[Order per : P.R. Chandrasekharan, Member (T)]. - There are 7 appeals directed against Order-in-Original Nos. 26/2011/CAC/CC(I)/SHH/Gr.VB and 27/2011/CAC/CC(I)/SHH/Gr.VB both dated 31-3-2011 passed by the Commissioner of Customs (Imports) New Custom House, Mumbai. As the issue involved in all these appeals are common, they are taken up together for consideration and disposal.
2. In appeal Nos. C/445 to 448/2011, the importer is M/s. HAL Offshore imported a Multi-purpose Support Vessel (MSV) “HAL-Anant” vide B/E No. 806570, dated 20-11-2007 declaring the goods as “One self-propelled second-hand supply vessel M.V. Hal Anant (Ex-M.V. Dulam Providence) along with all its standard equipment and accessories” with an assessable value of Rs. 24,80,25,488/- seeking classification under CTH 8901 90 00 with applicable duty at Nil rate. The goods after examination by the customs were classified under CTH 8901 90 00 and assessed accordingly. In appeal Nos. C/465 to 467/11 the importer is M/s. Great Offshore Ltd. imported a Multi-purpose Support Vessel (MSV) “HAL-Anant” vide B/E No. 791345, dated 7-9-2007 declaring the goods as “second-hand supply vessel Malaviya Thirty Six (Ex-Skandi Bergen)” with an assessable value of Rs. 215,74,74,030/- seeking classification under CTH 8901 90 00 with applicable duty at Nil rate. The goods after examination by the customs were classified under CTH 8901 90 00 and assessed accordingly.
3. Intelligence gathered by the Officers of the Central Intelligence Unit of the Custom House suggested that there has been gross-misdeclaration by both the importers at the time of import and accordingly investigations were carried out by the customs authorities which revealed the following :
(1) HAL Anant was built in the year 1982 and was named as Fu Lal and was classified as supply vessel. Thereafter it was taken over by M/s. Dulam International and named as Dulam Providence. M/s. HAL Offshore purchased the vessel in 2007 and renamed the vessel as HAL Anant.
(2) Malaviya Thirty Six was built in the year 1987 and was classified as Tug/Supply vessel. M/s. Great Offshore purchased the vessel in October 2006 from M/s. Geo Redereo AS, Norway and renamed the vessel as Malaviya Thirty Six (Ex-Skandi Bergen). The classification remained as Tug/Supply vessel.
(3) Both the importers got a contract from M/s. Oil and Natural Gas Commission (ONGC) in 2007 for charter of Multi-purpose Support Vessel for five years. After procuring the vessels, they sent the vessels for modification at Dubai, in order to make them capable of doing underwater inspection, Maintenance and Repair (IMR) operations and installed various equipment including fire fighting systems and saturation diving system required for IMR operations.
(4) The class certificate issued by Bureau Veritas for HAL Anant gave the class notation of Fire Fighting Ship-2 and in the contract with the ONGC, the vessel was described as Multi-purpose Support Vessel. In the case of Malaviya Thirty six, prior to mport, the importer got the anchor handling/towing winch removed from the vessel and reclassified the vessel as only supply vessel and got the tug notation deleted.
(5) In all the letters/communications with various agencies such as Indian Navy, ONGC, etc., the vessels have been described as “Multi-purpose Support Vessel (MSV) and not as supply vessels. The permission given by Indian Navy for these vessels was for underwater inspection and repair of offshore structures in Mumbai High oil fields of west coast and not for transport of goods or persons. The Indian Register of Shipping and Bureau Veritas assigned the class notations to these vessels which confirms that the vessel is equipped with specialized fire-fighting facilities, diving equipment and dynamic positioning capability which make it clear that the vessels are not supply vessels for transport of goods and persons but a specialized multi-purpose support vessel, the navigability of which is subsidiary to the main functions.
(6) The contract with the ONGC reveals that ONGC uses the terms Multi-purpose Support Vessel to mean a vessel which is capable of multi-purpose functions like fire-fighting, diving support, helicopter operation, rescue operations and pollution control operations etc. and because of these functionalities, MSV is different from ordinary Supply Vessel.
(7) The importers had suppressed the information regarding the contracts entered into by them with the ONGC at the time of import of the vessels, thereby suppressing the functionality of the vessel to evade customs duty by misclassifying them as supply vessels instead of multi-purpose vessels where the navigability is subsidiary to the main function of the vessel.
(8) In the case of M/s. HAL Offshore, there is an additional allegation that the importer had misdeclared the value of the vessel under importation by not including the cost of modification and saturation diving system totally worth US $ 8.4 million.
4. On the basis of the investigation conducted and evidences unearthed, show cause notices were issued to the appellant vide notices dated 21-5-2010 (HAL Offshore) and notice dated 25-6-2010 (Great Offshore). These notices proposed to re-classify the vessels under CTH 8905 and demand differential duty of Rs. 15,50,78,867/- in the case of M/s. HAL Offshore (on account of both reclassification and also redetermination of assessable value) and differential duty of Rs.20,18,53,270/- in the case of M/s. Great Offshore on account of reclassification, by invoking the extended period under Section 28(1) of the Customs Act, 1962. The notices also proposed to recover interest on the differential duty liability under Section 28AB. There were also proposals for confiscation of the goods under Section 111(m) ibid and imposition of penalties under Sections 112(a)/114A on the importer and under 112(a) on the Managing Director/President and other officials connected with the import transaction of the importing firms.
5. The show cause notices were adjudicated and the duty demands were confirmed along with interest. Equivalent amount of penalties were imposed on the importers under Section 114A and varying penalties were imposed on the officials of the importing firm under Section 112(a) in the impugned orders. It is against these duty demands, interest and penalties, that the appellants are before us.
6. The ld. Counsel for the appellants made the following submissions :-
(1) The vessels which have been imported by the appellants are ‘supply vessels’ as per the class certificate issued by the Indian Registry of Shipping under the Merchant Shipping Act, 1958.
(2) As per the regulations on class notation of ships, ‘supply vessels’ have been described as those “designed specially for supply services to offshore installations”. Thus supply vessels are basically meant for provision of supply services to offshore installations which implies they are meant for transporting goods and persons from ports to offshore installations. Therefore, navigation is certainly a primary function of vessels which are certified as ‘supply vessels’.
(3) The vessel Malaviya Thirty Six is capable of carrying approx. 2900 MT of cargo as well as 90 persons. Similarly vessel HAL Anant is capable of carrying 3972 tons of cargo and 90 persons. Thus the vessels are factually designed so as to be capable of carrying persons and goods from port to ONGC platforms and therefore, they are rightly classifiable under CTH 89.01.
(4) Even prior to the acquisition of the vessel, the vessels were performing as tug-cum-supply vessel-cum-anchor handling vessel. For performing these functions, navigation was primary and not secondary or subsidiary. The design and construction of the hull and the vessel was made keeping the navigation of the vessel as a primary function. After acquisition, the design and construction did not undergo any substantial change and the navigation aspect continued to be a primary function.
(5) Supply of cargo and crew is also one of the functions to be performed by the vessels as per the scope of work prescribed in the contracts with the ONGC. The contract specifically requires the appellants to carry out transportation of material and equipment as and when required. The fact that in terms of the contract, the vessel has to be operated in a particular manner cannot discriminate the classification of the imported vessel.
(6) In addition to the transportation of cargo and personnel, the vessels would also be required for carrying on repairs and maintenance, inspection, rescue support, etc. at the ONGC platforms. The ONGC platforms at Bombay High are spread over a large area and therefore, without navigation, the vessels will be unable to perform most the required operations.
(7) In any case, navigability of the vessel is not subsidiary to the primary function and hence the impugned vessels are not classifiable under CTH 89.05.
(8) Applying the principle of ejusdem generic, the term “other vessels” appearing in CTH 89.05 should be read with the specific types of vessels mentioned in the entry i.e., light vessels, fire-floats, dredgers, floating cranes. These vessels are floating structures which rarely require any navigation. The vessels imported by the appellants are not floating structures. They are capable of transporting cargo as also personnel. Hence they are not classifiable under CTH 98.05.
(9) Even if it is held that the vessels do not fall under Heading 89.01, they will fall under Heading 89.06 which covers “other vessels, including warships and lifeboats other than rowing boats” and as per HSM explanatory notes, the entry covers vessels such as scientific research vessels, laboratory ships, weather ships, pilot boats, hospital ships, etc. These vessels apart from navigation have other functions also. Under CTH 89.06, the applicable duty is Nil and hence no duty liability accrues.
(10) The demand is barred by limitation. The vessels were examined at the time of importation by the officers of the Customs and thereafter assessed under CTH 89.01. Since the notice has been issued after a period of more than six months from the date of original assessment, the demand is time barred and is not sustainable in law.
(11) The ld. Counsel relies on the case law and other technical literature supplied along with the appeal memorandum in support of their claims.
8. The ld. Commissioner AR appearing for the Revenue reiterates the findings given in the impugned order and states that there has been gross mis-declaration on the part of the appellant with an intention to evade duty and accordingly pleads for upholding the impugned orders.
17. We have carefully considered the submissions made by both the sides. Our findings and conclusions are discussed in the ensuring paragraphs.
7.1 As the issue relates to classification, it will be useful to understand the scope of the relevant tariff entries.
| 89.01 | - | Cruise ships, excursion boats, ferry boats, cargo ships, barges and similar vessels for transport of persons or goods |
| 8901.10 | - | Cruise ships, excursion boats and similar vessels principally designed for the transport of persons; ferry boats of all kinds |
| 8901.20 | - | Tankers |
| 8901.30 | - | Refrigerated vessels, other than those of sub-heading No. 8901.20 |
| 8901.90 | - | Other vessels for the transport of goods and other vessels for the transport of both persons and goods |
The appellants have claimed classification under Heading 8901.90 for the impugned goods. The HSM explanatory notes says that the heading covers all vessels for the transport of persons or goods, other than vessels of Heading 89.03 (which covers “yachts and other vessels for pleasure or sports; rowing boats and canoes”) and life boats, troop-ships and hospital ships (89.06). The note further says that the heading includes cruise ships and excursion boats, ferry-boats of all kinds, including train-ferries, car ferries and small river-ferries, tankers, refrigerated vessels for the transport of meat, fruit, etc., cargo vessels of all kinds, whether or not specialized for the transport of specified goods such as ore vessels and other bulk carriers, container ships, Ro-Ro ships, LASH type vessels, barges of various kinds and vessels of the hydro-glider type, hydrofoils and hovercraft. Thus the coverage of Heading 8901 is very wide and all types of vessels for the transport of persons or goods would merit classification under the said heading.
7.2 The Revenue wants to classify the products under Heading 89.05 which reads as follows :-
| 89.05 | - | Light vessels, fire floats, dredgers, floating cranes, and other vessels the navigability of which is subsidiary to their main function; floating docks; floating or submersible drilling or production platforms. |
| 8905.10 | - | Dredgers |
| 8905.20 | - | Floating or submersible drilling or production platforms |
| 8905.90 | - | Other |
As per the HSN explanatory notes, the heading covers light-vessels, fire-floats, dredgers, floating cranes, and other vessels the navigability of which is subsidiary to their main function The vessels coming under this heading normally perform their main function in a stationary position and they include light vessels, drill ships, fire floats, dredgers of all kinds, salvage ships for the recovery of sunken vessels; permanently moored air-sea rescue floats; bathyscaphes; pontoons fitted with lifting or handling machines and pontoons clearly designed to serve as a base for these machines. The heading also includes floating docks, floating or submersible drilling or production platforms.
7.3 We have perused the certificate of class issued by the Indian Register of Shipping. The vessels have been certified as “SUPPLY VESSEL” vide certificate dated 4-4-2008 and the Certificate of Indian Registry dated August 2007 issued under the Merchant Shipping Act, 1958 in the case of Malaviya Thirty Six. Similarly in the provisional classification certificate issued by the Bureau Veritas, the vessel has been described as “SUPPLY VESSEL”. Special service the vessel is capable of performance are - Diving support/Fire fighting ship 2 - Water spraying/Oil recovery ship and the navigation is unrestricted. The Registered tonnages are 2915 Gross and 875 Net. In the case of HAL Anant, the vessel has been registered as Offshore Supply Vessel in the certificate of Indian Registry and as “SUPPLY VESSEL” and in the certificate of Class issued by the Indian Register of Shipping. The Registered tonnages are 4703 Gross and 1411 Net. In the provisional classification certificate issued by the Bureau Veritas, the vessel has been described as “SUPPLY VESSEL”. The special service is Fire fighting ship 2 - Water spraying and the navigation is unrestricted. Thus from the registration documents available on record, the vessels under importation are essentially “SUPPLY VESSELS” with unrestricted navigation. In addition to being a supply vessel, the vessels are capable of performing certain special services. That does not mean that, the vessels cease to be supply vessels merely because they perform certain additional functions. Further as per the “Rules for classification of ships - Class notations” published by Det Norske Veritas supply vessel means vessels designed specially for supply services to offshore installations.
7.4 As per the Cargo Ship Safety Construction Certificate issued by the Mercantile Marine Dept., Mumbai District, available in respect of M.V. Malaviya Thirty Six, the type of the vessel is described as “Cargo ship other than any of the preceding”. The preceding types are oil tanker/chemical tanker/gas carrier/bulk carrier.
7.5 Some of the technical data relating to the impugned vessels which would be relevant for classification available in the records are extracted below :
| S. No. | Parameters | Vessels name | |
| Malaviya Thirty Six | HAL Anant | ||
| I | Main Particulars | ||
| 1 | DWT | 1364 | 4602 |
| 2 | Gross tonnage | 2915 | 4703 |
| 3 | Net tonnage | 875 | 1411 |
| II | Cargo capacities | ||
| 1 | Deck Area | 605 m2 | 615 m2 |
| 2 | Deck strength | 8t/m2 | 10 t/m2 |
| 3 | Deck cargo | 400 t | 560 t |
| 4 | Fuel oil | 595 m3 | 1400 m3 |
| 5 | Fresh water | 560 m3 | 827 m3 |
| 6 | Drill water | 813 m3 | |
| 7 | Oil based mud | 486 m3 | |
| 8 | Brine | 202 m3 | |
| 9 | Dry bulk | 161 m3 | |
| 10 | Methanol | 75.7 m3 | |
| III | Machinery & Propulsion | ||
| 1 | Main engines | Bergen Diesel 4 3300 BHP | Wartsila 2730 kw 2 |
| 2 | Auxiliary engines | Mitsubishi 2 770 BHP | Deutz 800 kw 3 |
| IV | Performance & Consumption | ||
| 1 | Full speed | 15.5 Knots | 12.5 Knots |
| 2 | Service Speed | 10.5 knots | 10 knots |
| 3 | Economical Speed | 10.5 Knots | 10 knots |
| V | Accommodation | ||
| 1 | Total capacity | 90 persons | 90 persons |
| VI | Navigation and communication equipment | Both the vessels have radars, gyro, autopilot DP, Navtex, Joystick, Echo sounder, Speed log, GPS, DGPS, Fan beam, Aero mobile communication, Radio telephones, Watch keeping receivers, VHF, EPIRB, Portable UHF and VHF, Selcall, Radar Transponder, VHF SDC, UHF, SSB, SAT C & Weather Fax | |
From the above data, it can be easily gathered that the vessel is designed to carry cargo and persons, is self-propelled and has navigational capability. From the details of the speed parameters, it can be seen that the vessel is not a stationary vessel even when delivering service. These parameters are very crucial for classification of the impugned vessels.
7.6 The Revenue’s reasons for classification under CTH 8905 is mainly based on two documents, namely, the permission given by the Indian Navy and the contract entered into by the appellants with the ONGC. The Naval Security Clearance is given by the Indian Navy from the security point of view and it has nothing to do with the classification of the vessel. As regards the contract with the ONGC, the said contract stipulates the various services to be rendered to them by the service provider. In the contract, the technical specifications of Multi-purpose Support Vessel are enumerated. The background of work is given as under :
“Inspection, Maintenance & Repair group of Offshore logistics, ONGC, Mumbai Region presently caters to inspection, maintenance and repair of approx. 190 offshore steel structures (process and well platforms), 800 risers, 4000 Kms of sub-sea pipe lines, 4 SPMs/SBMs, 20 PLEMs, etc. To ensure that these underwater offshore facilities are fit for use, Multi-purpose Support Vessels (MSVs) are deployed. These MSVs are also required to provide the fire-fighting, safety, search and rescue and pollution control support to offshore oil and gas fields. The MSVs remain in high alert mode for any emergency requirement, while they carry out their designated duties including air and saturation diving.”
On the basis of the scope of work specified by ONGC, the Revenue concludes that the vessel is not an ordinary supply vessel but a special vessel designed to carry inflection, maintenance and repair operations. This conclusion drawn by the Revenue is absurd. ONGC is not the agency authorised/designated to classify vessels. That job is assigned to the Registry of Indian Shipping and Mercantile Marine Department. Once these agencies classify the vessel as a supply vessel taking into account the structure and design of the vessel, merely because the vessel is equipped to perform certain additional functions as per the requirements of the user, the vessel does not cease to be a supply vessel.
7.7 A paper was presented by the American Bureau of Shipping in the International Conference on Technology and Operation of Offshore Support Vessels at the National University of Singapore in 2005 on “Modern Offshore Support: Vessels (OSV) - Class and Statutory Perspectives”. In the said paper comparison was made between OSVs of the past and now and it is stated therein as follows :-
“In the past, the sizes of OSVs are traditionally in the range of 40m to around 70m. The types of cargos carried on board were typically pipes, casings, stores, chains, machineries and equipment for offshore rigs, etc.
……………………………………………………………………………………..
In contrast, new generation OSVs are required to provide support for deep-water drilling operations and deliver more cargoes at greater distance from shore and faster. They are larger in size as compared to their predecessors in order to provide bigger cargo deck areas and to optimize the underdeck spaces for accommodating increase number of bulk tanks for liquid mud, brine and cement. ………. A significant number of new generation OSVs is fitted with diesel-electric propulsion systems, particularly those with enhanced dynamic positioning systems. These vessels have significantly improved dry bulk and liquid cargo capacities through better compartment design and also better space efficiency of electric propulsion system. Some of the new generation supply vessels are equipped with ROV underwater operations, lifting appliances with high safe working loads for cargo handling, platform access system to facilitate transfer or personnel from the vessel to offshore platform, etc.”
7.8 A reading of the above technical paper makes it abundantly clear that offshore support vessels are nothing but supply vessels for the supply of cargo and personnel to offshore platforms with additional features of underwater diving and inspection, fire-fighting operations, etc. The vessels under importation have some of these additional features so that they can perform the various operations that are required and expected of offshore support vessels. The contract given by ONGC requires certain operations to be performed in addition to supply and transport of cargo and personnel. Nevertheless, these vessels remain supply vessels designed for transport of cargo and persons and therefore, they are rightly classifiable under CTH 8901 and we hold accordingly.
7.9 Now let us see whether there is any merit in the Revenue’s case for classifying these vessels under CTH 8905. The said heading covers light vessels, fire floats, dredgers, floating cranes, and other vessels the navigability of which is subsidiary to their main function; floating docks; floating or submersible drilling or production platforms. The types of vessels specified in this heading are essentially stationary vessels and they do not have any navigational capability. Even when they have such capability, the same is subsidiary to their main function. From the class certificates issued by the Indian Registry and Bureaus Veritas, it is seen that the vessels are “SUPPLY VESSELS” with unrestricted navigation. In other words, navigation is not subsidiary to their main function. The safety certificate issued by the Mercantile Marine Dept. of the Ministry of Shipping and Transport clearly mentions these vessels as Other Cargo ships, which again proves that the impugned vessels do not fall under the purview of CTH 8905. The technical features of the vessels also indicate that these vessels are self-propelled and have modern navigation and communication systems installed. Even the contract given by the ONGC shows that these vessels have to undertake inspection, maintenance and repair functions over a 4000 Km area. Can a vessel without propulsion and navigational capability undertake such operations? Common sense gives the answer in the negative. But common sense is quite uncommon, as the popular saying goes. Thus we have no hesitation in our mind to conclude, after going through all the evidences available on record, that the impugned vessels are rightly classifiable under CRH 8901 of the Customs Tariff and not under CTH 8905 and we hold accordingly.
7.10 The appellants have also relied on the decision of this Tribunal in the CGU Logistics v. CC, Mumbai reported in wherein the classification of a transshipment vessel was considered. The competing classifications were Headings 8901 and 8905 as in the present case. The vessel in that case was a self-propelled one with dedicated conveyor system in a stationary position, designed for short trade with service speed of 7 knots, having no hatches to store cargo and not competent to cruise with loaded cargo in the high seas. After taking into the functions of the vessel and the certificates issued by the Mercantile Marine Dept., this Tribunal held that the vessel was classifiable under CTH 8901, on the ground that the vessel was not always in stationary position while carrying out transshipment of cargo and some modes of transshipment involved navigation. In the case before us, the vessels are self-propelled, have capacity for carrying cargo and persons and have unrestricted navigational capability. The certificates issued by the Indian Registry of Shipping and Mercantile Marine Dept. also classify the vessel as supply vessel. Therefore, the ratio of the above decision applies squarely and the impugned vessels merit classification under CTH 8901.
8. The appellants have also raised a contention that the demand is time-barred. The goods were examined by the Customs before assessment and all the type approval certificates given by the statutory authorities and the technical data relating to the vessels were made available to the customs authorities. The allegation of the customs is that the copies of the contract entered into with the ONGC were not made available. There is no statutory requirement for submission of contracts with ONGC to the customs authorities. The documents required to be submitted at the time of filing of the bill of entry are only invoices/purchase orders for the goods, product literature/catalogue applicable to the goods. In the case of vessels, the registration and class certificates are also required to ascertain the nature of the vessels. All these documents were submitted by the appellants at the time importation. How the vessels would be put to use or is there any contract for the future use of the imported goods are not relevant considerations for assessment of customs duty. Therefore, we hold that the entire demand is time-barred and on that ground also the customs duty demands fail. Once the classification claimed by the appellants is upheld, the question of differential duty demand, confiscability of the goods, and imposition of penalty, etc. do not sustain and we accordingly set aside the same.
9. In sum, we set aside the impugned orders and allow the appeals with consequential relief, if any.
(Operative part of the order pronounced in the Court)
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