By TIOL News Service

MUMBAI, NOV 06, 2013: THE applicant had imported self-propelled Tug Smit Jaguar and claimed exemption under Notification No.21/2002-Cus dt.01.03.2002, Sl. No. 216, List No. 12 and condition Sr. No. 31. As per the condition No. 31, the importer was required to obtain a Certificate from a duly authorized officer of the Director General of Hydrocarbons, in the Ministry of Petroleum and Natural Gas, Govt. of India to the effect that the imported goods are required for petroleum operations referred to in Clause (a) and have been imported under the contract referred to in that clause. The goods were cleared and exemption was granted. The applicant also executed a bond for Re-export after completion of the contract period.

On an investigation, it was found that the vessel was used for other than the petroleum operations i.e. for “salvage operation” in the Mumbai Port for a period of 22 days from 10th August 2010 to 2nd September 2010. The department was of the view that as the applicant has violated the condition of the Notification that the imported vessels has to be used only for petroleum operations therefore, they are not entitled to the benefit of Notification 21/2002-Cus.

Accordingly, an order was passed by the Commissioner of Customs, Mumbai confirming the duty demand of Rs.5,40,88,924/- alongwith interest and equivalent amount of penalty. Redemption fine of Rs.5 crores in lieu of confiscation and a penalty of Rs.5 lakhs on the Import Manager of the firm was imposed.

By Stay order dated 8th February, 2013, the Bench had waived the pre-deposit and granted a stay in the matter [See 2013-TIOL-1599-CESTAT-MUM]. The appeal was heard recently.

Before the CESTAT, the appellant submitted that the vessel was used for the intended purpose of petroleum operation in the Panna-Mukta Oil Fields on the West coast of India.Thereafter, during the currency of the contract the vessel was diverted into the service of the salvage operation of MSC Chitra in the Mumbai Harbour for a period of 22 days from 10.8.2010 to 02.09.2010 without any prior intimation to the Customs authorities. It is further submitted that as the said notification does not attach any post-importation or end-use condition, therefore, there is no breach of any condition of the notification and consequently the benefit of the notification cannot be denied. Reliance is placed on the decision in case of Clough Engineering Ltd. - 2006-TIOL-102-CESTAT-MUM in support of their stand.

The Revenue representative submitted that the exemption is given to the goods specified in list 12 required in connection with petroleum operations undertaken under specific contract subject to fulfillment of condition no.31. Therefore, the exemption will not be available to the goods if the same are required for salvage operation or used for salvage operation and that too for monetary consideration as found by the adjudicating authority; that post importation condition or end-use condition is inbuilt in the relevant entry itself, therefore, the condition of the notification is clearly breached. Consequently, the benefit of the Notification is not available and same condition was in the case of King Rotors & Air Chapter P. Ltd. (2011-TIOL-1785-CESTAT-MUM) wherein the CESTAT denied the benefit of notification 21/2002-Cus and, therefore, the Commissioner has rightly confirmed the demand.

The Bench considered the submissions and after extracting the relevant entry to the notification observed -

"7. On careful consideration of the condition attached to the Notification it is clear that the appellant is required to produce a certificate from a duly authorized officer of the Directorate General of Hydrocarbons in the Ministry of Petroleum and Natural Gas, Government of India, to the effect that the imported goods are required for petroleum operations and it is not in dispute that the vessel imported was used for intended purpose. It is also an admitted fact that during the period of contract, the vessel was used for salvage purpose but it does not mean that the vessel was not used for intended purpose. The facts of the case in the case of Clough Engineering Ltd. supra are applicable to the facts of the case in hand wherein this tribunal granted the benefit of the notification despite the fact that the excess quantity of C.S.Pipes intended for petroleum operation was diverted in the local market….The said order has been affirmed by the Hon'ble Apex Court. We further find that the facts of the case in King Rotors & Air Charter P. Ltd. are not applicable to the facts of this case as in that case as per the condition of the said Notification the assessee was required to file an undertaking for a particular use of the Helicopter. Admittedly, the appellants have not given any undertaking to the department for exclusive use for petroleum operations. Therefore, the decision of King Rotors & Air Charter P. Ltd. is not applicable to the facts of this case."

Noting that the facts in the case of Clough Engineering Ltd. are applicable to the facts of the case in appeal, inasmuch as the vessel imported by the appellants was for intended use in petroleum operations and the same was used for that purpose, the Bench held that the appellants are entitled for exemption although the said vessel was used for salvage operations for the period of 22 days.

In fine, the order of the Commissioner was set aside and the appeals were allowed with consequential relief.

Another Chitra : See 2013-TIOL-735-CESTAT-MUM.

(See 2013-TIOL-1653-CESTAT-MUM)