2013 (3) TMI 407 - HC - Customs

Confiscation of the goods repair works on barges or breaking activity - Department is of the opinion that as per the provision of Notification 21/2002-Cus., if the vessels are intended to be broken up after their importation, such goods shall be chargeable to Customs duty. Aggrieved by the order of Adjucating authorities the appellant made an application to High Court. Held that - Court are of the opinion that scrap generated during the repair work was not exigible to customs duty when brought in India. We are confining our observations on the basis of the facts of the case where it is stated that approximate weight of each barge was 100 metric tones and it was during repair work of four such barges that total scrap of 40 metric tones was generated. Court are also influenced by the fact that during such repair work substantial amount of indigenously manufactured parts were fitted in the barges and the value of such replaced parts would also be part of the value of the barges as and when they are brought for breaking and on which value the customs duty would be assessed. - Decided in favor of assessee.

Issues Involved:
(A) Whether 40 M.T. of scrap generated during repairing of barges was "imported goods" as defined under Section 2(25) of the Customs Act, 1962 in the facts of this case?
(B) Whether 40 M.T. of scrap generated during repairing of barges was liable for confiscation under the provisions of the Customs Act, 1962?
(C) Whether the order of the Appellate Tribunal upholding confiscation of scrap and imposition of penalty on the appellant is legally correct in the facts and circumstances of this case?

Detailed Analysis:

Issue (A): Whether 40 M.T. of scrap generated during repairing of barges was "imported goods" as defined under Section 2(25) of the Customs Act, 1962 in the facts of this case?
The appellant, a shipping company, argued that the scrap generated during repair works did not qualify as "imported goods." The Adjudicating Officer and the Appellate Tribunal, however, held that the scrap was indeed "imported goods" since it was generated from imported barges. The Tribunal stated that the barges were availing of the benefit of Notification No. 21/2002, and thus, any scrap generated during their repair would be considered imported goods under Section 2(25) of the Customs Act, 1962. The High Court disagreed, noting that the repair of barges does not equate to breaking them. The court emphasized the distinction between "repair" and "breaking," concluding that the scrap generated during repair was not imported goods subject to customs duty.

Issue (B): Whether 40 M.T. of scrap generated during repairing of barges was liable for confiscation under the provisions of the Customs Act, 1962?
The Adjudicating Officer ordered the confiscation of the scrap, asserting that the repair activity amounted to ship-breaking, which would require customs duty under Tariff Heading No. 7204 of the Customs Tariff Act, 1975. The Officer noted that the appellant did not follow the procedures laid down in the Customs Act, 1962, particularly Sections 42, 45, and 47. The Appellate Authority upheld this decision, adding that the appellant had not redeemed the barges by paying the necessary fine and duty. The High Court, however, found that the repair work did not constitute breaking and thus did not warrant confiscation. The court highlighted that the repair involved replacing worn-out parts with indigenously manufactured parts, which would be included in the value of the barges when eventually broken.

Issue (C): Whether the order of the Appellate Tribunal upholding confiscation of scrap and imposition of penalty on the appellant is legally correct in the facts and circumstances of this case?
The Tribunal upheld the confiscation and penalties, reasoning that the scrap generated during repair was dutiable. The High Court reversed this decision, stating that the Tribunal and Revenue Authorities erred in equating repair with breaking. The court clarified that the exemption from customs duty under Notification No. 21/2002 remained valid until the barges were intended for breaking. The court concluded that the scrap generated during repair was not subject to customs duty and thus not liable for confiscation or penalties.

Conclusion:
The High Court allowed the appeal, reversing the orders of the Adjudicating Authority, Appellate Authority, and Tribunal. The court held that the repair of barges did not amount to breaking, and thus, the scrap generated was not "imported goods" liable for customs duty. Consequently, the confiscation and penalties were deemed incorrect. The court answered the questions in favor of the assessee and against the Revenue.

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