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Vipul Shipyard Vs. Collector of Central Excise - Court Judgment

LegalCrystal Citation
CourtCustoms Excise and Service Tax Appellate Tribunal CESTAT Delhi
Decided On
Reported in(1985)(19)ELT122TriDel
AppellantVipul Shipyard
RespondentCollector of Central Excise
.....rt-12 returns claiming that the vessels were ocean going vessels and were exempt by virtue of the exemption notification 104/82. on 31-8-82, the appellants were surprised to receive the rt-12 returns through a memorandum annexed thereto that the barges could not be constructed as ocean-going vessels for the purpose of exemption under this notification. the appellants preferred an appeal to the collector of central excise (appeals) in this case also.9. on 17-3-83, all the four appeals were disposed of by relying on the judgment of the bombay high court in the misc. petition no. 496/70 decided on 30-6-79, by the collector of central excise (appeals).section 3(41) of the merchant shipping act, 1958 defined "sea-going in relation to a vessel" means "a vessel proceeding to sea beyond inland.....
1. These are four appeals involving common questions of fact and law and hence they were taken up for hearing together.

2. This appeal and the other appeals involve the interpretation of the term "Ocean-going vessels". By Notification 89/79 of Central Excise, dated 1-3-79, the Central Government exempted goods falling under Tariff Item No. 68 and cleared for home consumption on or after 1st April in any financial year by or on behalf of a manufacturer upto an aggregate value not exceeding Rs. 15,00,000/-. The assessee could avail the benefit of the exemption provided an officer, not below the rank of an Assistant Collector, was satisfied that the sura total of the value of the capital investment made from time to time on plant and machinery was not more than Rs. 10,00,000/-. By Notification 105/80, dated 19-6-80, Notification 89/79 was superseded and certain modifica- tions were made in regard to the clearances and the eligibility was fixed for the period from 1st April in any financial year as not to exceed Rs. 30,00,000/-, and for the period 19-6-80 to 31-3-81 as not exceeding Rs. 24,00,000/-. Another Notification that has relevance is No. 55/75 dated 1-3-75, by which the Central Government exempted goods of the description falling under Tariff Item 68 from the whole of the duty excisable thereon. Notification 55 of 1975, which was amended by Notification 102/80, provided that "ocean-going vessels" falling under Tariff Item 68 were exempt from the whole of the duty of excise leviable thereon. Under Notification 104 of 1982, this Notification 55 of 1975 was superseded. Serial No. 33 in the Schedule of this, exempted "ocean-going vessels" from Excise Duty when cleared. The appellants submitted that the exemption granted by Notification No. 104/82 was irrespective of the exemption granted by Notifications 89/79 and 105/80. The appellants filed a declaration on 20-5-80 to the Assistant Collector intimating that they were entitled to avail the benefit of Notification 89/79. The appellants had invested on plant and machinery, a sum of Rs. 4,65,072.31.

3. The facts in this particular appeal are that the value of excisable goods cleared by them during the financial year 1979-80 was Rs. 15,29,670/-. The Assistant Collector having jurisdiction, intimated the appellants on 18-6-80 that they were permitted to avail the benefit of the notification. Subsequent to Noti- fication 105 of 1980, on 10-10-1980 the appellants filed Classification List No. 78/80, mentioning therein that they have manufactured barges as well as ocean-going vessels. In respect of barges, although the appellants mentioned the rate of duty as 8% under Tariff Item No. 68, they claimed complete exemp- tion for these barges under Notification No. 55/75 as amended by Notification 102/80.

4. The facts as regards this case are that on 24-3-81, the appellants cleared two barges under Gate Pass Nos. 1 and 2. The aggregate value of the barges was Rs. 37,20,250.87. The appellants paid a duty of Rs. 57,620.07 under protest in respect of the barges. They submitted their RT-12 returns in respect of the said barges but the assessment was kept pending. The appellants represented to the jurisdictional Assistant Collector that the barges were nothing else but ocean-going vessels and that they were entitled to the refund of the duty paid. They made a representation to that effect on 5-5-81. They submitted a refund claim on 15-6-81. On or about 20-7-81, the appellants received an Assessment Memorandum from the Superintendent, Central Excise, seeking to raise a further demand of Rs. 48,000/- on the excess clearance of Rs. 6 lacs.

The appellants claimed exemption upto Rs. 30,00,000/-. By his Order dated 18-8-81, the Assistant Collector rejected the contention that the barges manufactured by then were ocean-going vessels within the meaning of the term as contained in Notification No. 55/75. The Asstt.

Collector relied on the definition of "sea-going vessels" and "vessels for inland navigation" as contained in the Brusesels Tariff Nomenclature and the term 'foreign going vessels' as defined in the Customs Act, 1962. The appellants preferred an appeal to the Collector of Central Excise (Appeals).

5. The facts in this appeal are that the appellants submitted fresh RT-12 return for October 1981 and pointed out that the ocean-going vessels were exempt from payment of excise duty. They cleared m.v.Pratishta No. MRH 610 under Gate Pass 3 dated 24-10-81. On 29-4-82, the appellants received the RT-12 return from the Superintendent, Central Excise, who also called upon them to pay excise duty of Rs. 1, 56,000/-on the ground that the said ocean going vessel was meant for inland navigation, known as a barge and it cannot be considered as ocean-going vessel for the purpose of exemption under Notifica- tion 55/75, as amended.

6. On 7-2-82, the appellants cleared another vessel namely m.v. Nitya Shushil. The appellants received on 26-6-82 the RT-12 as assessed by the Superintendent of Central Excise, directing them to pay an excise duty of Rs. 1,64,000/-, on the same ground. The appellants preferred an appeal to the Collector of Central Excise (Appeals).

7. Here the facts are that a fresh Classification List was filed in April, 1952. consequent to Notification No. 104/82. On 26-5-82, the appellants found that the fresh classification list had been altered and the appellants' contention that the said ocean-going vessels were exempt by virtue of Notification 104/82 was rejected. Aggrieved by the action of the Superintendent, an appeal was preferred to the Assistant Collector and later to the Collector of Central Excise (Appeals) both of whom rejected the contention.

8. This appeal relates to four vessels vide Gate Pass 2/10 dated 10-4-1982, Gate Pass 3 dated 10-4-82, Gate Pass 4 dated 24-4-82 and Gate Pass 5 dated 24-4-82. The appellants filed RT-12 returns claiming that the vessels were ocean going vessels and were exempt by virtue of the Exemption Notification 104/82. On 31-8-82, the appellants were surprised to receive the RT-12 returns through a Memorandum annexed thereto that the barges could not be constructed as ocean-going vessels for the purpose of exemption under this notification. The appellants preferred an appeal to the Collector of Central Excise (Appeals) in this case also.

9. On 17-3-83, all the four appeals were disposed of by relying on the judgment of the Bombay high Court in the Misc. Petition No. 496/70 decided on 30-6-79, by the Collector of Central Excise (Appeals).

Section 3(41) of the Merchant Shipping Act, 1958 defined "sea-going in relation to a vessel" means "a vessel proceeding to sea beyond inland waters or beyond waters declared to be smooth or partially smooth waters." Secondly, according to Part V of the Merchant Shipping Act, 1958, every sea going ship fitted with mechanical means of propulsion was required to be registered under Section 406 of the Act, unless such a ship did not exceed 15 tonnes net.

10. Shri A. Hidayatullah, Advocate, appearing for the appellants argued that the approach of the learned Collector (Appeals) was entirely erroneous. According to him, the definition contained in other Acts were not relevant for the purpose of deciding the issue of classification under the Central Excise Act. Even according to the decision of Mr. Justice Pendse the ocean-going vessel need not actually travel on the ocean but must be capable of travelling on the ocean. The facts that the Appellants' vessels had travelled from Magdalla to Marmagoa clearly showed that the appellants' vessels have travelled on the ocean and are actually capable of travelling on the ocean. He further stated that the determination of excisability of a product should be at the point of its manufacture and a subsequent act of registration or non-registration was totally irrelevant. He submitted that the definition of sea-going vessel under the Merchant Shipping Act had no application and the requirement of the vessel actually travelling on high seas was not necessary even under the said Act. The correct test, according to him, was not registration and the provisions of the Central Excise Act or the exemption notification did not incorporate any such restriction. He argued that the test would be how the goods were understood in commercial parlance. He referred to the American Bureau of Shipping certificate disclosing that the vessels were conceived, constructed for and designed, constructed and classified as ocean-going vessles. The contract entered into between Meecon Private Ltd. and Vipul Shipyard envisaged that the vessel shall be built in compliance with the General Arrangement Plan, the specifications for Hull Machinery and electrical sections and further amend- ments agreed upon between the said parties. It shall be the responsibility of the said Vipul to ensure that the said vessel when completed is in sea-worthy and satisfactory working conditions, afloat and complete in all respects (Article 1-1.1 of the Contract). Article 5.1 also reads as follows :-"The vessel shall be built in accordance with and under the supervision of American Bureau of Shipping and furnished with this Society's class : The learned counsel argued that the vessels were for unrestricted ocean voyage and each one of the plants showed that it was a sea-going vessel. He also referred us to the Rule book of American Bureau of Shipping, Section 1/IV and emphasised on the import of "plus Al".. The appellants have produced a certificate issued by the American Bureau of Shipping dated 1-10-81 certifying that the Vessel 'PRATISHTA' was "BUILT TO THE RULES AND REQUI- REMENTS OF THE AMERICAN BUREAU OF SHIPPING". The certificate reads "THE VESSEL'S HULL SCANTLINGS ARE AS PER THE BUREAU'S 'RULES FOR BUILDING AND CLASSING STEEL VESSELS', INTENDED FOR UNRESTRICTED OCEAN SERVICE". In order to make out that in commercial parlance also such vessels are considered as ocean-going, learned counsel referred to Random House Dictionary which defined "ocean-going" as "any vessel designed and equipped to go on the open sea", and "Sea going" as "Designed or fit for going to sea as a vessel". Webster's Dictionary defines "sea-going" as "meant as ocean-going". The learned counsel submitted that the vessel had two engines of 235B H.P. capacity besides all technical require- ments for an ocean-going vessel. According to him, the design was suitable for an ocean-going or sea-going and the actual use should not be the basis to determine the excisability. He submitted that the various authorities have permitted the sea voyage and would not have granted permission to do so, unless they were satisfied that the vessel was sea-worthy. The Principal Officer, Mercantile Marine Department has granted the necessary permission for a single voyage. Even if it is for a single trip, a certificate has been given under Section 406(2) (o) of the Merchant Shipping Act. He, therefore, argued that the orders of the authorities below should be set aside.

11. Shri Lakshmikumaran, SDR, said that the term "ocean-going vessel" should be interpreted as to whether it was capable of going on the ocean as a vessel and the point to determine this would be at the factory gate. He relied on AIR 1965 (Supreme Court) 871 holding that it was erroneous to interpret entries with respect of dictionary meanings only. He also relied on 1983 E.L.T. 1566 (Dunlop's case) and said that end use was not material unless the Tariff entry itself make a reference to such use. He relied on 1964 (15) STC, page 32-Pashbhai Patel and Co. Pvt. Ltd. v. Collector of Sales Tax, Maharashtra State.

In that case the article involved was an agricultural tractor. It was held that even if it was used for agricultural purposes, it was not primarily used for agricultural purposes only. He developed an argument that the in-built words in the notification showed that the actual use in the ocean should be proved and not mere capability to use it. He relied on the Finance Minister's speech of 1980, while granting this exemption, which is as follows :- "Ship building is a high priority industry and has an important part to play in promoting economic self-reliance. The Indian ship building industry is finding it difficult to face competition from foreign shipyards. I, therefore, propose to extend full exemption from excise duty to ocean- going vessels built in Indian shipyards.

This relief would cost above Rs. 5 crores in the current financial year." (1980 E.L.T., page 56A, para 107) The learned SDR contended that the barges manufactured by the appellants were not intended for use on the high seas, but merely for use in inland naviga- tion for transporting iron ore from the mines and hence not entitled to the exemption.

12. The main point for consideration in these appeals is the interpretation of the term "ocean-going vessels". As rightly pointed out by Shri Hidayatullah the term does not connote the use to which the vessel is put. The term ocean- going vessels aptly describes the conception and design of the vessel rather than their use. Such an interpretation is justifiable in view of the standards prescribed by the American Bureau of Shipping for ocean-going classification. The contract between the parties indicate that the vessels were for a 650 DWT Ocean Going Vessel. The particulars set out in the contract envisage several requirements such as General Arrangements, Accommodation, Deck fitting and Equipment, Ventilation, Painting and Cathodic Protection, besides Life Saving Appliances, Fire Fighting Apparatus, Light and Sound Signals and Navigational Equipments. The Electrical Systems of these vessels establish that the intention of the contract was for manufacture of ocean-going vessels. The contention of the appellants is further confirmed by the American Bureau of Shipping certificate produced in respect of one of the vessels that it has been built to the rules and requirements of the American Bureau of Shipping and was intended for un-restricted ocean service. We also note that permission was granted by the Mercantile Marine Department to undertake one single sea passage from Magdalla to Marmagoa. The Inspector of Customs has granted clearance to cross the Port's limit to Magdalla and proceed to sea in view of the direction from the Mercantile Marine Department. These are un-impeach- able factors which show that these vessels are ocean-going vessels.

13. There is another angle from which the controversy could be viewed.

The determination of duty liability of a product under the provisions of Central Excises and Salt Act, 1944, arises at the point of manufacture. The lower appellate authority has proceeded on the basis that non-registration under the Marine Shipping Act disproved the appellants case. To us this is not tenable. Registration or non-registration arises subsequent to the manufacture and will not be the sole criterion to decide their excisability. Even assuming that registration with the Merchantile Marine Department was required, we find that the concerned authorities had granted the registration under Section 406 of the Merchant Shipping Act for a single journey. We must also point out that Section 9 of the Act lays emphasis on the importance of the certificate issued by the American Bureau of Shipping. It is not disputed that the appellants' vessels had, in fact, travelled from Magdalla to Marmagoa on the ocean. The Appellate Collector has disallowed the claim firstly that Section 3(41) of the Marine Shipping Act has defined "sea-going in relation to a vessel" and that these vessels did not conform to the definition. We do not accept this reason- ing. The vessels, in question, would be sea-going vessels under the Merchant Shipping Act, because they have actually proceeded to the sea beyond the inland waters and the Mercantile Marine Department certificate produced amply proves the same. Non-registration under the Merchant Shipping Act, which is said to be another infirmity does not strictly arise at the time of the manufacture of the vessels.

As already stated, there was in fact registration of the vessel for a single trip. In this connection, we may point out that the tests laid down by His Lordship Justice Pendse in the Bombay case have been satisfied by the appellant. "Sea-going", as appearing in Section 20 of the Merchant Shipping Act, covers ships which are capable of travelling on the ocean. The present vessels have actually travelled on the ocean.

His Lordship has also referred to the necessity to secure licence under Section 406. To quote : "The licence under Section 406 is required when an Indian ship is taken to the sea from a port or place within or outside India while a licence under Section 407 is required for coastal trading." Of course Section 406 contemplates a General Licence also.

But the absence of a General Licence, as in this case, will not dis-entitle the appellants to the exemption because the notification does not prescribe securing a general licence under the Merchant Shipping Act. If the vessels are ocean-going vessels, deigned and constructed for such a purpose beyond any doubt, then they would qualify for the exemption. The plan produced by the appellants make out that their vessels contain all the requirements of an ocean-going vessel and capable of ocean going or sea-going, as the case may be. The ruling cited by the learned SDR in 1964 (15-STC, page 32) has no application to the present facts because of the definition prescribed in that statute. Further, the principal and primary use of a tractor was not for agriculture. That decision was mainly in respect of the interpreta- tion of the Entry. The Finance Minister's speech only emphasises the need to promote the Indian Ship-building industry. It would not, in any way disentitle the appellants from the exemption sought for. We do not accept the contention that since the vessel is being used for inland navigation, that is for the purpose of transporting iron ore the exemption should not be accorded. In commercial parlance also, the vessels are known as built for un-restricted ocean service" and are in fact sea-worthy. The appellants have proved that the licence issued under Section 406(2)(c) was in respect of the capability of the vessel for under- taking the ocean or sea voyages. The vessels are, therefore, automatically entitled to claim exemption under the description of "ocean-going vessels".

14. Our views in this regard are re-inforced by the Bombay Trade Notice No. 11 (MF) All Other Goods (Nes) (3) /1984 dated 7-3-84. We notice that Notification 234 of 1982, dated 1-11-82 was issued in supersession of Notification 104 of 1982. Item 32 therein is "ocean-going vessel".

The Trade Notice above mentioned considered the scope of the term "ocean-going vessel" under Noti- fication 234/82. We reproduce below the relevant passage : "It is considered that the 'Ocean-going vessels' under the Notification No. 234/82-C.E., dated 1-11-1982 was under consideration.

It is considered that the 'Ocean going-vessels' under Notification No. 234/82-C.E. dated 1-11-1982 will include the following :- (a) Liners; cargo-vessels for various kinds including refrigerator vessels for the transport of meat, fruit etc.; vessels specified for the transport of particular goods (grain, coal, ores, etc.); tankers (petrol, wine, etc.); yachts and other sailing vessels; cable ships, ice breakers, floating factories of all kinds (for processing whales, preserving fish, etc.); whale catchers, trawlers and other fishing vessels, lifeboats, scientific reasearch vessels; weather ships, vessels for the transportation and mooring of buoys pilot boats, hopper-barges for the disposal of dredged material, etc.

(c) tugs, dredgers, fire floats and salvage ships for purpose of Noti- fication No. 234/82-C.E., dated 1-11-82." We also find that Notification 82/84-C.E., dated 31-3-84 has been issued by the Government of India exempting the components and raw materials for repair of "ocean-going vessels" from the basic excise duty. It is significant to note that there is an identical description for the purpose of this Notification too, as regards the expression "ocean-going vessels". We note that sailing vessels, Liners, trawlers, fishing vessels, etc. have been categorised as ocean-going vessels. The subsequent notifications re-inforce our conclusion that the vessels in question are "ocean-going vessels" entitled to the exemption sought for. The learned SDR has also cited the views of the Principal Officer of the Mercantile Marine Department according to whom there is no difference between an "ocean-going vessels" and a "Sea-going vessel".

If a sea-going vessel is to proceed to sea beyond the inland waters it should be registered under the Merchant Shipping Act. Besides, the character of a vessel can be determined on the basis of its capability and use. According to the criteria, the vessel in question has to be considered as "ocean-going" for the purposes of Notification 55/75, dated 1-3-75 as amended. The impugned orders are accord- ingly set aside and the, appeals are allowed.

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