By TIOL News Service

AHMEDABAD, JULY 17, 2014: THE appellants are ship breakers and bought old and used ship for breaking up. The ships/vessels contain Marine Gas Oil (HSD) in the tanks of the vessel in addition to the MGO (HSD) lying in the tank of the ship engine. As per the agreements, buyers of the ships also take over the oil bunkers, unused lubricants and unused stores and provisions at the port of delivery of the vessels without any extra payments. The commercial invoice showing the purchase of vessels meant for ship breaking does not disclose any extra price for the MGO (HSD) etc. so acquired by the appellants.

Appellants paid the applicable duty on MGO (HSD) but according to Revenue, MGO (HSD) is a canalised item as per ITC (HS) 2012, Schedule I of Import policy and HSD is subject to import only through IOC subject to Para 2.11 of the Foreign Trade Policy and imports of such MGO/HSD is restricted.

Both the lower authorities held that appellants have contravened the provisions of Para 2.11 of the Foreign Trade Policy thus rendering the MGO/HSD liable to confiscation under Section 111(d) of the Customs Act, 1962 read with CBEC clarification issued under F.No.528/74/2012-GTO(TV), dt.26.01.2013.

The appellants are before the CESTAT and submit as under -

+ As per EXIM Policy Heading 27 10 1940 and 20 10 19030, LDO and HDO are canalised items to be imported only through State Trading Agencies and vessels and other floating structures for breaking up are classified under EXIM code 8908 00 00 of the same EXIM Policy, import of which is free.

+ MGO (HSD) is not separately imported by the appellant but is received along with the vessel as ship stores, along with other ship stores and no extra price is paid for such MGO (HSD) acquired by the appellants.

+ DGFT letterF.No.IPC/4/5(684)/97/82/PC-2(A), dt.26.06.13 in Para 4 has clarified that surplus fuel stored in the fuel tanks (whether inside or outside the engine room) form an integral part of the vessels machinery and is classifiable under EXIM code 89.08 of the EXIM Policy. That as per Para 2.3 of the Foreign Trade Policy, interpretation made by the DGFT is final and binding. Reliance is placed on the decision in Priya Holding (P) Ltd 2012-TIOL-631-HC-AHM-CUS and it is also emphasized that interpretation made by the DGFT on the import policy are binding on the customs authorities.

The Revenue representative referred to CBEC clarification F.No.528/74/2012-B TO (TU), dt.22.01.2013 and submitted that the fuel contained in the vessels bought for breaking up should not be allowed free as per the import policy restrictions and that these instructions are binding on all the field formations.

The Bench referred to Para 2.3 of Chapter-2 of the Foreign Trade Policy (2009 to 2014) and observed that as per the same any doubt regarding classification of any item in ITC (HS) or HPBv1 or HBPv2 or schedule of DEPB Rates should be referred to DGFT whose decision shall be final and binding. Inasmuch as per the clarification/opinion of Joint Director General of Foreign Trade New Delhi, surplus fuel stored in fuel tanks of vessels/ship brought for breaking up is classifiable under 89.08 along with the main vessel, the Bench observed.

The CESTAT further noted that the opinion/clarification issued by Joint DGFT has to be considered as a clarification issued by DGFT & will be binding on the customs so far as ITC restrictions are concerned under Foreign Trade Policy.

The Bench also added -

+ The same clarification issued by DGFT may not be binding on the Customs for the classification of the same goods under the Customs Tariff Act which is the sole domain of the Customs Authorities.

+ However, so far as classification of the ships/vessel, brought in for breaking up along with surplus fuel, will have to be considered classifiable under Heading 89.08 of the Import policy as an integral part of the vessel/ship, as per opinion given by DGFT under F.No.IPC/4/5(684)/97/82/PC-2(A), dt.26.06.2013.

+ As the imports under ITC(HS) 89.08 are free without any restrictions, therefore, such MGO/HSD contained in the vessels brought in for breaking up, cannot be held as liable for confiscation under Section 111(d) of the Customs Act, 1962 and no penalties upon the appellants are imposable in the present appeals under Section 112(a) of the Customs Act, 1962.

+ It is also relevant to mention that no ITC action is taken by the Revenue when an ocean going vessel is converted into coastal run vessel and only duties are paid on the fuel used during the coastal run.

In fine, the appeals filed by the appellants were allowed with consequential relief.

(See 2014-TIOL-1268-CESTAT-AHM)