M/S. Raj Shipping Agencies Ltd vs Commissioner Of Customs (Import) ...

(Arising out of Order-in-Original No. 63/2014/CAC/CC(I)/AB/VB dt.27.5.2010 passed by the Commissioner of Customs (Import), NCH, Mumbai)

For approval and signature:

Honble Mr. Anil Choudhary, Member (Judicial) Honble Mr. P.S. Pruthi, Member (Technical)

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1. Whether Press Reporters may be allowed to see : the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : of the Order?

4. Whether Order is to be circulated to the Departmental : authorities?

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M/s. Raj Shipping Agencies Ltd. : Appellant Shri Noshir Mehta Shri Parvez Mehta

VS

Commissioner of Customs (Import) Mumbai : Respondent

Appearance

Shri S.B. Nagarkar, Consultant, with Shri V. N. Ansurkar, Advocate for Appellant

Shri A.K. Singh, Additional Commissioner (A.R) for respondent

CORAM:

Mr. Anil Choudhary, Member (Judicial) Mr. P.S. Pruthi, Member (Technical)

Date of hearing : 31/3/2015 Date of pronouncement : /2015

ORDER NO.

Per : P.S. Pruthi

The appellant M/s Raj Shipping Agencies Ltd have filed appeal against the order in original No 62/ 2014 dated 27. 05. 2014 passed by Commissioner of Customs Mumbai holding the classification of the vessel Offshore Hunter under CTH 8904, denying benefit of Notification No. 21/2002 and 20/2006, confiscating the vehicle with option to redeem on payment of redemption fine, demanding differential duty and interest and imposing penalty under sections 114A. Appeals have also been filed by the two Directors against imposition of penalty under section 112.

2. The appellant had purchased the vessel Offshore Hunter earlier known as Salwa from Kuwaiti oil Tanker company, Kuwait in the year 2008. The vessel was registered with Kuwaiti Registry on 02/05/1994 as a supply vessel. The vessel was brought to India and registered with the Mercantile Marine Department which is the Registrar of Indian Ships under the Merchant Shipping Act, 1958 on 2. 9. 2008 as an offshore supply vessel. After physical first check examination by the Customs, the vessel was cleared under CTH 8901 1010 attracting nil duty under customs notification 21/2002 (serial number 352) and nil SAD under notification 20/2006 ( serial number 1). After four years, on the basis of intelligence and investigations, the Department viewed that the classification of the vessel had been mis-declared and the correct classification should be CTH 8904 0000 as a tug. Since the vessel was engaged abroad, the appellant could not present the vessel for scrutiny and paid customs duty of Rs. 1,19,27,707, under protest. Thereafter the vessel was seized under section 110 (1) of the Customs Act on 3. 7. 2012 and released on provisional basis on furnishing of bank guarantee for Rs. 63,74,363 and a bond of Rs 12,74,87,250. After issue of show cause notice the case was adjudicated by the Commissioner resulting in the impugned order against which the appellant are in appeal before us.

3. Heard both sides and considered the submissions.

4. The contention of the Ld counsel is that the Customs heading 8901 covers cruise ships, excursion boats and similar vessels principally designed for the transport of persons and goods whereas Customs heading 8904 covers tugs and pusher craft. The vessel in question is not designed as a tug but as a vessel for supply of goods as well as for carrying passengers. It has been certified as a supply vessel by the Kuwaiti Registry as well as by the Registrar of Indian Ships. The Mercantile Marine Department under the Ministry of Shipping, Govt. of India clarified in their letter dt 29.6.12 to the Customs Department (before issue of show cause notice) that There is no restriction for an offshore supply vessel to undertake towing operations if duly certified so by the class.. The vessel is an offshore supply vessel having towing facilities. It was further submitted that as per the Publication titled Rules and Regulations for the Construction and Classification of Steel Ships by the Indian Register of shipping the, supply vessels are vessels specially designed and constructed for the transport of specialised stores and cargoes to fixed and mobile offshore installations The supply vessels which also comply with the requirements of tugs will be eligible to be assigned class notation tug/supply vessel .

4.1 According to the ld counsel, the determining factor as to whether the vessel is designed as a supply vessel or is designed for towing other craft. In this connection he referred to the HSN Explanatory Notes on Heading 8904 which state that the vessels of heading 8904 are not designed for the transport of persons or goods and they are distinguishable from other vessels by their specially shaped and strengthened hulls and powerful engines. It was submitted that the statements of both the Directors have been misinterpreted by the Department. The Directors only stated that the vessel has been operated for all activities including towing if the need arose. It was further submitted that the vessel in question can carry cargo and has accommodation facility for 18 persons apart from crew of 15 persons. And the scope of work as per contract dated 13.7.2011 with the consortium of Valentine Marine and Valentine Maritime (Mauritius) Ltd clearly states that it was engaged for offshore duties/ services.

4.2. According to the appellant the Commissioner relied on Rule 3 (c) of the Rules for Interpretation of Classification to hold that the vessel is classifiable as a tug. While reaching this conclusion the Commissioner stated that Rules 1 ,2 and3 (a) or (b) are not applicable. However, according to ld counsel, the classification can be decided in terms of Rule 3 (a) itself since the heading 8901 being more specific is to be preferred over a general description 4.3 Lastly the contention is that there was no misrepresentation to the Customs at the time of clearance of the vessel because it was subjected to first check examination under the supervision of DC Docks and a detailed examination report was prepared stating that the vessel has a winch. Therefore there was no misdeclaration and consequently the question of confiscation under section 111 (m) of the Customs Act does not arise.

5. The Ld AR appearing on behalf of Revenue reiterated the findings of the Commissioner. He stated that the Certificate of Kuwaiti Registry dated 2. 5. 1994 is very old. Many years have passed since then. The movement of the vessel and its status till the time it was registered under the Indian Merchant Shipping Act in 2008 is not known. Therefore the Certificate of Kuwaiti registry cannot be relied upon. He drew attention to a letter issued by the Indian Register of Shipping addressed to M/s Arcadia Shipping Ltd which gives approval of the towing plan for the vessel in question. The subject of this letter is Approval of towing plan for vessel Bhagirath by tug Offshore Hunter . This letter approves the towing plan of the vessel Bhagirath from Mumbai to Mumbai High and back. According to ld AR this is sufficient evidence that the vessel in question is a tug. He showed other towing plans for other vessels. In all of them the vessel Offshore Hunter is referred to as a tug. Even the Port Trust record which is maintained by the Port trust authorities for vessels which are towed to the high seas and back, referred to the vessel offshore hunter as a tow.

5.1 The Ld AR stated that the vessel in question is described as offshore tug/supply ship in the website EQUASIS. He referred to a document which is an arrival report prepared by Custom House Mundhra dated 8.11.2011 which describes the vessel as coastal tug offshore hunter with barge freight. He placed reliance on the case of Urmila & Co vs Collector 1998(104)ELT 97 (Tri) to say that classification should be determined by the design and structure of the vessel. He also relied on Atherton Eng Co Pvt Ltd 2010(256)ELT 358 which held that classification should be based on the plain description of goods and their essential character.

5.2 Lastly he relied on the statements of the Directors of the appellant who stated that the vessel does towing activity.

6. We have carefully gone through the facts of the case and the submissions made by both sides 6.1 To decide the classification of the vessel in question it would be appropriate to examine the purpose for which the vessel is designed, the HSN Explanatory Notes which guide the Department in classification, the various documents produced by both sides which indicate the nomenclatures used for describing the vessel and lastly the statements of the Directors of the appellant 6.2 We find that the earliest paper describing the vessel is a Certificate of Kuwaiti Registry which indicates the type of ship as supply vessel. Revenue does not attach any importance to this certificate because it dates back to 1994. But at the same time Revenue has not been able to question the genuineness of this certificate or to produce any evidence that the certificate does not describe the vessel as it was in 1994. The Certificate of Indian Registry dt 2-9-2008 in which the Registrar of Indian Ships certifies the particulars of a ship under the Merchant Shipping Act 1958 describes the vessel offshore hunter as an OSV i.e Offshore Supply Vessel. This certificate is dated 2nd September 2008 . The certificate also gives the earlier name of the vessel that is Salwa which name is used to describe the vessel in the Certificate of Kuwaiti Registry. During investigations the Department raised this issue with the Mercantile Marine Department under Ministry of Shipping, Government of India who clarified on 29/6/12 that There is no restriction for an offshore supply vessel to undertake towing operations if duly certified so by the class. Indian register of shipping, a recognized organization  under M. S. Act, is the authorized professional agency to carry out survey of constructional part and they have categorised the vessel. The vessel is an Offshore Supply Vessel having towing facilities. Much as we appreciate the efforts of Ld. AR in showing us various documents to prove that the vessel is a tug, we find it difficult to ignore the clarification given by the Ministry of Shipping.

6.3 The documents referred to by the ld AR are, firstly, towing plans which are plans prepared by the Indian Register of Shipping approving the movement of the vessels along coastal areas. It is true that the towing plans describe the vessel as a tug. But as we have noted above, the Registrar of Indian ships has himself issued the Certificate of Indian Registry which describes the vessel as an offshore supply vessel. Therefore, just because the towing plans describe the vessel as a tug, it does not have to be classified as a tug. To our mind, the reasonable explanation for describing the vessel as a tug in the towing plan is that the vessel was being used for towage operations even though it is a supply vessel. But that by itself does not necessarily lead to the classification or description of the vessel as a tug.

6.4 The appellant have referred to the HSN Explanatory Notes under Customs heading 8904 describing tugs which state that  These our vessels primarily designed for towing other craft. They may be of type used for sea or for inland navigation. They are distinguishable from other vessels by their specially shaped and strengthened hulls, by their powerful engines disproportionate to the size of the vessel, and by various deck fittings designed to carry a tow rope, hawser etc. We find that the Commissioner in his Order has merely given the technical details of the vessel in question such as engine strength generator capacity etc. but he does not say how the engine strength is disproportionate to the size of the vessel. Neither does he explain whether the vessel in question has a specially shaped and strengthened hull. No technical clarification is forthcoming from the Commissioners Order as to how the specifications of the vessel in question are actually different from those of supply vessel. In fact, the HSN Explanatory notes on chapter 8904 further state that The vessels of this heading are not designed for the transport of persons or goods The appellant have explained how the vessel in question is designed for transport of goods and cargo. For example, the arrival report dated 8.11.2011 of Custom house Mundhra which is referred to by the learner AR, under S No 9: Cargo mentions the description as loading coastal export, Another example is the daily working report dated 10.11 2011 of Mundra port which indicates that the vessel in question was carrying export cargo namely Steel CWC pipes. Therefore it is clear that the vessel was used for carrying persons and cargo although at times it was also used for towing operations.

6.5 The question which arises is that if the vessel is used for carrying persons and cargo as well as for towing operations, what is the primary purpose for which the vessel is designed. Merely having a winch does not lead to conclusion that the vessel is a tug. Supply and passenger ships can also have a winch. To decide the issue at hand, in the absence of any technical document of the design of the vessel, we have to rely on the Certificate of Indian Registry issued under the Merchant Shipping Act 1958. The description retrieved from the web-site QUASIS by Revenue cannot be preferred over the certificate given by the Registrar of Indian Ships. In any case it describes the vessel as tug/supply ship and not as tug alone. Moreover a disclaimer is claimed by the web-site regarding the information given by it.

6.6 We may point out that the statements of the Directors have been misinterpreted by the Department. The answers to some of the questions put to Mr Noshir Mehta, one of the Directors, are given below Ans--- Offshore Hunter has been performing offshore services as a supply boat and other offshore duties/services within the safe working capability of the vessel.

Ans--- offshore duties are any duties that the chartered may assign to the vessel to carry out subject to the same being with the safe working capability of the vessel, such as, boat landing, patrolling, supply runs, towing, transportation of men and material, cargo carriage, surveying activities et cetera.

Ans--- Once we we give the vessel on time charter, the vessel would undertake any jobs that the charterer wants within the vessels safe working capability including towing activity if required.

The statement of the other Director Mr. Pervez Mehta also only reveals that the vessel was sometimes used for towing operations. He has also stated that the tug is usually between 25.35 mts. Long. This aspect has not been considered by the Commissioner.

We fail to understand how the Department interpreted the answers of the Director to mean that the vessel is used for doing towing operations only

6.7 The Commissioner has placed reliance on the Rules for Interpretation of the Schedule (to the customs tariff). Reading down the rules he finds that rule 3a and rule 3b are not applicable and therefore he resorts to rule 3c which states that where goods cannot be classified by reference to 3a or 3b , they shall be classified under the heading which occurs last in the numerical order among those which equally merit consideration. In our considered view and on the basis of the analysis above, we find that the heading 8901 provides the more specific description. Therefore there is no doubt about the applicability of rule 3a which states that the heading which provides the most specific description shall be preferred. In the present case, the vessel is designed as a supply vessel for transport of persons as per the Certificate of Indian Registry. The case laws relied upon by the Ld AR do not help the stand of Revenue, rather they strengthen our view that the classification under Heading 8904 is not correct. As the vessel in question is a supply vessel used for transport of persons and goods, the correct classification would be CTSH 89019000 (which is rejected by the Commissioner in para 476) which covers  Other vessels for transport of the goods and other vessels for transport of both persons and goods. And the goods falling under CTH 8901 are exempted under Not 21/2002 read with Notification No. 20/2006.

7. Revenue has invoked the extended time period to demand duty by alleging that the appellant had mis-declared the capabilities of the vessel before the proper officer who did the first check examination. It is also alleged that the proper officer was clearly misguided by the Certificate of Registry. This allegation has no basis whatsoever. We have seen the examination report of the DC customs. It indicates inspection and examination of the vessel with respect to the Certificate of Indian registry. It also indicates that the vessel has a winch with steel wire, bollards at the sides. The Custom officers were free to examine the vessel with respect to any documents for the purpose of determination of classification. In any case as we have discussed above, the Certificate of Indian Registry and the clarification given by the Ministry of shipping can by no means be discarded. Therefore we hold that there is no misdeclaration whatsoever. Consequently there is no question of confiscation and option to redeem on payment of redemption fine. We set aside the confiscation.

8. In view of our analysis above, the classification ordered by the Commissioner is set aside along with the demand of duty, interest and penalties on the appellant as well as the Directors.

9. The impugned Order is set aside. Appeals allowed on merits as well as on time bar with consequential relief to the appellants in accordance with law.

(Pronounced in court on /2015)

(Anil Choudhary) Member (Judicial)

(P. S. Pruthi) Member (Technical)

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