1 cuapp-30-09 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION jmi CUSTOMS APPEAL NO. 30 OF 2009. The Commissioner of Customs (Import), New Customs House, Ballard Estate, Mumbai-400 001. ..Appellant. versus Sea Bulk Offshore LLC, as Owners of the supply vessel M.V. Sea Bulk Toota, C/o. M/s. Bhatt & Saldhana, Advocate & Solicitors, Maker Bhavan No.1, 1st floor, Sir Vithaldas Thackersey Marg, Mumbai-400 020. ..Respondent. .... Mr. Pradeep S. Jetly, for Appellant. Mr. S.N. Kantawalla, a/w. Mr. Kunal Shah, i/b. Bhat & Saldana, for Respondent. .... CORAM : V.C. DAGA & S.J. KATHAWALLA, JJ. DATE : 3RD AUGUST 2010. JUDGMENT (Per S.J.Kathawalla, J.) : The Appellant-Revenue has filed the present Appeal under section 130 of the Customs Act, 1962 (the said Act), challenging the order dated 5th August 2008, passed in Appeal No.C/700/07-Mum., by the Customs, Excise and Service Tax 2 cuapp-30-09 Appellate Tribunal (the Tribunal), West Zonal Bench at Mumbai. 2. The above Appeal was admitted by this Court on 15th April 2009 on the following substantial questions of law :- “i. Whether the order of the CESTAT in reducing fine of Rs.1,00,00,000/- to Rs.5,00,000/- while confirming the confiscation of the supply vessel M.V. Sea Bulk Toota is based on no evidence or partly relevant or partly irrelevant evidence and is otherwise perverse and arbitrary. ii. Whether the order of the CESTAT in setting aside - 1. Fine of Rs.50,000/- in respect of 3.6 MTs of smuggled diesel. 2. Duty of Rs.43,860.30 and 3. Interest under section 28AB on the duty amount, after having earlier confirmed confiscation of the supply vessel M.V. Sea Bulk Toota, is based on no evidence or partly relevant or partly irrelevant evidence and is otherwise perverse and arbitrary ? iii. Whether the order of the CESTAT in setting aside fine of Rs.20,00,000/- in respect of 147 MTs of diesel stored in the supply vessel M.V. Sea Bulk Toota in which the smuggled HSD was mixed in such a manner that the smuggled HSD could not be separated after having earlier confirmed confiscation of the supply vessel M.V. Sea Bulk Toota, is based on no evidence or partly relevant or partly irrelevant evidence and is otherwise perverse and arbitrary ?” 3. The learned Counsel appearing for the Appellant as well as the Respondent has agreed that the question no.(ii) set out 3 cuapp-30-09 hereinabove, need not be answered since the Respondent has complied with the same and therefore, this Court should only answer question nos. (i) and (iii) set out above. Facts :- 4. Specific information was received by the SIIB (Import) on 23rd May 2006 from an unregistered informer that the supply vessel ‘Sea Bulk Toota’ is indulging in illegal sale of smuggled diesel to barges in and around Mumbai Docks. The SIIB (Import) was also informed that presently the vessel was anchored near Chinai Tekdi, opposite Ferry Wharf and will be delivering around 30,000 to 40,000 litres of diesel to the barges in the night of 23rd May 2006 around 11.00 p.m. Based on the information, the SIIB (Import) made necessary arrangements for conducting the search in the night of 23rd May 2006 itself. 5. On the same night, a NGO had approached SIIB (Import) Unit with an information that smuggled diesel was being off-loaded on small barges/fishing crafts near Mora Jetty. The staff of SIIB (Import) along with the NGO and their Informers set of to Mora Jetty. After reaching Mora Jetty, the informers of the NGO could not locate the barges and after waiting for sometime, the team of officers along with the office-bearers of the NGO and their 4 cuapp-30-09 informers returned back to BPX, Mole station where the Customs team then tried to physically contact their informant who had given the specific information regarding the Vessel ‘Sea Bulk Toota’. After confirming the exact location of the vessel, the officers of SIIB (Import) alongwith the members of the NGO (Panchas) and the office-bearers of the NGO, left towards Chinai Tekdi and reached the spot at about 11.45 p.m. After locating the supply vessel when the team of officers went near it, they noticed a barge anchored alongside the supply vessel. On seeing the Customs party, the barge quickly started to leave the supply vessel after removing the pipe from the supply vessel through which they had been receiving diesel. The Customs team chased the barge and after repeated warnings, apprehended the barge. A closer inspection showed the name of the barge to be ‘ML Anchor’. The Customs staff then boarded the barge and caught hold of the Tandel who gave his name as Viplav Kumar Rai @ Sunil Rai and after questioning, he accepted that he had illegally purchased 40MTs of high speed diesel from the supply vessel ‘Sea Bulk Toota’. 6. Some of the Customs staff were asked to remain on the barge and guard the staff members of the barge alongwith Tandel Mr. Viplav Kumar Rai @ Sunil Rai. The remaining staff 5 cuapp-30-09 boarded the supply vessel ‘Sea Bulk Toota’ with two Panchas. After boarding the supply vessel the Custom officers got hold of the Chief Engineer, who was standing on the Deck and went to the Master of the vessel, where both of them were subjected to interrogation. After some time, the Chief Engineer of the vessel, Mr. Errol Tennyson, accepted that he had sold 40MTs of HSD to the barge ‘ML Anchor’ and further admitted that earlier also he used to purchase HSD for his vessel during his Mumbai High voyage and by selling the same illegally to barges he used to make money. 7. After this, it was decided to search the barge thoroughly. During the search of the barge, it was found that the barge had purchased around 40,000 litres of diesel which was found to be stored in the hatch of the barge; which as admitted by the Chief Engineer of the supply vessel, was sold to barge ‘ML Anchor’ from the supply vessel ‘Sea Bulk Toota’ . During the search of the barge US $ 18600.00 were recovered from a gunny bag of rice in which it had been concealed and was to be given to the Chief Engineer of the vessel ‘Sea Bulk Toota’ for the diesel received by the barge but which could not be given due to the raid by Customs party. 6 cuapp-30-09 8. After this, the team of Custom Officers alongwith the Panchas escorted the Tandel of the barge Mr. Viplav Kumar Rai to the supply vessel ‘Sea Bulk Toota’ and while two officers stood to guard near the Tandel of the barge, the remaining staff alongwith the Panchas commenced the search of the supply vessel which resulted in the recovery of unaccounted foreign currency of US$ 27050 from the cabin of the Chief Engineer Mr. Errol Tennyson. The currency had been concealed among readymade garments in a black coloured Zipper bag in the cabin of Mr. Errol Tennyson. Preliminary interrogation of Chief Engineer Mr. Errol Tennyson revealed that this money was the sale proceeds of the sale of diesel on earlier occasions. All the foreign currency amounting to US$ 45,650.00 equivalent to Rs.20,55,000/- (approx.), the barge ‘M.L. Anchor’ alongwith 40,000 litres of diesel and the vessel ‘Sea Bulk Toota’ alongwith 1,35,000 litres of diesel (as declared by Chief Engineer Mr. Errol Tennyson) were taken over and seized under the provisions of the said Act read with the Foreign Exchange Management Act, 1999 (FEMA). Total quantity of the diesel seized was 1,75,000 litres valued at Rs.36,75,000/- (CIF) and having estimated Market Value of Rs.70,00,000/-, the value of the barge ‘M.L. Anchor’ was around Rs.10,00,000/- (as 7 cuapp-30-09 declared by Tandel Mr. Viplav Kumar Rai) and of the vessel ‘Sea Bulk Toota’ was around Rs.3 crores (as verbally declared by the Captain of the vessel). 9. After recording the statements, the said vessel was seized by Special Investigation and Intelligence Branch (Import) under a seizure notice bearing No. F .CO. SG/INF-02/ AKS/ 2006 SIIB(I) dated 21st May 2006 and was subsequently released upon the personal Bond of Rs.8,85,67,061/- being furnished by the owner and a bank guarantee dated 8th June 2006 for Rs. 2,20,33,440/-. 10. The Commissioner of Customs (Import) issued a Show Cause Notice dated 15th November 2006 under section 124 of the said Act, inter-alia calling upon the Respondent (Owners of the supply vessel ‘M.V. Sea Bulk Toota’) to inter-alia show cause as to why - “(i)........................ (ii) The 3.6 MTs of diesel stored in the supply vessel ‘M.V. Sea Bulk Toota’ over and above 45 MTs declared on arrival on 23rd May 2006 at Mumbai and 102.197 MTs purchased on 23rd May 2006 be held liable to confiscation under section 111(d), 111(f) and 111(h) of the said Act read with the provisions of Foreign Trade Policy (2002-07) and since no duty was paid on the illegally imported diesel oil of 3.6 MTs, why the duty amounting to Rs.43,860.30 as detailed in 8 cuapp-30-09 Annexure-G should not be recovered from M/s. Sea Bulk Offshore Dubai LLC., Post Box No. 32387, Dubai, UAE, the owners of Vessel Sea Bulk Toota, being the de-facto importers of the HSD, under section 28 of the Customs Act, 1962. Why interest on the duty amount not paid, should not be recovered under section 28AB of the Customs Act, 1962; (iii) The 147 MTs of diesel stored in supply vessel Sea Bulk Toota in which the smuggled HSD were mixed in such manner that the smuggled HSD cannot be separated, should not be confiscated under the provisions of Section 102(2) of the said Act and the Customs Duty Rs.17,90,966.47 as detailed in Annexure-H, leviable should not be recovered; (iv) ......................................... (v) ......................................... (vi) The supply vessel ‘M.V. Sea Bulk Toota’ valued at Rs.8,31,67,061/- and the barge ‘M.L. Anchor’ valued at Rs.10,00,000/-, should not be held liable to confiscation under section 115 of the said Act. ......................................... .........................................” 11. The Commissioner of Customs (Import) adjudicated the show cause notice vide order in original No. 70/2007/ CAC/ C(I)/AKP/SIIB (I) S, dated 15th May 2007. Paragraphs 87, 88, 89 and 92 of the said order are reproduced hereunder : - “87. The 3.6 MTs of smuggled diesel, valued at Rs.1,16,187.82 left behind in the supply vessel ‘M.V. Sea Bulk Toota’ is also confiscated under 9 cuapp-30-09 section 111(d), 111(f) and 111(h) of the Customs Act, 1962. Since this quantity has already been provisionally released (mixed with legally acquired HSD) against bond and BG, I impose a fine of Rs. 50,000/- in lieu of confiscation under section 125 of the Customs Act, 1962. Since no duty was paid on this illegally imported diesel oil of 3.6 MTs, the duty amounting to Rs.43,860.30 is also required to be paid. Since the vessel is owned by M/s. Sea Bulk Offshore Dubai LLC they have to pay this fine and duty. 88. They will also be required to pay the interest on the duty amount under section 28AB of the Customs Act, 1962. 89. The 147 MTs of diesel, valued at Rs. 47,44,336.35 stored in supply vessel Sea Bulk Toota in which the smuggled HSD was mixed in such a manner that the smuggled HSD could not be separated, is confiscated under the provisions of section 120(2) of the Customs Act, 1962. Since they have already been released provisionally against bond Rs.8.86 crores and BG of Rs.2.20 crores, I impose a fine of Rs.20,00,000/- in lieu of confiscation, under section 125 of the Customs Act, 1962, and appropriate the same from the bank guarantee. No duty is required to be paid on this quantity if it has been consumed in the normal course of legitimate use. 92. The supply vessel ‘M.V. Sea Bulk Toota’ valued at Rs.8,31,67,061/- is confiscated under section 115 of the Customs Act, 1962. Since it has already been released against bond of Rs.8.86 crores and a BG of Rs.2.20 crores, I impose a find of Rs.1,00,00,000/- and appropriate the same from the BG.” 12. The Respondent impugned the Order-in-Original dated 10 cuapp-30-09 15th May 2007 by filing an Appeal before the Tribunal. The Tribunal vide its order no. A/441 to 445/08/CSTB/C-II dated 5th August 2008 allowed the Appeal. The Tribunal upheld the confiscation of the vessel but reduced the redemption fine to Rs. 5,00,000/- from Rs.1,00,00,000/-. The Tribunal has also set aside the confiscation of 147 MTs of diesel. 13. Being aggrieved by the order of the Tribunal dated 5th August 2008, the Appellant filed the above Appeal which as stated above, was admitted on 15th April 2009 on the questions of law set out in paragraph 2 of this judgment. Submissions :- 14. It is submitted on behalf of the Appellant-Revenue that the order dated 5th August 2008 passed by the Tribunal is arbitrary, perverse and lacks any vestige of fairness and is therefore, liable to be set aside. The Tribunal despite having held the Chief Engineer as the agent of the Respondent, without any reason, proceeded to observe that the redemption fine imposed of Rs.1 crore was very excessive and reduced the same to Rs.5,00,000/-. 15. It is further submitted that 147.179 MTs of High Speed Diesel (HSD) which was legally acquired by ‘M.V. Sea Bulk Toota’ and still lying in its hold on the date of seizure of the vessel 11 cuapp-30-09 would be liable for confiscation under section 120(2) of the said Act, since it was mixed with the smuggled diesel in such a manner that the smuggled diesel could not be separated from the said legally acquired diesel. However, the Tribunal has ignored this material evidence and wrongly proceeded to set aside the fine of Rs.20,00,000/- in respect of 147 MTs of diesel stored in the supply vessel ‘M.V. Sea Bulk Toota’. This action of the Tribunal is unsustainable in law and contradict the finding recorded by the Tribunal to the effect “the confiscation of the vessel is upheld”. It is, therefore, submitted that the order of the Tribunal deserves to be set aside. PER CONTRA :- 16. It is submitted on behalf of the Respondent that the Tribunal after considering the entire evidence recorded and dealt with by the Adjudicating Authority noted in its order that according to the Adjudicating Authority, the Chief Engineer has kept the Master and the Owners in the dark for his personal gain. Therefore, though the Tribunal upheld the confiscation of the vessel, the Tribunal correctly held that the redemption fine imposed of Rs.1,00,00,000/- is very excessive and has correctly reduced it to Rs.5,00,000/-. It is submitted that since the 12 cuapp-30-09 Respondent had no knowledge or reason to believe that certain smuggled diesel was lying in the hold of the vessel ‘M.V. Sea Bulk Toota’, the 147.197 MTs of diesel which was legally acquired by the said vessel would not be liable for confiscation. The Tribunal has therefore, correctly set aside the order of confiscation of 147 MTs of diesel, thereby setting aside the fine of Rs.20,00,000/- imposed in lieu of confiscation. The Respondent contended that when the Owner of the goods does not have any guilty mind or any reason to believe that the smuggled goods are included in the goods owned by it, the whole of the goods will not be liable to confiscation. In support of this contention, the Respondent relied on several decisions of this Court as well as of the Tribunal. CONCLUSION :- 17. We have gone through the detailed order of the Adjudicating Authority, which inter-alia contains the entire evidence recorded in the matter pertaining to the illegal sale of HSD from the ‘M.V. Sea Bulk Toota’ to the barge ‘M.L. Anchor’. We have also perused the impugned order passed by the Tribunal dated 5th August 2008. We have also considered the submissions advanced by the learned Advocates appearing for the Revenue as well as the Respondent. 13 cuapp-30-09 18. The Tribunal has recorded in its order that the Respondent herein who is the Owner of the vessel, vide letter dated 20th May 2005 had given clear-cut instructions to the Master and Chief Engineer of the vessel, qua their responsibilities pertaining to the fuel oil consumption, fuel oil bunkering and unauthorised fuel transfers. The instructions pertaining to the unauthorised fuel oil transfers are reproduced hereunder :- 1. Seabulk Offshore and its customers take a very serious view about unauthorized fuel oil transfers and deliberate short loading of fuel oil. 2. Customers will usually off-hire the vessel and in most cases terminate the charter if a serious discrepancy is noted or if an unauthorised transfer is discovered. 3. Seabulk Offshore reserve the right to prosecute any individual believed to be involved in unauthorized fuel oil transfers or short loadings. 4. Seabulk Offshore may also report an individual to his home state Maritime Administration if he is found to be negligent in the performance of his duties with respect to the receipt, transfer, storage or use of a vessel’s bunkers. 5. In Singapore or on Singapore Registered vessels fuel theft means a JAIL SENTENCE and STROKES of the RATTAN. Make sure it does not happen on your vessel. You have been warned. 19. The Tribunal has after reproducing the entire 14 cuapp-30-09 instructions including the aforestated instructions pertaining to the unauthorised fuel oil transfers, issued by the Respondent to its crew, observed that the Respondent had instructed all its crew the misdeeds that should not be done by them. The Tribunal has noted from the records that the purchasers of the said unaccounted diesel had clearly stated that they were dealing with the Chief Engineer. The Chief Engineer is one of the employees responsible for maintaining accurate amount of diesel and shared the common responsibility of managing bunkers. The Tribunal has further noted from the order of the Adjudicating Authority that the Chief Engineer had kept the Master and Owners in the dark for his personal gain. The Tribunal has in its order reproduced the following finding of the Adjudicating Authority in its Order-in- Original :- “M/s. Sea Bulk Offshore, Dubai LLC. They are the owners of the vessel M.V. Sea Bulk Toota. They were not involved in the smuggling. In fact, they had given clear instructions to the Captain vide letter dated 28.3.2005 not to illegally sell any diesel from the stocks. Thus no penal liability can be imposed on them.” The Tribunal, therefore, after considering the relevant facts and circumstances of the case, held that a token amount should be 15 cuapp-30-09 imposed as redemption fine in lieu of the confiscation of the vessel on the Respondent and reduced the redemption fine imposed on the Respondent to Rs.5,00,000/-. In view thereof, we hold that the Tribunal after fully applying its mind to the facts in the matter and taking cognizance of the findings of the Adjudicating Authority, took the view that the fine of Rs.1,00,00,000/- imposed by the Adjudicating Authority, is excessive and reduced the same to Rs.5,00,000/-. The view taken by the Tribunal cannot be termed as arbitrary or perverse and thus, needs no interference. We, therefore, answer question no. (i) as set out in paragraph 2 above, in the negative, that is, against the Appellant and in favour of the Respondent. 20. The third substantial question of law as set out in paragraph 2 above, pertains to the order of the Tribunal setting aside the fine of Rs.20,00,000/- in respect of 147 MTs stored in the supply vessel ‘M.V. Sea Bulk Toota’, in which the smuggled HSD was mixed in such a manner that the said smuggled HSD could not be separated. 21. Section 120 of the said Act is reproduced hereunder :- “120. Confiscation of smuggled goods notwithstanding any change in form, etc.- (1) Smuggled goods may be confiscated 16 cuapp-30-09 notwithstanding any change in their form. (2) Where smuggled goods are mixed with other goods in such manner that the smuggled goods cannot be separated from such other goods, the whole of the goods shall be liable to confiscation : Provided that where the owner of such goods proves that he had no knowledge or reason to believe that they included any smuggled goods, only such part of the goods the value of which is equal to the value of the smuggled goods shall be liable to confiscation.” The impugned order shows that the Tribunal without giving its finding in terms of the proviso to section 120 of the Act, has set aside the fine in respect of the 147 MTs stored in the supply vessel in which the smuggled HSD was mixed in such a manner that the smuggled HSD could not be separated. The Tribunal erred in setting aside the said fine of Rs.20,00,000/- on the ground that purchases of diesel made by the vessel ‘M.V. Sea Bulk Toota’ cannot be held as offending goods, without realizing that the issue involved pertained to the balance smuggled diesel of 3.6 MTs still lying in the hold of ‘M.V. Sea Bulk Toota’. 22. In view thereof, as regards question no.(iii), we pass the following order :- (1) The order of the Tribunal setting aside the fine of Rs. 20,00,000/- by the impugned order, is set aside. 17 cuapp-30-09 (2) The said issue pertaining to imposing of fine of Rs.20,00,000/- on the Respondent, is remanded back to the Tribunal, for fresh determination. (3) The Tribunal shall endeavour to hear the parties and decide the issue pertaining to imposition of fine of Rs.20,00,000/- on the Respondent, within a period of six months from the date of this order, without being influenced by any observations made in this order. (4) All contentions of the parties qua the said issue are kept open. Appeal is, accordingly, disposed of in the above terms. [ S.J. KATHAWALLA, J. ] [V.C. DAGA, J.]