2024 (5) TMI 145 - AT - Customs

Demand of custom duty and imposition of penalty - non payment of duty on slop/waste Oil of foreign origin - cleaning the inner walls of the tanker by applying water with the help of a pressure jet - HELD THAT - The oil obtained by cleaning the tanker is pre- dominantly mixed with water. Only approximately 10% is oil and 90% is water. In this position, the waste oil/slop oil cannot be classified as crude oil under heading 2710 in terms of chapter note 3 of chapter 27 which prescribes that the petroleum product should contain more than 50% by weight of benzene, toluene, xylene or naphthalene whereas in the present case the oil content is only 10% and 90 is water, therefore demanding duty considering that product as crude oil is not correct. Without prejudice to above, we further find that it is admitted fact that while converting the vessel from foreign going to coastal run, the custom duty of Rs. 6,95,546/- was paid in regard of the entire quantity of foreign origin oil irrespective whether the subsequently same would be cleaned from the inner walls of the tank by applying water through pressure jet or collected in form of waste/ slop oil from the vessels for clearance , therefore, no custom duty can be demanded for the second time. On this fact, on the waste oil/slop oil duty cannot be demanded twice as the same goods have already suffered the custom duty while converting from foreign going vessels to coastal vessels. Accordingly, we are of the view that in the present case the demand of custom duty, interest and penalty are not sustainable. Hence, the impugned order is set aside. Appeal is allowed.

Summary

Issues involved:
The issues involved in this case are:
1. Whether the waste/slop oil obtained while cleaning the inner walls of tankers is liable to custom duty.
2. Whether the demand of custom duty on waste/slop oil is sustainable considering its origin and composition.

Issue 1: Liability of custom duty on waste/slop oil:
The appellant provided marine technical support by cleaning oil tankers, generating waste/slop oil which was collected and dispatched for recycling. The department contended that the oil mixture obtained during cleaning, predominantly water, is liable to custom duty. The Adjudicating Authority confirmed the demand, leading to an appeal before the Tribunal. After remand and de novo adjudication, the demand along with interest and penalty was upheld under Section 114 A of Customs Act, 1962. The appellant challenged this decision before the Tribunal.

Issue 2: Sustainability of custom duty demand on waste/slop oil:
The appellant argued that the demand was confirmed for foreign origin waste/slop oil, overlooking the vessel's coastal run status. The appellant highlighted that duty was paid during vessel conversion, covering the entire foreign origin oil, regardless of subsequent cleaning. The appellant referenced relevant notifications exempting duty during coastal runs. Additionally, the appellant emphasized the lack of commercial value in the waste/slop oil, making it ineligible for duty imposition. The appellant also contested the classification of waste/slop oil under tariff item 2710, citing its composition with over 50% water, rendering it unsuitable for such classification.

Judgement:
After considering submissions from both parties and examining the records, the Tribunal concluded that the waste oil, predominantly mixed with water, cannot be classified as crude oil under heading 2710 due to its composition. The Tribunal noted that duty had already been paid during vessel conversion, making the demand for duty on waste/slop oil unsustainable. Therefore, the impugned order was set aside, and the appeal was allowed.