2015 (7) TMI 998 - AT - Customs

Classification of vessels - Offshore Hunter - coastal tug offshore hunter with barge freight - Denial of benefit of Notification No. 21/2002 and 20/2006 - Confiscation of goods - Imposition of redemption fine - Penalty u/s 114A and 112 - if the vessel is used for carrying persons and cargo as well as for towing operations, what is the primary purpose for which the vessel is designed - Held that - Commissioner finds that rule 3a and rule 3b are not applicable and therefore he resorts to rule 3c which states that where goods cannot be classified by reference to 3a or 3b, they shall be classified under the heading which occurs last in the numerical order among those which equally merit consideration. There is no doubt about the applicability of Rule 3A which states that the heading which provides the most specific description shall be preferred. In the present case, the vessel is designed as a supply vessel for transport of persons as per the Certificate of Indian Registry. - As the vessel in question is a supply vessel used for transport of persons and goods, the correct classification would be CSTH 89019000 which covers Other vessels for transport of the goods and other vessels for transport of both persons and goods. And the goods falling under CTH 8901 are exempted under Not 21/2002 read with Notification No. 20/2006. Revenue has invoked the extended time period to demand duty be alleging that the appellant had mis-declared the capabilities of the vessel before the proper officer who did the first check examination. It is also alleged that the proper officer was clearly misguided by the Certificate of Registry. This allegation has no basis whatsoever. We have seen the examination report of the DC customs. It indicates inspection and examination of the vessel with respect to the Certificate of Indian registry. It also indicates that the vessel has a winch with steel wire, bollards at the sides. The Custom officers were free to examine the vessel with respect to any documents for the purpose of determination of classification. - There is no misdeclaration whatsoever. Consequently there is no question of confiscation and option to redeem on payment of redemption fine. We set aside the confiscation. - classification ordered by the Commissioner is set aside along with the demand of duty, interest and penalties on the appellant as well as the Directors. - Decided in favour of assessee.

Issues Involved:
1. Classification of the vessel 'Offshore Hunter'.
2. Denial of benefit under Notification No. 21/2002 and 20/2006.
3. Confiscation of the vessel and imposition of redemption fine.
4. Demand of differential duty and interest.
5. Imposition of penalties under sections 114A and 112.
6. Allegation of mis-declaration and invocation of extended time period for demand.

Detailed Analysis:

1. Classification of the Vessel 'Offshore Hunter':
The primary issue was whether the vessel should be classified under CTH 8901 as a supply vessel or under CTH 8904 as a tug. The appellant argued that the vessel was designed for the transport of goods and passengers, supported by certificates from the Kuwaiti and Indian Registries. The HSN Explanatory Notes for Heading 8904 state that tugs are distinguishable by their powerful engines and specially shaped hulls, not designed for the transport of persons or goods. The Tribunal found that the vessel was indeed used for transporting goods and passengers, supported by documents like the Certificate of Indian Registry and arrival reports indicating cargo carriage. Thus, the vessel was classified under CTH 8901.

2. Denial of Benefit under Notification No. 21/2002 and 20/2006:
Since the Tribunal reclassified the vessel under CTH 8901, it held that the vessel was eligible for the benefits under Notification No. 21/2002 and 20/2006, which provide exemptions for vessels under this heading.

3. Confiscation of the Vessel and Imposition of Redemption Fine:
The Tribunal noted that there was no misdeclaration by the appellant, as the vessel was subjected to a first check examination and a detailed report was prepared. The Customs officers had the opportunity to examine the vessel thoroughly. Consequently, the Tribunal set aside the confiscation and the option to redeem the vessel on payment of redemption fine.

4. Demand of Differential Duty and Interest:
Given the reclassification of the vessel under CTH 8901 and the eligibility for exemption under the relevant notifications, the Tribunal set aside the demand for differential duty and interest.

5. Imposition of Penalties under Sections 114A and 112:
With the reclassification and the finding of no misdeclaration, the Tribunal also set aside the penalties imposed under sections 114A and 112 on the appellant and the Directors.

6. Allegation of Mis-declaration and Invocation of Extended Time Period for Demand:
The Tribunal found no basis for the allegation of misdeclaration, as the Customs officers had conducted a detailed examination of the vessel. The Certificate of Indian Registry and the Ministry of Shipping's clarification were deemed reliable. Consequently, the extended time period for demand was not justified, and the Tribunal allowed the appeals on merits and on the grounds of time bar.

Conclusion:
The Tribunal set aside the impugned order, reclassified the vessel under CTH 8901, and allowed the benefits of the relevant notifications. It also annulled the confiscation, differential duty demand, interest, and penalties, providing consequential relief to the appellants.

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