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Essar Oil Ltd. Vs. Commissioner of Customs - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Mumbai
Decided On
Reported in(2000)(117)ELT148Tri(Mum.)bai
AppellantEssar Oil Ltd.
RespondentCommissioner of Customs
Excerpt:
.....from rig stationed outside the territorial water of india (a-l & a-3) and the goods brought to ongc nhava base to be shipped to the rigs stationed beyond the territorial waters of india (a-2 & a-4). the import was unauthorized and so the goods imported were liable for confiscation under section 111 (clause a, c, f & j) of the customs act. the goods mentioned in annexure a-2 and a-4 have been admitted to be exported unauthorisedly and were liable for confiscation under section 113 (clause a, f & g) of the said act. the customs duty of rs. 77,34,672/- was demanded from the said applicant and confiscation of the said goods and the imposition of penalty under section 112 and 114 of the customs act was also alleged in the show cause notice, issued both to ongc and the.....
Judgment:
1. The applicant in the above matters have sought for dispensation of the pre-deposits of duty and penalty, interest and redemption fine under the impugned orders, dated 29-9-1997, 28-11-1997 and 27-1-1998 challenged in these appeals, on the ground that they have got a strong prima facie case, specially on limitation and also on merits. Essar Oil Ltd. (EOL for short) has also urged in the stay application that it will be put to grave financial hardship if directed to pre-deposit the duty and penalty amount. EOL has to pay a duty amount of Rs. 10,16,35,914/-and penalty of Rs. 50 lakhs under the impugned order, dated 29-9-1997 and duty of Rs. 4,95,406/- and interest and redemption fine under the impugned order, dated 28-11-1997. M/s. Aban Lloyd Chiles of Offshore Ltd. (ACO for short) has to pay the duty of amount of Rs. 5,06,12,412/- and penalty of Rs. 25 lakhs under the impugned order, dated 29-9-1997, and duty amount of Rs. 4,69,104/-, interest and redemption fine under the impugned order, dated 27-1-1998. M/s.

Amership Management Ltd. (AML for short) has to pay duty amount of Rs. 68,66,092/- and penalty amount of Rs. 4 lakhs under the impugned order, dated 29-9-1997. EOL has filed the appeal C/1115/97 and C/395/98, and ACO has filed the Appeal No. C/1113/97 and C/394/98 and AML have filed Appeal No. C/1114/97.

2. The facts of the case are that the investigation is taken up on the information received that loading, unloading, storage and removal of the imported goods was taking place at Nhava base without such base being notified as custom for post under Section 7 of the Custom Act or Custom area under Section 8 of the Custom Act. No customs formalities, as prescribed under such act were observed when dutiable goods were removed for home consumption from the base. It came to the notice of the Customs department that drilling spares etc. cleared as ship stores were brought from the rigs and not returned, scrap generated on the rigs situated outside the territorial water is brought from the rigs and sold away in the domestic market. The enquiries revealed that EOL owned the rigs, working for ONGC, which were operating outside the territorial water of India from these rigs. On several occasions material was brought to the base for the purpose of requirement but was never sent back to the rigs for repairs. Admittedly several consignments of parts of rigs, which became unserviceable were brought to the base and were sold away in the domestic market without payment of duty. Certain materials brought from the rigs were stored in the base, which was not an approved place for landing.

3. EOL has also urged in the stay application that it will be put to grave financial hardship if directed to predeposit the duty and penalty amount.

4. EOL is engaged in the exploration and exploitation of offshore oil, gas and other related services as a contractor for Oil and Natural Gas Commission (ONGC), which commenced the same in or around in the year 1970 from 12 Victoria Docks, and obtained the permission from the Customs for the clearance of the goods to and from the said place, with the oil rigs, without payment of duty and without insisting upon customs formalities. In view of the increased activities, operations were shifted to Nhava base from 1987. Operations were carried out there on large scale upon operations from 5 berths. Large warehousing activities are availed there. The same concessions were continued when operations were shifted from 12 Victoria Dock to Nhava base. Essar Explorer (EE in short) carries on drilling operations beyond 12 miles from India outside the territorial waters of India from the continental shelf, under a contract, dated 30-6-1987 with the ONGC and which is renewed from time to time. Under Article 13 of the said contract, it is for the ONGC to secure all permissions and licences for drilling operations. An oiling in a floating vessel, which is toed to its required drilling location and then jacked up on four legs with the rest on the ocean floor. Rigs as an integral part thereof includes drilling machinery to penetrate and drilling into Ocean floor. EOL used stores, spares, consumables etc. for operations on the rigs, which cannot directly land on it. They are landed at airport or sea port and then transshipped to the rigs. These goods include the day today living requirement for the crew of the rigs, including drinking water and other day today human requirement. They are imported and indigenous, in which cases, they cannot be taken directly to the rigs. All supplies are routed through ONGC and the EOL has to act as per its directions.

M/s. ACO also own rigs working for ONGC operating outside the territorial waters of India, so also AML.

5. After the investigations based or the above information were conducted, the show cause notices were issued to the applicants referred above on 12-5-1994 and 22-4-947(sic) and also to ONGC under Section 111, 112 and 114 of the Customs Act with the allegation that M/s. EOL are liable to pay duty on the material brought for repairs from the rigs when such material was not returned to the rigs. After the receipt of the reply from them and hearing the parties and considering the material available on record, the impugned orders were passed by the adjudicating authority which were appealed against in this appeal.

6. In the other two cases namely C/394 & 395/98 against EOL and ACO, pursuant to the information that the ONGC is using as loading or unloading and storage point for goods landed from/despatched to the off shore rigs from the supply based at Nhava, without it being appointed as a custom port or as a place on loading and unloading of goods under Section 7 or 8 of the Customs Act by the Commissioner of Customs. The special task force officers attached to Collector of Customs unit, Mumbai at the base, conducted the investigations and during the course of enquiry it was revealed that for the purpose of oil exploration and exploitation, the ONGC is operating drilling rigs at Bombay high beyond territorial waters of India, and appeared to have engaged the services of other drilling companies rigs namely the other applicants under the contract and the base was being used for the purpose. Since it was not an approved place under Section 8 of the Custom Act loading and unloading at that base is not as stipulated under Section 33 and 34 of the said act as approved place of storage on imported goods. The investigation revealed that lot of materials belonging to the applicants (rig contractors) arrived from offshore rigs and goods to be transported to offshore rigs were stored at the wharf of the said base.

The said goods valued at Rs. 7,55,186/- belonging to M/s. ACO were seized under Section 110 of the Customs Act on the reasonable belief that they were liable for confiscation. The value computed as supplied by the representative of the said company namely ONGC. Show Cause Notice was issued to the applicant M/s. ACO with the Annexure A-l to A-4, showing the goods imported in Nhava base from rig stationed outside the territorial water of India (A-l & A-3) and the goods brought to ONGC Nhava base to be shipped to the rigs stationed beyond the territorial waters of India (A-2 & A-4). The import was unauthorized and so the goods imported were liable for confiscation under Section 111 (Clause a, c, f & j) of the Customs Act. The goods mentioned in Annexure A-2 and A-4 have been admitted to be exported unauthorisedly and were liable for confiscation under Section 113 (Clause a, f & g) of the said Act. The customs duty of Rs. 77,34,672/- was demanded from the said applicant and confiscation of the said goods and the imposition of penalty under Section 112 and 114 of the Customs Act was also alleged in the show cause notice, issued both to ONGC and the applicant. After receiving the written submissions from the applicants, dated 8-12-1997 and hearing the parties, the impugned order was passed by the adjudicating authority, which is appealed against now.

7. In C/395/98, the appeal of M/s. EOL, the same case is made out as referred in the above paras except regarding the valuation of the goods which is Rs. 6,36,950/- belonging to EOL which was stored at the wharf of the base. The value of the material was supplied by the representative of the said company i.e. ONGC and accordingly computed.

Annexure A-l & A-3 of the show cause notice shows the goods mentioned as imported into Nhava base from the rigs stationed outside the territorial waters of India and the goods mentioned in A-2 & A-4 were brought to ONGC Nhava base to be shipped to the rigs beyond the territorial waters of India. In the Show cause notice issued against the applicant along with Annexure A-l to A-4 mentioned above, it was alleged that they were imported into India from the rigs stationed beyond territorial waters of India unauthorisedly and the same were liable to confiscation under Section 111 Clause (a, c, f, h & j) of the Customs Act and it was valued at Rs. 3,55,450/- and the goods mentioned in Annexure A-2 & A-4 are valued at 2,81,500/-, which was brought to ONGC Nhava base to be shipped to the rigs stationed outside the territorial waters of India. They were admittedly to be exported and were liable for confiscation under Section 113 (a, f & g) of the Customs Act. Show cause notice called upon the applicant demanding the customs duty of Rs. 5,34,104/- and also to explain why the goods referred above should not be confiscated and why penalty should not be imposed under Section 112 and 114 of the Customs Act. ONGC is also called upon to explain as to why penal action should not be taken under Section 112 and 114 of the Customs Act. After the reply, dated 29-3-1994 from the noticees, and after hearing the parties, the impugned order was passed which is appealed against by the applicant.

In this case no penalty was imposed on ONGC and the applicant.

8. In support of the said applications, the ld. Sr. Counsel has argued that the show cause notice is time barred as issued beyond six months from the period 8-1-1990 to 15-9-1993 i.e. on 22-4-1994 under Section 28 of the Customs Act. The show cause notice is silent as to how the operations at Nhava base gained knowledge by the department and when.

Manner of information is not disclosed. The source of information and investigation is not disclosed. There is no specific allegation of collusion or wilful mis-statement or suppression of facts in the show cause notice. In support of the contention that the Customs department had full knowledge of the offshore operations at 12 Victoria Dock at Nhava base, reference is made to the observation in the impugned order in that regard and the correspondence of the Customs department with the ONGC under the letter, dated 23-5-1988, 31-5-1988 and 8-10-1993.

The transshipment permits filed by the applicant EOL from time to time with the customs department also shows that the department had the knowledge as they were signed by the customs officers. They were filed for clearance of goods to the rig. The offshore operations are open and large scale carried on 5 berths with large warehousing facility. The show cause notice is attacked on the ground that the extended period cannot be applied as it is silent about the positive action of suppression by the applicant. They were under the bonafide belief that the strict compliance with the customs formalities was not required.

The department has always been aware of the operations. There was a long-standing practice of the department in not insisting upon the customs formalities with regard to the transfer of goods to and from the rigs and the sudden change in the stand is not justifiable. In support of these points, the ld. Counsel has relied upon the case laws ranging from 1987 to 1995 in 24 ruling.

9. The ld. Sr. Counsel has submitted that M/s. SR Oil Ltd., was one of the companies engaged by M/s. ONGC for exploration or oil in the sea, which was going on from 1970. Oil rigs owned or chartered by various companies were placed at the disposal of the said ONGC, and the area for operation and other details were as ordered by it. The ships stores were imported on the rigs brought by supply vessels to the docks and stored there. They were taken to the rigs by supply boats. As and when required certain articles manufactured in India were also similarly taken. The stores which were damaged and used were brought back to the base, and sent into the town for repairs and brought back thereafter or else they were sold as scrap. The entire scheme was known to the customs department. These operations were conducted from 12 Victoria Docks from the Bombay port and number of procedural relaxation from such movements were recorded by the customs department in their letter addressed to the ONGC, dated 28-4-1973, 18-5-1973 and 28-8-1975 in File No. C/1675/72. The shift of the operation was informed by ONGC to the Custom House on 23-5-1988 in their letter BRBC/T&S/Customs/88. It claimed that the proposals were discussed with the Custom House, the Collector of Central Excise, Bombay III and also with the Collector of Customs (P), Mumbai, and that it appeared necessary that the Custom House should finalize the issue. Letter contains the said correspondence, which was acknowledged by Custom House. Under the letter F. No. VIII (b) 15 (32) 88, dated 30-5-1988. The chain of events, reflected in the correspondence cited, clearly brought out the knowledge of the department of the shifting of the operations to Nhava base. In the future dealings, the customs department namely IGMs, EGMs and gate passes clearly brought out that the operations were conducted from Nhava base. The Customs department were fully aware of the procedure adopted. The extended period cannot be invoked in such a case. In support of this, five case laws are cited of the year 1994-95.

The fact of ONGC shifting their base to Nhava was not a secret. The operations were conducted openly in full sight of the Customs formalities.

10. The ld. Sr. Counsel has attacked the valuation of the various articles leading to the computation of the duty allegedly evaded. He submitted that most of the articles/equipments damaged were repaired and sent back on the rigs. The scrap and old/disposed of items value would be 10% of the total value. There was no rationale or basis for the valuation done by the officer of ONGC, as it is made out as if it is new articles, as per the cross examination of the said officer. He was not conversant with the value of the scrap items. On wrong basis the valuation is done leading to an inflated estimation of the duty allegedly evaded. Deduction at the rate of 70% for scrap, and 20% for repaired goods by the Commissioner on the value given by the ONGC is arbitrary and without any basis. So also in holding the goods under Annexure 'C to show cause notice as new one, and it is opposed to Rule 8 of Valuation rules which bars arbitrary or fictitious value being attributed to the goods. He has further argued that under Section 28AB of the Customs Act, no penal interest can be levied in the absence of show cause notice, and allegation of collusion, wilful mis-statement or suppression. The said provision was not in existence when the goods were imported. The penal interest is brought into force under the financial bill of 1996 in September. The finding of the Collector that the liability for penal interest arise on the finalization of the adjudication proceedings has no basis in law. The penal provision cannot be retrospective. Three case laws of 1998 are cited in support of this contention, in the case of Maruti Udyog, Laxmi Packaging (P) Ltd. and P.V. Mohammad Barmay & Sons. The delay in finalizing the adjudication, after the hearing with a gap of almost three years during which Section 2B AB was introduced, cannot go to the advantage of the Customs department. It cannot levy penal interest. Regarding the penalty, it is submitted that breach by M/s. EOL is of a technical/venial nature as he had no independent discretion to exercise, being only a contractor carrying out offshore operations for and behalf of ONGC an organ of the state. It has acted as per the instruction of ONGC and customs authorities. Three rulings are cited in support of this contention in the case of Cement Marketing, Hindustan Steel and A.B. Jivani. ONGC is penalised only Rs. 50,000/- as against EOL, for which the penalty of Rs. 50 lakhs is imposed. There was no case for imposition of penalty, and there was no basis to invoke the penal interest provisions. The rate of duty is also challenged by the ld. Sr. Counsel on the ground that in the present case the goods covered by the show cause notice were not imported for home consumption nor was any bill of entry filed in respect thereof. Section 15(1)(a) cannot be invoked in this case as the rate of duty applicable would be Section 15(1)(c) of the Customs Act. But Section 15(1)(a) is invoked as the rate of duty for the goods covered by the show cause notice has fallen. The ld. SDR has taken us in detail through the impugned order, and also the available documents in the records, and urged that the import was unauthorized one, and there is a suppression by EOL about clearance for home consumption, and extended period of limitation is applicable to the instant cases of hand. There is no material in support of the contention of the applicant that they are not required to observe the customs formalities, and not to pay any customs duty under the said statue by any authority.

11. Perused the show cause notice, reply, and the impugned order and the documents produced in this case and written submission on behalf of the applicants, and the appeal memorandum. From the above material, it is seen that the applicants have attacked the case on all possible grounds with voluminous documents as mentioned in pg. 9 of the written submission and the case laws. At this stage of stay application, the limited aspect is only to see the prima facie case. ONGC the co-noticee, upon whom the applicant made the reliance under the contract entered into between them and ONGC for carrying on offshore operations, and under Article 13 of the said contract, it was for the ONGC to secure all permits and licences for drilling operations, has not come in appeal against the impugned order. In the absence of it, the contention of the applicants in support of the stay applications gets weakened, because their stand is not supported by any party under whom they were working. Under the show cause notice, the Collector of Customs, Jawahar Customs House has clearly stated in para 20 of the show cause notice that the normal period of demand of duty is extended to 5 years under proviso 28 of Clause (i) of the said act, in view of the contents in the above paras namely 1 to 19 in which the clear and specific case is made out against the applicant to invoke the longer period. This is based on the information collected by the department that no customs formalities is prescribed in the act were observed in the case of removal of the goods from Nhava base to return to domestic market, and the scrap and the spares cleared earlier as ship stores, are brought back from the rigs located outside India and cleared without payment of duty. The letter, dated 23-5-1988 addressed to the Collector of Customs for permission by the ONGC is not supported by any acknowledgement from the said authority for having received the said letter, and no order is produced for giving permission to use the base at the customs port or the customs area. The elaborate procedure adopted by the contractor is enumerated in para 9 of the notice. There is clear allegation that no customs duty was paid by the applicant EOL for drilling equipment and hearing for the rig EE which they were cleared as ship stores for transshipment to foreign owing vessel involved in drilling operation located outside the territorial waters of India. Transshipment permission supports this allegation. There is an admission by Shri S.R. Agrawal, Chief Executive of the said company namely the statement, dated 25-1-1994 that no permission was taken for removal of goods as the permission on ONGC was good enough. The statement recorded contains admission of the staff of the said company EOL regarding the non-payment of duty. The documents produced by the company could not be correlated by Shri G.K. Palekar. The gate passes of ONGC were utilized for removing materials out of the base to repair and return of such material back to the rig, also could not be verified. There is an admission by Shri S.R. Agrawal in the statement, dated 25-1-1994 that they have neither taken permission for the removal of the scrap from base nor have they paid the duty for the said goods.

No evidence was produced to show that the scrap removed are of indigenous material taking differentiation between the indigenous scrap and foreign made scrap. There is an admission by him that items removed from ONGC Nhava base have far storage are also sold as scrap but no documents and records are maintained. The drilling equipment stores and spares were imported and cleared under transshipment concession without payment of duty and some were taken to down without taking permission from customs. There is clear admission in the statements that at no stage, the customs duty as paid on the goods, which were taken out of the base. In spite of giving chances to the representative of the company to submit the required relevant documents, they have not complied. EOL failed to produce in evidence for repair and return items, and tally the repair and return items as mentioned in the ONGC gate pass, and the documents produced by them for having reached the back on the rig. Even they have also failed to furnish the value of the items, which were taken out of the base. Earlier prior to the commissioning of the ONGC base at the Nhava ONGC and other contractors were fulfilling all the customs formalities when the goods exported to and imported from offshore rigs were being passed to ONGC berth at 12 Victoria Dock in Mumbai Port. But no such procedures of customs formalities were followed thereafter. It is concluded that Annexure A goods valued at Rs. 6,86,42,750/-has unauthorisedly been removed from ONGC Nhava base imported from rigs stationed outside the territorial waters of India as repair and return goods and some were not sent back to the rigs. The Annexure B goods valued at Rs. 1,86,36,100/- have been unauthorisedly removed from base which were imported from the rigs EE, stationed outside the territorial waters of India, scrap non-returnable goods by them. Annexure C goods valued at 1,74,77,028/-were imported from their rig EE, stationed outside the territorial waters of India as drilling equipment as storage and non-returnable goods by them. In the course of the reply to the show cause notice, these allegations are not challenged as pointed out in the course of arguments for invoking the extended period of limitation.

12. The contention of the applicant that in the impugned order, there is an admission by the department that it was aware that the Nhava base is being used as a base where the imported and exported goods land and it is a landing place. In page 4 of the impugned order, the contention of the applicant regarding the question of time bar is considered in the light of the case laws cited and discussed. There it is observed that "granting that the department was aware of the fact that the impugned goods were being landed at the base, the contention of the noticees that there was no unauthorized removal of the goods cannot be accepted." This observation cannot be concluded that there is an admission by the department about it. This is only by way of considering the alternate plea of the applicants that the department had the knowledge. It is also observed that - "basically the issue boils down to whether or not noticees were aware of the fact that duty is payable on the goods brought for home consumption." The discussion in page 5 clearly shows that the correspondence between the ONGC and the department, produced in this case, does not give any impression that there was an understanding between ONGC and the department that the dutiable goods could be removed without payment of duty. Annexure A to D pointed out in the course of the argument, the correspondence in 1973 between the ONGC and the department refers to the drilling operations in 12 Victoria Dock and Bombay High. From the material placed on record, it is apparent that there is no dispute between the parties about the concession given to the ONGC regarding the procedures and payment of duty when the operation was in 12 Victoria Docks. It is contended by the department that the said concession cannot be presumed to apply to Nhava base also. The applicants have to make a prima facie case in this regard. There is no acknowledgement produced by the applicants about the receipt of exhibit E i.e. letter, dated 23-5-1988 on which the applicants mainly relied upon to show the knowledge of the department about the operations on Nhava base. It is contended by the applicants under Exhibit F, the letter, dated 31-5-1988, a reference is made to that letter by the Additional Collector of Customs, M & P Wing, Mumbai. According to that letter ONGC was directed to contact the Collector of Customs, Mumbai in this regard. The applicants have not explained that what further steps were taken by them in that regard. In the absence of it, it cannot be concluded that the competent authority was aware of the operations on Nhava base of the applicants and ONGC.As contended by the ld. SDR, prima facie the applicants have suppressed the fact of home consumption of the imported goods as pointed out in the show cause notice narrated above, for which there was admissions in the course of investigations by the staff of EOL who have failed to produce the relevant documents in that regard. So under these circumstances, the contention of the applicants that they have got a prima facie case regarding limitation, cannot be accepted. On the other hand, the above facts clearly goes against them. So their contention in this regard, is rejected.

13. Now coming to the other aspects, it is an admitted fact that the applicants claimed exemption of payment of customs duty on the imported good, which they have to show. Regarding the valuation aspect, the staff of EOL have failed to give any material and the department had to take the same from ONGC. As pointed out by the applicants, the valuation is made by the officer of the ONGC as new articles. The adjudicating authority has considered this aspect and has given margin to that valuation in determining the value of the goods. How far it is proper is a matter to be considered on the merits of the case. So under these circumstances, the contention of the applicants on the imposition of penalty and its quantum and the penal interest levied and regarding the rate of duty, require consideration in detail while considering the merits of the case. That exercise cannot be undertaken now, which results in the decision of the appeal itself. So under these circumstances, this is not a fit case to waive the pre-deposit.

Financial hardship alleged in the stay application is not substantiated by any material. Under these circumstances, the applicants are required to make a pre-deposit to take up the appeal for final hearing. Hence we pass the following order.

For the reasons discussed above, the applicant EOL (C/Stay-1582/97 in C/1115/97) is directed to deposit Rs. 2.50 crores duty amount and (in C/Stay-910 in C/395/98) to deposit Rs. 1,25,000/- the duty amount; and applicant ACO (C/Stay-1580 in C/1113/97) is directed to deposit Rs. 1.25 crores by way of duty and (in C/Stay-909 in C/394/98) to deposit Rs. 1,25,000/- duty amount; and applicant AML in C/Stay-1581 in C/1114/97 is directed to deposit duty amount of Rs. 20 lakhs by way of pre-deposit within 3 months from today. On the deposit being made, the deposit of the penalty amount against these parties in the above cases, are waived. The department should maintain the statusquo regarding the order of confiscation and interest in the case number C/394 & 395/98 pending disposal of the appeal.


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