By TIOL News Service

MUMBAI, SEPTEMBER 16, 2015. M/s Schlumberger Asia Services Ltd. is having its registered office in Hong Kong with a project office established in India. The appellant is a service provider to ONGC and was engaged by ONGC for rendering services such as wire line testing, measurements while drilling etc. in their offshore oil well drilling operations, beyond the territorial waters of India. The appellant used to assist ONGC in contracting with overseas vendors for procurement of second hand logging tools and spares required on hire basis for oil well drilling operations. There was no outright sale of such goods either to the appellant or to ONGC and the title of the imported tools and spares remained with the overseas vendor. As per contract, the CIF value of any tools which were lost in the sea during operations was recovered from ONGC and in most cases the said tools and spares were re-exported after being used for the ONGC work.

IN the year 1998, the DRI initiated investigations and asked certain information from the appellant regarding the import of logging tools and spares for ONGC contract. After scrutiny of the documents, it was revealed that in a few instances, there was a difference between the values declared to the Customs in the invoices submitted to the Customs at the time of import vis-à-vis the values stated in the documents available in the appellant's file.

Thereafter a show-cause notice was issued demanding customs duty on imports made through courier/hand baggage and in three cases by sea along with proposal for recovery of interest and imposition of penalties. The appellant also deposited a sum of Rs. 2 crores during the course of investigation. The show-cause notice was adjudicated and the demand against the appellant along with interest and penalties were confirmed.

In appeal, the Tribunal remanded the matter vide its order dated 17.04.2003.

In remand proceedings, again the demand of duty, interest and penalties on both the appellants have been confirmed by the Commissioner of Customs (Adj.), Mumbai on 29.09.2005.

The appellant is before the CESTAT against this order.

The Member (J) held as below –

+ It is not in dispute the imports in the instant case were effected either by ONGC or by courier or by hand baggage. Therefore, in these circumstances, the appellants cannot be held as importer as the appellants neither filed bill of entry nor they claimed owner of the goods or the goods were imported for the benefit of the appellants. In fact, by all means, the goods were imported for an on behalf of the ONGC by courier agency or by hand baggage. In case the imports were made by courier agency, the courier agency is required to file bill of entry therefore the courier is the importer. In case of hand baggage, the passenger who brought the baggage is the importer. In case of the imports were made through sea, ONGC has to file bill of entry as importer. This position has not been disputed by the Revenue. Therefore, the liability of payment of duty cannot be fastened on the appellants as the appellants are neither the importer of the goods nor the owner of the imported goods as per the agreement between the ONGC and the foreign supplier.

+ the impugned goods were used on board rigs which were rendering services to ONGC beyond the territorial waters of India as these were called as ship stores and consumption on board foreign going vessels. Section 85 of the Customs Act gives exemption from payment of duty for such ship stores. This fact has not been disputed by the adjudicating authority that the rigs have been used beyond the territorial waters of India which qualify as ‘foreign going vessel by virtue of the definition of the expression foreign going vessel in Section 2(21) of the Customs Act, 1962. The adjudicating authority has denied the benefit on the ground that the appellants have not claimed the benefit under Section 85 of the Act at the time of import.

+ Since Section 85 of the Customs Act, 1962 does not require any prior permission to be taken, the learned Commissioner ought to have taken note of the undisputed position emerging from the detailed investigation of the case that the goods in question had indeed been used as ship stores and granted post facto permission under Section 85 of the Act.

+ when the factum of export has not been disputed therefore, the benefit of exemption should not be denied for procedural violation as held by the Hon'ble Bombay High Court in the case of Repro India Ltd. vs. UOI – 2007-TIOL-795-HC-MUM-CX. In this case it is not in dispute that immediately after importation of the goods, the goods were re-exported after use by ONGC therefore, the goods are not liable to pay any duty.

+ we hold that as the appellants are neither importers nor they claim to be owner of the goods, therefore, the appellants are not liable to pay duty. Further, as per Section 85 of the Customs Act, 1962 the goods are entitled for exemption of duty.

+ Appellants are not liable to pay duty but as they are not contesting the confirmation of duty against themwe drop the penalty imposed on both the appellants. Appeals are disposed of.

The Member (T) had a differing view –

He held as below -

+ I find that my learned brother has set aside the demand mainly on two grounds. First ground being that the appellants are neither importer nor claimed themselves to the owner of the goods therefore duty liability cannot be confirmed against the appellants. The second ground is that Section 85 of the Customs Act gives exemption from payment of duty for ship stores and in view of this position no duty is chargeable on the goods.

+ At the outset in my view, both the issues are beyond the direction of remand and, therefore, cannot be taken in the second round of litigation. No appeal was filed by either party and hence Tribunal's order has attained finality. This Tribunal therefore need not go into these questions and should limit to the directions as per remand order. In the first round of litigation including the CESTAT stage, duty and other liabilities and the fact that they are owner of the goods/person chargeable to duty on import were not disputed. Even while passing the impugned order emphasis was on the quantification of the duty amount. Similarly, even in the appeal filed before this Tribunal, the main issue was not about their duty liability.

+ In my view, it is not correct to entertain such plea at this stage more so, when they have accepted the duty and penalty liability due to importation of the goods through courier, through their own employees and through sea/air at the beginning of investigation itself and investigating officer did not note details on these aspects. Remand direction was only relating to quantification of duty and penalty. I also find that in the appeal the re-quantified amount has not been questioned by them and, therefore, appellant seems to be satisfied with the re-quantification.

+ In the present case, even the goods brought as baggage were by appellant's employees as per appellant's direction. Goods were collected by them abroad from appellant's office and were handed over to appellant in India. Such employees have only acted as carrier and smuggled the goods on behalf of the appellant.

+ Ownership of the goods was with the appellant alone. Even the goods were in physical possession of the appellant. All the spare parts received by the courier were in the name of the appellant. Spare parts received through baggage were again sent by the appellant's office abroad and were delivered to the appellant's project office in India. The carriers of such goods were the appellant's employees. Even the goods which had come through sea/air were sent by the appellant's offices abroad and received by the appellant's project office in India. Under the circumstances, in my considered view the main appellant is the importer and is also the person chargeable to duty as provided under Section 28 of the Customs Act.

+ The second ground on which my learned brother has taken a view that duty liability cannot be confirmed as the goods were used on board rigs which were rendering services to ONGC beyond the territorial waters of India as these were called as ship stores and consumed on board foreign going vessels. It is also stated that Section 85 of the Custom Act gives exemption from payment of duty for such ship stores.

+ It is nowhere the case of the appellants that the spare parts imported are that of oil rigs so as to claim the same as ship stores.

+ The Section 85 provides that the ship stores can be kept in a warehouse without assessment of duty. In the present case no goods were kept in warehouse. In fact, all the goods were cleared clandestinely through baggage and also misdeclaring the value and description by courier/air/sea. No catalogue literature were produced at any stage so as to even examine whether the goods can be considered as stores to vessel or aircraft and, therefore, benefit of Section 85 cannot be extended at this stage.

+ Section 85 itself stipulates (i) goods to be ship stores, (ii) goods are entered for warehousing, (iii) makes and subscribes to a declaration that goods are to be supplied as stores thereafter proper officer may permit. In this case none of the three conditions were satisfied at the time of import. On the contrary, parts were smuggled or misdeclared in value/description. There is therefore no question of granting permission after being caught.

+ I find that the said goods were (i) smuggled through employees of appellant and were sent from appellant's office abroad and finally collected and used by appellant (ii) were imported through courier by misdeclaring the value as also in some cases the description, were again sent from appellant's office abroad and collected in India and used by the appellant. Ownership as also effective control remained with the appellant. The fact that they were used for providing services to ONGC does not make any difference. Smuggling and misdeclaration were at the instance of appellant. Appellant is therefore liable to penalty under Section 112 of the Customs Act and the penalty has been correctly imposed in the impugned order.

+ A penalty of Rs. 1 lakh is imposed on Shri Sudhir Pai, second appellant. Correspondence recovered clearly establishes his role in the whole episode of misdeclaration/smuggling.

Both the appeals were dismissed.

In view of the difference in opinion the matter came to be referred to the third Member (Judicial).

This was on 19.08.2014.

Thereafter, the appellant filed a ROM application against this order and which came to be rejected on 23.03.2015. We reported it as 2015-TIOL-1084-CESTAT-MUM .

Recently, the third Member (J), on reference, has passed an order.

And he held thus –

+ the order passed by CESTAT, remanding the matter back to the adjudicating authority cannot be so read so as to limit its scope only to the determination of the effective rate of duty. It is nobody's case that the appellant had before the CESTAT given up on all its other contentions and had confined its case to a dispute only on the quantum of duty demanded and the consequent penalty. In my view unless there is an express conceding of the issue and the legal contentions, which the Tribunal records in its order, it cannot be construed that when the matter has been remanded by finding merit in one of the contentions urged, that, the other contentions stand given up or foregone. It has always been the practice of this Tribunal, that whenever an assessee gives up on any of its contention or makes a concession, the same is specifically recorded in the order. In the instant case neither from the order nor from the records I could find either any written or oral concession on the part of the appellant with respect to any of legal contentions and the issue. It is also significant to note that even the Respondent Commissioner who adjudicated the matter on remand did not construe the scope of the remand as being limited only to determination of the effective rate of duty after applying the applicable exemption notification. The Respondent Commissioner has in his remand order dealt with all contentions urged by the Appellant. The said order has also not been reviewed nor an appeal filed against the same on the ground that the same was beyond the scope of the remand directions. I am, therefore, of the view that the scope of the remand order was not confined to determination only of the effective rate of duty.

+ it is not in dispute that goods were used or consumed in the offshore locations to which the jurisdiction of the Customs Act was not extended. It is only w.e.f. 7.2.2002 that the provisions of the Customs Act, 1962 were extended to the whole of the Continental Shelf and the whole of Exclusive Economic Zone of India. Prior thereto, the jurisdiction of the Customs Act has been extended only to some specific designated areas in the CS & EEZ by Notifications dated 11/1987-Cus dated 14.1.1987 and 64/1997-Cus(NT) dated 1.12.1997. It is not the Revenue's case that the vessels were operating in the said designated areas. In this view of the matter, the present case can be termed as one of transshipment, where the goods are meant to be taken outside India and in terms of Section 54(2) of the Act, no duty is payable on such goods.

+ in terms of Section 46 the importer of any goods other than goods intended for transit or transshipment is required to file a bill of entry, with the proper officer for home consumption or for warehousing the goods. In the instant case since the goods were not imported for home consumption, i.e. for use within India but were to be transshipped to the Continental Shelf and Exclusive Economic Zone of India to which the Customs jurisdiction did not apply at the relevant time, as such no demand for customs duty can be sustained on such goods which have been brought into India for being transshipped. It also clearly comes out from the record that the goods after being used were brought back to the main land for re-export outside the country. In my view for this movement also, there can be no liability to customs duty as the goods were exported outside the country.

+ the reason assigned by the Respondent for confirming the demand for duty against it i.e., on the premise that it was the owner of the goods is manifestly incorrect and contrary to the accepted position in the notice to the effect that the ownership always vested with the holding/associated companies overseas.

+ prior to the goods being cleared for home consumption the law provides with an option either to the person causing the import, owner of the goods or any other holding himself out to be the owner to come forward and file the Bill of Entry as an importer. One of the three having elected to become the importer, such a person cannot subsequently resile from the consequences which flow from such an election. It appears that insofar as courier imports are concerned it is the courier which held itself out to be the importer and filed a bill of entry seeking clearance of the goods. If there was any mis-declaration of value, the only course of option available to the revenue was to raise a demand, if any, against the courier.

+ There is absolutely no evidence which would even suggest let later alone establish that either the Appellant or the CHA on its behalf, had with the concurrence of the courier, filed a bill of entry seeking clearance of the goods imported through courier.

+ Whether Customs duty could have been demanded from the Appellant in respect of goods brought in as hand baggage by its employees without declaring the same or by mis-declaring the value? - the Appellant are not the owners of the goods and consequently the sole premise on which the demand has been confirmed against them by the Respondent cannot be sustained. Insofar as the finding of the Member (T) which has been reiterated by the Ld AR that the Appellant having undertaking to pay tax the investigating authorities did not investigate to find out who had actually brought in the goods, cannot by any stretch of imagination countenanced. It is settled law that tax cannot be levied by acquiescence or agreement. It was for the investigating authorities to have raised the demand against the person from whom it was legally due. They could have however legally sought appropriation of the amount deposited as duty by the appellant based on their authorization. However, having failed to raise the demand against the person from whom it is due revenue authorities cannot fasten the same on the person who in the course of investigation deposited the said amount.

Whether in case of imports made by sea could duty have been demanded from the Appellant? - the onus was on the revenue to establish as to who had actually filed the Bill of entry and had taken upon it the mantle of an importer. The Revenue having failed to discharge this burden, it was not open for the Revenue to draw an adverse inference against the Appellant and call upon it to prove the negative. Appellant has right from the stage of investigation itself clearly stated in no uncertain terms that ONGC was the importer, which fact has not been rebutted by the investigating authority.

Whether in the facts and circumstances no duty was chargeable from the Appellant? - Appellant not being the importer, as also the goods having been transshipped/re-exported, the duty liability could not be fastened upon the Appellant. Appellant having time and again, before different authorities, accepting that it did not wish to claim refund of the duty paid and that it was contesting the matter only in view of the penalty imposed on it. Given the undertaking made by the Appellant they would not be eligible for refund of the duty deposited by the Appellant even though the same was not recoverable from them, confirmation of duty is erroneous.

The penalties were also held to be not imposable.

In view of the majority decision, the appeals were allowed.

(See 2015-TIOL-1949-CESTAT-MUM)