TaxTMI 
TaxTMI 
TaxTMI 
2016 (7) TMI 645
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....re initiated by the officers of SIIB of Customs. The preliminary investigation revealed that M/s. L&T Sapura Shipping filed B/E No.2003235 dated 02.12.2010 in respect of MV LTS 3000describing the vessel as One unit self propelled Ship LTS 3000 with essential spares accessories, cons and provisions. The invoice No. IN/LTD3000/005 dated 12.11.2010 however showed the description as M.V. LTS 3000 IMO Number 9446843 Type : Heavy Lift Pipe lay Vessel. The vessel was examined on first check basis and the Group Appraiser objected to the classification and directed the importer to classify the vessel under CTH 89 05. Thereafter the CHA vide letter dated 15.12.2010 requested to amend the description from permanent import of one unit self propelled ship LTS 3000 with essential spares accessories cons and provisions to MV LTS3000 IMO No.9446843, Built 2010, Indonesia, Type Heavy Lift Pipe Lay Vessel GT-30628T NT-9188T (Temporary import on re-export basis) along with some additional quantity of various fuel and consumables. The request was allowed. 4. Pending investigation in the matter Appellant filed a writ petition before the Honble Bombay High Court. Hon'ble high Court approved the pr....
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.... conditions that the importer has to be the sub-contractor of licensee. In view of these conditions other than the licensee or Sub-Contractor of the licensee (M/s. ONGC Ltd.) no importer can avail the benefit of duty exemption on the strength of Essentiality certificate. The importer M/s. L&TSSPL is not a bonafide sub-contractor of M/s. ONGC Ltd,. Therefore, benefit of notification 21/2002-Cus Sl. No. 214 is not eligible to m/s. L&TSSPL as they did not fulfill condition 29 of the said notification. 6. The Appellant L&T SSPL have interalia made the following submissions in their grounds of Appeal: (i) The Hon'ble Bombay high Court in the matter of WP No.2959 of 2011 in para 9 of its order dated 21.04.2011 while granting provisional release of the said vessel expressly stated that for the purpose of Customs Act what is relevant is whether the vessel is essential for the petroleum project and it is not relevant as to who is the contractor executing the work on behalf of ONGC. The said vessel was used for petroleum operations. 7. All the appellants contested the show-cause notice on merits as also on various grounds like the ship was ocean going vessel, no penalty is imposabl....
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....seen from the certificate issued at Page 114 of the Appeal); (ii) Affidavit from ONGC that the sub-contractor is their bona fide sub-contractor (evident from the affidavit at Page 382 of the Appeal); and (iii) Undertaking from ONGC that in case conditions of notification were not complied by sub-contractor then duty, fine or penalty that may become payable ONGC (which is satisfied by the undertaking as annexed at Page 383 of the Appeal.) 9.2. It is his submission that all the conditions pertaining to benefit of notification were satisfied by the appellant and hence the denial of benefit of notification exempting the said vessel from the payment of customs duty is wrong. It is his submission that the vessel is undisputedly used to carry out offshore petroleum operation by the appellant as sub-contractor of L&T Ltd. He would then draw our attention to the meaning of the sub-contractor in Blacks Law Dictionary and model contract published by Government under New Exploration Licensing Policy (NELP) program and in Advanced Law Lexicon by P. Ramanatha Aiyer. It is his submission that the sub-contractor will include any person who enters into the contract with the contract....
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....sub-contractor of ONGC by implication and conduct on the part of ONGC. It is also his submission that its general practice of ONGC, the DGH and the Customs Department, to treat sub-contractor of a sub-contractor as a sub-contractor of the main contractor and thus, exemption is routinely extended. 9.4. It is his submission that the appellant has complied with the conditions of notification, as the main ground of the revenue that the Essentiality Certificate of DGH cancelled, is no more available as it is struck down by the High Court of Bombay. It is his further submission that the CBEC by circular no. 21/2013-Cus dated 16.5.2013 on the same issue clarified that for the extension of the benefit of notification, non-mentioning of the name of the contractor in the agreement cannot be a ground for denying the benefit of exemption and should be allowed based on the Essentiality Certificate issued by the DGH. He would submit that the Adjudicating Authority has not considered this direction of CBEC in its correct prospective and it is settled law that the Adjudicating Authority should follow the circular issued by the CBEC. 9.5. The Essentiality Certificate as issued by the DGH if held ....
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....pping for Cargo Ship certificate has classified LTS 3000 as cargo ship other than any of the above. He would submit that all these things indicate LTS 3000 is an Ocean Going Vessel and a Cargo ship and hence merits classification under CTH 8901 or 8906 but not under 8905. For this proposition he relied upon the judgment of the Tribunal in the following cases: * HAL Offshore Ltd. - 2014 (303) ELT 119; * J.M.Baxi & Co. 2015 (318) ELT 688; and * CGU Logistic Ltd. v. Commissioner - 2011 (274) E.L.T. 75 9.8. As regards the claim for classification under 8906, he submits that the said entry specifically covers cable ships for laying under water cables; that it is undisputed that LTS3000 is a pipe laying ship for laying pipes under water. He would submit that the classification of the ship is accepted 8901 and 8906 they carry nil rate of duty and entire demand needs to be set aside. As regards the penalty imposed, he submits that the entire issue is of interpretation, hence penalties imposed are unwarranted. On confiscation it is submitted that there is no mis-declaration as the vessel was declared self-propelled ship LTS 3000 with essential spare accessories cons and provision....
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....se four parties are involved:- (i) M/s ONGC Licencee (ii) M/s L&T contractor for the project. (iii) M/s L&T Sapura Off Shore Pvt Ltd ( claimed sub contractor) (iv) M/s L&T Sapura Shipping Pvt. Ltd. owner and importer of the goods. He would submit that L&T Sapura Shipping Pvt. Ltd, the main appellant has claimed import of the goods under Sl. No.214 of Notification No.21/2002-Cus as amended at nil rate of duty claiming that the vessel is required in connection with petroleum operations undertaken under petroleum exploration licenses or mining leases given to ONGC. It is his submission that the benefit is subject to fulfillment of condition laid down at sl. no. 29 and the Appellant who has imported goods is neither contractor nor sub-contractor of the licensee. He would submit that Shri Sachin Sain, General Manager, (Projects) of ONGC in his statement recorded stated that the ONGC Ltd. was not aware in advance that M/s. L & T Ltd. is sub-contracting the job to M/s. L & T Sapura Shipping Pvt. Ltd. and the main appellant was apparently referred first time by L & T Ltd. during submission of their request for issue of Essentiality Certificate. 11.1. It is his submission that ....
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.... issues needs to be decided by us: i) Whether the impugned vessel i.e. LTS 3000 is classifiable under CTH 8901 or 8906 as claimed by the main appellant or 8905 as held by the Adjudicating Authority. ii) Whether the main appellant is eligible for benefit of Notification 21/02-Cus at Sr.no.214. 13.1. Benefit of Notification 21/02-Cus The Adjudicating Authority has held that the main appellant is not eligible to avail the benefit of Notification 21/02-Cus (sr.no. 214) on the ground that the main appellant is not a sub-contractor and is only an importer and various statements recorded of the officials of ONGC indicate that appointment of main appellant as sub-contractor was in accordance with the agreement entered by ONGC with L&T Ltd. 13.2. We find that the Adjudicating Authority has totally misdirected his finding on this point after misconstruing the facts. In order to appreciate the correct position, whether the main appellant is eligible for the benefit of Notification 21/02-Cus in respect of the vessel imported by him, it is required that the undisputed facts needs to be recorded. They are - 1) The vessel LTS 3000 is renewed for conducting petroleum operation as per the ....
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.... 1st petitioner i.e. M/s. Larsen & Toubro is the person who is over all in charge in executing the contract and had engaged the services of 2nd petitioner viz. L&T Sapura Shipping P. Ltd. as its agents for importing the vessel viz. LTS 3000 for the purposes of execution of the contract. This understanding is also fortified/ supported by the affidavit submitted to the Dy. Commissioner of Custom wherein also it was stated that L&T Ltd. i.e. 1st petitioner is our contractor for the MHN process platform and Living Quarter project." (As reproduced from affidavit at page 384 onwards at page 394 & 395 of the appeal memorandum) 13.3. From the above reproduced portion of the affidavit filed by the responsible officer of ONGC before the High Court in a writ petition connected to the issue in hand, would indicate that ONGC had always considered the main appellant as sub-contractor. In pursuance to an application made by the said ONGC for issuing the Essentiality Certificate DGH had issued the Essentiality Certificate which reads as under:- "Sub: Essentiality' Certificate for Import of Goods in terms of Notification No. 21/2002 Customs dated 01-03-2002 amended vide Notification....
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....r of L&T Ltd. in terms of condition no. 29 of the notification, scanned copy of the same is reproduced: The above said affidavit was accepted by the department while extending the benefit of notification but subsequently contradicted on the ground that the said affidavit was incorrect as it is not being in consonance with the clauses of agreement entered by the ONGC with L&T. It is the finding that as per clause 5.2.2. various conditions needs to be fulfilled for accepting the main appellant as the sub-contractor. We fail to understand the finding recorded by the Adjudicating Authority and as also canvassed by the ld. Special counsel on this point. ONGC in pursuance to the contract entered by them with L&T has accepted the proposal that the main appellant herein is a sub-contractor, which is evident by the affidavit filed by ONGC before the High Court of Bombay also before the Dy. Commissioner of Customs for the satisfaction of condition 29 of the said notification . Such an affidavit cannot be disputed by the revenue based upon the clauses of the agreement. In our view, whether the main appellant is a sub-contractor of ONGC or otherwise, is a dispute that cannot be adjudicated by....
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....n granted by the notification is to be extended to the goods to be used in connection with petroleum operations under petroleum exploration licence which is undisputedly complied with by the imported vessel LTS 3000. We find strong force in the submission made by the counsel that the terms contractor and sub-contractor have not been defined under Customs Act, nor in the notification or any other statute, in such a situation the meaning needs to be looked into the various dictionaries. On reading the definition of sub-contractor in Black's Law Dictionary, which reads as a sub-contractor is one who is awarded a portion of an existing contract by a contractor in the case in hand the appellant is sub-contractor as per the agreement entered by ONGC with L&T. 13.8. In the case in hand, since it is not in dispute that the vessel was used for petroleum operations as per the Essentiality Certificate granted by the DGH; the question of denying the benefit of Notification 21/02-Cus does not arise. In an yet another angle to the entire issue, it is to be considered from the fact that a clarification was sought from CBEC on the point as to whether each sub-contractor of a contractor is require....
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....try at an early date." CBEC in the above said clarification has specifically stated that non-mentioning the name of the sub-contractor in the agreement cannot be a ground for denying the benefit of exemption and same should be allowed based on the Essentiality Certificate issued by DGH. The case in hand the CBEC squarely covers the issue in favour of the main appellant. The Adjudicating Authority has erred in not following the direction of CBEC when the facts are so very clear in the case in hand. 14. Classification The Adjudicating Authority has decided the classification of the vessel LTS 3000 under 8905. While the appellant has claimed the 8901 or 8906. In order to appreciate the competing tariff heading it is required that the said chapter headings be reproduced:- Tariff item Description of goods Unit Rate of Duty (Std.) (1) (2) (3) (4) 8901 Cruise ships, excursion, boats, ferry boats, cargo ships, barges and similar vessels for the transport of persons or goods 8901 10 - Cruise ships, excursion boats and similar vessels principally designed for the transport of persons; ferry boats of all kinds: 8901 10 10 - Ships U 10% 8905 ....
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....ty of which is subsidiary to their main function; floating docks; floating or submersible drilling or production platforms. 8905 10 00 - Dredgers 8905 20 00 - Floating or submersible drilling or production platforms 8905 90 - Other : 8905 90 10 - Floating docks 8905 90 90 - Other 8906 Other vessels, including warships and lifeboats other than rowing boats 8906 10 00 - Warships 8906 90 00 - Other 4.2 According to? HSN Explanatory Notes, heading 8905 covers vessel which perform their main function in a stationary position. The vessels covered by the said entry include light vessels, fire-floats, dredgers, floating cranes, floating docks; floating or submersible drilling or production platforms and all other vessels which perform their main function in a stationary position. On the contrary the vessel under import undertakes seismic survey of the sea bed and its subterranean surface in large area running into hundreds of square kilometres. Such survey vessels, cannot obviously perform the function if it remains in a stationary position. This is material and significant difference in the nature of the function undertaken by Geo Hind Sagar when compared with the vess....
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....ubmersible drilling or production platforms. The types of vessels specified in this heading are essentially stationary vessels and they do not have any navigational capability. Even when they have such capability, the same is subsidiary to their main function. From the class certificates issued by the Indian Registry and Bureaus Veritas, it is seen that the vessels are SUPPLY VESSELS with unrestricted navigation. In other words, navigation is not subsidiary to their main function. The safety certificate issued by the Mercantile Marine Dept. of the Ministry of Shipping and Transport clearly mentions these vessels as Other Cargo ships, which again proves that the impugned vessels do not fall under the purview of CTH 8905. The technical features of the vessels also indicate that these vessels are self-propelled and have modern navigation and communication systems installed. Even the contract given by the ONGC shows that these vessels have to undertake inspection, maintenance and repair functions over a 4000 Km area. Can a vessel without propulsion and navigational capability undertake such operations? Common sense gives the answer in the negative. But common sense is quite uncommon,....