2022 (6) TMI 928 - AT - Customs

Classification of imported goods - old and used self-propelled platform supply vessel Sagar Fortune - Classifiable under tariff item 8901 9000 of the First Schedule to Customs Tariff Act, 1975 or not - non- inclusion of freight, insurance and other charges, incurred before arrival - HELD THAT - Any vessel expends her entire life in waters - domestic or international - and, similar to aircraft, are remunerative to the extent that they are on the move. Though every arrival at the harbour or airport involves, technically, import from outside the country, the personality of the vessel/aircraft as conveyance entitles separate treatment; the alternative would generate inconvenience bordering on chaos in international travel and traffic. Nonetheless, for certain statutory requirements attended upon ownership, and appendant privileges, vessel/aircraft may have to be imported as goods requiring compliance with attendant customs procedures. That, however, does not derogate from its functionality as conveyance which is the purpose of, and defines, its very existence as vessel/aircraft - It is, therefore, of utmost essence that assessing authorities tread that tightrope with extreme caution lest the universally acknowledged freedom of the seas and freedom of the skies be compromised at the altar of revenue harvest beyond the intent of law. Valuation of goods - HELD THAT - The declared price may be discarded in favour of the actual transaction value , subject to availability of evidence of direct or indirect flow of additional consideration to the seller, for conformity with the concept enshrined in section 14 of Customs Act, 1962 without recourse to any provision other than rule 3 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Any other substitution of declared value as transaction value must conform to one of the situations envisaged in rule 4 to rule 9, taken sequentially, for validation of assessment for determination of duty of customs after recourse to rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 - In the present dispute, we are concerned with recourse to rule 9 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 for adoption of the value estimated by the Chartered Engineer appointed by customs authorities and the last of the specifics in rule 10 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 for evaluation of the enhancement upheld in the impugned order. The justification offered for invoking rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, i.e., alleged misdeclaration of tariff item in First Schedule to Customs Tariff Act, 1975, does not logically pan out without evidence that such technical distinction, even if uncontested, impacts value of the vessel. The impugned order has not allotted any space for such scrutiny. Recourse to sequential application of rule 4 to rule 9 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 is, thus, without authority of law. Classification of goods - HELD THAT - In the light of the inadequacy, we are unable to firm up on the applicable classification for want of determination in the impugned order between heading 8905 and heading 8906 of the First Schedule to Customs Tariff Act, 1975. That gap must be bridged to enable which we set aside the impugned order and remand the matter back to the original authority for a fresh decision on the claim of the appellant for fitment within heading 8906 of First Schedule to Customs Tariff Act, 1975. As this remand is intended to arrive at the appropriate classification, the appellant may also make its submissions for fitment within the original classification, in addition, should they choose to do so. The enhancement of value of the impugned vessel is set asidea. The sole issue that remains is the choice of the appropriate classification. The controversy is contentious and the alternative classification proposed by customs authorities is based upon reliance on technical features to distinguish it from a capability inherent in all vessels that put out to sea in terms of subordination to its principal function - the benefit of an exemption has been sought to be availed does not, of itself, render such claim to be with intent to evade duty. Furthermore, the role of these individuals in the misdeclaration of stores and bunkers is not evident in the impugned order - penalties set aside. With this limited remit of decision on classification in remand proceedings, the four appeals are disposed off.

Summary

Issues Involved:
1. Classification and valuation of the imported vessel.
2. Inclusion of freight, insurance, and other charges in the assessable value.
3. Imposition of penalties under sections 112 and 114AA of the Customs Act, 1962.

Issue-wise Detailed Analysis:

1. Classification and Valuation of the Imported Vessel:
The dispute centered around the classification and valuation of the 'old and used self-propelled platform supply vessel Sagar Fortune.' The customs authorities reclassified the vessel under tariff item 8905 9090, arguing it was designed for firefighting and support, not merely for supply, as claimed by the importer. The authorities relied on various certificates, including the 'class certificate' issued by American Bureau of Shipping (ABS) and Indian Register of Shipping, which described the vessel as an 'Offshore Support Vessel' with firefighting capabilities. Consequently, the exemption from basic customs duty was denied, and the assessable value was enhanced from US $ 2,100,000 to US $ 5,000,000.

The Tribunal found that the customs authorities had not adhered to the instructions pertaining to estimation by Chartered Engineers and had improperly relied on the second Chartered Engineer's report without allowing cross-examination. The Tribunal set aside the enhancement of the vessel's value, emphasizing that the declared value should be the 'gold standard' unless contrary evidence is presented.

2. Inclusion of Freight, Insurance, and Other Charges in the Assessable Value:
The customs authorities included several charges paid by the importer prior to the vessel's arrival in India in the assessable value. The appellant argued that these charges should not be included as they were not payable to the seller. The Tribunal noted that the vessel, being a 'conveyance,' does not take on additional insurance or incur transportation costs for registration purposes. Therefore, the inclusion of freight and insurance in the assessable value was deemed inappropriate, and the enhancement of the assessable value was set aside.

3. Imposition of Penalties:
The Tribunal addressed the penalties imposed under sections 112 and 114AA of the Customs Act, 1962. It found that the misdeclaration of stores and bunkers did not involve the individuals in question, and the claim for exemption was not indicative of intent to evade duty. Consequently, the penalties imposed on the individuals were set aside.

Conclusion:
The Tribunal remanded the matter back to the original authority for a fresh decision on the classification of the vessel, specifically between headings 8905 and 8906 of the First Schedule to the Customs Tariff Act, 1975. The enhancement of the vessel's value was set aside, and the penalties imposed on the individuals were annulled. The appeals were disposed of with the limited remit of deciding the appropriate classification in the remand proceedings.