2013 (11) TMI 342 - AT - Customs

Classification of goods - Marketability of the sludge/sediment oil found in the Tank No. 8 of the vessel TT Theo Strous, brought for breaking by the appellant - Held that - appellant herein is a ship breaker and had imported ship for breaking and filed bill of entry import of vessel and contents therein for ship breaking . In my considered view, the goods that land in India are considered as import, their question of marketability need not be gone into, as the customs duty is leviable on the goods which are imported into India - question of classification does arise as Chemical Test Report indicates that the sludge/sediment (oil) is mixture of hydrocarbon with small water contents which is 4% of the total sludge/sediment found in the ship. Be that as it may, I find that in this case, Revenue has discharged the burden of marketability by producing two bills of entry filed by similarly placed ship breakers, who had procured ship for breaking and had the very same item sludge/sediment oil, which was declared by the said ship breakers in bills of entry dated 28-5-1998 and 29-5-1998, as mentioned hereinabove. If that be so, the marketability of the said product imported, may not be required, but has been proved to be marketable by the trade or commerce of the industry in which the appellant is operating. I also find that there are Government licensed recyclers who are permitted to procure this kind of oil and recycle the same, have given the certificate that said sludge/sediment oil is procured by them and recycled. In my view, though the marketability question does not arise for the goods imported, the Revenue has discharged the said burden. Sludge/sediment oil in the present case is required to be dealt with as marketable and classifiable under Chapter 27, due to the composition of their being found in the chemical examiner s certificate as mixture of hydrocarbons and held to be marketable - Decided against the assessee. Valuation to the said sludge which has arrived at by the revenue seems to be disputed by the appellant before the lower authorities and the value adopted by the Revenue has not been justified. In my view, since the valuation of the said sludge/sediment is disputed, the correct duty liability needs to be worked out - matter remanded back on the issue of valuation.

Summary

Issues Involved:
1. Marketability of sludge/sediments.
2. Classification and dutiability of sludge/sediments under Chapter 27.
3. Confiscation of the vessel under Section 115 of the Customs Act.
4. Imposition of Countervailing Duty (CVD).
5. Appropriateness of penalties imposed on the appellant-company and its Managing Director.
6. Dispute regarding the valuation of sludge/sediments.

Issue-wise Detailed Analysis:

1. Marketability of Sludge/Sediments:
The primary issue revolved around whether the sludge/sediments found in the imported vessel were marketable. The Tribunal found that the sludge/sediments were indeed marketable, citing several reasons:
- Pollution Control Law: The product could not be disposed of in the sea due to pollution control regulations, necessitating its sale or lawful disposal.
- Recyclers' Availability: There were recyclers willing to purchase the sludge/sediments for use as industrial fuel after processing.
- Previous Transactions: Evidence showed that other importers had filed bills of entry and paid duties for similar sludge/sediments, supporting the claim of marketability.
- Chemical Examiner's Report: The report indicated that the sludge/sediments met the criteria for classification under Chapter 2710, which the appellants did not dispute.

2. Classification and Dutiability:
The Tribunal upheld the classification of the sludge/sediments under Chapter 27, specifically under Heading 2710.00, which pertains to "Petroleum Oils and oils obtained from bituminous minerals, other than crude." The Chemical Examiner's report confirmed that the sludge/sediments were composed mainly of mineral hydrocarbons, making them dutiable under this heading.

3. Confiscation of the Vessel:
The Tribunal found that the vessel was not liable for confiscation under Section 115 of the Customs Act. It was determined that the vessel was imported for breaking, and the presence of sludge/sediments was incidental rather than intentional. Therefore, the confiscation of the vessel was deemed unjustifiable and was set aside.

4. Imposition of Countervailing Duty (CVD):
The Tribunal agreed with the appellants that CVD was not applicable to the sludge/sediments. The sludge/sediments were not considered a manufactured item but rather a residue resulting from the storage and transport of crude oil. The decision in M/s. Continental Petroleum v. CC, Ahmedabad supported this view.

5. Penalties Imposed:
The penalties imposed on the appellant-company and its Managing Director were found to be excessive. The Tribunal reduced the penalties from Rs. 50 lakhs to Rs. 50,000 for the company and from Rs. 20 lakhs to Rs. 20,000 for the Managing Director. This reduction was based on the total customs duty amounting to only Rs. 13,83,543 and the value of the goods being Rs. 26,70,933.

6. Valuation of Sludge/Sediments:
The valuation of the sludge/sediments was disputed by the appellants. The Tribunal noted that the value adopted by the Revenue at the rate of US $420 PMT was not justified. Consequently, the matter was remanded to the original adjudicating authority to determine the correct valuation and, subsequently, the appropriate customs duty.

Conclusion:
In conclusion, the Tribunal upheld the marketability and classification of the sludge/sediments under Chapter 27, making them dutiable. However, it set aside the confiscation of the vessel and the imposition of CVD. The penalties were significantly reduced, and the matter of valuation was remanded for re-evaluation. The judgment reflects a balanced approach, taking into account both the legal requirements and the practical aspects of the case.