M/S. Mustan Taherbhai vs Commnr. Of Central Excise & Customs

M/S. MUSTAN TAHERBHAI -- APPELLANT

VERSUS

COMMNR. OF CENTRAL EXCISE & -- RESPONDENT

CUSTOMS

J U D G M E N T

D.K. JAIN, J.:

1. This appeal, under Section 130E of the Customs Act, 1962 (for short "the

Act"), is directed against order dated 18th February, 2003, passed by the

Customs, Excise & Gold (Control) Appellate Tribunal, as it existed at the

relevant time, (for short "the Tribunal"). By the impugned order the

Tribunal has dismissed the appeal filed by the appellant herein and

confirmed the levy of customs duty on the ocean going vessel, registered

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as M.V. Jagat Priya, purchased by them in a Court auction, for breaking/

scrapping purpose in terms of Notification No. 133/87-Cus.

2. M.V. Jagat Priya was manufactured by M/s. Hindustan Shipyard Ltd. in

the year 1975 in a Customs Bonded Warehouse at Vishakapatanam,

using certain imported items. The said vessel was cleared on 30th

November, 1975, and was delivered to M/s. Dempo Steamship Ltd. for a

consideration of `7,61,12,400/- and Central Excise duty at the rate of 1%

was paid thereon. The vessel was registered as Indian vessel tonnage and

flying an Indian flag. However, it ceased to ply and was grounded at Bedi

Bunder, Jamnagar, in June 1986. On 16th October, 1992, an order was

passed by the High Court of Judicature at Bombay in Admiralty suit at

the instance of Union of India and the Shipping Credit and Investment

Co. of India Ltd. for auction of the vessel on "as is where is" basis "free

from all encumbrances and existing liens".

3. On 12th February, 1993, the vessel was auctioned and being the highest

bidder, the appellant viz. M/s. Mustan Taherbhai purchased the vessel.

The sale in favour of the appellant was confirmed by the High Court and

in furtherance thereof, the possession of the ship was delivered on 4th

March, 1993. Thereafter, on 10th May, 1993, on the direction of the

Superintendent of Central Excise & Customs, the appellant filed a bill of

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entry claiming that the ship was an Indian built ship, and therefore, no

customs duty was payable. On 12th May, 1993, the Superintendent of

Central Excise, Jamnagar passed a provisional assessment order

demanding customs duty @ 5%, and an additional duty of `1000/- per

LDT.

4. Being aggrieved, the appellant preferred Special Civil Application No.

4924 of 1993 before the High Court of Gujarat. The High Court, vide

interim order dated 25th May, 1993, permitted the appellant to clear the

materials obtained by breaking the ship in question without payment of

provisional duty on the condition that the appellant will file a bond with

security deposit. Vide order dated 23rd July, 1993, the High Court

disposed of the said application, and directed the appellant to file an

appeal before the Commissioner (Appeals). Accordingly, the appellant

preferred an appeal before the Commissioner (Appeals).

5. The Commissioner (Appeals), vide order dated 29th April, 1994,

dismissed the appeal and confirmed the order of provisional assessment

dated 12th May, 1993.

6. Being aggrieved, the appellant preferred an appeal before the Tribunal.

Vide order dated 10th July, 1998 the Tribunal dismissed the appeal.

3 Relying on the decision of this Court in Union of India & Ors. Vs. M/s.

Jalyan Udyog & Anr.1, the Tribunal observed that Notification No.

133/87-Cus was applicable in the instant case, and therefore, the

appellant was liable to pay customs duty on the vessel at the rate

prevalent at the time of breaking of ship.

7. Being dissatisfied, the appellant preferred an application under Section

129(B)(2) of the Act praying for rectification of mistakes in the order,

dated 10th July, 1998, on the ground that the Tribunal had erroneously

concluded that: (i) the goods manufactured in a customs bonded

warehouse were similar to goods imported under the Act; (ii) the issue

for determination before it was whether Notification No. 133/87-Cus was

applicable or not, whereas the real issue for determination was whether

the vessel was imported or indigenously manufactured; (iii) the customs

duty under Notification No. 133/87-Cus was payable when Notification

No. 118/59-Cus was applicable; (iv) since the vessel was subsequently

being broken up, its clearance would be governed by Notification No.

262/58-Cus; and (v) the decision in Jalyan Udyog (supra) was applicable

to the facts of the present case.

1 (1994) 1 SCC 318

4

8. Vide order dated 13th April, 1999, the Tribunal dismissed the said

application on the ground that it is a settled position that goods

manufactured in a customs bonded warehouse are treated akin to goods

manufactured in a foreign country, and when the vessel was taken out of

the country for plying as foreign going vessel, and subsequently, the said

vessel is brought back to India for breaking purposes, it amounts to re-

import.

9. Aggrieved, the appellant preferred yet another application under Section

129(B)(2) of the Act for rectification of mistakes in the order of the

Tribunal dated 13th April, 1999 on the ground that in Union of India Vs.

Baijnath Melaram2, this Court had affirmed the Bombay High Court's

decision wherein it was held that no customs duty was payable on vessels

which are subject to breaking, if the said vessels had been manufactured

in India. Vide order dated 8th October, 1999, the Tribunal dismissed the

said application as well, holding that it had correctly relied on the

decision of this Court in Jalyan Udyog (supra).

10.Still aggrieved, the appellant preferred C.A. No. 1998 of 2000 before this

Court. Vide order dated 30th August, 2001, this Court, while remanding

the matter back to the Tribunal, observed thus:

2 1998 (97) ELT 27 (SC)

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"It appears from the judgment of the Tribunal that the matter

was argued without reference to facts which are now stated in

the special leave petition, namely, that the vessel was built in

India and excise duty was paid thereon at the time of its

clearance. It was delivered to an Indian party. The contention

on these facts is that this was not a transaction of export and

import which would render the appellants liable to the payment

of customs duty.

Reliance by the Tribunal upon the decision of this Court in the

case of Union of India & Ors. vs. Jalyan Udyog & Ors. (1994

(1) S.C.C. 318) would be misplaced if these are, indeed, the

facts for that was not a case that related to a vessel that was

built in India and cleared for home consumption. We think

it appropriate, in the circumstances, that the order under

challenge should be set aside and the matter be remanded to the

Tribunal to be considered afresh. In so doing, the Tribunal shall

determine, first, the facts and then the law. The Tribunal

may take note of the judgment of the Bombay High Court

delivered on 5th February, 1992 in the case of M/s. Baijnath

Melaram vs. Union of India & Ors. (Writ Petition No.1478 of

1983), special leave petitions whereagainst were summarily

dismissed. It may be noted that we express no opinion on the

merits of the case on either side."

It is plain from a bare reading of the said order that this Court had directed

the Tribunal to first appreciate the facts of the case and then determine the

question of leviability of import duty on an Indian built ship which was sold

for breaking. It is evident from the afore-extracted paragraph that the Court

had observed that reliance by the Tribunal on the decision of this Court in

Jalyan Udyog (supra) would be misplaced.

6 11.Accordingly, the Tribunal re-considered the matter. As stated above, vide

the impugned order, the Tribunal has dismissed the appeal, observing

thus:

"The fact that Notification No. 118/59-Cus. was not in

existence at the date on which the vessel was cleared by HSL

having been superseded by Notification No. 163/65-Cus. came

to light only on the submissions made by Shri Pundir. It would

appear that at all times it was wrongly presumed that the earlier

Notification was in existence. We do not see the revelation as

bringing on record new facts. We see it as correction of the

factual error, which had existed in the record at all times. We

find no substance in the submissions of Shri Doiphode, that a

new case is being made out by the Revenue at the present stage.

14. It has been held by the Hon'ble Supreme Court that as far as

facts are concerned, the Tribunal is the final authority and the

Court would go into only the questions of law at the appeal

stage. Therefore, the Tribunal would first record the correct

facts and then in the factual perspective would locate and apply

the relevant law.

15. When the fact is accepted that Notification 118/59-Cus. did

not exist at the time of clearance of the vessel from the

Shipyard, the persistent plea that the ship was manufactured in

the warehouse and that it was manufactured in India and that it

attracted excise duty alone need not be considered at all. Since

on the date of such clearance, the notification in force was

113/83-Cus., the provisions thereof would apply and the duty

would be payable in terms of the conditions in the said

notification.

16. Since we have so held the question of the applicability of

the High Court judgment in the case of Baijnath Melaram does

not arise."

12.Hence, the present appeal.

7 13.Mr. Joseph Vellapally, learned senior counsel appearing on behalf of the

appellant, strenuously urged that in the instant case the imported goods

lost their identity when they were used in the manufacture of vessel along

with domestically procured goods, and were cleared as such, and

therefore, the revenue cannot claim on the one breath that the ship was

"manufactured" in India and attracted excise duty at the time of clearance

and on the other breath cannot contend that the ship was manufactured

abroad and was exigible to levy of customs duty when it is to be cleared

for breaking at an Indian coast. Learned counsel urged that once excise

duty has been levied and paid on goods, there is no question of levy of

customs duty under Section 3 of the Customs Tariff Act, 1975 as the

latter is meant to neutralize the non-levy of excise duty.

14.Learned counsel contended that Section 21 of the erstwhile Sea Customs

Act, 1878 provided that when any article liable to duty forms part or

ingredient of a good, then such good would be liable to full duty as if it

was entirely composed of such article. In the absence of such a charging

provision in the Act, ships manufactured by Hindustan Shipyard in India

cannot be subjected to customs duty at the time of clearance for home

consumption. Relying on the decisions of this Court in The State of

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Tamil Nadu Vs. M.K. Kandaswami & Ors.3 and In Re. Sea Customs

Act, 1878 S. 20.4, learned counsel submitted that no customs duty was

chargeable in the instant case, in as much as the ship was not a "taxable

good" as it was not imported as defined under Section 2(25) of the Act.

Moreover, there was no "taxable event" as there was no import in the

instant case, and the appellant being an auction-purchaser cannot be

likened to an importer under the Act. Relying on the decision of this

Court in Baijnath Melaram (supra), learned counsel urged that no

customs duty can be levied on Indian built ships. Learned counsel

asserted that the Tribunal had not complied with the order of this Court

dated 30th August, 2001 in as much as it has failed to consider the

judgment of the Bombay High Court in M/s. Baijnath Melaram Vs.

Union of India & Ors. (W.P. 1478 of 1983), nor has it determined the

question of liability to import duty of an Indian built ship, after

evaluating the factual background of the case as was specifically

directed. Relying on the decision of this court in Hyderabad Industries

Ltd. & Anr. Vs. Union of India & Ors.5, learned counsel urged that even

if it is held that customs duty is payable in the instant case, no additional

customs duty is leviable as excise duty had already been paid.

3 (1975) 4 SCC 745

4 (1964) 3 SCR 787

5 (1999) 5 SCC 15

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15.Per contra, Mr. Hairsh Chander, learned senior counsel appearing on

behalf of the Revenue, while supporting the impugned judgment,

contended that at the time of clearance of the ship, Notification No.

118/59-Cus was not in force, as the same had been superseded by

Notification No. 163/65-Cus. At the time the appellant presented the bill

of entry, however, Notification No. 133/87-Cus was in force, as rightly

concluded by the Tribunal.

16.Learned counsel urged that when a ship is manufactured in a bonded

warehouse, for all purposes, it is deemed to be manufactured in a foreign

country, and by virtue of Notification No. 133/87-Cus, a legal fiction is

created whereby when the ship manufactured in a bonded warehouse is

brought to India for breaking purposes, it is deemed to be manufactured

in a foreign country and appropriate duty has to be paid for clearance for

ship breaking. Learned counsel contended that the said Notification is

clear, and admits of no ambiguity, and it is settled that when a fiction is

created by law, the Courts must give full effect to the fiction. Learned

counsel urged that in terms of the Notification and as was observed by

this Court in Jalyan Udyog (supra), the date relevant for determining the

value and rate of the customs duty chargeable is the date on which the

ship is broken up, which should be reckoned as the date on which

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permission for breaking up is accorded by the Director General of

Shipping. Learned counsel submitted that the fact that the appellant was

an auction-purchaser is inconsequential in as much as Notification No.

133/87-Cus was a conditional notification, viz. when the ship is broken,

customs duty as prevalent on the date of breaking will have to be paid,

and therefore, customs duty was required to be paid in terms of Sections

12 and 15 read with Section 68 of the Act. Learned counsel also argued

that Section 68 of the Act makes it clear that when the importer of any

warehoused goods intends to clear them for home consumption, then a

bill of entry for home consumption has be to be filed, and the import duty

leviable on such goods has to be paid by the importer, as was held in

D.C.M. & Anr. Vs. Union of India & Anr. 6. Learned counsel submitted

that Section 9 of the Act makes it clear that clearance from a Bonded

warehouse is to be treated as an import into India. It was also stressed

that clearance of vessel was in terms of the exemption notification, which

stipulated payment of appropriate customs duty prevalent at the time of

its breaking. Reliance was placed on the decisions of this Court in

Hansraj Gordhandas Vs. H.H. Dave, Assistant Collector of Central

Excise & Customs, Surat & Ors.7; Novopan India Ltd., Hyderabad Vs.

6 1995 Supp (3) SCC 223

7 (1969) 2 SCR 253

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Collector of Central Excise And Customs, Hyderabad8 and

Commissioner of Central Excise and Customs, Indore Vs. Parenteral

Drugs India Ltd.9 to contend that the terms of an exemption notification

have to be construed strictly.

17.Having bestowed our anxious consideration, we are constrained to hold

that the impugned judgment deserves to be set aside on the short ground

that while deciding the case, the Tribunal has ignored the specific

directions issued by this Court, vide order dated 30th August, 2001. It is

evident from the impugned order, in particular from paras 15 and 16 that

the Tribunal has not appreciated the facts obtaining in the present case in

their correct perspective, which has resulted in vitiating its decision on

the question of leviability of import duty. Although, from para 14 of the

impugned order it is evident that the Tribunal was conscious of the

direction of this Court that it was required to first record the correct facts

and then in the factual perspective locate and apply the relevant law, yet

in the very next paragraph it proceeds to hold that when it is accepted that

Notification No. 118/59-Cus. did not exist at the time of clearance of the

vessel from the ship yard, the persistent plea that the ship was

manufactured in a warehouse located in India and therefore, it attracted

8 1994 Supp (3) SCC 606

9 (2009) 14 SCC 342

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excise duty alone need not be considered at all. In our opinion, in light of

the decision and directions of this Court in C.A. 1998 of 2000, judicial

discipline obliged the Tribunal to examine the entire legal issue after

ascertaining the foundational facts, regardless of its earlier view in the

matter. Therefore, the decision of the Tribunal cannot be sustained.

18.We are thus, convinced that it is a fit case which should be remanded

back to the Tribunal for fresh adjudication and determination of the

question of leviability of import duty on an Indian-built ship brought into

India for breaking purpose. For the view we have taken, we deem it

unnecessary to deal with other contentions urged by the learned counsel.

19.Resultantly, the appeal is allowed; the impugned order is set aside, and

the matter is remanded back to the Tribunal for fresh consideration, in

accordance with law, bearing in mind the observations of this Court in

C.A. No. 1998 of 2000. There will, however, be no order as to costs.

.................................................

(D.K. JAIN, J.)

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.................................................

(ASOK KUMAR GANGULY, J.)

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(H.L. DATTU, J.)

NEW DELHI;

FEBRUARY 28, 2011.

RS

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