2003 (7) TMI 591 - AT - Customs

Eligibility for exemption under Entry 227 of Notification 23/98 - Ship repair - Demand - Limitation - wilful mis-statements of the facts - HELD THAT - It is not necessary for repair to take place that the item being replaced must be in the last stage of its life or must have run out its usefulness. The second answer is perhaps more appropriate to the facts of the case. It is that by the operation of the Rules of 1995 the craft which was not fitted with this equipment became unseaworthy. It was illegal to ply such craft. If for them to be restored to a seaworthy state fitment of some article was required such fitment amount to repair. In other words carrying out an activity in order to ensure compliance with the Rules of 1995 without which the vessels would not have been allowed to sail the fitment is clearly repair of the ships. We fail to see how this amounts to wilful mis-statements of the facts. There is nothing in the fact that knowing that it was not entitled to the benefit of notification still claim. The observation of the Supreme Court in Chemphar Drugs Liniments v. CCE 1989 (2) TMI 116 - SUPREME COURT that some positive act other than mere inaction conscious or deliberate withholding of information in manufacturing of new other vehicle as required before the extended period can be invoked is irrelevant. The proviso relating to the extended period u/s 21 of the Customs Act is similarly worded as the proviso u/s 11A(1) of the Central Excise Act. In the absence of anything to show that the importers knew or had reason to believe that the activity would not amount to ship repair it is not possible to conclude that they wilfully misdeclared the goods as for repair. We do not see any significance in the other act attributed by Moloobhoy himself. The significance of not mentioning particular material of ONGC escapes us. We do not see how the description of the goods as ship spares or marine electric communication repair for GMDSS is wrong or mis-statement. They are ship spares and clearly marine electric communication equipment. The fact that MACE India closed down in 1994 again is irrelevant. It is not contended that the certificate issued to it is invalid. The licence has been renewed by the concerned authority subsequently omitting reference to MACE India. It is significant that 17 bonds out of 48 bonds executed by Moloobhoy have been discharged by the Customs authority after accepting evidence of fitment of equipment on ships. The extended period of limitation therefore could not be invoked at all in respect of inputs by Dolphin Offshore Enterprises and could not have been invoked in respect of merits made by Moloobhoy Sons prior to 5th May 1999. The appeals are accordingly allowed and the impugned order set aside.

Summary

Issues Involved:
The eligibility for exemption under Entry 227 of Notification 23/98 for imported goods by A.S. Moloobhoy & Sons and Dolphin Offshore Enterprises.

Eligibility for Exemption:
The goods imported by the appellants consisted of components of Global Maritime Distress and Safety Systems (GMDSS) and emergency position indicating radio beacons (EPIRBS) for repairs of ships to comply with international conventions. The Commissioner held that the goods were not entitled to the exemption, alleging they were not used for repair. The rules required compliance with specific equipment for ships, and the failure to comply would render the ships unseaworthy. The Commissioner accepted that restoration to the original state constitutes repair, but he concluded that fitting completely new equipment does not qualify as repair. However, preventive maintenance and ensuring compliance with rules were considered repair activities, making the fitment of new equipment necessary for seaworthiness qualify as repair.

Extended Period of Limitation:
The notice invoked the extended period of limitation based on alleged misdeclaration by the importers. The Commissioner's order did not find evidence of wilful misdeclaration by the importers. The allegation that the importers wrongly claimed the benefit of the notification was not substantiated. The importers' actions did not amount to wilful misstatements, as they did not have reason to believe their activities did not qualify as ship repair. The description of goods as ship spares or marine electrical equipment was found to be accurate, and the closure of a collaborating company did not affect the validity of the certificate. The extended period of limitation was not applicable to Dolphin Offshore Enterprises and was not justified for Moloobhoy & Sons before a certain date.

Conclusion:
The appeals were allowed, and the impugned order was set aside, indicating that the importers were eligible for the exemption under Entry 227 of Notification 23/98 for the imported goods used in ship repairs to comply with international maritime safety regulations.