Ship-breaking imports: surplus fuel in vessel tanks treated as part of the vessel, defeating confiscation and penalty.

Surplus marine gas oil or high speed diesel lying in fuel tanks of vessels purchased for ship-breaking was treated as an integral part of the vessel under Heading 89.08, not as a separate restricted import item. The DGFT clarification on interpretation and classification under the Foreign Trade Policy was binding and stated that such fuel formed part of the vessel brought for breaking up. On that basis, the proposed confiscation under Section 111(d) of the Customs Act, 1962 and penalty under Section 112(a) could not be sustained because the fuel was not to be assessed separately under the import policy.

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Issues: Whether marine gas oil or high speed diesel lying in the fuel tanks of vessels purchased for ship-breaking was to be treated as a restricted import under the Import Policy, or as part of the vessel classifiable under Heading 89.08, so as to attract confiscation and penalty.

Analysis: The relevant policy provision made the DGFT's decision on interpretation and classification under the Foreign Trade Policy final and binding. The clarification issued by DGFT stated that surplus fuel stored in the fuel tanks of vessels brought for breaking up forms an integral part of the vessel and is classifiable under Heading 89.08. In view of that binding clarification, the fuel contained in the vessels could not be treated separately as a restricted item under the import policy. Once the fuel was treated as part of the vessel under Heading 89.08, the basis for confiscation under Section 111(d) of the Customs Act, 1962 and penalty under Section 112(a) of the Customs Act, 1962 did not survive.

Conclusion: The fuel found in the vessels purchased for breaking up was not liable to confiscation or penalty, and the appeals succeeded.

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