Indian Oil Corporation Ltd. Vs. Commr. of Cus. - Court Judgment

Excerpt:
1. the issue involved in this appeal, filed by. indian oil corporation ltd. against the order-in-original no. 23/2001 dated 24-3-2001, passed by the commissioner of customs is whether freight paid for deployment of daughter vessel which carried the imported goods from chennai/vishakhapatnam port and to haldia/budge budge port is to be included in the assessable value for the purpose of levy of customs duty.2. shri devi pal, learned sr. advocate, submitted that the appellants imported petroleum products into the ports of haldia, budge budge in the eastern region and distribute the same to their various installations and/or other oil companies in the region; that the imported goods are brought from the load port in mother vessel for discharge at haldia/budge budge usually on two port discharge basis; that in case of serious draft restrictions at the discharge ports, the mother vessel is unable to travel to the discharge ports; that to overcome this situation, chartered daughter vessels are engaged and the imported goods are transhipped from the mother vessel to the daughter vessel in high seas or at transhipment ports of vishakhapatnam or chennai; that the daughter vessel then brings the goods to the ports of haldia/budge budge; that a show-cause notice dated 16-3-2002 was issued for demanding differential duty during the period 1995-96 to september, 1999 on the ground that the freight of the daughter vessel from transhipment port to haldia/budge budge ports should have been included in the assessable value for the purpose of customs duty; that the commissioner, under the impugned order, has confirmed the demand of customs duty, imposed penalty under section 114a and demanded interest under section 28ab of the customs act besides imposing a further penalty of rs. 10 lakhs under section 112 of the customs act holding that freight of daughter vessel has to be included in the assessable value.3. the learned sr. advocate for the appellants, further, submitted that the run by the daughter vessel was merely a continuation run of the mother vessel and the freight is already included in the assessable value; that since in case of c&f price the cost of transport is already in the contract price for sale of goods up to the place of importation, i.e. haldia, the statutory requirements of rule 9(2) of the valuation rules is satisfied and there is no scope for inclusion or addition of any other element of freight incurred for deployment of daughter vessel on account of transportation; that in the case of f.o.b. contract also, it is the normal freight between the load port and haldia which should be taken into consideration and no other extra freight for daughter vessel would have to be included. he relied upon the decision in the case of south india corporation (agencies) ltd. v. collector of customs, 1987 (30) e.l.t. 100 (cal.) wherein it has been held by the high court of calcutta that the journey of the daughter vessel from the mother vessel up to the port of calcutta was nothing but the continuation of the journey of the mother vessel up to calcutta port.reliance has also been placed on the decision in the case of trustees of the port of madras v. k.p.v. sheikh mohd. rowther & co. pvt. ltd., 1996 (82) e.l.t. 174 (s.c.) wherein the supreme court held that where the imported stores on board of a foreign-going vessel which is unable to enter the port for unloading of goods due to its deep draught requirement, and daughter vessel was used for onward carriage of goods, the imported stores supplied to daughter vessel were not liable to customs duty as such stores would have to be treated as supplies made to foreign vessel. the supreme court also held that daughter vessel could not be treated in any way different from the foreign vessel from which cargo had to be discharged. the learned sr. counsel and referred to the decision of the calcutta high court in the case of turner morrison & co. ltd. v. assistant collector of customs, 1999 (110) e.l.t. 484 (cal). he, therefore, contended that run of daughter vessel to haldia/budge budge has to be treated as a foreign run only and as a continuation run of the mother vessel for which freight has been duly considered in the assessable value. he also referred to the decision of the larger bench of the tribunal at the case of i.o.c. ltd. v. c.c.calcutta, 2000 (122) e.l.t. 615 wherein it has been held that the price at which the imported goods are ordinarily sold should be the basis for valuation and as the demurrage is not ordinarily payable it cannot become part of the value of the goods.4. the learned sr. counsel also contended that the entire demand is time barred as the period for which notice has been issued falls beyond the period of six months; that all primary facts had been placed before the appropriate authority; that they had also specifically pointed out the customs duty on c&f imports to the place of importation; that there was neither any mis-representation nor any wilful suppression of facts; that the appellants are a government undertaking engaged in distribution of critical petroleum products and their bonafides could not be questioned since no personal interest could be involved in their case. reliance has been placed on the decision in the case of cement marketing co. of india ltd. v. assistant commissioner of sales tax, 1980 (6) e.l.t. 295 (s.c.) wherein it has been held that if the assessee entertained a belief that he was not liable to include the amount of freight in the taxable turnover, it could not be said to be mala fide for the purpose of avoiding liability to pay tax. he also referred to the decision in tamil nadu housing board v. cce, 1994 (74) e.l.t. 9 (s.c.) wherein it has been held that when the law requires an intention to evade payment of duty then it is not mere failure to pay duty. it must be something more. that is, the assessee must be aware that the duty was leviable and it must deliberately avoid paying it.finally the learned senior advocate submitted that no penalty is imposable under section 112 of the customs act since circumstances as contemplated in the section did not exist, that similarly no interest under section 28ab of the act is chargeable.5. countering the arguments, shri n.c. roy chawdhary, learned senior advocate for the revenue, submitted that this system of imported petroleum products being transhipped by daughter vessel is usual phenomenon as the daughter vessels were regularly employed for carrying petroleum products since 1995-96; that it is not a new happening that the mother vessel can not reach haldia/budge budge ports; that the contract is to carry the petroleum products by the appellants with the mother vessel terminated at chennai/vizag and therefrom the imported goods were shipped in daughter vessel; that accordingly total freight paid is to be included in the assessable value. the learned senior counsel for the revenue, further, submitted that extended period of limitation is invokable for demanding duty as the appellants did not disclose the de-escalation in the freight paid in respect of mother vessel and higher freight paid on account of deployment of the daughter vessel; that the fact of deployment of daughter vessel was suppressed from the customs authorities. the learned senior counsel also referred to another adjudication order no. 62/99, dated 13-9-99 passed by the commissioner of customs, kolkata and mentioned that the appellants have paid the duty in case of goods imported under f.o.b. contract. the learned senior advocate for the appellants submitted that the tribunal has remanded the matter adjudicated upon vide said order no. 62/99.6.1. we have considered the submissions of both the sides. as per rule 9(2) of the customs valuation (determination of price of imported goods) rule, 1988, the value of the imported goods shall be the value of such goods, for delivery at the time and place of importation and shall include, inter alia, the cost of transport of the imported goods to the place of importation. it is not disputed by the appellants that the place of importation is haldia/budge budge port and the delivery of the imported goods is also given at these discharge ports. further, it has been decided by the apex court in the case of garden silk mills ltd. v. u.o.i., 1999 (113) e.l.t. 358 (s.c.) that "the import of goods into india would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country; the taxable event being reached at the time when the goods reach the customs barriers and the bill of entry for home consumption is filed". the other facts which are not in dispute are that the petroleum products are brought from foreign port in mother vessel and transhipped to daughter vessel on account of draft restrictions. the appellants have contended that the transhipment through the daughter vessel is nothing but continuation of the journey undertaken by the daughter vessel and the freight upto haldia has been included in the assessable value as in the case of c&f contracts, though the appellants receive de-escalation for the freight involved for a trip from chennai or vizag to haldia, they do not reduce the c & f price while filing the b/e. they have also submitted that in case of fob contract, the freight certificate for freight from load port to haldia is received by them and is included in the bill of entry for the purpose of customs duty. according to them this is the price at which such goods are ordinarily sold or is offered for sale and in terms of section 14 of the customs act this it the assessable value and reliance was placed on the decision in the case of c.c., bombay v. swadeshi polytex ltd., 1997 (93) e.l.t. 194. on the other hand the commissioner in the impugned order has given his findings as under : "there is no denial of the fact that in case of fob contract, the goods are imported from the foreign port to chennai/vizag etc. through vessels (mv) deployed by ioc and thereafter the goods are shifted to haldia or budge budge through d.v. which are also deployed by them. therefore, in these cases it is very clear that the total freight incurred for two vessels is the actual freight or the cost of the transport of the imported goods from the foreign port to the place of importation where the goods are finally cleared for home consumption." 6.2 we are in agreement with these findings of the adjudicating authority which are in conformity with the provisions of rule 9(2) of the valuation rules. the question of adding freight on the basis of any certificate does not arise in view of the actual cost of transport being known to the appellants. the adjudicating authority has distinguished the decision in the case of swadeshi polytex ltd., supra.in the said case, the vessel was grounded near greece and the consignment was transferred to another vessel. in view of these facts, the tribunal observed that "what was sought to be added was the extra freight and insurance charges which the respondent had to incur on account of grounding of the original vessel and transfer to another vessel. ordinarily, such extra charges are hot taken into consideration by the customs house, since the customs house goes by the actual freight or a particular percentage of price". in the present matter, as observed by the adjudicating authority as well as emphasized by the learned sr. counsel for the revenue, the daughter vessels are being regularly from 1995-96 and draft restriction at haldia/budge budge is well known factor. thus the extraordinary circumstances of grounding the vessel available in swadeshi polytex is missing here. the deployment of daughter vessel is to be considered as normal situation.the decision in turner morsison & co., supra, in fact supports the case of revenue as it has been held therein that the smaller ships into which cargo was off loaded from the super tankers berthed off shore are also "foreign-going vessels." 7. in respect of c&f contract, the adjudicating authority has given his findings to the effect that de-escalation clearly results in cancellation of original two ports price and converts the contract into a single port c&f and for the transport of the cargo to the second discharge port (haldia/budge budge) the appellants have to deploy the daughter vessels for which they pay the freight charges in addition to the c&f price paid to the foreign supplier up to the first port of discharge. we agree with the adjudicating authority that the freight incurred by the appellants is payment made to the foreign supplier according to the actual delivery plus the freight expenditure for deploying the daughter vessel up to port of discharge i.e. haldia/budge budge. the appellants have to include the cost of transportation of the imported goods from chennai/vizag to haldia/budge budge in the assessable value. no doubt the de-escalation in freight received by the appellants is to be deducted from the c&f price for the purpose of the assessment of duty. in the impugned order, it is mentioned that the appellants had quantified the amount of duty short-levied to be rs. 23,42,15,354/-. we, therefore, uphold the demand of customs duty.8. we also agree with the adjudicating authority that the extended period of limitation is invokable as the fact of not including the transport cost of daughter vessel was not disclosed to the department.the mere submission of transshipment documents would not disclose to the customs department that extra transport charges are being incurred by the appellants. recently the supreme court in the case of bpl india ltd. v. cce, cochin, 2002 (143) e.l.t. 3 (s.c.) upheld the decision of the tribunal for invoking larger period of limitation as the manufacturer manufactured the goods and removed the same without any intimation to the department which clearly goes to show that their action was with an intent to evade payment of duty. we, however, agree with the learned sr. advocate for the appellants that a penalty equal to the amount of duty under section 114a is not warranted in the present matter. we are of the view that a penalty of rs. 1 crore will meet the end of justice in the present matter. we order accordingly. we also set aside the penalty of rs. 10 lakhs imposed under section 112 of the customs act

Judgment:
1. The issue involved in this Appeal, filed by. Indian Oil Corporation Ltd. against the Order-in-Original No. 23/2001 dated 24-3-2001, passed by the Commissioner of Customs is whether freight paid for deployment of Daughter Vessel which carried the imported goods from Chennai/Vishakhapatnam Port and to Haldia/Budge Budge Port is to be included in the assessable value for the purpose of levy of Customs duty.

2. Shri Devi Pal, learned Sr. Advocate, submitted that the Appellants imported Petroleum Products into the ports of Haldia, Budge Budge in the Eastern Region and distribute the same to their various installations and/or other Oil companies in the Region; that the imported goods are brought from the Load Port in Mother vessel for discharge at Haldia/Budge Budge usually on two Port discharge basis; that in case of serious draft restrictions at the discharge Ports, the Mother vessel is unable to travel to the discharge ports; that to overcome this situation, chartered Daughter vessels are engaged and the imported goods are transhipped from the Mother vessel to the Daughter vessel in high seas or at transhipment ports of Vishakhapatnam or Chennai; that the Daughter vessel then brings the goods to the Ports of Haldia/Budge Budge; that a show-cause notice dated 16-3-2002 was issued for demanding differential duty during the period 1995-96 to September, 1999 on the ground that the freight of the Daughter vessel from transhipment port to Haldia/Budge Budge Ports should have been included in the assessable value for the purpose of Customs Duty; that the Commissioner, under the impugned Order, has confirmed the demand of Customs duty, imposed penalty under Section 114A and demanded interest under Section 28AB of the Customs Act besides imposing a further penalty of Rs. 10 lakhs under Section 112 of the Customs Act holding that freight of Daughter vessel has to be included in the Assessable value.

3. The learned Sr. Advocate for the Appellants, further, submitted that the run by the Daughter vessel was merely a continuation run of the Mother vessel and the freight is already included in the assessable value; that since in case of C&F Price the cost of transport is already in the contract price for sale of goods up to the place of importation, i.e. Haldia, the statutory requirements of Rule 9(2) of the Valuation Rules is satisfied and there is no scope for inclusion or addition of any other element of freight incurred for deployment of Daughter vessel on account of transportation; that in the case of F.O.B. contract also, it is the normal freight between the load port and Haldia which should be taken into consideration and no other extra freight for Daughter vessel would have to be included. He relied upon the decision in the case of South India Corporation (Agencies) Ltd. v. Collector of Customs, 1987 (30) E.L.T. 100 (Cal.) wherein it has been held by the High Court of Calcutta that the journey of the daughter vessel from the mother vessel up to the port of Calcutta was nothing but the continuation of the journey of the mother vessel up to Calcutta Port.

Reliance has also been placed on the decision in the case of Trustees of the Port of Madras v. K.P.V. Sheikh Mohd. Rowther & Co. Pvt. Ltd., 1996 (82) E.L.T. 174 (S.C.) wherein the Supreme Court held that where the imported stores on board of a foreign-going vessel which is unable to enter the port for unloading of goods due to its deep draught requirement, and daughter vessel was used for onward carriage of goods, the imported stores supplied to Daughter vessel were not liable to customs duty as such stores would have to be treated as supplies made to foreign vessel. The Supreme Court also held that daughter vessel could not be treated in any way different from the foreign vessel from which cargo had to be discharged. The learned Sr. Counsel and referred to the decision of the Calcutta High Court in the case of Turner Morrison & Co. Ltd. v. Assistant Collector of Customs, 1999 (110) E.L.T. 484 (Cal). He, therefore, contended that run of daughter vessel to Haldia/Budge Budge has to be treated as a foreign run only and as a continuation run of the Mother vessel for which freight has been duly considered in the Assessable Value. He also referred to the decision of the Larger Bench of the Tribunal at the case of I.O.C. Ltd. v. C.C.Calcutta, 2000 (122) E.L.T. 615 wherein it has been held that the price at which the imported goods are ordinarily sold should be the basis for valuation and as the demurrage is not ordinarily payable it cannot become part of the value of the goods.

4. The learned Sr. Counsel also contended that the entire demand is time barred as the period for which notice has been issued falls beyond the period of six months; that all primary facts had been placed before the appropriate authority; that they had also specifically pointed out the Customs duty on C&F imports to the place of importation; that there was neither any mis-representation nor any wilful suppression of facts; that the Appellants are a Government undertaking engaged in distribution of critical petroleum products and their bonafides could not be questioned since no personal interest could be involved in their case. Reliance has been placed on the decision in the case of Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax, 1980 (6) E.L.T. 295 (S.C.) wherein it has been held that if the assessee entertained a belief that he was not liable to include the amount of freight in the taxable turnover, it could not be said to be mala fide for the purpose of avoiding liability to pay tax. He also referred to the decision in Tamil Nadu Housing Board v. CCE, 1994 (74) E.L.T. 9 (S.C.) wherein it has been held that when the law requires an intention to evade payment of duty then it is not mere failure to pay duty. It must be something more. That is, the assessee must be aware that the duty was leviable and it must deliberately avoid paying it.

Finally the learned Senior Advocate submitted that no penalty is imposable under Section 112 of the Customs Act since circumstances as contemplated in the Section did not exist, that similarly no interest under Section 28AB of the Act is chargeable.

5. Countering the arguments, Shri N.C. Roy Chawdhary, learned Senior Advocate for the Revenue, submitted that this system of imported petroleum products being transhipped by Daughter vessel is usual phenomenon as the Daughter vessels were regularly employed for carrying petroleum products since 1995-96; that it is not a new happening that the Mother vessel can not reach Haldia/Budge Budge Ports; that the contract is to carry the petroleum products by the Appellants with the Mother vessel terminated at Chennai/Vizag and therefrom the imported goods were shipped in Daughter vessel; that accordingly total freight paid is to be included in the assessable value. The learned Senior Counsel for the Revenue, further, submitted that extended period of limitation is invokable for demanding duty as the Appellants did not disclose the de-escalation in the freight paid in respect of Mother vessel and higher freight paid on account of deployment of the Daughter vessel; that the fact of deployment of Daughter vessel was suppressed from the Customs Authorities. The learned Senior Counsel also referred to another Adjudication Order No. 62/99, dated 13-9-99 passed by the Commissioner of Customs, Kolkata and mentioned that the Appellants have paid the duty in case of goods imported under F.O.B. contract. The learned Senior Advocate for the Appellants submitted that the Tribunal has remanded the matter adjudicated upon vide said Order No. 62/99.

6.1. We have considered the submissions of both the sides. As per Rule 9(2) of the Customs Valuation (Determination of Price of Imported Goods) Rule, 1988, the value of the imported goods shall be the value of such goods, for delivery at the time and place of importation and shall include, inter alia, the cost of transport of the imported goods to the place of importation. It is not disputed by the Appellants that the place of importation is Haldia/Budge Budge Port and the delivery of the imported goods is also given at these discharge ports. Further, it has been decided by the Apex Court in the case of Garden Silk Mills Ltd. v. U.O.I., 1999 (113) E.L.T. 358 (S.C.) that "the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country; the taxable event being reached at the time when the goods reach the customs barriers and the bill of entry for home consumption is filed". The other facts which are not in dispute are that the petroleum products are brought from foreign port in Mother vessel and transhipped to Daughter vessel on account of draft restrictions. The Appellants have contended that the transhipment through the Daughter vessel is nothing but continuation of the journey undertaken by the Daughter vessel and the freight upto Haldia has been included in the assessable value as in the case of C&F contracts, though the Appellants receive de-escalation for the freight involved for a trip from Chennai or Vizag to Haldia, they do not reduce the C & F price while filing the B/E. They have also submitted that in case of FOB contract, the freight certificate for freight from load port to Haldia is received by them and is included in the Bill of Entry for the purpose of Customs Duty. According to them this is the price at which such goods are ordinarily sold or is offered for sale and in terms of Section 14 of the Customs Act this it the assessable value and reliance was placed on the decision in the case of C.C., Bombay v. Swadeshi Polytex Ltd., 1997 (93) E.L.T. 194. On the other hand the Commissioner in the impugned Order has given his findings as under : "There is no denial of the fact that in case of FOB contract, the goods are imported from the foreign port to Chennai/Vizag etc.

through vessels (MV) deployed by IOC and thereafter the goods are shifted to Haldia or Budge Budge through D.V. which are also deployed by them. Therefore, in these cases it is very clear that the total freight incurred for two vessels is the actual freight or the cost of the transport of the imported goods from the foreign Port to the place of importation where the goods are finally cleared for home consumption." 6.2 We are in agreement with these findings of the Adjudicating Authority which are in conformity with the Provisions of Rule 9(2) of the Valuation Rules. The question of adding freight on the basis of any certificate does not arise in view of the actual cost of transport being known to the Appellants. The Adjudicating Authority has distinguished the decision in the case of Swadeshi Polytex Ltd., Supra.

In the said case, the vessel was grounded near Greece and the consignment was transferred to another vessel. In view of these facts, the Tribunal observed that "What was sought to be added was the extra freight and insurance charges which the respondent had to incur on account of grounding of the original vessel and transfer to another vessel. Ordinarily, such extra charges are hot taken into consideration by the Customs House, since the Customs House goes by the actual freight or a particular percentage of price". In the present matter, as observed by the Adjudicating Authority as well as emphasized by the learned Sr. Counsel for the Revenue, the daughter vessels are being regularly from 1995-96 and draft restriction at Haldia/Budge Budge is well known factor. Thus the extraordinary circumstances of grounding the vessel available in Swadeshi Polytex is missing here. The deployment of Daughter vessel is to be considered as normal situation.

The decision in Turner Morsison & Co., supra, in fact supports the case of Revenue as it has been held therein that the Smaller Ships into which cargo was off loaded from the Super Tankers berthed off shore are also "foreign-going vessels." 7. In respect of C&F contract, the Adjudicating Authority has given his findings to the effect that de-escalation clearly results in cancellation of original two ports price and converts the contract into a single Port C&F and for the transport of the cargo to the second discharge port (Haldia/Budge Budge) the Appellants have to deploy the Daughter vessels for which they pay the freight charges in addition to the C&F price paid to the foreign supplier up to the First Port of discharge. We agree with the Adjudicating Authority that the freight incurred by the Appellants is payment made to the foreign supplier according to the actual delivery plus the freight expenditure for deploying the Daughter vessel up to port of discharge i.e. Haldia/Budge Budge. The Appellants have to include the cost of transportation of the imported goods from Chennai/Vizag to Haldia/Budge Budge in the Assessable Value. No doubt the de-escalation in freight received by the Appellants is to be deducted from the C&F Price for the purpose of the assessment of duty. In the impugned Order, it is mentioned that the Appellants had quantified the amount of duty short-levied to be Rs. 23,42,15,354/-. We, therefore, uphold the demand of customs duty.

8. We also agree with the Adjudicating Authority that the extended period of limitation is invokable as the fact of not including the transport cost of daughter vessel was not disclosed to the Department.

The mere submission of transshipment documents would not disclose to the Customs Department that extra transport charges are being incurred by the Appellants. Recently the Supreme Court in the case of BPL India Ltd. v. CCE, Cochin, 2002 (143) E.L.T. 3 (S.C.) upheld the decision of the Tribunal for invoking larger period of limitation as the Manufacturer manufactured the goods and removed the same without any intimation to the Department which clearly goes to show that their Action was with an intent to evade payment of duty. We, however, agree with the learned Sr. Advocate for the Appellants that a penalty equal to the amount of duty under Section 114A is not warranted in the present matter. We are of the view that a penalty of Rs. 1 crore will meet the end of justice in the present matter. We order accordingly. We also set aside the penalty of Rs. 10 lakhs imposed under Section 112 of the Customs Act