Foreign-going vessel status depends on continuous operational engagement, not sporadic coastal presence, with only stores consumed in territorial waters dutiable.

A vessel engaged under a long-term cable maintenance contract was treated as a foreign-going vessel because section 2(21)(ii) turns on the nature and continuity of its operational engagement, not on sporadic movement in territorial waters. It was therefore eligible for the section 87 exemption, while stores consumed during actual operations within Indian territorial waters remained dutiable. The extended period of limitation could not be invoked absent proof of suppression or wilful misdeclaration, as the department had long been aware of the vessel's operations through declarations, correspondence, and boardings. Confiscation and penalties could not stand, and duty was confined to limited verification for the normal period.

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Issues: (i) Whether the vessel was a foreign-going vessel within the meaning of section 2(21)(ii) of the Customs Act, 1962 and entitled to the benefit of section 87; (ii) Whether the extended period of limitation could be invoked for the duty demand.

Issue (i): Whether the vessel was a foreign-going vessel within the meaning of section 2(21)(ii) of the Customs Act, 1962 and entitled to the benefit of section 87.

Analysis: The vessel was engaged under a long-term cable maintenance agreement requiring it to remain at designated base ports and to be available for repair and maintenance operations in specified maritime areas. The expression "engaged in" was construed in its contextual sense to include continuity of engagement and operational readiness, not merely active day-to-day movement. The inclusive limb of section 2(21)(ii) was held to be independent of the main limb, and the vessel's intermittent presence in Indian territorial waters did not change its essential character. The status of the vessel was determined by the contractual nature of its engagement and not on a piece-meal voyage basis. The foreign-going character was also not lost merely because the vessel obtained coastal licences on some occasions.

Conclusion: The vessel was a foreign-going vessel under section 2(21)(ii) and was entitled to the exemption under section 87, except that duty remained payable on stores consumed during the period when it actually operated within Indian territorial waters.

Issue (ii): Whether the extended period of limitation could be invoked for the duty demand.

Analysis: The vessel had remained under the supervision of customs and port authorities for a long period, with repeated declarations, correspondence, and boardings reflecting its nature and operations. In these circumstances, the material facts were held to be within the knowledge of the department, and there was no basis to infer suppression or wilful misdeclaration so as to justify the extended period. The demand beyond the normal period was therefore unsustainable. At the same time, liability for duty on stores consumed during actual operations within Indian territorial waters was preserved for verification and recalculation on the basis of the records.

Conclusion: The extended period of limitation was not invokable; the demand was time-barred except to the extent of duty, if any, payable for the normal period on stores consumed in Indian territorial waters.

Final Conclusion: The vessel retained its foreign-going character for customs purposes, the confiscation and penalties could not stand, and the matter was sent back only for limited computation of duty on stores consumed during operations in Indian territorial waters for the normal period.

Ratio Decidendi: For a vessel engaged under a long-term operational contract, the test under section 2(21)(ii) is the nature and continuity of its engagement and operational readiness, not daily physical presence or sporadic incursion into territorial waters; however, stores consumed during actual operations within Indian territorial waters remain dutiable and the extended period of limitation requires proof of suppression or wilful misdeclaration.

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