Jindal Drilling and Indus. Ltd. v. Collector of Customs, Bombay

[Order per : P.C. Jain, Member (T)]. - The issue before us whether the demand of duty of Rs. 35 crores and above is sustainable on merits in the facts and circumstances of the case.

2. Bound with this issue are many controversies relating to facts and law. These will all be discussed in the course of discussion and findings on the said basic issue.

3. Learned Commissioner of Customs, Bombay has come to the conclusion after noticing the scheme of the Customs Act, that imported goods, before their removal/clearance from the Customs area, are to pay duty appropriately leviable on them or they are provisionally assessed under Section 18 ibid. and then allowed to be removed/cleared from the docks. In arriving at the said conclusions, he has examined all relevant provisions of the Act. His conclusion is that when the goods “rig Ed-holt” was removed on 17/18-4-89 by the appellants, though no doubt with permission of the Assistant Collector (Export) and the Deputy Collector, duty leviable on it should have been discharged by the appellants on or before the said date. Removal of the rig “Ed-holt” by the appellants without payment of the appropriate duty on 17/18-4-89 as leviable on that date, calls for recovery of the said duty. Hence the application of provisions of Section 28 of the Customs Act.

4. Learned Advocate, Dr. L.M. Singhvi for the 1st appellants, which alone is required to bear the burden of duty on the rig imported by them, contends that the said finding/conclusion is not sustainable in the facts and circumstances of this case. He has drawn attention to the fact that the rig Ed-holt, was declared in I.G.M. 338 dt. 2-2-89. Permission for removal of the same was given by Assistant Collector (Export)/Deputy Collector. This permission can be treated as a provisional removal of the goods liable to assessment of duty subsequently. Appellants later on filed a Bill of Entry on 28-6-89 along with an application for amendment of IGM. The IGM was undisputedly amended. The said B/E noted in the Import Department, against the amended IGM, was finally assessed on 13-10-89, after examination of the goods at location in Bombay High. Benefit of exemption notification 134/89-Cus. and other related notification pertaining to Auxiliary duty wan extended to the appellant’s goods since the essentiality certificate from the competent authority in terms of the said notification had been produced. No duty as such is leviable on the goods - rig Ed-holt. Demand is not sustainable on merits itself.

5. Rebutting the Commissioner’s finding to the effect that rate of duty as aoplicable on the date of removal of the goods from the customs area i.e. as available on 17/18-4-89, would be applicable in the present case, ld. Advocate submits that the said finding is not sustainable at all in the face of the provisions of Section 15 ibid. as interpreted by a number of judgments as follows :-

(1)        (S.C.) [Shah Devchand & Co. v. U.O.I.]

(2)        (S.C.) [Bharat Surfactants (P) Ltd. v. U.O.I.]

(3)        (Bom.) [Apar Pvt. Ltd. v. U.O.I.]

(4)        (SC.) [Chowgule & Co. Pvt. Ltd. v. U.O.I.]

In all these judgments, submits the learned Advocate, it has been categorically held that that rate of duty would be applicable to the imported goods as is available on the date of filing of the Bill of Entry.

6. Related to this is the question whether Bill of Entry could be filed after physical removal of the goods as has been done in this case. Learned Advocate submits that there is no bar to filing of a Bill of Entry after physical removal of the goods as has been held by the Tribunal in the cases of (i) Collector of Customs v. Steel Authority of India Ltd. [ (Trib.)] and (ii) Indian Oil Corpn. Ltd. v. Collector of Customs [ (Trib.)].

7. Learned Consultant Shri K.M. Mondal for the Collector has drawn attention to the finding of the adjudicating officer, who, he submits, has come to a reasoned finding as to why date of filing of Bill of Entry is not relevant for determining the applicable rate of duty. Scheme of the Act, submits the learned Advocate, envisages filing of a Bill of Entry under Section 46, assessment or provisional assessment of the goods entered in the Bill of Entry under Section 17 or Section 18, as the case may be, and then alone question of passing an order for clearance or removal of goods under Section 47 ibid. arises. There is no provision for removal or clearance of dutiable goods without filing a Bill of Entry as aforesaid. Therefore, if the dutiable goods have been removed without propoer payment of duty, the said duty becomes payable. He submits provisions of clause (c) of sub-section (1) of Section 15 ibid. will come into play. Effect of clause (c) regarding the “date of payment of duty” being the date for determination of rate of duty would be the date on which duty ought to have been paid i.e. on the date of removal of goods because duty in any case must be paid before removal of goods under Section 47 ibid.

8. We have carefully considered the pleas advanced from both sides regarding the date for determination of rate of duty and whether a Bill of Entry can be filed after removal of goods from the customs area and all other related issues relating to demand of duty.

We observe, as rightly pointed out by the appellants, that rig Ed-holt is a vessel. A Vessel can be a conveyance and/or a ‘goods’- the latter expression includes within itself a “conveyance” by virtue of section 2 (22) read with section 2(9) ibid Rig Ed-holt, therefore, has a dual character, both as ‘goods’ and ‘conveyance’.

IGM dated 2-2-1989, contend the appellants, declares the said rig in the IGM for “S.S. M.V. Nand Cauvery,” and the goods/cargo carried by it in terms of section 30 ibid in the following terms : “M.V. Nand Cauvery on Tow Ed-holt : From Bombay High” : Local Cargo - Nil : same bottom cargo - nil: In Water ballast” According to appellants, this is not only a declaration of IGM for “Nand Cauvery”, but it also means declaration of rig Ed-holt as having been brought on tow by Nand Cauvery from High seas off Bombay. Rig being also a vessel, such was the practice of declaring vessels. ‘Local cargo’ was declared nil because rig was not kept in the holds of M.V. Nand cauvery. Similarly same bottom cargo was declared nil. Intention in the aforesaid manner of declaration in IGM dated 2-2-89 was to declare ‘Ed-holt’ as a cargo. It would have been perhaps a plausible explanation, had that been the only declaration. Declaration to the effect “…….From Bombay High” gives an impression that Nand-cauvery on tow Ed-holt” has come from Bombay High and not High seas off Bombay when Ed-holt was taken over from a foreign ship M.V. TERN H.L. on high seas off Bombay by M.V. Nand Cauvery and another M.V. On arrival at Bombay Anchorage, M.V. Nand Cauvery filed IGM as above.

9. The appellants, in order to support their stand regarding declaration of ‘Ed-holt’ both as a vessel and ‘goods’ in IGM dt. 2-2-89 take support from a similar declaration of ‘Ed-holt’ on tow of M.V. ‘Nand Krishna’ on 31-1-1994 for ‘repairs and return’ from Bombay High (available at page 85 & 85A of the Paper Book). We are afraid this comparison does not support the appellants. Later declaration dated 31-1-1994 does not bring rig ‘Ed-holt’ as a dutiable cargo but for repair and return. M.V. Nand-Krishna is actually coming from ‘Bombay High’ as per General Declaration (under Regulation 3) given by the Shipping Agents Modesto Shipping Agency (available at Page 87). Had the intention been to declare ‘Ed-holt’ as a cargo, in IGM dt. 2-2-89 “local cargo” would not have been declared nil.

10. Subsequent conduct of the appellants belies their professed intention as pleaded above. The second appellants (Shipping Agent) applied to to Asstt. Collector (Export) for clearance of rig Ed-holt for Bombay High vide their letter dated 17-4-1989. They also enclosed a copy of letter dated 17-4-89 from ONGC and an inward clearance certificate dated 6-2-89 under section 42 for rig Ed-holt. Had their intention been to declare ‘Rig Ed-holt’ as a cargo, its importer (1st appellants) would have filed a Bill of Entry under section 46 and sought its clearance in accordance with law. Such a clearance would have been given after payment of duty due on rig ‘Ed-holt’. Further, the letter for clearance would have been filed by the 1st appellants or its C.H.A. to the Asstt. Collector (Appraisement) who is the proper officer and not to the Asstt. Collector (Export). Shipping Agent, who is concerned with clearances of ship/vessels used as conveyance under Section 42, could not have filed the said letter dated 17-4-89 as seeking permission for clearance of rig Ed-holt, had it been treated by the appellants as cargo. From these facts & circumstances, it is clear that request for clearance of rig Ed-holt and permission granted by Asst. Collector (Export) and Deputy Collector would only be treated as permission for rig Ed-holt to leave Bombay port under Section 42 ibid. Section 42 is applicable to a conveyance and not to cargo. There cannot be two opinions about it, even though the permission does not talk of Section 42, nor does the letter dated 17-4-89 from the Shipping Agent talk of that section. Asstt. Collector (Export) and Deputy Collector, who gave the permission to rig Ed-holt for being towed out to Bombay High could treat the application dated 17-4-89 only as a request for seeking permission for a conveyance to leave the port in terms of section 42 because it cannot be assumed they did not know that they were not competent to allow removal of dutiable goods without payment of duty. Permission given by them could be treated as qua conveyance and not as qua cargo (dutiable). This permission, in our view, does not affect the dutiability of Ed-holt. It cannot also be taken as a permission to the first appellant to file a Bill of Entry subsequently .

11. Appellants further plea that there was urgency to remove Ed-holt because of impending monsoons is also not substantiated by letter from ONGC enclosed with Shipping Agent’s letter dated 17-4-89. There is not a whisper about such urgency in ONGC’s letter. Further, the Shipping Agent wrongly stated that the said rig is going on ONGC charter. It was on private charter of the 1st appellants.

12. Further the conduct of the 2nd appellants in filing an application dated 28-6-1989 to Asstt. Collector (Imports) seeking amendment of IGM No. 338 dated 2-2-1989 of M.V. Nand Cauvery and declaring rig ‘Ed-holt’ as cargo supports the allegation of the department that the earlier declaration in the IGM dated 2-2-1989 for rig ‘Ed-holt’ was not as cargo but only as a vessel to be taken away as a foreign-going vessel. If the intention of both the appellants had been to treat Ed-holt’s original declaration in IGM dt. 2-2-89 as a cargo, there was no need to move the application dated 28-6-1989. If they had their bona fides clear in this respect, and really felt that declaration of the rig in IGM dated 2-2-89 was that of a cargo, they should have filed a Bill of Entry, without seeking an amendment in IGM. They could seek amendment, of the IGM later, if the department had directed them to do so.

13.1 Submission of the application dated 28-6-1989 has been advanced as an argument for the bona fides of the appellants that there was no intention to evade payment of duty. It is further pointed out on behalf of the appellants that amendment made by Asstt. Collector (Imports) takes its effect from the date of filling of IGM i.e. 2-2-89. We have already held in previous para that this action of submission of application dated 28-6-89 does not have any such connotation of clear bona fides. As regards their second argument, we do not disagree to their claim that the amendment takes effect from the date of their original declaration in the normal circumstances. However, in the facts and circumstances of this case, this claim cannot be accepted because the purported cargo (Ed-holt), to which the amendment relates, has already been taken away from the custody of the Customs/Port authorities in the garb of port clearance of a vessel under Section 42 ibid. without payment of duty, although admittedly due duty was payable, after assessment of the vessel on a Bill of Entry. We cannot forget that on the date of physical removal of Ed-holt i.e. on 17/18-4-1989, there was no amendment of IGM dated 2-2-1989.

13.2. In view of the foregoing discussion, we have no hesitation in holding that the two appellants by a series of wilful mis-statements & suppression of facts removed dutiable goods-rig Ed-holt - without payment of due duty thereon on 17/18-4-1989.

14. In view of the above background and since no Bill of Entry was filed till 17/18-4-1989, date for determination of rate of duty cannot be the date of filing of Bill of Entry as stipulated in Section 15(i)(a) but it would be in terms of Section 15 (1) (c) i.e. the date of payment of duty or in other words the date on which duty ought to have had been paid. Since the goods were removed on 17/18-4-1989 from the customs area, they should have paid the duty payable on that date without attracting action under Section 111(j). But the goods did not obviously pay duty on the date of removal of goods i.e. 17/18-4-1989 from the customs area.

15. The 1st appellants plea of validity of filing a Bill of Entry after removal of goods, based on Tribunal’s judgments in the matter of SAIL and IOCL (supra) cannot help them. Those cases turned on their peculiar facts. Reasons for filing Bill of Entry subsequent to removal of goods was beyond the control of the party in SAIL and purely due to administrative reasons in the matter of IOCL. No such reason is prevalent here. Here, the appellants were in a position to file Bill of Entry but they deliberately did not choose to do so.

16. Similarly, their reliance on Section 143 of the Customs Act that they could clear Ed-holt on execution of a bond in terms of those provisions and produce the certificate later on does not help them. It is merely a hypothetical question now. Provisions were available to them, as now. They did not choose to do so on their own peril. It is a discretionary provision. Sufficient security or surety would have had to be provided. Amount of duty involved being large, it would have required substantial resources. Appellants, therefore, chose an illegal way costing nothing. They are trying to justify it now.

17. Next plea of the 1st appellants on trhe issue of demand of duty is that even on 17/18-4-1989, no duty was payable because of the existence of Notification 134/89-Cus. which exempted the goods as these were meant for off-shore drilling of oil. The goods are admittedly mentioned in the Schedule to the notification. Therefore, the benefit of the said notification could not be denied merely because there was no essentiality certificate from the competent authority. Requirement of certificate, submits the ld. Advocate for the appellants is only a procedural condition. It is further submitted that certificate in any case was obtained on 23-8-1989 and produced subsequently. That certificate was duly considered and the benefit of exemption to the goods was extended by the assessing officers while assessing the Bill of Entry filed subsequently on 29-6-1989 after amending the I.G.M. Therefore, in the face of this certificate, now in any case available on record, no duty liability devolves on the first appellant. Delay in production of the certificate does not take away the benefit of exemption. For this proposition, ld. Advocate relies on -

(i)      (Oil India Ltd. v. Collector of Customs.

(ii)     (Collector of Central Excise v. Suburban Engg. Works (Cal.) P. Ltd.

(iii)    Collector of Central Excise v. TISCO

(iv)    (S.C.) (Auto Tractors v. Collector)

18. As against the above submissions, ld. Consultant for the Revenue has submitted that in the instant case, as pointed out by the adjudicating officer, the appellants had not even applied for the essentiality certificate on 17/18-4-1989. This plea remains unrebutted. There is a letter dated 22-6-1989 of ONGC recommending to the competent authority for issue of essentiality certificate. Matter was then taken up by the 1st appellants in their letter dated 24-6-1989 with the competant authority drawing attention to the fact that the exemption notification 134/89-Cus. is valid only up to 30-6-89. Certificate was ultimately issued by the competent authority on 23-8-1989. Ld. Consultant further submits that the said certificate has become otiose because it has been issued after the expiry of the exemption notification. He further submits that the said authority has no power to issue a certificate relating to an exemption notification 134/89-Cus. after expiry of the said notification.

19.1 We have carefully considered the rival contentions on this question of applicability of notification 134/89-Cus. dated 31-3-1989 and other related exemption notification of auxiliary duty. We have already held that duty was payable on removal of the rig Ed-holt on 17/18-4-1989 and not on the date of filing of Bill of Entry on 29-6-1989 much later. Collector is correct that no essentiality certificate from the competent authority was available on that date. The appellants had not even applied for the same to the competent authority. The appellants therefore, became liable to pay duty of Rs. 35,92,14,466/- on that date before removal of the said goods. By not paying the duty as aforesaid and removing the goods by misrepresentation, the first appellants deprived the public exchequer of the said amount. We also observe that the 1st appellants did obtain essentiality certificate though belatedly on 23-8-1989. On the basis of the said essentiality certificate, the first appellants would have been entitled normally to apply for and obtain refund of duty had they paid duty on 17/18-4-1989, at the time of removal/clearance of the goods. But the subject notification, we observe is peculiarly worded. It states that the said certificate has to be produced “at the time of clearance of the goods”. On 17/18-4-1989, when the goods ‘rig Ed-holt’ was removed/cleared, there was no certificate available with the first appellants. None could be available, because they had not even applied for the same to the competent authority, although the exemption notification 134/89-Cus. had been issued on 31-3-1989.

19.2 Ld. Advocate Dr. L.M. Singhvi’s submission is that time of production of certificate is merely a procedural condition in the notification. A procedural deviation by the appellants should not deprive them of a substantive benefit. In the normal run of notifications, this plea would have been valid and the Tribunal has taken a view that this is a procedural requirement and should not deprive an importer of a substantive benefit. Even when such a notification laying down the condition of production of a certificate at the time of clearance of the goods is there, benefit of such a notification has been extended to an importer if the importer had applied to the competent authority well before clearance of the goods [see Wockhardt Medical Centre v. C.C. - (T)].

20. But the factual background in this case is totally different. There was no Bill of Entry filed by the importer before removal of the goods as in all cases of this nature relied upon by the appellants. The goods, (qua dutiable cargo) were removed without permission of the proper officer on 17/18-4-1998 as already found by us. They had not applied for essentiality certificate before removal of the goods. They were fully aware about the terms of the notification. Such a condition was available in predecessor Notification 334/88-Cus. which was rescinded w.e.f. 1-1-1989. They were desperately trying with the Central Govt. to revive the notification as is apparent from a spate of representations to various authorities annexed with the appeals. They also succeeded in getting the notification 134/89-Cus. issued, yet they did not follow its terms. It is obvious that they had other intentions, as already found, and executed them as well. But then, it appears, 1st appellants had a change of heart, perhaps because of the fear of enormity of penalty and punishment devolving on them. Operation cover-up i.e. applying for essentiality certificate and for amendment of IGM and filing of Bill of Entry, etc. was initated. They no doubt, succeeded, by getting the Bill of Entry (filed later) assessed as duty free in October 1989. But this action cannot have the effect of wiping away the illegality already committed by them. In the face of this factual situation and on the plain terms of the notification, they would not have been entitled to the refund of duty, even if they had been detected on 17/18-4-1998 and made to pay duty on removal of the goods from customs area. Benefit of the notification could not be and cannot be extended to the appellants.

21. In view of the foregoing discussion, duty of Rs. 35,92,14,466/- on rig Ed-holt is payable by the 1st appellants.

22.1 Next issue before us argued by both sides was whether the demand of duty was barred by time inasmuch as show-cause notice has been issued long after expirty of six months from the date of assessment of Bill of Entry in October-November 1989. Dr. L.M. Singhvi for the first appellant has strenously urged that whatever might be the controversy regarding declaration in IGM dated 2-2-1989 or removal of the rig on 17/18-4-89 with permission of Asstt. Collector (Export)/Dy. Collector, no body can doubt that at the time of assessment of the Bill of Entry in October 1989, after examination/inspection of the rig by the Shed Appraiser at the location at Bombay High, Customs authority, assessing the Bill of Entry knew everying. There can be no allegation of wilful mis-statement or suppression of facts at that time. Question of invoking time-limit of five years for demand of duty cannot arise in such facts and circumstances.

22.2 Ld. Consultant Shri K.M. Mondal for the Revenue on the other hand has urged that duty became payable on the rig on 17/18-4-1989 when it was removed from the customs area without payment of duty and without the permission of Asst. Collector (Appraisement) - the proper officer. Once this fact is accepted, time-limit for issuing show-cause notice has to be reckoned from that date. In the facts and circumstances of removal of the rig by a series of wilful mis-statements and suppression of facts on the part of the two appellants, extended limitation of five years for demand of duty would be available to the Revenue. That limitation of five-years, available to the Revenue, does not get forfeited simply because a Bill of Entry was later filed and an assessment was made extending the benefit of full exemption under Notification 134/89-Cus.

22.3 Having given our careful consideration to pleas of both sides on this issue, we are inclined to agree with the submission of the ld. Consultant for the Revenue. We have already held that removal of the rig qua dutiable cargo was without the permission of the proper officer i.e. concerned Asstt. Collector (Appraisement) as a result of series of wilful mis-statements and suppression of facts by the two appellants herein. Five years limitation for recovery of duty under Section 28 ibid. would reckon from 17/18-4-1989 when an order of clearance ought to have been made by the proper officer in terms of clause (a) of sub-section (3) thereof or when the duty ought to have been paid by the first appellant in terms of clause (c) of that sub-section. In either case, relevant date in the same i.e. 17/18-4-1989. Show cause notice including corrigendum thereto, issued to the first appellant is not, therefore, barred by time. Before parting with this issue, it is also useful to refer to the findings in Paras 25 and 26 hereafter, in the context of another issue raised by the appellants.

23. Further question before us is whether penalty of Rs. 20 crores on the first appellants and of Rs. 5 crores on the 2nd appellants is sustainable. In the course of discussions on the first issue, we have already held above that the two appellants did not correctly declare the rig as cargo in I.G.M. dated 2-2-1989 and that by wilful mis-representation and suppression removed the dutiable goods without payment of duty. Thus contravention of Section 111(f) and (j) is established against both the appellants. Permission obtained from Assistant Collector (Export) and a Deputy Collector could be treated as qua-vessel and not as qua cargo, because the application for removal was made by the shipping Agent and not by the importer and also because the said application was made to Asstt. Collector (Export) and not to Asstt. Collector (Appraisement) who was the proper officer for allowing removal of dutiable goods without payment of duty. We have also found that the procedure followed by the two appellants was aimed at depriving the exchequer of its rightful dues at the appropriate time and seeking financial gain for themselves of a huge amount of duty (about Rs. 36 Crores) for about six months. Collector has rightly observed that by following the wrong procedure for removal of dutiable goods the first appellants aim had been to maximise their earnings and profits as per the contract entered into by the said appellants with ONGC. Cost incurred by the 1st appellants in paying the duty and then claiming the refund by way of interest at 18% per annum (i.e. 1½% per month) for six months would have been Rs. 3.24 Crores. The said appellants must have earned for the said period at the rate of 24500 U.S. Dollars per day as per the contract with ONGC available on record. It works out to more than Rs. 20 Crores. Keeping in view the above figures the rig being not available for confiscation although it was clearly liable to confiscation under Section 111(f) and (j) and the delibrate acts of omission and commission of the appellants, penalties of Rs. 20 Crores and Rs. 5 Crores imposed on the appellants cannot be said to be unreasonable. We confirm the said amounts of penalties.

24. Appeals of both the appellants are thus rejected.

25. Before parting with this order, we may deal with another plea taken by the ld. Advocates for the appellants. They have submitted that the out of charge order dated 8-11-1989 under Section 47 of the Customs Act passed by the authorities on assessment of the rig declared in the Bill of Entry filed on 29-6-89 has become final. It could not be re-opened except by following the procedure laid down in section 129D ibid. We are unable to accept this plea in view of Apex Court’s judgment in the case of Jain Shudh Vanaspati reported in (S.C.). Rig Ed-holt as we have already held above, was removed earlier in April 1989 by series of acts of omission and commission on the part of the two appellants. Securing an order under Section 47 subsequently does not regularise the illegal removal of the rig. It is significant to observe that the contents of the Bill of Entry and the notings thereon do not bring out the fact to the notice of the assessing officer that the goods had already been removed. The appellants themselves, have not declared that fact on the Bill of Entry. The assessing officer has directed, as usual, to “SA/SS” (Shed Appraiser/Shed Superintendent) to “examine, check, ins (inspect) verify the equipment is second-hand and state full particulars. Examination may be done with reference to the Chartered Engineers Cert. SD 1-9-89”. The SA/SS in his report of examination dated 17-9-89 does not disclose that he has examined the rig at Bombay High. Only at the top of the examination report there is a reference to “S/18-104 19/89-PPOT” which in customs parlance means that examination of goods was done on overtime payment by the party. This cannot lead to inference that the assessing officer was aware or made aware that the rig had been taken out to Bombay High and examined there. It is the claim of the appellants that the Examining Officer visited Bombay High as is evident from the log book maintained for that purpose. Nobody disputes the point that the assessing officer was kept in dark about it. Had he become aware, he would have possibly enquired into as to how the rig moved out and on what terms and conditions. Whole story would have been revealed in June-September 1989.

26. Be that as it may, once it has come to light, as held above, that the removal of the rig on 17/18-4-1989 was without the approval of the proper officer and not as qua cargo on wilful mis-statement, suppression, time limit of 5 years would reckon from that date for the purpose of issuing show-cause notice for demand of duty and there is no time limit for issuing show-cause notice under section 124 ibid for confiscation of goods and imposition of penalty. This is the ratio of Apex Court’s ruling in Jain Shudh (supra). Therefore, the show cause notice dated 27-1-94 corrigendum thereto dated 7-3-94 to the first appellants and Addendum dated 27-6-94 to the second appellants cannot be held to be barred by time.