Customs duty recovery and goods confiscation overturned due to insufficient evidence of fuel diversion from foreign vessels

CESTAT Ahmedabad allowed the appeal against confiscation of goods and recovery of customs duty. Revenue alleged clandestine removal of bunkers, claiming duty-free furnace oil imported under warehouse procedure was diverted instead of being supplied to foreign vessels. The tribunal found that appellants produced documentary evidence including shipping bills, acknowledgments by vessel masters, and customs officers' endorsements confirming bunker supplies to foreign vessels. Revenue failed to provide cogent evidence of actual diversion. Despite EGM discrepancies, payment receipts and official customs clearance records supported legitimate supply to foreign vessels. Penalties on co-appellants were also set aside due to lack of evidence proving diversion.

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Issues Involved:
1. Alleged diversion of duty-free imported bunker fuel.
2. Compliance with customs procedures for warehousing and export.
3. Validity of customs duty demands and penalties imposed.

Summary of Judgment:

1. Alleged Diversion of Duty-Free Imported Bunker Fuel:

The department alleged that M/s AEL and M/s World Link, in connivance with other appellants, imported duty-free Furnace Oil and HSD Fuel Oil under the warehouse procedure and illegally supplied them under the guise of "Export" to "Stores" on Foreign Going Vessels. The investigation revealed that the goods were not supplied to the declared vessels but were diverted/illegally supplied.

2. Compliance with Customs Procedures for Warehousing and Export:

The appellants followed the procedure for duty-free import of bunker fuel, warehousing, and subsequent supply as ship stores. This included filing warehousing bonds u/s 59 of the Customs Act, 1962, and obtaining necessary permissions and endorsements from customs officers. The entire process was supervised by customs officers, and the shipping bills bore the endorsements of the customs officers and the masters of the vessels, confirming the supply of bunkers to foreign-going vessels.

3. Validity of Customs Duty Demands and Penalties Imposed:

The Tribunal found that the department failed to provide cogent and reliable evidence of actual diversion of the bunkers. The shipping bills, landing certificates, and endorsements by customs officers and vessel masters established that the bunkers were supplied to foreign-going vessels. The Tribunal noted that discrepancies in the Export General Manifest (EGM) filed by the vessels could not be attributed to the appellants, as they had no control over the EGM preparation and filing. The Tribunal held that the demand for customs duty and the penalties imposed were not sustainable in the absence of evidence showing diversion of the duty-free imported goods.

Conclusion:

The Tribunal set aside the impugned orders, allowing the appeals filed by the appellants with consequential relief as per law. The penalties imposed on the co-appellants were also set aside, as there was no evidence of diversion of the disputed goods.

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