Vessel maintains foreign-going status during inter-port journey, bunker fuel exempt from customs duty under Section 87

CESTAT Ahmedabad ruled in favor of appellant regarding customs duty demand on bunker fuel consumed by vessel MV TABA during voyage from Cochin to Alang. The tribunal held that MV TABA remained a foreign-going vessel rather than coastal vessel during the inter-port journey, making consumed goods exempt from customs duty under Section 87 of Customs Act, 1962. The Commissioner erroneously relied solely on appellant's Bill of Entry filing and duty payment, ignoring that these were done on customs officers' direction to expedite vessel import process. Following precedent in Lotus Danship case, the tribunal determined no differential duty was legally payable as the vessel maintained its foreign-going character. Consequently, differential customs duty demand of Rs. 96,136 with interest was set aside, and penalty under Section 114A was also quashed, finding no intention to evade duty. Appeal allowed.

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ISSUES:

Whether the Customs authorities at the port of Alang had jurisdiction to demand customs duty on bunker fuel and consumable stores consumed by a vessel during its voyage between two Indian ports.Whether the vessel in question was a 'foreign going vessel' or a 'coastal vessel' for the purposes of customs duty liability on consumed stores during the voyage between Indian ports.Whether the filing of a Bill of Entry and payment of provisional customs duty by the appellant converts the vessel's status from 'foreign going vessel' to 'coastal vessel' thereby attracting customs duty on consumed stores.Whether goods consumed by a 'foreign going vessel' during its voyage between two Indian ports are exempt from customs duty under Section 87 of the Customs Act, 1962.Whether the demand of differential customs duty and imposition of penalty under Section 114A of the Customs Act, 1962 is sustainable in the absence of intention to evade duty and where the show cause notice is barred by limitation.Whether the benefit of exemption under customs law can be claimed at a later stage notwithstanding non-claim at the time of import.

RULINGS / HOLDINGS:

The Customs authorities at Alang lacked jurisdiction to demand duty on goods not imported at that port; the order demanding duty was contrary to Section 12 of the Customs Act, 1962.The vessel was held to be a 'foreign going vessel' during its voyage from Cochin to Alang, and therefore, the goods consumed on board are excluded from the levy of customs duty as per Section 87 of the Customs Act, 1962.The filing of the Bill of Entry and payment of customs duty does not alter the nature of the voyage or vessel status; the nature of the voyage should not depend upon the filing of Bill of Entry purportedly presented on direction of Customs officers.The demand of differential customs duty and interest is not tenable and is set aside because the entire payment of customs duty was not legally necessary.The penalty imposed under Section 114A of the Customs Act, 1962 is not sustainable in the absence of intention to evade payment of customs duty and is liable to be set aside.The benefit of exemption under customs law must be allowed even if not claimed at the time of import; the government cannot retain excess payment of duty not required by law.

RATIONALE:

The Court applied Section 87 of the Customs Act, 1962, which exempts imported stores consumed on board during the period the vessel is a 'foreign going vessel', thereby excluding such consumption from customs duty.Precedents were relied upon, including decisions holding that vessels functioning solely to continue the task of mother vessels bringing cargo from abroad and not undertaking coastal operations retain their status as 'foreign going vessels' and enjoy exemption on consumed stores.The Court emphasized that the nature of the voyage and vessel status is a question of fact and law independent of procedural acts such as filing a Bill of Entry or provisional payment of duty, particularly when such filings were made under compulsion or direction of Customs officers.The Court noted the principle that exemption benefits under customs law can be claimed retrospectively, citing authority that "ignorance of law is no excuse" applies equally to the government and the importer.The penalty under Section 114A was set aside due to absence of any finding of intention to evade duty, and the demand for differential duty was held barred by legal principles governing jurisdiction and exemption.

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