Sedco Forex International Vs. Commissioner of Customs - Court Judgment

Excerpt:
1. orders on the stay application in e/stay-52-v/98-bom in (e/12-v/98-bom), e/stay-108-rv/98-bom in (e/30-rv/98-bom), e/stay-94-v/98-bom in (e/23-v/ 98-bom), e/stay-92rv/98-bom in (e/21-rv/98-bom) and e/stay-109-v/98-bom in (e/31-v/98-bom). the applicants in the above cases are the rigs contractors owning rigs, working for ongc which are operating loading, unloading, storage and removal of imported/exported goods at nhava base without any declaration under section 7 of the customs act, as the base, under section 8 as the customs part (sic) [port] or the customs area under section 8 of the customs act. no customs formalities, as prescribed under such act were observed when dutiable goods were removed for home consumption from the base. 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 applicants were operating outside the territorial water of india from these rigs. on several occasions material was brought to the base for the purpose of repairs but was never sent back to the rigs thereafter. several consignment 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. they were issued the show cause notices on 12.5.94, 17.5.94, 26.12.94 in that regard. after the receipt of the reply from them, and hearing them, and considering the available material on record, the commissioner of customs, jawahar custom house, sheva district raigad has passed the impugned orders dated 29.9.97 against the applicants demanding the duty of rs. 1,93,27,285 imposing the penalty of rs. 10.00 lakhs (e/12-v/98), and duty of rs. 1,81,11,256 and the penalty of rs. 10.00 lakhs (in e/30-rv/98) and the duty of rs. 81,60,173 and penalty of rs. 4.00 lakhs (in e/21/rv-98) & rs. 1,96,61,489 duty and penalty of rs. 10.00 lakhs (in e/31-rv/98) and duty of rs. 1,25,000.2. all the applicants in their stay applications have challenged the said above order contending that the proceedings are barred by limitation, and there is no case to invoke the extended period of limitation under section 28 of the customs act, as the customs department was aware of the operations of the ongc and its drilling contractors of nhava, as evident from the correspondence and documents produced by them. there is an admission in the impugned order in that regard. the valuation for the purpose of demand on the basis of the statement of the office of the ongc on oral request is not proper and correct. so also reduction of 20% or 70% arbitrarily on the value of the new goods submitted by the above officer is wholly illegal. the value furnished by the applicants were rejected without any reasons.the applicants had no intention whatsoever to breach any provisions of loss. considering the special nature of the activities of ongc customs department had granted various concession waivers and exemption in respect of its operation including the payment of customs duty and the supervision in respect of movement of goods from are (sic) [area] to the oil rigs situated the outside territorial waters of india. the applicants being the contractors under the ongc had no option but to follow the directions as ongc was solely incharge of everything as the goods were to be transported only in ongc vehicle. except the shifting from 12 victoria docks to nhava there is no change in the operation from 1987. all the applicable procedures were followed. it was the responsibility of the ongc alone to obtain the customs exemption. the applicant bona fide believed (sic) [believed] that it was so obtained by it for the operations at nhava base also. inspite of that, heavy duty is demanded and penalties imposed on the applicants, without considering the case, and rejecting them. the applicants are no way responsible for the contravention if any, who had acted under the relevant permissions waivers and concession obtained by ongc from the customs department. imposition of interest under section 28 ab of the customs act is beyond the show cause notice. the applicants have got strong prima facie, and if the demand and penalties is not stayed great prejudice and irrepairable harm to the applicants. nothing was done at nhava base clandestinely with any intention to evade payment of duty.the operations were carried out in the open and were large scale one.3. the applicants have failed to appear on 8.4.1989 after reporting on 24.2.99 that they had filed declaration under kar vivad samadhan scheme 1998 on 31.12.98 and 31.1.99, nor have sent any communication about the finality of the said proceedings. there is no representation on their behalf. in the absence of it the ld. jdr shri g.b. yadav, was heard on the stay application. the appeal memorandum and the show cause notice and the reply, charts showing the details of removal for repairs and returned or re-exported material and liferafts and 5 inch drill pipes and storage and returned or re-export of materials were perused. so also the stay application and the impugned order. they are considered below to decide the stay applications.4. 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 applicants 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 9 in which the clear and specific case is made out against the applicant to invoke the longer period this is based on 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 23.5.88 addressed to the collector of customs for permission by the ongc is not supported by any acknowledgment 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 transhipment to foreign owing vessel involved in drilling operation located outside the territorial waters of india. transhipment permission supports this allegation. there is an admission by shri s.r. agarwal, chief executive of the said company namely the statement dated 25.1.94; that no permission was taken for removal of goods as the permission on ongc was goods (sic) [good] enought (sic) [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.agarwal in the statement dated 25.1.94 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 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 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 transhipment 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 was 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 on 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 rs. 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.5. 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 notices (sic) [noticees] were aware of the fact that duty is payable on the goods brought for home consumption".the discussion 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 thee (sic) [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 acknowledgment produced by the applicants about the receipt of exhibit e i.e. letter dated 23.5.88 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 31.5.88, 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 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.6. now coming to the other aspects, it is an admitted fact that the applicants claimed exemption of payment of customs duty on the imported goods, 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.1. for the reasons discussed above the applicants case for total waiver of the pre-deposit is rejected. the applicants in all these cases are directed to pre-deposit the twenty five percent (25%) of the duty amount demanded from them in the impugned order within 2 months from the date of the receipt to the order and report compliance by 30.6.99, subject to which the pre-deposit of the balance and duty amount and of the penalty imposed on them under the impugned order are dispensed with and the recovery stayed. so also the recovery of interest.

Judgment:
1. Orders on the stay application in E/Stay-52-V/98-Bom in (E/12-V/98-Bom), E/Stay-108-RV/98-Bom in (E/30-RV/98-Bom), E/Stay-94-V/98-Bom in (E/23-V/ 98-Bom), E/Stay-92RV/98-Bom in (E/21-RV/98-Bom) and E/Stay-109-V/98-Bom in (E/31-V/98-Bom). The applicants in the above cases are the rigs contractors owning rigs, working for ONGC which are operating loading, unloading, storage and removal of imported/exported goods at Nhava base without any declaration under Section 7 of the Customs Act, as the base, under Section 8 as the Customs part (sic) [port] or the Customs area under Section 8 of the Customs Act. No Customs formalities, as prescribed under such act were observed when dutiable goods were removed for home consumption from the base. 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 applicants were operating outside the territorial water of India from these rigs. On several occasions material was brought to the base for the purpose of repairs but was never sent back to the rigs thereafter. Several consignment 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. They were issued the show cause notices on 12.5.94, 17.5.94, 26.12.94 in that regard. After the receipt of the reply from them, and hearing them, and considering the available material on record, the Commissioner of Customs, Jawahar Custom House, Sheva District Raigad has passed the impugned orders dated 29.9.97 against the applicants demanding the duty of Rs. 1,93,27,285 imposing the penalty of Rs. 10.00 lakhs (E/12-V/98), and duty of Rs. 1,81,11,256 and the penalty of Rs. 10.00 lakhs (in E/30-RV/98) and the duty of Rs. 81,60,173 and penalty of Rs. 4.00 lakhs (in E/21/RV-98) & Rs. 1,96,61,489 duty and penalty of Rs. 10.00 lakhs (in E/31-RV/98) and duty of Rs. 1,25,000.

2. All the applicants in their stay applications have challenged the said above order contending that the proceedings are barred by limitation, and there is no case to invoke the extended period of limitation under Section 28 of the Customs Act, as the Customs department was aware of the operations of the ONGC and its drilling contractors of Nhava, as evident from the correspondence and documents produced by them. There is an admission in the impugned order in that regard. The valuation for the purpose of demand on the basis of the statement of the office of the ONGC on oral request is not proper and correct. So also reduction of 20% or 70% arbitrarily on the value of the new goods submitted by the above officer is wholly illegal. The value furnished by the applicants were rejected without any reasons.

The applicants had no intention whatsoever to breach any provisions of loss. Considering the special nature of the activities of ONGC Customs department had granted various concession waivers and exemption in respect of its operation including the payment of Customs duty and the supervision in respect of movement of goods from are (sic) [area] to the oil rigs situated the outside territorial waters of India. The applicants being the contractors under the ONGC had no option but to follow the directions as ONGC was solely incharge of everything as the goods were to be transported only in ONGC vehicle. Except the shifting from 12 Victoria Docks to Nhava there is no change in the operation from 1987. All the applicable procedures were followed. It was the responsibility of the ONGC alone to obtain the Customs exemption. The applicant bona fide believed (sic) [believed] that it was so obtained by it for the operations at Nhava base also. Inspite of that, heavy duty is demanded and penalties imposed on the applicants, without considering the case, and rejecting them. The applicants are no way responsible for the contravention if any, who had acted under the relevant permissions waivers and concession obtained by ONGC from the Customs department. Imposition of interest under Section 28 AB of the Customs Act is beyond the show cause notice. The applicants have got strong prima facie, and if the demand and penalties is not stayed great prejudice and irrepairable harm to the applicants. Nothing was done at Nhava base clandestinely with any intention to evade payment of duty.

The operations were carried out in the open and were large scale one.

3. The applicants have failed to appear on 8.4.1989 after reporting on 24.2.99 that they had filed declaration under Kar Vivad Samadhan Scheme 1998 on 31.12.98 and 31.1.99, nor have sent any communication about the finality of the said proceedings. There is no representation on their behalf. In the absence of it the Ld. JDR Shri G.B. Yadav, was heard on the stay application. The appeal memorandum and the show cause notice and the reply, charts showing the details of removal for repairs and returned or re-exported material and liferafts and 5 inch drill pipes and storage and returned or re-export of materials were perused. So also the stay application and the impugned order. They are considered below to decide the stay applications.

4. 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 applicants 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 9 in which the clear and specific case is made out against the applicant to invoke the longer period this is based on 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 23.5.88 addressed to the Collector of Customs for permission by the ONGC is not supported by any acknowledgment 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 transhipment to foreign owing vessel involved in drilling operation located outside the territorial waters of India. Transhipment permission supports this allegation. There is an admission by Shri S.R. Agarwal, Chief Executive of the said Company namely the statement dated 25.1.94; that no permission was taken for removal of goods as the permission on ONGC was goods (sic) [good] enought (sic) [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.Agarwal in the statement dated 25.1.94 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 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 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 transhipment 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 was 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 on 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 Rs. 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.

5. 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 notices (sic) [noticees] were aware of the fact that duty is payable on the goods brought for home consumption".

The discussion 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 thee (sic) [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 acknowledgment produced by the applicants about the receipt of Exhibit E i.e. letter dated 23.5.88 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 31.5.88, 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 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.

6. Now coming to the other aspects, it is an admitted fact that the applicants claimed exemption of payment of Customs duty on the imported goods, 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.

1. For the reasons discussed above the applicants case for total waiver of the pre-deposit is rejected. The applicants in all these cases are directed to pre-deposit the twenty five percent (25%) of the duty amount demanded from them in the impugned order within 2 months from the date of the receipt to the order and report compliance by 30.6.99, subject to which the pre-deposit of the balance and duty amount and of the penalty imposed on them under the impugned order are dispensed with and the recovery stayed. So also the recovery of interest.