Case: Commissioner of Customs, Mumbai Vs. M/s. Aban Loyd Chiles Offshore Ltd. &amp; Others

Bombay High Court in Pride Foramer (supra) was upheld. In this case the rig was operational and used outside the territorial waters limits, but in the designated areas of the continental self and exclusive economic zones, which have been declared by the notification to be a part of the territory of India for limited purpose. The natural consequence of the said notification was to extend the Customs Act and the Customs Tariff Act to the designated areas outside the territorial waters to introduce the custom regime in such areas resulting in levy and collection of custom duty. The issue raised in the said case related to consumption of goods or stores imported by the drilling contractor and supplied to the rig. The stores used for consumption onboard the oil rigs, when stationed in the notified or designated areas, which were deemed to be territorial waters, was chargeable and customs duty was payable. 28. 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. 29. The adjudication order refers to and is predicated on the rig being brought to the port for repairs in February, 1996 for which permission was sought from the Commissioner of Customs vide letter dated 12th February, 1996 under the provisions of notification No. 153/94 Cus. The rig subsequently moved out of the port after repairs. The rig was brought for the second time to the Mumbai port for repair on 9th November, 1996 and had remained there till 2nd December, 1996. The rig thereafter was taken out and removed from the territorial waters of India as is evincible from the adjudication order. The rig was for the third time brought to the outer anchorage in Mumbai/Mumbai port on 9th December, 1998 and removed from the customs area. On this occasion, for the first time, the authorities felt that the rig had been imported into India when the rig was brought within the territorial waters for repairs. The adjudication order does not record that the rig was in operation within the territorial waters of India. On the other hand, the adjudication order does not spell out that the rig did not operate outside the territorial waters of India. The contention raised by the owner in this regard was neither specifically rejected not a different finding was recorded. The finding was that the rig when it is repaired in India, it is imported into India for home consumption. The adjudication order holds that the repairs undertaken would complete the act of import, for the requirement of home consumption was satisfied. The said finding, in our opinion, is unacceptable and faulty. 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. 30. The authorities have laid emphasis on the factum that the rig was purchased for being used in the oil field of ONGC and for this purpose the owner had made an application and permission/licence for import was granted by the Ministry of Industry. The rig was purchased from foreign exchange released by the Government on the basis of the import licence for the rig. If the rig was not to be used in India, foreign exchange would not have been released and import licence would not have been granted. This argument on behalf of the department does not further the stand. It cannot be regarded as conclusive. Release of foreign exchange, approval and licence, etc. are prior to the import. Import may not take place in spite of this aforesaid clearances/licence and release of foreign exchange. There may have been violation of another enactment/provision as the rig was not imported, albeit for deciding the question whether the rig was imported into India, the requirement of home consumption has to be satisfied. Then alone, the `good, i.e., the vessel/rig would be taxable and customs duty payable under the Act. Pertinently, the adjudication order does not hold that the import had taken place in 1987 when the rig first put into operation in the high seas. This was not treated as the date of import or home consumption. The import as per the authorities had taken place when the rig was brought for repairs. The evaluation of the rig has been done on the basis of the last visit of the rig for repair in 1998. 31. 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. 32. Thus analysed, we are of the indubitable opinion, that the decision rendered by the tribunal deserves our concurrence and we so do.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]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.In this context, reference to Section 43 of the Act would be profitable.14. As per the said provision, Sections 30, 41 and 42 shall not apply to a vehicle, which carries no goods other than the luggage of the occupants. The term `vehicle as defined in sub-section (42) to Section 2 means conveyance of any type used on land. As a logical corollary, it would not include a ship or vessel. Sub-section (2) to Section 43 states that the Central Government may by notification in the Official Gazette exempt the different classes of conveyances from all or any other provisions of the Act. However, we do find some difficulty as taxation or taxability of the `foreign going vessels when they enter Indian territorial waters is not directly addressed in the fasciculus of the Sections from 29 to 43 of the Act. These provisions do make a distinction between goods imported to be unloaded at the port for India and those which are not to be unloaded and in transit.15. At this stage, we would like to first adumbrate on the definition of the term foreign going vessel or aircraft as defined in sub-section (21) of Section 216. The aforesaid expansive definition by way of deeming fiction includes any vessel engaged in fishing or any other operations outside the territorial waters of India. By legal fiction, a vessel engaged in fishing outside the territorial waters of India or any other operations outside the territorial waters of India is to be treated for the purpose of the said Act as a foreign going vessel. When the said conditions are satisfied, whether the said vessel for the time being is engaged in carriage of goods or passengers between a port in India and a port outside India, is not of any relevance. Consequently, a rig which is engaged in operations outside the territorial waters of India would be a foreign going vessel. However, a rig carrying on operations within the territorial waters of India would not be a foreign going vessel. Be it clarified, it is not necessary to dilate and examine the issue whether rigs are vessels, for it is an accepted and admitted position settled beyond doubt.18. 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. Section 12 of the Act begins with the words Except as otherwise provided in this Act or any other law for the time being in force. Thus, it gives primacy to any other law being in force, and records that the said provision would apply when otherwise not provided in the said Act. Therefore, when any other provision of the Act or other law for the time being provides differently, that would not attract customs duty under Section 12. Duty of custom, subject to the above, is levied at the rates specified under the Customs Tariff Act, 1975 or any other law for the time being in force on the goods imported into or exported from India.23. As is noticeable, in the said case, the vessel was in operation and primarily used within the territorial waters of India and was not used as an ocean going vessel. As a sequitur, it was held that the vessel were goods imported into India for home consumption for they were primarily to be used as a vessel in India, i.e., in the territorial waters. However, the Court was conscious and expressly guarded the said proposition clarifying that it was not pronouncing any dictum as to what would be the position if these goods (the vessel) were not intended to be primarily used in India or used occasionally for short period in India and whether in such situation, the vessel should be treated as a good for home consumption. As the vessel in the said case was brought in India and was primarily used as a transshipper and occasionally in the open seas, it was held to be a good imported for home consumption24. This aforesaid authority, in our opinion, answers the contention raised by the owner that rig in question was not meant for home consumption as the rig never entered the land mass. 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. There would be no doubt on the said legal position in view of the subsequent pronouncement in V.M. Salgaoncar (supra), wherein dwelling on the question of home consumption it was held that the expression `consumption does not involve complete using up of the commodity and would include putting the commodity to use to any type of utility within the territory of India. Even when this condition is satisfied, it would amount to home consumption. The question raised in V.M. Salgaoncar (supra) was whether the vessels used as transshippers can be treated as ocean going vessels and reference was made to the larger Bench of three Judges to consider the ratio in Chowgule and Co. Pvt Ltd (supra). While deciding the said issue, it has been held as under:-25. There is no dispute for the department that by design and equipment, transhippers are intended to be used mostly to carry the cargo from harbours to the high seas and vice versa. That such transhippers often move into the open sea is also not disputed by the department. Thus considering the question from all the different angles, it is reasonable to take the view that merely because transhippers are used for carrying cargo for loading into the bulk carriers (those being unable to touch the port) they cannot be excluded from the category of ocean-going vessels. At any rate it has been demonstrated by the Government that it was not very much interested in segregating transhippers from the category of ocean-going vessels as the Government brought out a new notification enveloping all vessels including transhippers within the ambit of ocean-going vessels, almost immediately after pronouncement of the decision in ChowguleCo. (P) Ltd. That subsequent development on account of its close proximity to time cannot be overlooked as of no impact26. In the result we accept the contention of the owners of the trans-shippers that such vessels are entitled to the benefit of the notification dated 11-10-1958. The appeals are disposed of in the above terms.. The aforesaid passage refers to the Governments decision that had brought out a new notification to envelop all vessels including a transshippers within the ambit of ocean going vessels immediately after the pronouncement in Chowgule and Co. Pvt Ltd (supra)26. The decision in V.M. Salgaoncar (supra) refers to the limits of territorial waters fixed under Section 3(2) of the 1976 Act, which is distance of 12 nautical miles from the nearest point of the appropriate baseline27. In Aban Lyod Chiles Offshore Limited and another v. Union of India and Others, (2008) 11 SCC 439     the view of Division Bench of the Bombay High Court in Pride Foramer (supra) was upheld. In this case the rig was operational and used outside the territorial waters limits, but in the designated areas of the continental self and exclusive economic zones, which have been declared by the notification to be a part of the territory of India for limited purpose. The natural consequence of the said notification was to extend the Customs Act and the Customs Tariff Act to the designated areas outside the territorial waters to introduce the custom regime in such areas resulting in levy and collection of custom duty. The issue raised in the said case related to consumption of goods or stores imported by the drilling contractor and supplied to the rig. The stores used for consumption onboard the oil rigs, when stationed in the notified or designated areas, which were deemed to be territorial waters, was chargeable and customs duty was payable28. 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 grounds29. The adjudication order refers to and is predicated on the rig being brought to the port for repairs in February, 1996 for which permission was sought from the Commissioner of Customs vide letter dated 12th February, 1996 under the provisions of notification No. 153/94 Cus. The rig subsequently moved out of the port after repairs. The rig was brought for the second time to the Mumbai port for repair on 9th November, 1996 and had remained there till 2nd December, 1996. The rig thereafter was taken out and removed from the territorial waters of India as is evincible from the adjudication order. The rig was for the third time brought to the outer anchorage in Mumbai/Mumbai port on 9th December, 1998 and removed from the customs area. On this occasion, for the first time, the authorities felt that the rig had been imported into India when the rig was brought within the territorial waters for repairs. The adjudication order does not record that the rig was in operation within the territorial waters of India. On the other hand, the adjudication order does not spell out that the rig did not operate outside the territorial waters of India. The contention raised by the owner in this regard was neither specifically rejected not a different finding was recorded. The finding was that the rig when it is repaired in India, it is imported into India for home consumption. The adjudication order holds that the repairs undertaken would complete the act of import, for the requirement of home consumption was satisfied. The said finding, in our opinion, is unacceptable and faulty. 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 import30. The authorities have laid emphasis on the factum that the rig was purchased for being used in the oil field of ONGC and for this purpose the owner had made an application and permission/licence for import was granted by the Ministry of Industry. The rig was purchased from foreign exchange released by the Government on the basis of the import licence for the rig. If the rig was not to be used in India, foreign exchange would not have been released and import licence would not have been granted. This argument on behalf of the department does not further the stand. It cannot be regarded as conclusive. Release of foreign exchange, approval and licence, etc. are prior to the import. Import may not take place in spite of this aforesaid clearances/licence and release of foreign exchange. There may have been violation of another enactment/provision as the rig was not imported, albeit for deciding the question whether the rig was imported into India, the requirement of home consumption has to be satisfied. Then alone, the `good, i.e., the vessel/rig would be taxable and customs duty payable under the Act. Pertinently, the adjudication order does not hold that the import had taken place in 1987 when the rig first put into operation in the high seas. This was not treated as the date of import or home consumption. The import as per the authorities had taken place when the rig was brought for repairs. The evaluation of the rig has been done on the basis of the last visit of the rig for repair in 199831. 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.32. Thus analysed, we are of the indubitable opinion, that the decision rendered by the tribunal deserves our concurrence and we so do.19. In Chowgule and Co. Pvt. Ltd. (supra) on the question of chargeability of customs duty on a vessel which was being used to ship iron ore from Mormugao Harbour to ocean going carriers, it was held as under:-6. We may now refer to the relevant provisions of the Customs Act. Section 2(22) of the Customs Act defines that unless the context otherwise requires, goods includes - (a) vessels, aircrafts and vehicles; (b) stores; (c) baggage; (d) currency and negotiable instruments; and (e) any other kind of moveable property. Import is defined as meaning bringing into India from a place outside India. India is defined as including the territorial waters of India. Imported goods are defined to mean any goods brought into India from a place outside India but not including goods which have been cleared for home consumption. Importer is defined, in relation to any goods at any time between their importation and the time when they are cleared for home consumption as including the owner or any person holding himself out to be the importer. Conveyance is defined to include a vessel, an aircraft and a vehicle. Bill of entry is defined to mean a bill of entry referred to in Section 46. A bill of export is defined to mean a bill of export referred to in Section 50. An import manifest or import report is defined to mean the manifest or report required to be delivered under Section 30. Stores are defined to mean goods for use in a vessel or aircraft and includes fuel and spare parts and other articles of equipment whether or not for immediate fitting.