TMI Blog2001 (2) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... venturer in oil exploration with ONGC, from January to November, 1998; and thereafter again on contract with ONGC from November, 1988 to March, 1999. The rig was seized by the Customs department in March, 1998 for being liable to confiscation for alleged contravention of the Customs Act, 1962. By orders passed by the Bombay High Court in a writ petition filed by Sedco it was permitted to be used by Sedco and is currently on contract with Enron. 2.The seizure of the rig was followed by a notice issued in January, 1999 to Sedco, J.M. Baxi, ONGC, Enron, Great Eastern Shipping Company Limited, Varun Shipping Ltd. and Remy Baizan, Sedco's Manager and others. The notice contended that the initial import of the rig into Indian territorial waters and one of its subsequent movements in 1998, to a drilling platform which had been designated under the Territorial Waters Continental Shelf Exclusive Economic Zone and Other Maritime Zones Act, 1976 (Act 80 of 1976) constituted import. It specifically alleged that import of the rig into a designated platform PE on 13-1-1998, without filing a bill of entry constituted contravention of the provisions of Sections 30, 32, 34, 46 and 47 of the act r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnated under Act 80 of 1976 as even to which the Customs Act, 1962, and Tariff Act, 1985 applied. It spent the rest of the period in non-designated locations. In other words, it spent less than 5% of its total sojourn in India in designated areas. The Supreme Court in Chowgule Company and Another v. U.O.I. - 1987 (28) E.L.T. 39 had said that whether a vessel to be considered as ocean going vessel or not to depend upon the intention as to its use when it is imported into India. By applying that criterion and considering the actual use of the rig outside India (including the designated areas) in the economic zone the ship had not been imported. 5.It is next contended that in the event that it is held that the rig has been imported the import was not made by Sedco except initially in 1988. The rig was throughout on contract for a major period with ONGC and for a short period with Enron. The movement of the rig from place to place and its locations and the period of such location in any area was not at the sole discretion of the charter hirer. Sedco has no say in these matters and was required by the terms of the contract to have the rig towed to whatever location was decided by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... designated area which according to the Commissioner constituted import, duty could have been demanded. The two decisions of the Tribunal were cited in support of the proposition that where the time and place of importation is known duty cannot be recovered by invoking sub-section (2) of Section 125 of the Act. Even if it is held duty is liable to be paid complete exemption was available for import of the rig under Notification 132/94. The condition for availing of this exemption is that the essentiality certificate should be produced from the Director General of Hydro Carbons. The fact that foreign exchange was released by the Ministry of Petroleum and Chemicals for hire of the rig. It would be clear that this certificate could have been issued. Therefore substantial compliance with the notification. 9.It is alternatively contended in this regard that in any event the benefit of exemption under Notification 196/89 would be available to the extent of 25% of the duty payable on production of essentiality certificate from the Empowered Committee. Here again there has been substantial compliance. In the third alternative it is contended that the benefit of Notification 23/89 would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it was a company owned by the Government of India, and engaged in national activity of exploring and producing oil. Enron had said that in terms of the agreement between it and ONGC, as a result of which it had undertook off-shore drilling operations, it was the liability of ONGC to pay any charges and duty. 16.On these facts, the Commissioner has exonerated ONGC and found Enron liable to penalty. He dismisses Enron's contention that formalities relating to Customs clearance were to be undertaken by ONGC in terms of the contract by saying that "indemnity or a facility provided under the contract between two contracting parties cannot absolve them from fulfilling their statutory obligations, even if one of the contracting party is Government of India itself." He refers to a note prepared by Remy Baizan, suggesting that the rig is not to be taken into any designated area by Enron, as evidence of a "broad understanding reached between Enron and Sedco", thus showing that it had the knowledge of procedures. The contention of the counsel for Enron that this note was in the form of draft unsigned by Baizan and in any case is not shown to have received by Enron could not be rebutted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tugs, nor their masters would have been in a position to know the intricacies of the Customs law relating to the platform and bona fide acted on the instructions of ONGC, (which as the Commissioner emphasises a Government organisation) into the designated area. 19.When the rig first came into India in April, 1988, papers relating to its clearance was filed on behalf of Sedco by J.M. Baxi Company, an agent appointed by it. From the copy of the manifest filed by the appellant before us, it is seen to have been in two pages. The first page contained the "General Declaration" details such as name of the vessel, nationality, tonnage, number of crew, number of passengers and the second page consists of the "Cargo Declaration." The General Declaration shows against the name of the vessel 'MV "Mighty Servant" Towed Rig Trident II'. The cargo declaration has 13 columns, consisting of line number, bill of lading number, number and nature of packages, marks and numbers, gross weight, description of goods, name of consignee/importer, which are required to be filled in by the master of the vessel or his agent. The other columns in this manifest, relating to the date of presentation of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act by Sedco. 21.Accordingly, appeals of J.M. Baxi Company, Enron, Great Eastern Shipping Company and Varun Shipping Company are allowed and the penalties imposed on them are set aside. 22.The contention that the import of the rig has not taken place is based on the judgment of the Supreme Court in a line of decisions explaining the nature of import under the Customs Act, 1962 and the judgment of that Court in Chowgule and Company Pvt Ltd v. Union of India. In the first series of decisions (Apar Pvt. Ltd. etc) the Court had explained that import in terms of the Customs Act, 1962, commences when the imported goods enter into India and is completed when the goods crossed the Customs barrier and merge with the mass of the goods within the country. In Chowgule and Company, the Court has said that, in order to determine whether any imported goods are "goods for home consumption", the primary intended use of the goods when they are brought into Indian territorial waters has to be considered. If they were intended to be primarily used in India, they were goods for home consumption notwithstanding that they may also be used for the same or other purposes outside India. The Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t between ONGC and Sedco commenced after the rig came into NV. The rig was therefore brought into NV by Sedco. Sedco was therefore the importer of the rig into India. It is not material that this was done in pursuance of a contract between Sedco and ONGC. It was Sedco, which caused the import into NV. The actual physical movement of the rig into the NV was carried out by ONGC. The Commissioner has ordered confiscation of the tugs used for this purpose engaged at the behest of ONGC. Although this aspect is not clear, it does not detract from the fact that in terms of the contract, the responsibility of Sedco in bringing the rig into NV and was therefore the importer. 26.We will next deal with the argument regarding the practice, which it is contended existed of filing bills of entry only for ships imported with the intention of placing before the Indian Ship Register. For this the appellant gave example of cases, where bills of entry were filed for the rigs being purchased by persons or companies located in India. At the same time, the Department gave example for bills of entry that is being filed for rigs, which were not so imported for that purpose. After considering these examp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tum of redemption fine, these aspects will play a part. In this regard, we also have to agree that the fact of the rig having come into the country was known to the Department through the manifest, which was filed, and that the Department could not have been unaware of the operation of the rig from 1988 till 1999 and there is really no satisfactory explanation as to why there is a delay of 11 years, although the delay in issuing the notice may not be contrary to law. 28.Technically each time goods are brought into and taken out of the designated area within the exclusive economic zone, they are deemed to be "imported" and "exported" within the meaning of the Customs Act, 1962. This as a consequence of the notification under Section 7 of the Territorial Waters Act, 80 of 1976. It would then follow that each time any vessel or other craft takes goods from Mumbai to any of these designated areas, it has imported the goods on board into India. A manifest would be required to be filed for the craft and bill of entry filed for the goods which will have to be cleared on payment of duty. Correspondingly, each time the craft carrying the goods leaves the designated area to return to the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is contingent upon the fact that the bill of entry should initially have been filed. In that event, the goods were not imported in 1988, and therefore confiscation for import in 1988 is not sustainable. The goods cannot be said to have unlawfully imported in 1988 and continue to remain imported goods for the next ten years. 30.It is not the practice of the Department that settles the law. Going strictly by the provisions of the Act, 80 of 1976 it appears to us that goods are in fact considered to be imported each time they enter the designated area within the exclusive economic zone. The current practice was evidently the practice in 1998. Therefore, even if technically there has been import of the rig, the fact that what Sedco did is what every other person similarly placed had done, and continue to do so, with the acquiescence of the Department would clearly exclude any act in against it including confiscation of the rig. 31.The rig is liable to confiscation for the initial import made in 1988, for two reasons. The first is that no bill of entry was filed for its import. We have already rejected the argument that it was not goods for home consumption. The bill of entry whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment of the goods. Where such assessment has not taken place, it is the provision of Section 125(2) that would apply. In the manner in which it is worded, Section 28 could only apply where there has been assessment of goods. This is clear from the sub-section (3), defining the relevant date. It is within six months, one year in specified cases, (or in exceptional case five years) from this date that the demand for duty has to be issued. Clause (a) of sub-section obviously refers to cases, where in consequence of assessment, duty is not levied. The relevant date in that case would be the date on which the order for clearance of goods is made. Clause (b) refers to goods provisionally assessed, clause (c) to refund and clause (d) in any other case. Since the notice has to be issued within six months from the relevant date, clause (d) will have no application. Hence, where no order has been passed for clearance of the goods, none of these "relevant dates" will apply. It is clear from this that Section 28 will not have application in such cases. 36.As we have noted, the object of the amendment of sub-section (2) of Section 125 is to provide a provision, in addition to this Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 125 can be invoked. 39.Where the persons chargeable to duty on goods makes known to the Department the circumstances under which they become liable to duty, the onus is cast upon the Department to proceed to determine the duty correctly and to recover it. In cases where this basic information required for assessment of goods to duty and their recovery not made available to the Department, and the goods, having been imported, are removed out of Customs (they were came into their jurisdiction), the Department would be helpless. It cannot proceed to recover duty payable if it is not even informed of the existence of the goods or the circumstances under which the duty is payable. It is evidently for this purpose that Section 125(2) was amended in 1985. 40.The fact that a manifest was filed, on arrival of the goods, is no answer. All that the Department could know from the manifest was that the goods had been imported. No bill of entry having been filed for their clearance, or the prescribed document submitted to the appropriate Custom officer to show that the goods had been removed from the Customs area, the Depart- ment would not concern itself with assessing the goods to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated for the purpose of Import Policy. Even assuming the rig to fall within the general category of vessel or floating structure, it would be capital goods within the meaning of the Policy. They are covered by the definition. There is no separate provision in the Policy for import of such goods. The conditions contained in paragraph 30 (2) is attracted to the rig in question, since it has not satisfied both conditions, specified therein, of being older than seven years old and having more than five years residual life, which is required, as held by the Supreme Court in Commissioner of Customs v. Shaila Kapoor - 1999 (113) E.L.T. 757. Confiscation under clause (d) of Section 111 of the Act therefore has to be confirmed. 45The. contention that the rig in question could be imported under the provisions of OGL No. 8 of 88, is not acceptable. One of the conditions of this OGL is that the import is made in pursuance of the service contract awarded to a foreign contractor, the ONGC, Oil India, or Gas Authority of India Ltd. undertakes, that such equipment shall be re-exported after completion of the work. No such undertakings having been furnished by ONGC, this condition is not sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concealment of the fact of importation of the rig. Apart from the fact that it had been declared in substance in the manifest, its presence in Mumbai and elsewhere was known to the Department. The documents such as payment of lighthouse dues and overtime charges to Custom officers, shortly after it was imported in 1988, cited by the Sedco's counsel show these with regard to its first arrival. The correspondence exchanged between Sedco and the Collector of Customs, Bombay, as well as undertakings filed before that authority, as well as the Collector of Customs, Nhava Sheva in 1993, relating to stores onboard the rig, the show cause notice issued by the Assistant Collector in July, 1994 specifically relating to the rig in NJ, and the correspondence with the Special Task Force of the Customs, which investigated around this period, the legal status of the ONGC's supply base, at Uran, all show that Sedco had not attempted to conceal from the Department the presence of the rig and show the continued awareness on the part of the Department of its rig in or near the Indian territorial waters. No satisfactory explanation was given to us as to why the Department had to issue a notice 11 yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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