2016 (9) TMI 565 - AT - Customs

Foreign Going Vessel - Conversion of vessel to coastal run ship stores inventorised at the time of conversion consumption of provisions during coastal voyage inclusion of local purchase of the quantity of 193.03 MT of fuel in the opening inventory of 678.22 MT of fuel oil ascertainment of the total quantity of fuel oil consumed during the coastal run Held that - local purchase of the quantity of 193.03 MT of fuel oil is to be included in the opening inventory of 678.22 MT of fuel oil - resultant duty liability on the net quantity of fuel oil Viz., 379.22 MT could be fastened on the appellants - demand of duty justified. Valuation Held that - the Commissioner has adopted a very just and fair reasoning with regard to ascertaining the assessable value of imported fuel oil lying in the foreign bunkers for finalisation of the provisional assessment. The adjudicating authority had taken contemporaneous price of identical goods of which the bunkers were supplied to the same class of buyers during material period. This is the correct and proper manner for finalization of the assessment. Appeal dismissed decided against appellant revenue.

Summary

Issues:
1. Calculation of duty on ship stores consumed during coastal voyage
2. Application of "first-in-first-out principle" for calculating quantity consumed
3. Consideration of local purchase of fuel oil in opening inventory
4. Assessment of duty on fuel oil and diesel oil consumed during coastal voyage

Analysis:

Issue 1: Calculation of duty on ship stores consumed during coastal voyage
The case involved the conversion of a vessel to coastal run and subsequent reversion to foreign run, leading to a discrepancy in the quantity of bunkers consumed during the coastal voyage. The Customs Authorities issued a show cause notice for short payment of duty, which was confirmed in the Order-in-Original. The appellate authority upheld the duty payment but made adjustments based on the methodology used for calculating the quantity consumed during the coastal voyage.

Issue 2: Application of "first-in-first-out principle" for calculating quantity consumed
The appellate authority found fault with the application of the "first-in-first-out principle" for calculating the quantity of oil consumed during the coastal voyage. The authority noted that the principle was not explicitly mentioned in the relevant Customs Public Notice and held that duty should only be charged on the actual quantity consumed, not the entire stock based on this principle.

Issue 3: Consideration of local purchase of fuel oil in opening inventory
The appellate authority agreed with the inclusion of locally purchased fuel oil in the opening inventory to determine the total quantity consumed during the coastal run. This adjustment impacted the duty liability on the appellants, leading to a revised assessment of the duty payable.

Issue 4: Assessment of duty on fuel oil and diesel oil consumed during coastal voyage
The Revenue raised concerns about the methodology used for ascertaining the quantity consumed during the coastal voyage, especially regarding the application of the "first-in-first-out principle." The appellate authority's decision to calculate duty based on the actual quantity consumed and contemporaneous pricing of identical goods was deemed appropriate and fair, leading to the dismissal of the Revenue's appeal.

In conclusion, the appellate tribunal upheld the methodology adopted by the Commissioner (Appeals) for calculating the duty on ship stores consumed during the coastal voyage. The tribunal found no grounds for interference with the impugned order and dismissed the appeal, affirming the duty liability on the appellants as revised by the appellate authority.