Sedco Forex International Drilling Inc. v. Commr. Of Cus, Mumbai

[Order per : Gowri Shankar, Member (T)]. - M/s. Sedco Forex International Drilling Inc (hereinafter Sedco) imported a drilling rig used for offshore oil exploration and exploitation into Bombay in 1988. The rig was towed by a vessel, Mighty Servant-2. M/s. J.M. Baxi & Company, the agents for Mighty Servant-2 filed a manifest with the Bombay Custom House. The content of the manifest was a subject of dispute. Sedco had imported the rig into India in pursuance of a contract signed with Oil and Natural Gas Commission (hereinafter ONGC) to which the rig was under charter hire for the offshore oil exploration and exploitation which the ONGC was conducting in the high seas off the coast of India. The rig was on contract with ONGC from May 1988 to January, 1998 and thereafter with M/s. Enron Oil & Power Corporation (hereinafter Enron), a co-venturer in oil exploration with ONGC, from January to November, 1998; and thereafter again on contract with ONGC from November, 1988 to March, 1999. The rig was seized by the Customs department in March, 1998 for being liable to confiscation for alleged contravention of the Customs Act, 1962. By orders passed by the Bombay High Court in a writ petition filed by Sedco it was permitted to be used by Sedco and is currently on contract with Enron.

2. The seizure of the rig was followed by a notice issued in January, 1999 to Sedco, J.M. Baxi, ONGC, Enron, Great Eastern Shipping Company Limited, Varun Shipping Ltd. and Remy Baizan, Sedco’s Manager and others. The notice contended that the initial import of the rig into Indian territorial waters and one of its subsequent movements in 1998, to a drilling platform which had been designated under the Territorial Waters Continental Shelf Exclusive Economic Zone and Other Maritime Zones Act, 1976 (Act 80 of 1976) constituted import. It specifically alleged that import of the rig into a designated platform PE on 13-1-1998, without filing a bill of entry constituted contravention of the provisions of Sections 30, 32, 34, 46 and 47 of the act rendering the rig liable to confiscation under clauses (a), (f), (g), (h) and (j) of Section 111 of the Act, and Sedco liable to penalty. The notice also proposed penalty on Remy Baizan, the District Manager at the relevant time of Sedco for his involvement. It proposed in addition, penalties on Enron and ONGC for abetment and also confiscation of the three towing vessels Malaviya-1, Malaviya-4 and Nilkamal, which had been used to tow the rig into designated platform NV under sub-section (2) of Section 112 of the Act. Penalty was also proposed for abetment on J.M. Baxi, the agents of Mighty Servants-2 who initially towed the vessel to India and M/s. Binny Limited.

3. Each of the persons concerned made elaborate submissions in the reply to the notice and was heard at length by the Commissioner. The Commissioner thereafter passed his order impugned in these appeals. In that order he has held the rig liable to confiscation under clause (d), (h), (g) and (f) of Section 111 with an option to redeem it on payment of fine of Rs. 15 crores in addition to any duty and other charges that may be payable in terms of sub-section (2) of Section 125D of the Act. Penalty of Rs. 5 crores on Sedco under clause (a) and (b) of Section 111 and Rs. 12 lakhs under clause (a) of Section 112 on Remy Baizan, confiscation of vessel Malaviya-1 and Malaviya-4 and Nilkamal with an option to redeem them on payment of fine, penalty of Rs. 50 lakhs under Section 112(a) and (b) on Enron, Rs. 10 lakhs under clause (a) and (m) of Section 112 on J.M. Baxi & Company and penalty of Rs. 2 lakhs under clause (a) of Section 112 of Binny Limited. These appeals are by these persons except M/s. Binny Limited who has not appealed this order.

4. The learned counsel for Sedco has the following contentions. First the rig has not been imported into India. The ‘import’ has been explained by the Supreme Court in its judgement in Union of India v. Apar Limited - and Kiran Silk Mills - to commence when the goods enter the territorial waters of India and to be completed when they cross the customs barrier and merge with the mass of goods in the country. The rig was in various locations in Bombay High between 25th April, 1988 and 9th March, 1999, when it was seized. During this period of approximately 11 years, only for a total of 350 days had it worked in locations designated under Act 80 of 1976 as even to which the Customs Act, 1962, and Tariff Act, 1985 applied. It spent the rest of the period in non-designated locations. In other words, it spent less than 5% of its total sojourn in India in designated areas. The Supreme Court in Chowgule & Company and Another v. U.O.I. - had said that whether a vessel to be considered as ocean going vessel or not to depend upon the intention as to its use when it is imported into India. By applying that criterion and considering the actual use of the rig outside India (including the designated areas) in the economic zone the ship had not been imported.

5. It is next contended that in the event that it is held that the rig has been imported the import was not made by Sedco except initially in 1988. The rig was throughout on contract for a major period with ONGC and for a short period with Enron. The movement of the rig from place to place and its locations and the period of such location in any area was not at the sole discretion of the charter hirer. Sedco has no say in these matters and was required by the terms of the contract to have the rig towed to whatever location was decided by the charter hirer. Applying the definition of the term ‘importer’ contained in Section 2 of the Act it is these persons who are the importers and not Sedco. It is therefore their responsibility to file bill of entry if that was required and comply with other customs formalities.

6. It is next contended that there has been a regular and continuing practice of bills of entry not been filed for import of rigs. The practice was only for a bill of entry to be filed where a rig is imported with the intention of being placed on the Indian Shipping Register. Examples were given of Hit Drill I Ile, D’ Amsterdam and Kedarnath which were purchased by purchasers in India with the intention of the placed on the Indian Register. The Public Notice No. 129/1 dated 17-7-1984 of the Customs House requiring that the bills of entry to be filed on the first arrival of a vessel only in cases where the goods are imported by the Indians, was also cited as evidence of such practice.

7. It is next contended that there was no intention to contravene any of the provisions of law. The rig was imported in the belief that no bill of entry to be filed. The Customs House would have been aware from the manifest which was filed of the entry of the rig. It was also aware of the movements of the rig to Bombay High. Overtime charges paid to the customs for preventive officer’s service, were cited in support. A show-cause notice was issued to Sedco in 1994 proposing confiscation of the rig for taking into a designated area NJ. The reply filed to the show-cause notice that it was not in NJ has yet not been dealt with. From these it would be clear that the Department was aware of the arrival of the rig into India and its movement in and around Bombay High. Yet for 11 years no action is taken. The judgment of the Supreme Court in Akbar Badruddin Jiwani and others v. C.C. - were cited to say that where importer has acted bona fide confiscation and penalty are not justified.

8. The next contention is that even if the rig is held to be liable for confiscation sub-section (2) of Section 125 of the Act cannot be utilised for recovery of duty. The Department had numerous opportunities for issue of notice under Section 28 of the Act for recovery of duty not levied. This could have been done when the rig first entered into India and failing that on each occasion when the rig entered a designated area which according to the Commissioner constituted import, duty could have been demanded. The two decisions of the Tribunal were cited in support of the proposition that where the time and place of importation is known duty cannot be recovered by invoking sub-section (2) of Section 125 of the Act. Even if it is held duty is liable to be paid complete exemption was available for import of the rig under Notification 132/94. The condition for availing of this exemption is that the essentiality certificate should be produced from the Director General of Hydro Carbons. The fact that foreign exchange was released by the Ministry of Petroleum and Chemicals for hire of the rig. It would be clear that this certificate could have been issued. Therefore substantial compliance with the notification.

9. It is alternatively contended in this regard that in any event the benefit of exemption under Notification 196/89 would be available to the extent of 25% of the duty payable on production of essentiality certificate from the Empowered Committee. Here again there has been substantial compliance. In the third alternative it is contended that the benefit of Notification 23/89 would be available for the movement of the rig to ‘NV’.

10. It is next contended that if at all the entry into designated area amounts to import, exit (sic) from it amounts to export. By application of Section 74 of the Customs Act drawback to the extent of 98% would be available of the duty payable. The duty payable therefore only works out to 2%.

11. It is contended on behalf of Remy Baizan that he was not even in India in charge of the affairs of the Company at the relevant time. He only joined in 1997 and was uninvolved with the prior activities of the Company.

12. Following contentions are urged on behalf of Enron. It was a co-venture with ONGC in oil exploration and exploitation and its contract with the Government provided that all the customs formalities and other in respect of the rig would be looked after by the Government. It had therefore nothing to gain by the fact of the rig being towed into the designated area. The Commissioner had exonerated ONGC of any liability to penalty under identical circumstances on the ground that it had nothing to gain. The same principle should be applied to Enron. It is next contended that in any event the import of the rig was made not by Enron but by Sedco.

13. The contentions on behalf of Great Eastern Shipping and Varun Shipping against the confiscation of the tug Malaviya-1 and Malaviya-4 and Nilkamal respectively are these. The master of the tug were merely obeying the orders of the ONGC. They had no knowledge of the legal position that some of the areas were not notified and others notified. Cases were cited to say that in the absence of such knowledge when the goods were liable to confiscation, their acts would not justify confiscation.

14. Before taking up the case of Sedco, we propose to deal with the appeals of the other parties.

15. The allegation against ONGC and Enron in the show cause notice is in identical terms, that they had “aided and abetted the illegal importation” by permitting the rig to be brought into the designated platform, kept it in its custody, and used the rig for commercial operations. The charges thus are identical, being NV in the case of ONGC and PE in the case of Enron. The defence offered by both these parties before the Commissioner was in similar terms. This was that they had acted bona fide and had not thus violated any of the provisions of the Act. ONGC pleaded, in addition, that it was a company owned by the Government of India, and engaged in national activity of exploring and producing oil. Enron had said that in terms of the agreement between it and ONGC, as a result of which it had undertook off-shore drilling operations, it was the liability of ONGC to pay any charges and duty.

16. On these facts, the Commissioner has exonerated ONGC and found Enron liable to penalty. He dismisses Enron’s contention that formalities relating to Customs clearance were to be undertaken by ONGC in terms of the contract by saying that “indemnity or a facility provided under the contract between two contracting parties cannot absolve them from fulfilling their statutory obligations, even if one of the contracting party is Government of India itself.” He refers to a note prepared by Remy Baizan, suggesting that the rig is not to be taken into any designated area by Enron, as evidence of a “broad understanding reached between Enron and Sedco”, thus showing that it had the knowledge of procedures. The contention of the counsel for Enron that this note was in the form of draft unsigned by Baizan and in any case is not shown to have received by Enron could not be rebutted by the learned counsel for the Department. That being the case, this note cannot be relied upon by the Department as knowledge by Enron of the fact that no duty had been paid on the rig and required customs formalities not complied with. In that event, there is no material on the basis of which it can be established that Enron abetted the smuggling (assuming that to be so) of the rig into a PE. Abetment implies awareness of the illegal nature of the act, which is being abetted.

17. Further, the reasons on the basis of which the Commissioner has exonerated ONGC from penalty would apply with equal force to Enron. After all, Enron was engaged in the same activity of national importance, that ONGC was engaged in, and indeed as a co-venturer with ONGC. The Commissioner emphasises that being a government owned company, ONGC had nothing to gain by abetting someone to evade Customs duty. The same conclusion would apply to Enron. In terms of the contract any duty or amounts payable by it were to be reimbursed by ONGC. We are therefore unable to find justification for imposition of penalty on ONGC.

18. Although the Commissioner exonerates ONGC from penalty, he still orders confiscation of the tugs owned by Great Eastern Shipping Company, which towed the rig into NV as ordered by officials of the ONGC. The tugs had been engaged by ONGC, for towing the rig. If ONGC had nothing to gain by bringing the rig into the designated area and therefore was not liable to penalty, it would follow that Great Eastern Shipping Company, which brought the rig into NV, on instructions of ONGC, itself could not have been advised by it, that there was any contravention of the Customs provisions. The contention of its counsel that it acted bona fide and without any awareness of the provisions of law involved therefore has to be accepted. The same would hold true of Varun Shipping Company in regard to bringing the tug into “NV”. It too towed the rig into PE in pursuance of a contract with ONGC. Sub-section (2) of Section 115 of the Act provides for confiscation of the conveyance used as a means of transport for smuggling of any goods or in the carriage of any smuggled goods, unless the owner of the conveyance proved that it was so used without his or his agent’s knowledge or connivance or that of the person in charge. On the facts before us, we are satisfied that neither the owners of the tugs, nor their masters would have been in a position to know the intricacies of the Customs law relating to the platform and bona fide acted on the instructions of ONGC, (which as the Commissioner emphasises a Government organisation) into the designated area.

19. When the rig first came into India in April, 1988, papers relating to its clearance was filed on behalf of Sedco by J.M. Baxi & Company, an agent appointed by it. From the copy of the manifest filed by the appellant before us, it is seen to have been in two pages. The first page contained the “General Declaration” details such as name of the vessel, nationality, tonnage, number of crew, number of passengers and the second page consists of the “Cargo Declaration.” The General Declaration shows against the name of the vessel ‘MV “Mighty Servant” Towed Rig Trident II’. The cargo declaration has 13 columns, consisting of line number, bill of lading number, number and nature of packages, marks and numbers, gross weight, description of goods, name of consignee/importer, which are required to be filled in by the master of the vessel or his agent. The other columns in this manifest, relating to the date of presentation of the bill of entry, name of Custom House Agent, etc would be filled in when a bill of entry is filed for their clearance. On this page, what was declared was “arrival in water” under the column “Marks and numbers” and words “MV Mighty Servant II” Towed Rig Trident 11 under the remarks column. It is the department’s contention in the notice accepted by the Commissioner, that these particulars did not constitute a declaration that the rig was cargo. It is contended therefore that the department did not take the necessary steps for endorsement of Customs procedures and recovery of duty which it would have taken, had the full and correct declaration been maintained.

20. We agree that there is no specific declaration in either the description in the general declaration or the cargo manifest specifically declaring the rig as cargo. To that extent, the manifest is imperfect. However, each page of the manifest says clearly that Mighty Servant II towed Rig Trident II. From the words that appear on these pages, there might perhaps some ambiguity as to what exactly the Mighty Servant II was. Its nature as a tug is not specifically indicated. However, the presence of the words “Towed Rig Trident II” clearly indicates to us, and we feel would so indicate to any officer of the Customs department with a basic knowledge and acquaintance of the Customs procedures that the Rig Trident II had been towed into the port. We are not able to see what other meaning these words could convey. It was hotly contended by the counsel for the Department that when the rig was towed out of Singapore for transportation to Bombay, a bill of lading was issued for the tug, thus clearly denoting into cargo. Failure to present this bill of lading to the Customs department is emphasised. Doubtless this bill of lading was not filed before the Department. However, there is no legal requirement in law that the manifest file should contain copies of the bill of lading issued for the cargo at the exporting port. We are satisfied that, despite the imperfection in the form of the manifest, the substance of what the manifest would require to contain that the Rig Trident II had been towed into Bombay port has been communicated to the Department. We therefore do not think that a penalty is imposable upon J.M. Baxi & Company or that there has been any contravention of the provisions of clause (f) of Section 111 of the Act by Sedco.

21. Accordingly, appeals of J.M. Baxi & Company, Enron, Great Eastern Shipping Company and Varun Shipping Company are allowed and the penalties imposed on them are set aside.

22. The contention that the import of the rig has not taken place is based on the judgment of the Supreme Court in a line of decisions explaining the nature of import under the Customs Act, 1962 and the judgment of that Court in Chowgule and Company Pvt Ltd v. Union of India. In the first series of decisions (Apar Pvt. Ltd. etc) the Court had explained that import in terms of the Customs Act, 1962, commences when the imported goods enter into India and is completed when the goods crossed the Customs barrier and merge with the mass of the goods within the country. In Chowgule and Company, the Court has said that, in order to determine whether any imported goods are “goods for home consumption”, the primary intended use of the goods when they are brought into Indian territorial waters has to be considered. If they were intended to be primarily used in India, they were goods for home consumption notwithstanding that they may also be used for the same or other purposes outside India. The Court expressly guarded against saying that the converse may be true. “The question whether goods not intended to be primarily used in India but used occasionally for short periods in India also falls within the meaning of the expression “goods for home consumption has not been examined by us.”

23. The argument, based on a combination of the ratios of these decisions is initially attractive, but we are unable to accept it. Rigs such as the one under consideration are capable of use for oil exploration or exploitation anywhere in the high seas. They can be used for prospecting for oil or to extract oil in international waters as well as in Indian waters. It is not possible for us to agree that, on its importation into Bombay, the rig has not emerged with the mass of the goods in the country. All the elements of import, except clearance from Customs were present. There was not even an attempt to clear it from Customs. We asked the counsel for Sedco whether the ratio of the Chowgule & Company would apply in a case where the intention regarding use were not known when the goods are imported. He agrees that the Court’s judgment does not provide an answer as to what the situation would be. It is not possible for us to conclude, when the rig was imported, there was an intention to use it predominantly outside the Indian territorial waters, although it has no doubt actually so used later. We therefore do not find it possible to say that either the taxable event does not occur or the rig could not be treated as goods for home consumption.

24. The next contention is that, except initially in 1998 the import was not made by Sedco. The movement of the rig into and out of various drilling locations including NV was not under the control of Sedco, but under that of ONGC and Enron. Therefore, it is they who are the importers and not Sedco.

25. The notice charges Sedco in addition to the import in 1988 with import into the designated area NV in 1998. The contract between Sedco and ONGC provides in Article 1.1 of charter agreement that “The agreement shall commence when the drilling unit, ready in all respects at the first drilling location nominated and made ready in all respects by the company (ONGC) is ready for pinning down at the nominated location herein referred to as commencement date.” It is not disputed that the first drilling location was NV. Therefore, the agreement between ONGC and Sedco commenced after the rig came into NV. The rig was therefore brought into NV by Sedco. Sedco was therefore the importer of the rig into India. It is not material that this was done in pursuance of a contract between Sedco and ONGC. It was Sedco, which caused the import into NV. The actual physical movement of the rig into the NV was carried out by ONGC. The Commissioner has ordered confiscation of the tugs used for this purpose engaged at the behest of ONGC. Although this aspect is not clear, it does not detract from the fact that in terms of the contract, the responsibility of Sedco in bringing the rig into NV and was therefore the importer.

26. We will next deal with the argument regarding the practice, which it is contended existed of filing bills of entry only for ships imported with the intention of placing before the Indian Ship Register. For this the appellant gave example of cases, where bills of entry were filed for the rigs being purchased by persons or companies located in India. At the same time, the Department gave example for bills of entry that is being filed for rigs, which were not so imported for that purpose. After considering these examples, it is not possible for us to conclude that there was a clear practice of bills of entry being required to be filed by the Department only in cases where the rigs were imported by Indian companies or individuals, and that there was no such practice of not filing bills of entry in cases where the rig was not on contract for temporary using or around India. The Public Notice No. 129/1 dated 17-7-1984 cited by the appellant notifies “for the information of the Indian Shipping agents (and all other concerned) with the purchase and import of ocean going vessels, boats etc that at the time of the vessels first entry into India, a regular bill of entry under Section 46 should be filed alongwith the manifest.” It is not possible for us to conclude that this public notice permits an inference that a bill of entry is not necessary where an ocean going vessel is for purposes other than permanent use in India. We are not able to accept the contention of Mr. Sethna that it refers to ocean going vessel as vessels, and not as cargo. If that were the case, the public notice would not have asked for the bill of entry to be filed alongwith the manifest of the vessel. However, in the manner in which it is worded, it is not possible for us to conclude that it would have been clear in the minds of anyone that a bill of entry was not required, where the import did not result in from the purchase of the vessel and thus constituted evidence of a practice not to file the bill of entry.

27. We however agree that the ambiguity regarding the practice is relevant in dealing with the next contention which is that there was no intention of contravention of any of the provisions of law. It would be evident from the foregoing discussion that there is no clear requirement established on the issue of public notice or any such instructions clearly requiring filing a bill of entry or payment of duty on import of rigs. It appears probable that it would not be unreasonable to conclude that, having regard to the fact that the import of such goods was made only by or at the instance of ONGC, a Government organisation, for oil exploration and exploitation, the officers of the Customs department did not really apply their minds to these aspects and procedures were allowed to develop ad hoc on response to immediate needs. In determining whether the rig is liable to confiscation and if so the quantum of redemption fine, these aspects will play a part. In this regard, we also have to agree that the fact of the rig having come into the country was known to the Department through the manifest, which was filed, and that the Department could not have been unaware of the operation of the rig from 1988 till 1999 and there is really no satisfactory explanation as to why there is a delay of 11 years, although the delay in issuing the notice may not be contrary to law.

28. Technically each time goods are brought into and taken out of the designated area within the exclusive economic zone, they are deemed to be “imported” and “exported” within the meaning of the Customs Act, 1962. This as a consequence of the notification under Section 7 of the Territorial Waters Act, 80 of 1976. It would then follow that each time any vessel or other craft takes goods from Mumbai to any of these designated areas, it has imported the goods on board into India. A manifest would be required to be filed for the craft and bill of entry filed for the goods which will have to be cleared on payment of duty. Correspondingly, each time the craft carrying the goods leaves the designated area to return to the mainland there is export of these goods and the shipping bills have to be filed.

29. It is a matter of common knowledge that there is considerable movement of craft and material between the mainland and the designated area. Technical and other personnel ply between the mainland and the designated areas. Craft carrying machinery and other material used by the rigs as well as food, water and other provisions for consumption by people working on them also ply between the mainland and the rigs. Going by the reasoning in the Commissioner’s order, each time such a craft come into the designated area it has to file a manifest and the goods supplied, being imported goods, have to discharge duty. In order to ascertain the current practice, we had requested Mr. Sethna at the commencement of the hearing to advice us of the present practice being followed in the Custom house with regard to the documentation and assessment required for rigs and craft plying between Mumbai and a designated area or such craft plying between two designated areas, including supply vessels going to the rigs located in the designated area. On 17-11-2000 Mr. Sethna on the instructions from the officers of the Custom house informed us about the practice. On our asking for written confirmation of the practice, he requested an order, and such an order was issued on that day. There has been no written confirmation, but only a letter signed by the Dy. Commissioner of Customs on 20-11-2000 asking for three more working days to submit the information. Despite three months having passed no such confirmation has been received. We therefore conclude that what was told to us on 20-11-2000 is in fact the current practice. The practice, in the words of the counsel for the Department is as follows. “In case of oil rigs, once cleared as bill of entry for home consumption the Department is not insisting on filing import or export documents for movement to or from the designated area since they are no more imported goods.” If this is the practice, the Commissioner’s order of confiscation holding that for the import of the rig in 1998 into “NV” cannot be sustained. The rig having been imported in 1998 as he himself holds “it is no more imported goods” thereafter and no documentation is required for further movement into the designated area. It could be argued that this position will not apply since the conclusion is contingent upon the fact that the bill of entry should initially have been filed. In that event, the goods were not imported in 1988, and therefore confiscation for import in 1988 is not sustainable. The goods cannot be said to have unlawfully imported in 1988 and continue to remain imported goods for the next ten years.

30. It is not the practice of the Department that settles the law. Going strictly by the provisions of the Act, 80 of 1976 it appears to us that goods are in fact considered to be imported each time they enter the designated area within the exclusive economic zone. The current practice was evidently the practice in 1998. Therefore, even if technically there has been import of the rig, the fact that what Sedco did is what every other person similarly placed had done, and continue to do so, with the acquiescence of the Department would clearly exclude any act in against it including confiscation of the rig.

31. The rig is liable to confiscation for the initial import made in 1988, for two reasons. The first is that no bill of entry was filed for its import. We have already rejected the argument that it was not goods for home consumption. The bill of entry which ought to have been filed for its clearance not having been filed, and since it was moved out of the Customs area without proper permission, it became liable to confiscation under clauses (h) and (j) of Section 111. It also becomes liable to confiscation under clause (d) of that Section, as no licence was produced for its clearance.

32. That brings us to the next argument. It is that the provisions of sub-section (2) of Section 125 of the Act would not be applicable. Two decisions of the Tribunal are cited in support.

33. Prior to, and subsequent to its amendment in 1985, sub-section (2) of Section 125 read as follows :

Prior to 1985

“(2) For the removal of doubts it is hereby declared that any fine in lieu of confiscation of goods imposed under sub-section (1) shall be in addition to any duty and charges payable in respect of such goods.”

Subsequent to amendment.

“ (2) Where any fine in lieu of confiscation of goods is imposed under sub-section (1), the owner of such goods or the person referred to in sub-section (1), shall, in addition, be liable to any duty and charges payable in respect of such goods.”

34. It is therefore clear that, prior to the amendment the sub-section was more in the nature of clarification “for the removal of doubts”. It is thus more or less a declaration that payment of fine for redemption fixed under sub-section (1) did not exempt the owner from paying the duty due on these goods. Payment of duty was independent of, and in addition to, payment of redemption fine. The amended sub-section does away with the clarificatory provision, and provides that the owner of the goods, or the person from whose possession or custody they were seized, shall be liable to duty and charges payable. We thus see the effect of the change made to Section 125 by amendment of 1985 is as follows. Where the owner of the confiscated goods is not known, the person from whose custody the same has been seized, is now entitled to redeem the goods on payment of fine. Secondly, the owner or such person shall be liable to duty and other charges payable in respect of the goods. The section therefore imposes a liability of such a person towards payment of duty, which did not exist previously.

35. The Department’s contention in this regard is this. The provisions of Section 28 ought to be invoked for payment of duty in those cases where there has been an assessment of the goods. Where such assessment has not taken place, it is the provision of Section 125(2) that would apply. In the manner in which it is worded, Section 28 could only apply where there has been assessment of goods. This is clear from the sub-section (3), defining the relevant date. It is within six months, one year in specified cases, (or in exceptional case five years) from this date that the demand for duty has to be issued. Clause (a) of sub-section obviously refers to cases, where in consequence of assessment, duty is not levied. The relevant date in that case would be the date on which the order for clearance of goods is made. Clause (b) refers to goods provisionally assessed, clause (c) to refund and clause (d) in any other case. Since the notice has to be issued within six months from the relevant date, clause (d) will have no application. Hence, where no order has been passed for clearance of the goods, none of these “relevant dates” will apply. It is clear from this that Section 28 will not have application in such cases.

36. As we have noted, the object of the amendment of sub-section (2) of Section 125 is to provide a provision, in addition to this Section 28, for recovery of duty. It follows that Section 125 cannot be used as a substitute for Section 28, but is to be applied in those cases where Section 28 will not have application.

37. The view advanced by the counsel for the Department appears to us to be correct. Going by the “relevant date” as defined in sub-section (3) of Section 28, that section cannot be invoked in cases where the importer or the exporter, or other persons chargeable to duty do not provide the Department with an opportunity to assess the goods to duty. If that were done, the demand for duty not levied or short levied could be issued within six months, one year or five years, according to the circumstances specified in sub-section (1). Where the Department does not have an opportunity to assess the goods, Section 28 cannot be applied at all. There will be no relevant date available within six months, one year or five years of which the demand for duty can be issued. In such a situation duty becomes payable under sub-section (2) of Section 125.

38. In HCL v. Commissioner of Central Excise - , the Tribunal held that where there is a case of short levy, it is the provisions of Section 28 that will apply, as is clear from that Section itself, and the provisions of Section 125 cannot be invoked in such cases. “The said Section 125, in our view, will apply in cases where the date of short levy or importation is not available and confiscated goods are not to be viewed duty paid.” In its decision in Tata Infotech v. Commissioner of Customs - , the Tribunal said in paragraph 15 “Section 125 would appear to come to play in cases where notice cannot be issued under Section 28 for the reason that there was no documentation relating to details of import of goods. In that event, the provision of sub-section (2) of Section 125 will be applicable i.e. in cases where the goods are ordered to be confiscated without the point of legal limitation having been established. Where such legal importation is established, this provision will not apply for recovery of short levy.” These observations clearly indicate that where goods are imported and sought to be cleared in accordance with law, which presupposed abiding by procedures required for their clearance, it is the provisions of Section 28 that would be invoked, where importation is otherwise sub-section (2) of Section 125 can be invoked.

39. Where the persons chargeable to duty on goods makes known to the Department the circumstances under which they become liable to duty, the onus is cast upon the Department to proceed to determine the duty correctly and to recover it. In cases where this basic information required for assessment of goods to duty and their recovery not made available to the Department, and the goods, having been imported, are removed out of Customs (they were came into their jurisdiction), the Department would be helpless. It cannot proceed to recover duty payable if it is not even informed of the existence of the goods or the circumstances under which the duty is payable. It is evidently for this purpose that Section 125(2) was amended in 1985.

40. The fact that a manifest was filed, on arrival of the goods, is no answer. All that the Department could know from the manifest was that the goods had been imported. No bill of entry having been filed for their clearance, or the prescribed document submitted to the appropriate Custom officer to show that the goods had been removed from the Customs area, the Depart- ment would not concern itself with assessing the goods to duty.

41. In these circumstances, therefore, we are of the view that the provision of sub-section (2) of Section 125 will correctly be applied.

42. That brings us to the next question, the value of the rig for purpose of levy of duty. The Commissioner has proceeded to value the rig on the basis that it was imported in 1998. On our view, that the confiscation of the rig has to be ordered in relation to its import in 1988, it is the value of the rig, at that time in 1988, that was to be considered. That according to the appellant is US $ 13 million. By applying clause (c) of sub-section (1) of Section 15 the rate of duty applicable would be the date of payment of duty.

43. The Commissioner has ordered confiscation of the rig on the ground that it was not entitled to be imported in terms of paragraph 30 (1) of the Import Policy 1988-91. The rig was older than seven years and therefore the provisions of paragraph 30 (1) permitting import of the rig will apply. This paragraph prohibits import under the provisions of the Open General Licence (OGL) of second hand machinery which is older than seven years and has less than five years residuary life.

44. The argument of the appellant that a licence has been issued for import of various rigs Trident II need not detain us. Paragraph 30 (3) of the Policy provided for consideration of applications from actual users for second hand import of capital goods other than those under OGL. The alternative contention is that the rig is not a machinery, and that the provisions of paragraph 30(2) therefore will not apply. Chapter 3 in which paragraph 30 falls, relates to import of capital goods, as is evident from the many references to it in that chapter. “Capital goods” in the Policy have a very wide meaning, including any plant, machinery, equipment or accessories required by the investor for production of goods or for rendering service including those required for replacement or expansion. The rig in question would certainly be capital goods within the meaning of this definition, since it is used to produce crude oil and rendering service for oil exploration. The judgment of the Bombay High Court in Amership Management Pvt. Ltd. v. Union of India - was concerned with whether any oil rig was considered to be as vessels under the Customs Act, 1962. That judgment would have no bearing upon how a rig is to be treated for the purpose of Import Policy. Even assuming the rig to fall within the general category of vessel or floating structure, it would be capital goods within the meaning of the Policy. They are covered by the definition. There is no separate provision in the Policy for import of such goods. The conditions contained in paragraph 30 (2) is attracted to the rig in question, since it has not satisfied both conditions, specified therein, of being older than seven years old and having more than five years residual life, which is required, as held by the Supreme Court in Commissioner of Customs v. Shaila Kapoor - . Confiscation under clause (d) of Section 111 of the Act therefore has to be confirmed.

45. The contention that the rig in question could be imported under the provisions of OGL No. 8 of 88, is not acceptable. One of the conditions of this OGL is that the import is made in pursuance of the service contract awarded to a foreign contractor, the ONGC, Oil India, or Gas Authority of India Ltd. undertakes, that such equipment shall be re-exported after completion of the work. No such undertakings having been furnished by ONGC, this condition is not satisfied. Further, the rig, in any case, has not been re-exported after completion of the contract with ONGC. This condition is therefore incapable of being fulfilled.

46. It was contended that the benefit of Notification 516/86 would be available to the importer of the rig. This notification exempts goods imported into India in connection with offshore oil exploration or exploitation, basic and additional Customs duty subject to two conditions a certificate to be produced from a specified officer not below the rank of Deputy Secretary in the Ministry of Petroleum and Natural Gas that the goods are of the type and kind required for offshore oil exploration or exploitation and will be utilised for such purpose, a certificate is to be issued by a duly authorised officer of the Directorate General of Technical Development that the goods are essential for the above purpose. It is contended that there has been substantial compliance with this notification, since the rig has been used for offshore exploration and exploitation and foreign exchange was released by the Government of India to pay for the hire charges of the rig.

47. It is settled law that terms of the exemption have to be strictly complied with (See Bombay Oil Industries v. Union of India - ). It is not possible to proceed to accept the eligibility of the notification on the assumption that these two certificates would have been issued. While denying the benefit of the exemption, we leave it open to the importer to pursue this claim, if it is so advised.

48. It was alternatively argued that drawback of the duty would be available under Section 74 of the Act. There was no satisfactory answer to this argument by the counsel for the Department. We accept this argument in principle and direct that the duty liability be worked out after taking into account the drawback, if any, that the appellant would be entitled, consequent upon the export of the rig after it was imported into India in 1988.

49. From these discussions, it will follow that no penalty was imposable on Remy Baizan. He was not even in India with the appellant company during the relevant time, having come here only in 1994.

50. In determining the fine and penalty payable by Sedco, we have taken into account the fact that, although the bill of entry as required by law was not filed, there was no concealment, or attempted concealment of the fact of importation of the rig. Apart from the fact that it had been declared in substance in the manifest, its presence in Mumbai and elsewhere was known to the Department. The documents such as payment of lighthouse dues and overtime charges to Custom officers, shortly after it was imported in 1988, cited by the Sedco’s counsel show these with regard to its first arrival. The correspondence exchanged between Sedco and the Collector of Customs, Bombay, as well as undertakings filed before that authority, as well as the Collector of Customs, Nhava Sheva in 1993, relating to stores onboard the rig, the show cause notice issued by the Assistant Collector in July, 1994 specifically relating to the rig in NJ, and the correspondence with the Special Task Force of the Customs, which investigated around this period, the legal status of the ONGC’s supply base, at Uran, all show that Sedco had not attempted to conceal from the Department the presence of the rig and show the continued awareness on the part of the Department of its rig in or near the Indian territorial waters. No satisfactory explanation was given to us as to why the Department had to issue a notice 11 years after its first arrival in 1999, which has culminated in this appeal. Having regard to these facts, and what we estimate will be the probable duty liability, we think that the fine for redemption of the rig should be Rs. 25.00 lakhs, and penalty on it under Section 112 of the Act to Rs. 5.00 lakhs. The fine and penalty are so reduced.

51. Appeal of Sedco allowed in part and all other appeals allowed.