By TIOL News Service

MUMBAI, DEC 04, 2014 : THE Commissioner of Customs (Imports), NCH, Mumbai classified the vessel, M.V. Viva, imported by the appellant under CTH 8904 as 'Anchor-Handling Tug/Supply Vessel' (AHTS), liable to customs duty at an effective rate of 9.356%. He also determined the value of the goods at Rs.10,29,81,975/-by holding the cost of the vessel as Rs.8,41,79,443/-and added freight @20% & cost and insurance @1.125% of the cost. Accordingly, the duty payable on the said goods was held as Rs.96,34,994/-. Confiscation of the vessel was also ordered with an option to redeem the same on payment of fine Rs.1 crore. An equivalent penalty was imposed on the appellant and a penalty of Rs.5 lakhs on the Director of the firm.

Before the CESTAT the appellant submitted that the vessel is a supply vessel and is registered in the Indian Register of Shipping as a 'supply vessel' vide Interim Certificate of Class dated 02/07/2010; that the surveyor of Indian Register of Shipping has classified the impugned vessel under 'Other Cargo Ship' (Supply Vessel)'. When the vessel was imported, the same was examined by the Customs with the help of a Chartered Engineer and the Chartered Engineer vide a certificate dated 16/03/2010 has inter alia observed that the vessel is specialized and will be utilized for the purpose of Transportation of Persons & goods. That the certificate issued by Tidewater Statesman Service relating to the characteristics of the vessel mentions that the vessel can carry 29 persons on board and it has a capacity to carry cargo of 609.6 MT on the deck; vessel has been modified after purchase from the original owner at Dubai; that the vessel is not a towing vessel. Inasmuch as the vessel is a supply vessel meant for carriage of cargo or person and, therefore, the vessel is rightly classifiable under CTH 89.01 and there would not be any duty liability required to be paid by the appellant, submitted the appellant.

In the matter of valuation adopted by the adjudicating authority it is submitted that since the vessel was moved on its own strength the question of adding freight and insurance @ 21.125% would not arise at all and only the actual cost of transportation incurred by the appellant can be added towards freight and insurance; that since the goods have been examined before clearance by the Customs, the question of any misdeclaration would not arise at all and consequently the goods cannot be said to be liable to confiscation under Section 111(m). Reliance is placed on the decision in Hal Offshore Ltd. vs. Commissioner of Customs (Import), Mumbai -2012-TIOL-2048-CESTAT-MUM.

The AR submitted that the vessel was originally registered as 'Anchor Handling Tug/Supply vessel'. Though the vessel was old and used, it was heavily reconditioned and the documents available on the vessel showed that it was an anchor handling towing vessel which is also confirmed from the owner's specifications submitted by the importer. These documents available on record clearly show that the vessel is a tug or a towing vessel and, therefore, it is appropriately classifiable under Heading 8904; that since the appellant has not led any evidence towards the actual freight incurred, therefore, the adjudicating authority is right in taking the freight @20% of the cost and insurance @1.125% of the cost as provided in law.

The Bench inter alia observed -

++ From the certificate of classification issued by the Indian Register of Shipping and the Safety Management Certificate dated 09/02/2010 issued by the Indian Register of Shipping, it is seen that the vessel has been registered as a supply vessel under the category of 'Other Cargo Ship'.

++ From the Chartered Engineer's certificate produced at the time of inspection, it is seen that the vessel has been classified as supply vessel and is specialized for the purpose of transportation of persons and goods, though earlier the vessel was classified as anchor handling tug/supply vessel. However, the vessel has undergone substantial modification at Dubai before being imported into India. As regards the winch fitted on the vessel it is for pulling/moving/shifting on board heavy equipment and the winch is not meant for any towing purposes at all. However, from the original manufacturer's certificate issued by M/s. Tidewater Statesman Service, the vessel has a capacity to carry 29 persons and capacity to carry cargo. From these evidences available on record, it is seen that the vessel is primarily meant to be used as a supply vessel and not as a tug or a towing vessel.

++ In view of the classification of the vessel by the Indian Register of Shipping as a 'supply vessel', which is the competent authority for issue of certificate of class of vessels in India, and also in view of the Chartered Engineer's certificate issued at the time of importation, there is merit in the appellant's contention that the vessel would merit classification under CTH 8901. We also find that the American Bureau of Shipping has also classified the vessel as a 'supply vessel'.

++ The appellant had given details of the expenditure incurred by them for the transport of the vessel from Dubai to India. In such a situation, the Commissioner could not have added freight and insurance @21.125%. Since the vessel had come on its own motion, only the actual cost of transportation incurred should have been added for determination of assessable value.

++ When the appellant claims a classification under CTH 8901, it is based on its understanding of the subject matter and the same cannot be treated as a misdeclaration as held by the apex Court in the case of Northern Plastic Ltd. vs. Collector of Customs & Central Excise -2002-TIOL-604-SC-CUS. In the present case, the vessel was boarded by the Customs officers and was examined. Thereafter, the goods have been cleared accepting the declaration of the appellant. In such circumstances, the question of misdeclaration would not arise at all.

++ Therefore, classification as held by the adjudicating authority, with which we do not agree, cannot be a reason for invoking the provisions of Section 111(m) for confiscating the goods and imposition of fine and penalty on the appellants. Such a unilateral action on the part of the department without any rhyme or reason cannot be sustained in law.

The appeal was allowed with consequential relief.

(See 2014-TIOL-2438-CESTAT-MUM)