By TIOL News Service

MUMBAI, MAY 16, 2013: THE appellant had imported a vessel “Smit Lynx - Salvage Tug” in February 2011 for undertaking salvage operations of the grounded Panamanian Flag Vessel “MSC Chitra” by Bareboat Charterer M/s. MSC Mediterranean Shipping Company SA on behalf of their Principal M/s. Smit Salvage B.V., Netherland and M/s. Smit Singapore Pte. Ltd., Singapore. The appellant did not file proper IGM and Bill of Entry for home consumption in respect of the said vessel. Investigation conducted revealed that the appellant had converted the status of the vessel from foreign to coastal on 04/02/2011 by filing a manual Bill of Entry No.51 dated 02/02/2011 for clearance of provisions and bunker fuel on the vessel and paid customs duty accordingly. The said vessel after remaining in Indian waters for about 1 1/2 months was exported back on 26/03/2011.

A Search of the appellant's premised was conducted on 22/07/2011 by the SIIB of Mumbai Customs House and import documents pertaining to the import of the said vessel were seized. Statements of persons concerned were also recorded.

On completion of the investigation, a show-cause notice was issued to the appellant proposing to assess the value of the vessel at USD 70,52,421.25 + EURO 17,677.20 (CIF) and demanding duty thereof under the provisions of Section 28 (4) of the Customs Act, 1962. It was also proposed to confiscate the said vessel under Section 111(a),(b),(f),(g),(h) & (j) of the Customs Act, 1962 and impose penalty on the appellant under Section 112/114A of the Customs Act. Personal Penalties u/s 112(a) were also proposed.

The case was adjudicated by the Commissioner of Customs (Import), Mumbai and the duty demand was confirmed under Section 125 (2) of the Customs Act, 1962 and the appellant was directed to file a Bill of Entry for the import of the vessel for assessment under Section 17 of the Customs Act, 1962. It was also held that the goods are liable to confiscation. But confiscation could not be done as the vessel had already left the shores of India. A penalty of Rs. 1 crore was imposed on the appellant under Section 112(a) and a penalty of Rs.25 lakhs was imposed on Shri Vijayan Chrysostom D'Souza, Senior Vice President of the appellant firm under Section 112 (a) of the Customs Act.

The appellant is before the CESTAT against this order and submits -

+ since there has been no seizure of vessel nor the goods confiscated; therefore, the demand of duty under Section 125 (2) is not sustainable in law.

+ that in the instant case when the vessel was imported they had filed IGM; they had also filed the arrival report to the Custom authorities on 02/02/2011 giving the details of the crew list, personal property list, foreign currency declaration, ships stores list, bonded stores list and ship currency declaration list; applied for entry inwards in the prescribed format on 04/02/2011; filed bills of entry for the cargo carried by the vessel and had discharged the Customs duty liability on the goods. Thereafter, they had requested for conversion of the vessel from foreign run to coastal run vide application dated 02/02/2011 and the vessel was examined by the concerned Customs Officers on 03/02/2011 and the vessel was permitted to be converted from foreign run to coastal run vide approval dated 04/02/2011; after completion of the salvage operations, they had sought port clearance for the export of the vessel, which was granted to them view port clearance certification dated 26/03/2011.

+ Thus, the department was well aware of the arrival of the vessel and the cargo it was carrying, the purpose for which it was brought to India and the conversion of the vessel from foreign to coastal run was also permitted by the competent authorities. After completion of the salvage operations, after obtaining clearance from the Customs Authorities, the vessel was re-exported in March 2011 and hence have not suppressed any facts nor withheld any information from the department and, therefore, the question of imposing any penalty on the appellants do not arise at all.

+ Board's Circular No. 16/2012-Customs dated 13/06/2012 clarified:

“As regards the vessel for conversion into costal run/ trade as detailed in para 3.4, since the changes in the duty structure for levy of CVD on vessels which are being converted for coastal trade was initially imposed from 01/03/2011, and subsequently retrospective exemption has been provided for the period 01/03/2011 to 16/03/2011 vide clause 129 of the Finance Act, 2012, the requirement for filing IGM and Bill of Entry may be insisted in all such cases w.e.f. 17/03/2012, that is the date from which levy of CVD has come into force”.

+ As such, since prior to 17/03/2012, there was no requirement of filing of IGM and Bill of Entry in respect of vessels brought from abroad and converted for coastal trade; therefore, the demand of duty and imposition of penalty in this case is not sustainable in law.

The Revenue representative held his ground and reiterated the findings of the adjudicating authority.

The Bench observed -

+ …the provisions of Section 125 (2) are attracted only when the goods are seized and thereafter, confiscated. In the case before us there is no seizure and there is no confiscation as is evident from the Commissioner's order. Therefore, the demand of duty on the vessel by the Commissioner is clearly unsustainable in law.

+ …, the Customs department was well aware of the activities undertaken by the appellants and if the appellant had committed any error in following the proper procedure, nothing prevented the Customs authorities from advising the appellants to comply with the proper procedures which was not done.

+ from Circular No. 16/2012 dated 13/06/2012, it is very clear that only w.e.f. 17/03/2012, the requirement of filing IGM and Bill of Entry has been made mandatory in respect of vessels brought from abroad which are being converted for coastal trade. Prior to that date, there was no requirement of filing of any IGM or Bill of Entry for the vessel, as there was no duty liability on the vessel, in view of the exemption available.

+ in the instant case, the vessel was brought into India on 02/02/2011 much before the levy of CVD was imposed on 16/03/2011. That being the position, the question of payment of duty by the appellant or filing of IGM or Bill of Entry would not arise at all.

Holding that the appellants have made out a strong case in their favour, the Bench granted waiver from pre-deposit of dues adjudged and stayed recovery.

(See 2013-TIOL-735-CESTAT-MUM)