1. The common question for consideration in this appeal is the eligibility to the exemption contained in Entry 227 of the table to Notification 23/98 of the goods imported by A.S. Moloobhoy & Sons and Dolphin Offshore Enterprises. In the order impugned in these appeals, the Commissioner has held that the goods were not entitled to the exemption and confirmed the demand for duty issued to the importer and imposed a penalty on the importer and employees in the case of Kripal Singh, Director of Dolphin. The appeals are by the importers and Kripal Singh.
2. The goods under consideration consist of components of Global Maritime Distress and Safety Systems (GMDSS) and of emergency position indicating radio beacons (EPIRBS). Each of the importer was engaged in repairs of ships. In order for it to comply with its operations under the International Convention for the Safety Life at sea to which India is a signatory, the Government of India issued in exercise of its powers under 290 of the Merchant Shipping Act 1958, the Merchant Shipping (Distress and Safety Radio Communication) Rules, 1995. The Convention requires that all commercial ships over 300 tons are fitted and comply with the requirement of the Global Maritime Distress and Safety System, 1999. Accordingly, the Central Government in exercise of its power in Section 296 of the Merchant Shipping Act, 1958 and the Merchant Shipping (Distress and Safety Radio Communication) Rules, 1995 made these rules apply to all sea going passenger, cargo and fishing boats of 20 mtrs. or more than length and all ships other than Indian ships more than 300 tons while they are in any port or place in sea.
The Rules require all existing ships comply part I of the rules on or before 1st February 1995. Various dates on which these rules will come into force in parts are mentioned, and but compliance is required on or before 1.2.99 in all cases. Part I of the rules provides inter alia that every ship or fishing boat shall carry (a) two satellite EPIRB (b) Navtex receiver radio facility of Maritime safety information by the INMARSAT, (c) enhanced group calling (EGC) system of HF Direct printing telegraphy of the ship is engaged on voyages in which international Navtex is not provided. The goods that were imported by Moloobhoy and Dolphin (whom we refer to as the importer) consisted of components of (a) and (c). They were imported in pursuance of orders by vessel owner in order to install the equipment of board the ships. The goods were imported either in Bombay dock or Sahar airport and cleared under a bond before the assessing Commissioner of Customs and thereafter transported to the ship. The notice issued to the importer proceeded on the basis that the goods were not covered by any of the category of item specified in the entry to the exemption. It further alleged that the goods were not used for repair because the ships were fully functional and would not be part of repair. Notice also invoked the extended period of limitation contained in the proviso under Sub-section (1) of Section 28 of the Act on the ground that the importer had wilfully misdeclared that the goods were for repair.
Another ground for extended period of limitation in the case of Moloobhoy was that the statement contained in the registration certificate by Director General of Shipping indicated it to be utilising the expert services of Marine Communication and Electronics (India) Ltd. whereas the repair were actually carried out without the services of this company.
3. In his order, the Commissioner has not accepted the contention in the notice that the goods were not covered by any of these categories specified in the entry to the notification, He has agreed that the goods are capital goods. He however concludes that they were not utilised for repair of ocean going vessel. After reproducing various definitions of the word "repair", he has concluded that repair essentially means to restore goods to a good and sound condition after decay or damage. Thus it is an act of restoration of an article to its original self that amounts to repair. His reasoning is summarised in the paragraph 37 in each of the order. "What can be contended at best is that the ship itself is being restored to its original self installation by GMDSS equipment after removing the existing radio communication equipment. Unfortunately/ the radio communication equipment is not being replaced. I would stress on the word "RE" both in the case of "repair" "replacement". Replacement can only be figment of new equipment in my opinion would not qualify for repair or replacement. He has cited the example of a person who buys a car replacing the engine by a diesel engine to say that such activity would not amount to repair.
4. We have to consider the significance of the 1995 Rules. These rules as we have noted provided that after 1.2.99 effect of these rules no ship of kind specified therein to put out to sea if it did not fitted (sic) with the equipment that were specified. The consequence or failure to comply with the rules would have been the certificate of seaworthiness issued to the ships under the Merchant Shipping Act, 1958 would not have been renewed and the vessel could not have been allowed to sail.
5. The Commissioner accepts that in the extract that we have quoted, that restoration of something to its original self is repair. In effect he accepts when radio equipment became defective or unusable it is put right or otherwise that would amount to repair. His objection that completely new equipment being fitted does not amount to repair. There are in fact two answers. The first is that it is not necessary that an article has to become completely worn-out before it is to be repaired.
The concept of preventive maintenance is significant. A simple example of changing the blades of a windshield wiper of the car before the onset of the monsoons would suffice. Even in a situation in which the wipers may still be capable of some degree of functioning, such activity would ensure proper trouble free running of the car. This would clearly amount to repair. It is not necessary for repair to take place that the item being replaced must be in the last stage of its life or must have run out its usefulness. The second answer is perhaps more appropriate to the facts of the case. It is that by the operation of the rules of 1995, the craft which was not fitted with this equipment became unseaworthy. It was illegal to ply such craft. If for them to be restored to a seaworthy state fitment of some article was required, such fitment amount to repair. In other words, carrying out an activity in order to ensure compliance with the rules of 1995 without which the vessels would not have been allowed to sail the fitment is clearly repair of the ships.
6. The goods were imported by Moloobhoy during the period December 1998 to June 1999 and by Dolphin in April 1999. The notice that was issued in November 1999 and in the case of May 2000 respectively invoked the extended period of limitation. The allegation commonly against Moloobhoy is that they wilfully wrongly claimed the benefit of the notification. It is alleged further that Moloobhoy so had the invoices prepared by the foreign supplier that there was no correlation between individual consignments and the vessels of Oil and Natural Gas Corporation Ltd. where these were ultimately fitted, whose name had been mentioned in the documents. The goods were also declared a ships spares or components or as marine electrical equipment. These were done in order to confuse the department. The fact of closure of Marine & Communication Electronics (India) Ltd. who was shown on the certificate issued by the Director General of Shipping as a collaborator of Moloobhoy was also suppressed.
7. We fail to see how this amounts to wilful mis-statements of the facts. There is nothing in the fact that knowing that it was not entitled to the benefit of notification still claim. The observation of the Supreme Court in Chemphar Drugs & Liniments v. CCE, 1989 (40) ELT 276 that some positive act other than mere inaction conscious or deliberate withholding of information in manufacturing of new other vehicle as required before the extended period can be invoked the irrelevant. The proviso relating to the extended period under; Section 21 of the Customs Act is similarly worded as the proviso under Section 11A(1) of the Central Excise Act. In the absence of anything to show that the importers, knew or had reason to believe that the activity would not amount to ship repair it is not possible to conclude that they wilfully misdeclared the goods as for repair. We do not see any significance in the other act attributed by Moloobhoy himself. The significance of not mentioning particular material of ONGC escapes us.
We do not see how the description of the goods as ship spares or marine electric communication repair for GMDSS is wrong or misstatement. They are ship spares and clearly marine electric communication equipment.
The fact that MACE India closed down in 1994 again is irrelevant. It is not contended that the certificate issued to it is invalid. The licence has been renewed by the concerned authority subsequently omitting reference to MACE India. It is significant that 17 bonds out of 48 bonds executed by Moloobhoy have been discharged by the customs authority after accepting evidence of fitment of equipment on ships.
The extended period of limitation therefore could not be invoked at all in respect of inputs by Dolphin Offshore Enterprises and could not have been invoked in respect of merits made by Moloobhoy & Sons prior to 5th May 1999.
8. The appeals are accordingly allowed and the impugned order set aside.