By TIOL News Service

NEW DELHI, FEB 03, 2017: THE present appeals have been preferred against the judgment and order dated 30th June, 2003 passed by the Customs, Excise and Service Tax Appellate Tribunal (for short, "the tribunal") by the revenue as well as the assessee as both are aggrieved in respect of certain conclusions arrived at by the tribunal.

The first respondent, M/s Aban Loyd Chiles Offshore Ltd., engaged in business of offshore oil and gas exploratory drilling and related activities on contract basis, inter alia, for the Oil and Natural Gas Corporation Limited ( ONGC ) had obtained the approval of the Government of India on 25.03.1987 for the import of a Rig for such oil field services. It was granted a Special Import Licence dated 24.04.1987 for the import of the said Rig along with certain drilling equipments . The assessee purchased in July 1987 a rig, Griffin Alexander III, from Griffin Alexander Drilling Co. for a price of US $ 5.39 million. The rig was towed directly to the drilling site at Bombay High in October 1987. In February 1996, the importer wrote to the Commissioner of Customs, Mumbai, seeking permission to import the rig into Mumbai for carrying out repairs and re-export in terms of the provisions of Notification No. 153/94- Cus .

The rig was towed into the waters comprising Mumbai Port on 12.11.1996 and after it was repaired, taken out of the territorial waters of India. It was once again imported to India on 9th December, 1998, being towed into Indian territorial waters by two tugs of the ONGC . After repairs, the rig was again towed out of the Indian territorial waters.

Investigations by the Customs authorities into these two cases of importation led them to conclude that there had been contravention of certain provisions by the assessee and others with regard to these two acts of bringing the rig into India. The rig was formally placed under seizure on 27th March, 1999 but subsequently was released following the order passed in writ petitions filed by the assessee before the Bombay High Court, permitting the rig to be used on payment of an amount of Rs . 1.0 crore and execution of a bond for its value.

After considering the explanation offered by the assessee, the Commissioner passed an order wherein he recorded a finding that the rig was carried and brought to Mumbai on three occasions; in February, 1996, on 9th November, 1996 and on 9th December, 1998. It was not declared in the Import General Manifest of the towing rigs, as was required under Section 46 of the Act. Such formalities as filing the bill of entry were not undertaken and, therefore, the rig was ordered for confiscation under clauses (f), (g), (j), (h) and (j) of Section 111. The Commissioner also held that the rig was imported for home consumption and hence, the assesses were liable to pay duty on the value of Rs . 44,40,28,320/-, determined after depreciating the value by 70% from the built cost of the rig. Being of this view, the said authority confirmed the demand for duty amounting to Rs . 27.91 crores, confiscation of the rig and had given the option of redeeming it by payment of fine of Rs . 2.0 crores. The authority exonerated Managing Director of the Company, imposed penalties of Rs . 50,000/- each on Vice President and General Manager, ordered confiscation of three towing vessels but permitted them to be redeemed on payment of fine of Rs . 1.0 lakh each and imposed penalties on ONGC , and Benny Ltd., the importer's agent.

Aggrieved by the said order, assessee preferred appeal before the tribunal.

The tribunal took note of the undisputed fact that when the rig was engaged in drilling and such activities outside Indian territorial waters and while not being in areas under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other maritime Zones Act, 1976, it was a foreign going vessel. The question that was posed by the tribunal was whether the vessel ceases to be a foreign going vessel when it enters into Indian territorial waters for purposes of repairs. It opined that a drilling rig, when engaged in drilling operations outside the territorial waters of India, is a foreign going vessel. Analysing the provisions of the Act and the authorities in the field, the tribunal held that a ship that is engaged in carriage of cargo or passengers between Mumbai and Abu Dhabi is a foreign going vessel covered by the first part of the definition and would be as such a foreign going vessel throughout the length of its voyage, if, during its voyage between these two ports, it touches other Indian Ports. It further opined that a rig had been held as a foreign going vessel because it was engaged in the operations outside Indian territorial waters.

in view of clause (2) of the extended definition, but it would not be appropriate to apply the first part of the definition while considering the second. The tribunal on that basis held that each of the three clauses of the extended definition applied to different fact situations, and each of these situations requires to be considered on its own merits. Being of this view, it ruled:-

The tribunal dealt with the contention of the department that when the rig came into India, it lost its character as rig and became goods and its importation is complete. It was held that there was no justification for holding the vessels were not goods for the purposes of Section 46(1) of the Act and, therefore, addressed the question as to whether the vessels which were to be used in Indian territorial waters for topping of bulk carriers could be said to be vessels for home consumption merely on that account. It said that for the purposes of levy of customs duty, it is necessary to determine whether imported goods are "goods for home consumption".

The tribunal eventually concluded that if the goods are imported with the intention of putting them to any kind of use in India, they are goods for home consumption and even if the vessel is used occasionally for short periods in India it would be goods for home consumption; that the rig under consideration was not intended to be used in India as it was only brought into India for the purposes of repair; and that it cannot be said that a rig brought into India for repairs and taken out after the repairs was intended to be used in India because it could not be properly put to use as repairs became necessary.

The tribunal also observed that the rig was not in the process of transit through Indian waters for the purpose of going from one point to another for drilling and this being the case, it cannot be said that the rig was goods imported for home consumption and covered under Section 46(1) of the Act. It further held that while the act of import commences when the goods enter the territorial waters, it continues and is completed only when it merged with the mass of the goods in the country and hence, it is deducible that import had not been completed. On the aforesaid basis, it concluded that in the circumstances payment of duty on the rig did not arise and even if the rig was liable to duty.

After so holding the tribunal addressed to the contravention of the provisions of clauses (f), (g) and (j) of Section 111 of the Act. Analysing various aspects, it opined that the provisions of Section 111 would be attracted and, therefore, contravention of clause (f) had been established. It was also held that clause (g) would also be attracted as the goods were unloaded without the permission of the competent authority as required under Section 32 of the Act. It was also held that clauses (h) and (j) would be applicable. Being of this view, the tribunal opined that the rig was liable for confiscation. However, it opined that as there was no deliberate intention on the part of the importer to contravene the said regulations although there had been clear negligence and rules had not been followed. Having regard to the facts, it reduced the fine for redemption of the rig.

That has compelled the revenue and M/s Aban Loyd Chiles Offshore Ltd.to file Civil Appeal before the Supreme Court.

The Supreme Court noted certain concepts to appreciate the controversy.

‘Goods' for the purpose of the Act includes vessels, aircrafts and vehicles as defined in sub-section (22) to Section 2, yet the distinction has to be recognized between a vessel or an aircraft as a mere good and when the vessel or an aircraft comes to India as a conveyance carrying imported goods. When a vessel or an aircraft is imported into India as a good, customs duty is payable thereon. However, when a vessel is used as a conveyance of an imported good, the position would be different.

The Supreme Court observed,

The expression "import" is a wide expression, which would include cognate expressions and means bringing into India from a place outside India. The word "India" for the purpose of the Act includes the land mass as well as territorial waters. The term "dutiable goods" are goods which are chargeable to duty and on which duty has not been paid. Once duty has been paid, the goods cease to be dutiable goods .

The Supreme Court noted that, “As long as the rig was used for operations within the territorial waters of India, the rig would meet the requirement and satisfy the condition that it was an imported good meant for home consumption.”

The Supreme Court further observed,

In the case at hand, neither the adjudication order nor the order passed by the tribunal has elucidated or held that the rig in question was in operation in the territorial waters or the designated/deemed territorial waters pursuant to the notification. The issue of chargeability and liability to pay customs duty has been on different precepts and grounds.

Mere repair of a vessel is not putting the vessel to use in India and would not result in home consumption as the vessel was not utilized within the territory of India. Repairs are carried on the vessel and not to utilize the vessel. It would not amount to utilization or operation of the vessel/rig in India. Thus, it cannot be said that the vessel, i.e., the rig, was imported into India when it had anchored twice in 1996 and once in 1998 for the purpose of repair, for the element of home consumption is missing even when the vessel, i.e., the rig, had entered the territorial waters. Thus, it would be incorrect to hold that mere repair of the vessel in 1996 or in 1998 would constitute taxable import.

While we are disposed to accept that there was no import, we would not on the said finding hold that the owner had not violated the provisions of the Act, which are much broader and wider in scope. The Act regulates and mandates compliance by the foreign going vessels when they enter the territorial waters. Provisions of the Act are required to be met and complied with even when no goods are to be unloaded for import into India or the vessel is not a ‘good' meant for home consumption. Thus, violations recorded by the tribunal cannot be found fault with.

Thus analysed, we are of the indubitable opinion, that the decision rendered by the tribunal deserves our concurrence and we so do. Consequently, all the appeals are dismissed without any order as to costs.

Thus all the appeals by Revenue as well as assessees were dismissed.

(See 2017-TIOL-49-SC-CUS)