2020 (3) TMI 271 - AT - Customs

Foreign Going vessel or not - benefit of duty free supply - time limitation - whether the vessel in question can be considered as a Foreign Going Vessel in terms of the Customs Act, 1962? - HELD THAT - The impugned vessel is engaged for cable repair and cable-laying work in the areas specified therein; the ship requires to be in readiness to leave for repairs should an exigency arise and the vessel is paid both fixed charges as well as operational charges. Therefore, we find that the appellants have a strong case in their favour inasmuch as the (ii) inclusive definition is concerned. It is squarely covered by the terms any vessel engaged in fishing or any other operations outside the territorial waters of India . We find that the term engaged in has not been defined in the Customs Act - The vessel ASEAN Explorer was a foreign going vessel in terms of inclusive definition contained in Section 2(21)(ii) of the Customs Act, 1962. The crux of the argument of the department was that the Vessel was berthed in Cochin for most of the time during the disputed period and thus it ceases to be foreign going vessel. Moreover, we find that the vessel was anchored in Cochin Port and was under the watchful eyes of Customs and Port authorities. Many times, Customs authorities have boarded the Vessel as demonstrated by the counsel for the appellants. Customs officers were supervising the bonded stores of the vessel. It was well within the right and mandate of Customs authorities to advise the appellants to ensure that there were no procedural and other infractions. No proof of such efforts and correspondence, if any, has been placed on record before us. It can be seen that the arguments of adjudicating authority were controverted and we are inclined to hold that the impugned vessel is foreign going vessel and as such the exemption in terms of Section 87 of the Customs Act, 1962 is available to the appellants, despite the fact that it was lying berthed at Cochin for most part of the time. The impugned vessel ASEAN Explorer is a foreign-going vessel, within the ambit of (ii) of Section 2(21) of the Customs Act, 1962, being engaged for performing repair/cable laying activities in the designated areas in terms of the Agreement with SEAIOCMA. The berthing of the vessel for long periods at Cochin Port does not alter this position and accordingly, the appellants are eligible to avail the exemption contained under Section 87 of the Customs Act, 1962 on the ship stores. However, they are required to pay duty on the ship stores consumed only during the period the said vessel was performing its designated work in Indian territorial waters, for the normal period. As the vessel is held to be a foreign-going vessel and that the exemption under Section 87 of the Customs Act, 1962 is available, the seizure of the vessel and consequent imposition of redemption fine in lieu of confiscation need to be set aside along with penalties imposed on both the appellants. Appeal allowed by way of remand.

Summary

Issues Involved:
1. Whether the vessel ASEAN Explorer qualifies as a Foreign Going Vessel (FGV) under Section 2(21) of the Customs Act, 1962.
2. Whether the demand for customs duty is barred by limitation.
3. Impact of obtaining coastal licenses from DG Shipping on the vessel's status.
4. Applicability of customs duty on ship stores consumed during operations in Indian territorial waters.

Issue-wise Detailed Analysis:

1. ASEAN Explorer as a Foreign Going Vessel (FGV):
The appellant argued that ASEAN Explorer (AE) qualifies as an FGV under Section 2(21) of the Customs Act, 1962, as it was engaged in operations outside the territorial waters of India. The vessel was stationed at Cochin port but was required to be in operational readiness to undertake repair activities over a vast area, with over 99.7% of its activities outside Indian waters. The Tribunal agreed, noting that the definition of "engaged in" includes periods of operational readiness and not just active participation. The Tribunal relied on various judgments, including the Gujarat High Court's interpretation in Commissioner of Income-tax vs. Natwarlal Tribhovandas, which held that "engaged in" denotes a present obligation to devote time and effort to an activity, even if not actively participating at all times. Thus, AE was considered an FGV, entitled to the benefits under Section 87 of the Customs Act.

2. Demand for Customs Duty and Limitation:
The appellant contended that the demand was barred by limitation, as there was no suppression of facts. The Customs Department was aware of AE's presence and activities at Cochin port, as evidenced by regular correspondences and visits by Customs officials. The Tribunal agreed, noting that the vessel's activities and status were known to the authorities, and there was no willful misdeclaration or suppression. Therefore, the extended period of limitation was not applicable, and the demand was hit by limitation.

3. Coastal Licenses from DG Shipping:
The Tribunal addressed the argument that obtaining coastal licenses from DG Shipping changed the vessel's status. It was noted that licenses were obtained as a precaution and were not indicative of a change in the vessel's primary engagement. The Tribunal held that the definition of an FGV under the Customs Act should not be influenced by the Merchant Shipping Act. The Bombay High Court's judgment in UOI vs. BPCL supported the view that obtaining a coastal license does not alter the vessel's FGV status. Thus, AE retained its FGV status despite obtaining coastal licenses.

4. Customs Duty on Ship Stores:
The Tribunal acknowledged that while AE was an FGV, customs duty was applicable on ship stores consumed during operations within Indian territorial waters. This was in line with the Supreme Court's decision in Aban Lloyd Chiles Offshore Ltd., which held that stores consumed within areas where the Customs Act applies are subject to duty. The Tribunal remanded the case to the adjudicating authority to compute the duty liability on stores consumed during the specific period AE operated within Indian waters.

Conclusion:
The Tribunal concluded that AE qualified as an FGV under Section 2(21)(ii) of the Customs Act, 1962, and was entitled to duty-free stores under Section 87. The demand for customs duty was barred by limitation due to the lack of suppression. The vessel's FGV status was not affected by obtaining coastal licenses. However, duty on stores consumed during operations in Indian waters was payable, and the case was remanded for recalculating this duty. The seizure and penalties were set aside.