TaxTMI 
TaxTMI 
2006 (4) TMI 370
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....rred to as Noble). (i) Rig Noble Jimmy Puckett/Essar Explorer confiscated under section 111(d), (f), (g), (h) and (o) and under section 113 (d), (f), (g) and (h) of the Customs Act, 1962 and was allowed to be released on a fine of Rs. 15 Crores under section 125 (2) of the Customs Act, 1962. (ii) Customs duty of Rs. 75,54,22,673/- under Section 12 read with Section 125(2) of Customs Act, 1962 confirmed along with interest for import in December, 1997. (iii) Customs duty of Rs. 86,14,64,958/- under section 12 read with section 28, read with section 125(2) of the Customs Act, 1962 confirmed along with interest, for import in April, 1999 this duty was to be paid if duty at Sl.No.(ii) was not paid. (iv) Penalty of Rs. 2,00,00,000/- u/s 112 and or u/s. 114 of Customs Act, 1962. C/606/05 M/s. Neptune Exploration and Industries Limited (hereinafter referred to as Neptune). Penalty of Rs. 50,00,000/- u/s. 112 and/or u/s. 114 of Customs Act, 1962. C/607/05 Mr. Mohan Ramanathan, Authorized Signatory, M/s. Neptune Exploration and Industries Limited. Penalty of Rs. 2....
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.... Officer, M/s. Arya Offshore Services Private Limited. Penalty of Rs. 1,00,000/- u/s. 112 and/or u/s. 114 of Customs Act, 1962. 2. The factual background briefly stated necessary for deciding the issues, is as follows : (a) Sometime in December, 1986, Essar was awarded, a letter of indent, by ONGC for carrying out offshore drilling in Bombay High. Based on this letter, Essar applied for an Import licence which was issued to it, by the CCI & E in March 1987, permitting import of a second hand offshore rig. (b) In May, 1987, Essar filed a Bill of Entry No. 010586, seeking clearance of the second hand rig "Essar Explorer", claiming exemption from the whole of duties of customs in terms of Notification 516/86 dated 30th December, 1986. Along with the bill of entry, Essar also filed the requisite certificates, from the Ministry of Petroleum as also from DGTD, as required under the said Notification along with the Import licence. (c) In June, 1987, a contract was executed between ONGC and Essar for offshore drilling.....
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....n February, 1997, Essar made applications to DGFT, New Delhi, informing DGFT of its intentions to sell the rig and simultaneously executing bare board charter. These letters sought no-objection from DGFT to export the said rig. Essar wrote several reminders thereafter to the DGFT. (j) On 12th November, 1997, Noble entered into an agreement with Neptune, to give Neptune, the said rig on hire for carrying on ONGC operations after its bare board charter with Essar expired. On 6th December, 1997, Essar's contract with ONGC came to an end. On this day, the rig was working at "HY Platform", a non-designated area. On 11th December, 1997, Essar delivered the rig to Noble in international waters at the location RB 199A (non-designated area). (k) On 30th December 1997, the rig was deployed by Neptune for ONGC at Platform NE which is a designated area. In October 1998, ONGC renewed its contract with Neptune, for a period of 2 years, in terms of the agreement between them, the rig required certain repairs before commencement of the new contract. Accordingly the rig was sent to Sharjah for repairs. In December 1998, Noble informed the ....
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.... In so far as the demand for duty is concerned the following arguments were advanced on behalf on the appellants. (i) that the scheme of the Customs Act, 1962 was so designed that only rigs which are brought into the country for first time require filing of a bill of entry and can be considered as goods. Once cleared as goods, they cease to be imported goods and are to be treated as a vessel and no bill of entry or shipping bill is required to be filed for their subsequent movements. Also no IGM/EGM is required to be filed for the movements in and out of India as such IGM/EGM is required to be filed when vessel is carrying goods on it. In support of this contention reliance was placed on the decision of the Bombay High Court in the case of Amarship Management Pvt. Ltd. v. Union of India - 1996 (86) E.L.T. 15. It was also submitted that even the show cause notice as well as the adjudication order in para 63(ii) and 149 respectively accept that at the relevant time there was a practice in the customs to treat a rig as a vessel. (ii) the demand for duty was unsustainable as according to the practice of....
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....se of Auto Tractors - 1989 (39) E.L.T. 494. The levy of auxiliary duty, surcharge or Customs duty of Special duty of Customs was also incorrect, as the Finance Acts under which such duties are leviable have not been made applicable and extended to the Exclusive Economic Zone, as in the case of Customs Acts, 1962. (vi) that the notice was barred by limitation and demands were even beyond the extended period of limitation of Section 28 of Customs Act, 1962. (vii) In addition to the aforesaid submission, on behalf of Essar it was submitted that the demand for duty against it was unsustainable as, in terms of Section 125(2) of the Customs Act 1962, Customs duty could be demanded only from the owner or from the person from whose possession goods are seized. Since Essar was neither the owner nor the person from whose possession the rig was seized, the provisions of Section 125(2) in terms of hich demand has been compared against it was not sustainable. (viii) In so far as December 97 demand on Noble was concerned, it was contended when the rig was re-delivered by Essar to Noble, the same was working at "Hy Platform" a non-designated area and w....
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....except with the prior permission of the DGFT. In view of the relaxation granted in the EXIM Policy, the period of 5 years was applicable and not the period of 10 years which existed earlier. (iii) The finding that the rig has become liable for confiscation on account of its sale in 1996 also overlooks the fact that the Import Control Act, 1947 had not been extended to the Exclusive Economic Zone of India as required vide The Territorial Waters Continental Shelf Economic Exclusive Zone & Other Maritime Zones Act, 1976 and, therefore, insofar as the EXIM Policy is concerned, the said zone in the High Seas EEZ was not a part of India and consequently the act of bringing the rig into EEZ and its movement within the EEZ or even its movement to international waters did not amount to import or export so as to require any import licence or any permission from the Licensing authority. (iv) The finding regarding confiscation of the rig is also unsustainable in view of the fact that the Import Control Act, 1947, in terms of which the Handbook of Procedures (1985-88) was issued, had been repealed in 1992. As a result of such rep....
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....by the Commissioner (Preventive) lacked jurisdiction as the Commissioner (Prev) did not have territorial jurisdiction over the Exclusive Economic Zone of India. As per notification issued under Section 4 of the Customs Act, the territorial jurisdiction of the Commissioner (Prev) is confined to districts of Mumbai, Thane and Raigad. The Exclusive Economic Zone of India does not fall in any of these districts. As per the said notification, it is only the Commissioner of Customs (Imports), Mumbai who has jurisdiction over the Exclusive Economic Zone of India. (D) Shri K.M. Mondal, Consultant appearing for the Revenue submitted as under: (a) That a rig cannot be held to be an ocean going vessel. In support of this contention he relied upon the decision of the Bombay High Court in the case of Pride Former - 2004 (148) E.L.T. 19 (Bom). (b) The decision in the case of Sedco Forex International Drilling Inc. v. Commissioner of Customs, Mumbai, reported in 2001 (135) E.L.T. 625 (Tri-Mumbai) was not applicable to the facts of the instant case, as the movement of the rig was between a designated and a non-d....
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....to file Shipping Bills and Bills of Entry for inward and outward movements o' the rig by considering the said rig as goods? (f) Whether the said rig having acquired the characteristic of a vessel was only required to file IGM and EGM for such movements? (g) Whether Essar had contravened the provisions of the Import Policy/Handbook of Procedures by selling the rig to Noble prior to the expiry of 10-year period from the date of import and whether the rig consequently became liable for confiscation? (h) Whether the rig had become liable for confiscation under any of the clauses of Sections 111 or 113 of the Customs Act? (i) Whether any of the appellants were liable for penalties? 6. We now proceed to deal with the issues raised before us. (a) The first, and preliminary issue would be to determine if the entire proceedings are vitiated for want of jurisdiction. It is submitted that the Commissioner of Customs (Preventive), whose officers seized the rig on 12-5-2001, while it was outside the territorial waters of India, but within the Exclu....
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....oper officers' having jurisdiction in the High Seas, over such non-designated areas outside India. The second question which would be relevant, for other purposes, would be whether such Commissioner of Customs (Preventive) was the 'proper officer' for the designated areas co-ordinates within EEZs which are located in the High Sea outside the territorial waters of India. In our view, the answer to both questions is in the negative. We find, according to Notification No. 15/2002-Cus (NT) dated 7-3-2002, issued under Section 4 of the Customs Act, the territorial jurisdiction of the Commissioner of Customs (Preventive) is confined to three districts of Maharashtra, i.e. Mumbai, Thane and Raigad. The territory of a district of Maharashtra State would extend up to the low tide water mark and jurisdiction may extend upto 12 nautical miles at Sea Coast i.e. Territorial waters of India from the base line of tide mark coast line of the said district. The territory of a district of a State of India cannot extend beyond the territorial waters of India. Nothing has been shown to us that the territory of districts of Maharashtra State and jurisdiction of such Districts extends to and cover the c....
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....sustainable. (c) Had it not been for the fact that detailed arguments have been advanced on several other issues, we would have been persuaded & allowed the appeals only on the point of jurisdiction alone. However, since both sides have made detailed submissions on the merits of issues, we are proceeding with recording of our findings also on them. (d) As regards Demands of duty, it is found : (i) In respect of the demand for duty, on the movement of rigs into India, the practice of assessment followed by the Customs is of particular significance. The decision of the Tribunal in Sedco Forex's records, the said practice, in the following words : "...In case of oil rigs, once cleared as bill of entry for home consumption the Department is not insisting on filing import or export documents for movement to or from the designated area since they are no more imported goods..." It has been argued by the appellants that in the present case, the rig was imported by Essar in the year 1987. A Bill of Entry was filed for seeking its clearance. The rig was cleared for home consumption after due assessme....
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.... vessels, imported by various shipping companies in India were only liable to duty once when they were brought to India for the first time and were thereafter not liable to suffer duties for each voyage of movement in and out of the port/country. It was further submitted that after such conversion & acceptance as conveyance, their repairs abroad and subsequent movements in and out of India would not render them liable for payment of duty, as the nature of the vessel did not change, as a result of the repair & the repaired components/parts would become permanent ship stores. In any case, it is not the Customs to recover duties on such repair charges on vessels nor has been shown that Customs even made an attempt to recover such duty in other cases. We find merits in the submission. The practice, if the Customs as extracted in the case of Sedco Forex's case is the one which flows out of the scheme of the Customs Act as understood bv the Department. Under the Customs Act, the expression 'goods' includes vessels. Therefore, when the vessel is brought into the country for the first time, the same are liable for payment of duty as any other goods. Once such goods have been assessed to du....
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....hown to be held liable to duty. To take a contrary view in the present case, would be clearly against the scheme of the Customs as well as the well settled practice of the Customs. In any case demands of duty by changing such practice can be only prospective, & bar of limitation under Section 28 to demand such duty would apply in this case. (iii) We now come to the question whether the practice followed by the Customs would need a departure in case a rig travels to another country outside India and then returns back to India. To our mind, the answer to this question also is in the negative. In law as well as in practice, there can be no difference between a non-designated area outside territorial waters of India and visit to a foreign country since both locations are, for Customs purpose, situated outside India. The distance of a non-designated area in the High Seas from the coast of India cannot ipso facto call for a separate interpretation. In the normal course, movement of the rig into the designated area from a non-designated area/area beyond EEZ could be liable to import duty, but for the scheme of the Customs Act, as discussed above, as well as the establ....
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.... departing from the established practice on Revenue's plea itself. Apart from this, we do not see how ONGC contract should be treated or have any relevance to the established practice. The practice which has been referred hereinabove, with regard to the rig in question is equally applicable to all conveyance and vessels even when such conveyance and vessels are not deployed by ONGC for oil exploration work in EEZ/High Sea. We therefore hold that the Customs practice established, has no exclusive relevance or bearing to a ONGC contract. That ONGC contracts should determine, non-levy/levy of Customs Duties cannot be accepted. (v) There is another reason to justify the practice which has existed for non-levy of duty on every inward movement of foreign going vessel. This is for the reason that if import duty was payable on every inward movement of a vessel, it would have to be then refunded back by way of Drawback payments, whenever the vessel went to a non-designated location/out of India. Therefore, if a vessel carrying cargo arriving into Bombay Port say on May 1, 2006, would be liable to pay duty on the full value of that ship and the Shipping Compa....
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....Act and the practice being followed by the Customs, the rig having already assessed to duty once in 1987, could not be held liable for payment of duty either in 1992, or in 1997 or in 1999 for its various movement in and out of India. (viii) Apart from contesting the demand for duty on merits, Essar and Noble have also contended that the demands are also barred by limitation as, in the case of Essar the demand relates to movement of rig more than 10 years back while in the case of Noble, the said movement was also more than 5 years before the date of issue of show cause notice. The notice does not seek to invoke the provisions of Section 28, as the said demands are clearly found to be barred by limitation. Instead it seeks to demand duty from Essar and Noble under Section 125(2) of the Customs Act, which provides that where any fine in lieu of confiscation of goods is imposed under sub-section (1), the owner of such goods or the person referred to in sub-section (1) shall, in addition, be liable to any duty and charges payable in respect of such goods. In the present case, the rig was seized from the possession of Noble, the owners of the rig at the time of the seizure. The orde....
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....11 and 113 of the Customs Act on the ground that the various movements of the said rig in and out of designated areas took place in contravention of various provisions of the Customs Act. For better understanding, it will be necessary to deal with separately with each of the relevant movements and events for which the rig has been held liable for confiscation. These are : (ii) the clandestine/unauthorized export of the rig in June, 1992 without filing a Shipping bill and other declarations to the Customs ; (iii) unauthorized import of the same rig in September 1992 after its repairs at Bahrain without filing Bills of Entry and by not following other Customs formalities; (iv) unauthorized sale of the rig in 1996 in violation of the no sale for 10 years condition, which existed in the Handbook of Procedures, 1985-1988; (v) unauthorized export of the rig in December 1997 when it moved from a location in EEZ to international waters without filing of any shipping bill or other documents; (vi) unauthorized import of the rig by Noble for deployment at platform NE in D....
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....ue compliance of all provisions of law & discharge of duty, if any. Once Port clearance is issued, Revenue can then not turn around & find infringement of procedural non-compliance to call for confiscation of valuable property. In view of the fact that necessary manifest, was filed and port clearance was granted, that too under preventive supervision, we do not see any violation whatsoever of any sections of the Customs Act, 1962, as arrived, for this movement of the rig. Since the Customs themselves were treating the rig as vessel, it could now not insist on a Shipping Bill being presented for the vessel in addition to the EGM. The Shipping Bill is only filed for goods meant for export and not for conveyance to leave port on obtaining port clearance, for which only an EGM is required to be filed. Having accepted the rig as a vessel and having also accepted filing of EGM for the same, & granting a Port clearance, the Customs could not insist on the filing of a Shipping Bill for the said rig & consequent liabilities thereafter. The alleged violation under Sections 34, 40 and 50 of the Customs Act are therefore not sustainable. We also note that in the present case, even an EGM was n....
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....t there was violation of Sections 30, 31, 34, 35 and 46 of the Customs Act, 1962 and therefore the rig was liable for confiscation under various clauses of Section 111. As we have already held, no violation of Section 30 and no dutiable cargo is alleged to have been imported on board the rig. Violation of Section 31 has been found on the finding that the rig being imported goods was offloaded from vessel prior to entry inward being granted. We do not agree with this finding. The rig was not imported goods but a vessel. Likewise, alleged violation of Sections 34, 35 and 46, which proceed on the assumption that the rig was goods and not a vessel cannot be sustained. We, therefore, hold that the movement of the rig in September 1992 did not violate any of the provisions cited in the order and therefore the rig can not be held liable for confiscation under the clauses of Section 111 as arrived. (i) The third and most significant violation which has been alleged in the show cause notice is violation of the no sale condition by Essar in the year 1996 when it sold the rig to Noble before the expiry of the 10 years from the date of import. Para 114 of the H....
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....e EXIM Policy as existing on 30-4-1995. Since the period of 10 years for sale of the rig has been reduced to 5 years and more than 5 years had already elapsed, no violation could be alleged for the sale; Since we agree with the submission made on behalf of Essar that at the time when the rig was sold in 1996, the policy had done away with the no sale restriction by virtue of para 85 (2) of the Handbook of Procedures read with para 25 of the EXIM Policy. We, therefore, hold that there has been no contravention whatsoever of the provisions of the licence or the policy as a result of the sale of the rig in 1996. There is also another interesting issue which was raised i.e., since the provisions of the Foreign Trade (Development & Regulation) Act, 1992 and the orders issued thereunder were not applicable to the EEZ and continental shelf by issue of necessary notifications under Sections 6(6) and 7(7) of the Maritime Act, 1976. The designated areas in the EEZ and the continental shelf could not be considered to be within India for the purposes of the said Import Control Act and the orders issued thereunder including the EXIM Poli....
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....ig, no EGM was required even if the rig had move from a designated area, deemed within India to a place outside India. (k) The next movement of rig on which duty has been demanded and violation alleged is one effected in December 1997 when Noble brought the rig back into Indian waters for the purposes of deploying the same at platform NE (a designated area), for which a contract had been awarded by ONGC to Neptune, who had hired the rig from Noble. The order of the Commissioner proceeds on the premise that the rig was goods, for import of which a Bill of Entry was required to be filed and other formalities relating to unloading etc. had to be complied with. For reasons recorded above, we hold that the rig ceased to be imported goods after its assessment and clearance in the year 1987 and thereafter it acquired the characteristic of a foreign going vessel and therefore it did not require any Shipping Bill or Bill of Entry to be filed for its inward or outward movement from India. The requirement of IGM or EGM are not attracted as admittedly no export or import cargo was being carried on board the rig. We find that the reasons assigned by the Commissioner f....
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....i Customs House. In view of our findings that the rig, after its clearance from the Customs in 1987, had ceased to be goods and had acquired the characteristics of a vessel, we hold that the said vessel was not required to be once again cleared under a Bill of Entry nor was any duty required to be paid on repair charges. The duty which Noble had paid on the repair charges was not required. Also, no Bill of Entry was required to be filed by Noble. It is in this movement, in 1999, where Noble proceed on an erroneous premise, that the rig was goods and therefore paid duty albeit by claiming the benefit of partial exemption applicable to goods re-imported after repairs abroad. (o) On the question whether fines and penalties could be imposed on the appellants, even if the rig was considered as 'goods' and not as 'vessels', and if the movements in question were considered as acts of imports/exports, we find that it is an accepted position that there was a practice prevailing in the Customs to treat the rig as a vessel. This practice has been acknowledged and accepted in the show cause notice as well as in the order of the Commissioner. The statement made by ld.....
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....e inclined to hold that the Customs are bound by their own precedents in administration taxing statutes involving the very basis of taxation in respect of a particular article and not leave it to them to modify their own previous decisions but to leave it to them to apply to Courts or Parliament or Legislatures as the case may be to put the law beyond doubt........." This view of binding effect of precedent treatment of their own precedents in administration of Taxing Statutes has been approved in subsequent decisions. (ii) In the case of S.S. Kothari [1987 (30) E.L.T. 156] the Calcutta High Court while examining the conduct of the Commissioner as Adjudicating, and ordering absolute confiscation, of a Motor Car imported without a licence, when the practice was to allow the import of similar cars on Redemption fine, upheld the view of the Calcutta High Court in Para 8 (extracted herein above) in the case of Mercantile Express Co. (supra) by holding :- "15. No doubt the Court was concerned with the interpretation of the tariff item, but the principles laid down therein are equally applicable in the case like this. The issue involved here relates to th....
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....me, we find the principle of legitimate expectation as laid down in Halisburry Law of England 4th Edition Vol. 1 (1) Para 81 has been relied upon by the Madras High Court and referred to as : - ".....A person may have a legitimate expectation of being treated in a certain way by an administrative authority though he has no legal right in private law to receive such treatment the legitimate expectation arises either from a representation or promise made by the authority including and implied representation or from consistent past practice." (undertaking supplied) Ref. Sunshine International & Another v. Collector of Customs, Madras [1993 (42) ECC 282 (Mad.)] ".........The Customs authority cannot take a different view, in my view, at different times, with regard, to imports of same goods as to whether to confiscate completely or pass an order of confiscation giving an option to the Bill (SIC) by paying a fine. It is true that it is the discretion of the authority under section 125 of the Customs Act. But that discretion is to be applied fairly. There is no doubt that, with regard to cassia, orders were passed by the department earlier only orderi....