first import and clearance from Customs, would render the subsequent owner liable for payment of duty once again. This question assumes relevance as the rig was imported first in the year 1987 by Essar when a Bill of Entry was filed and the rig was cleared for home consumption. Thereafter, in the year 1996 the ownership of the rig changed the hands and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the owners of the rig at the time of the seizure. The order passed by the Commissioner demands duty in respect of the 1992 movement of the rig from Bahrain from Essar and in respect of 1997 and 1999 movements of rig from Noble. Assuming that the provisions of Section 125(2) can be invoked for the purpose of demanding duty on the above mentioned movement of the rig, we do not see how such a demand can be directed against Essar who were neither the owner nor the person in possession of the rig at the time of seizure. Under Section 125 (2), the liability to pay duty in addition to fine can only be that of the owner or the person from whose possession the goods are seized. We therefore hold that even if the rig is liable for confiscation and a redemption fine is imposed on such confiscation, the demand for duty against Essar by invocation of the provisions of Section 125 (2) is clearly misdirected. (ix) We also find substance in the submissions made by the counsels for Essar that in any view of the matter, even if duty was payable on the rig, no auxiliary duties, surcharge on customs duty or special duty of customs could be levied or recovered on the rig as these duties are not le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had undergone repairs at Sharjah; (viii) misdeclaration of value and other contraventions at the time of import of the rig from Sharjah after repairs in the year 1999. The confiscation has been ordered by invoking clauses (d), (f), (g), (h) and (i) of Section 111 and clauses (d), (f), (g) and (h) of Section 113 of the Customs Act. (g) In respect of liability to confiscation for export of rig in June 1992, the Commissioner holds in para 172 of order, that there was violation of Section 50 as no Shipping Bill was filed by Essar while taking the rig out of India. In para 173 of the order, the Commissioner also holds that there was also violation of Sections 34, 40 and 50 for non-filing of shipping bill and for not declaring the rig as goods. On this basis, confiscation has been ordered under Sections 113 (d), (f), (g) and (h) of the Customs Act. It is an accepted position in the order that the IGM and EGM were filed in respect of the rig at the time of bringing in and taking out from Nhava channel for the purpose of repairs. The order in para 63(2) acknowledges that at the relevant time there was a practice in the Custom Houses of treating the rig as a vessel at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an export manifest is not required to be filed for the carriage and movement of the conveyance itself. Since there is no allegation that any export goods (other than the rig itself) as Cargo was carried out of India in June, 1992 movement in violation of Section 41 can be found in the present case. (h) As regards the liability of the rig to confiscation for the movement of the rig from Bahrain in September 1992, the Commissioner has found that Essar had not followed the Customs formalities by filing Bills of Entry and had also not discharged duty liability on the value of repairs. As we have observed above, no duty liability was attracted on the repair charges in view of the fact that the rig had already been assessed for duty once in 1987 and had thereafter ceased to be imported goods having acquired the characteristic Port clearance for foreign going vessel. Since the rig had ceased to be goods and would be a vessel, there could be no requirement for filing of a Bill of Entry for inward movement of such vessel. At the highest, the only requirement under the Customs law could have been to file an import manifest under Section 30 of the Customs Act and thereafter take neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent) thereof in favour of actual user only after a period of ten years has elapsed from the date of their import. An intimation should, however, be sent by Registered Post to the sponsoring authority as well as the licensing authority concerned within 30 days of the sale. It will be for the buyer to ensure that by purchasing the goods in question he will not exceed the licensed/authorized capacity. The contention of Essar in this regard are : (1) It had applied for an obtained a specific permission from the DGFT on 3-3-1998; (2) that in the new EXIM Policy which was introduced in 1992, a specific provision had been made in para 85 (2) of the Handbook of Procedures, by which transfer of second hand capital goods imported under the earlier policy was permitted, provided that such goods were also freely importable without actual user condition under the policy. Para 85(2) reads thus : 85 (2) - Prior permission of the licensing authority, shall not, however, be necessary for transfer or disposal of goods which were imported with Actual User condition either under Open General Licence or against specific import licences in accordance with the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licence at all was required by Essar for bringing using a rig in the said EEZ and continental shelf. Confiscation of the rig under Section 111 (d) of the Customs Act, 1962 is not therefore upheld. Therefore, no duty as determined demanded under Section 125 (2) can be upheld. (j) Insofar as the movement of the rig from EEZ to the international waters in December 1997 is concerned, we find that the said movement took place from one non-designated area in the EEZ (platform IF) to another non-designated area (location RB 199A). The further movement of the rig in international waters was also outside India just as the previous two non-designated areas are. Since all these locations were outside India, Essar was not be expected to file either an Export Manifest or a Shipping Bill, the said movements being movement outside India and were not amounting to export. The Commissioner, however, records the finding that as per the agreement between Noble and Essar, Essar was required to complete export formalities by filing Shipping Bills etc. In our view, not much can be read into this agreement as such export formalities would have been required to be followed only if they were oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ig was not under ONGC contract and had under gone a change in the ownership, a reason for departing from the established practice. As we have already held, above, the practice referred to in Sedco Forex s case has no connection or relevance to a contact with ONGC or ownership of the rig. We therefore hold that the findings in para 274 have no relevance and would not make any difference to the case or be reasons to upheld any liability under the Customs Act, 1962. (m) The next movement in respect of which violation is alleged is the outward movement of the rig in 1998 when Noble sent the rig for repairs to Sharjah. The Commissioner in his order holds that the rig became liable for confiscation even though a Shipping Bill admitted has been filed for such a movement. No reasons, are forthcoming in the order for holding the rig for confiscation for this outward movement. Be that as it may, we held that the Shipping Bill which Noble had filed was not necessary as, for reasons already mentioned above, the rig was not goods but a vessel if it has been filed and accepted that could not be a cause to visit of a liability under the Customs Act. We also hold that a vessel does not lose it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmit the department to confiscate goods and impose penalties for past consignments. Such a change can have the effect only prospectively after the change in practice is made known to the public after due notice. The plea of established practice and precedent treatment to the appellants herein cannot be denied as we find that in the case of Gauri Enterprises - 2002 (145) E.L.T. 706 (Tri.) has recorded as regards binding effect of their own precedent treatment in administration of Taxing Statutes : (d) Examining the plea of established practice and precedent treatment to imports of such goods, we find : - (i) PB Mukherjee in the case of Mercantile Express Co. Ltd. reported at -1978 E.L.T. (J552) had held :- 8. The Customs now say that they are not bound by their previous decisions whether the doctrine of precedents applies in its full rigor to Administrative Agencies and officers, and whether a reasonable latitude should be given to them or administrative tribunals to correct or modify their previous decisions may still remain a debatable controversy in the world of law; nevertheless I am clearly of the opinion that neither the Appraiser nor the Collector of Customs c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss Co. (supra) and distinguished it by holding this decision is clearly distinguishable for the simple reason that, in that case unlike the present one there was no dispute about the nature of goods, and upheld that a factual error could always be corrected. In the case before us there is no factual dispute brought on record, regarding the nature of goods under import herein and in the earlier 37 consignments during 1998-99 allowed clearance on redemption fine at CFS, Pune. No contrary decision has come to our notice. Therefore, being bound by the Calcutta High Court decisions, we cannot approve the following finding/ground arrived at by the learned Adjudicator to order absolute confiscation : - 11. I observe that during the period 1998-99 alone, at least 37 consignments of used diesel engines have been imported by various importers through CFS, Pune alone in contravention of the import policy of the Government, and that imposition of redemption fine has not deterred the unauthorised imports of second hand diesel engines without obtaining specific import licence. Such engines continue to be imported in deliberate contravention of the Import Policy of Government of India and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, we hold: (a) that seizure of the rig in 2001, issue of the show cause notice and its adjudication by the Commissioner of Customs (Preventive) are all without jurisdiction as the said officer did not have territorial jurisdiction over the EEZ and were not the proper officers for the purpose of seizing the goods and issuing the demand notice; (b) that in view of the established practice of Customs, as recorded in Sedco Forex case, which has since been affirmed by Supreme Court, the rig in question having been cleared by the Customs against the bill of entry in 1987, could not be held liable for payment of any duty on its subsequent inward movement into India or out of India or liable to confiscation. (c) that in view of the statutory definition of goods , imported goods and foreign going vessel and the scheme of the Customs Act, the rig was goods liable for duty only at the time of its initial import in 1987 and once it has been cleared for home consumption in that year, it ceased to be goods and acquired the characteristics of a vessel which ceased to be imported goods . By virtue of being a vessel, it was no longer liable for duty of customs on any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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