1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 1784-1787 OF 2004

COMMISSIONER OF CUSTOMS, ...APPELLANT(S)

MUMBAI

VERSUS

M/S ABAN LOYD CHILES …RESPONDENT(S)

OFFSHORE LTD. & ORS.

WITH

CIVIL APPEAL NOS. 4342-4345 OF 2004

J U D G M E N T

Dipak Misra, J.

The present appeals have been preferred against the

judgment and order dated 30

th

June, 2003 passed by the

Customs, Excise and Service Tax Appellate Tribunal (for short,

“the tribunal”) in Application Nos. C/MA (Ors.) 945/01-Mum

in C/716, 781, 782, 814/01-Mum by the revenue as well as

the assessee as both are aggrieved in respect of certain

conclusions arrived at by the tribunal. As the principal

2

controversy pertains to the appeals preferred by the

department, we will take the facts from the appeals preferred

by it and, accordingly, we shall describe the parties.

2.The first respondent, M/s Aban Loyd Chiles Offshore

Ltd., engaged in business of offshore oil and gas exploratory

drilling and related activities on contract basis, inter alia, for

the Oil and Natural Gas Corporation Limited (ONGC) had

obtained the approval of the Government of India on

25.03.1987 for the import of a Rig for such oil field services. It

was granted a Special Import Licence bearing number

P/CG/2103211 dated 24.04.1987 for the import of the said

Rig along with certain drilling equipments. A confirmed

irrevocable Letter of Credit amounting to US $ 1,521,000/- for

the shipment of Capital goods covered under L/C No.

ICICI/RF/87/2 dated 08.05.1987 was given by ICICI Bombay

against the said Import Licence. As per the special

instructions annexed to the said Letter of Credit, the transport

documents were required to fulfil six conditions including the

one, that is, the shipping document should indicate the place

3

of final destination and should not be different from the port of

discharge. As the factual matrix has been uncurtained, the

assessee purchased in July 1987 a rig, Griffin Alexander III,

from Griffin Alexander Drilling Co. for a price of US $ 5.39

million. The rig was towed directly to the drilling site at

Bombay High in October 1987. In February 1996, the

importer wrote to the Commissioner of Customs, Mumbai,

seeking permission to import the rig into Mumbai for carrying

out repairs and re-export in terms of the provisions of

Notification No. 153/94-Cus.

3.It is not in dispute that the rig was towed into the waters

comprising Mumbai Port on 12.11.1996 and after it was

repaired, taken out of the territorial waters of India. It was

once again imported to India on 9

th

December, 1998, being

towed into Indian territorial waters by two tugs of the ONGC,

Malaviya IV and SCI-05. After repairs, the rig was again towed

out of the Indian territorial waters. Investigations by the

Customs authorities into these two cases of importation led

them to conclude that there had been contravention of certain

4

provisions by the assessee and others with regard to these two

acts of bringing the rig into India. The rig was formally placed

under seizure on 27

th

March, 1999 but subsequently was

released following the order passed in writ petitions filed by

the assessee before the Bombay High Court, permitting the rig

to be used on payment of an amount of Rs. 1.0 crore and

execution of a bond for its value. Thereafter, a notice was

issued on 23

rd

September, 1999 to the assessee alleging that

the import that took place in 1996 and 1998 were contrary to

the provisions of law, and proposing confiscation of the rig

under clauses (a), (b), (g), (h), (j) and (o) of Section 111 of the

Customs Act, 1962 (for brevity, “the Act”) and clause (a) of

Section 113 of the Act, demanding duty amounting to Rs.

27.91 crores, proposing interest under Section 28A on the

duty amount and penalty on the importer under Section 112

of the Act. Penalty was also sought to be levied upon ONGC

under Section 112 and confiscation under Section 115 of the

three vessels, and Malaviya IV owned by Great Eastern

Shipping Co. Ltd. which was utilized for towing the rig in 1996

5

and 1998. After considering the explanation offered by the

assessee, the Commissioner passed an order wherein he

recorded a finding that the rig was carried and brought to

Mumbai on three occasions; in February, 1996, on 9

th

November, 1996 and on 9

th

December, 1998. It was not

declared in the Import General Manifest of the towing rigs, as

was required under Section 46 of the Act. Such formalities as

filing the bill of entry were not undertaken and, therefore, the

rig was ordered for confiscation under clauses (f), (g), (j), (h)

and (j) of Section 111. The Commissioner also held that the

rig was imported for home consumption and hence, the

assesses were liable to pay duty on the value of Rs.

44,40,28,320/-, determined after depreciating the value by

70% from the built cost of the rig. Being of this view, the said

authority confirmed the demand for duty amounting to Rs.

27.91 crores, confiscation of the rig and had given the option

of redeeming it by payment of fine of Rs. 2.0 crores. The

authority exonerated P.A. Abraham, Managing Director of the

Company, imposed penalties of Rs. 50,000/- each on

6

P. Venkateswaran, Vice President and A.P.S. Sandhu, General

Manager, ordered confiscation of three towing vessels but

permitted them to be redeemed on payment of fine of Rs. 1.0

lakh each and imposed penalties on ONGC, and Benny Ltd.,

the importer’s agent.

4.Aggrieved by the said order, assessee preferred appeal

before the tribunal. On the foundation of the judgments,

namely, mership Management Pvt. Ltd. v. UOI

1

rendered by

the High Court of Bombay, Scindia Steamship Co. Ltd. v.

CC

2

delivered by the High Court of Calcutta and an earlier

judgment of the tribunal in Sedco Forex International

Drilling Inc. v. CC

3

, it was contended by the assessee before

the tribunal that neither any duty was payable nor any

penalty was imposable. It was also urged that foreign going

vessels do not cease to be so when they enter into Indian

territorial waters only for repairs. Alternatively, it was

contended that method adopted by the Commissioner by

1

1996 (86) ELT 15

2

1988 (36) ELT 581

3

2001 (135) ELT 625 (Tri-Mumbai)

7

starting with the originally built cost in 1982 and determining

depreciation was totally incorrect. According to the assessee,

there was no contravention of any aspect contained in Section

111 and hence, no penalty could be imposed.

5.On behalf of the department, it was propounded that the

decision of the Bombay High Court was not relevant inasmuch

the Court had not considered whether a rig was a foreign going

vessel when it operated in the territorial waters of India.

Reference was made to the subsequent decision of Bombay

High Court in Pride Foramer v. UOI and Ors.

4

wherein it has

been held that the rigs operating in designated areas are not

foreign going vessels as such areas are deemed to be Indian

territory; and once it is brought into Indian territory, it ceases

to be a foreign going vessel. The argument with regard to

valuation was seriously opposed.

6.The tribunal took note of the undisputed fact that when

the rig was engaged in drilling and such activities outside

Indian territorial waters and while not being in areas under

4

AIR 2001 Bom 332

8

the Territorial Waters, Continental Shelf, Exclusive Economic

Zone and other maritime Zones Act, 1976 (for short, “the 1976

Act”), it was a foreign going vessel. The question that was

posed by the tribunal was whether the vessel ceases to be a

foreign going vessel when it enters into Indian territorial

waters for purposes of repairs. It referred to the Bombay High

Court decision in Amership Management Pvt. Ltd. (supra)

and opined that the said decision is the authority for the

proposition that a drilling rig, when engaged in drilling

operations outside the territorial waters of India, is a foreign

going vessel. It also referred to Calcutta High Court judgment

in Scindia Steamship Co. Ltd. (supra) which had accepted

the contention that even while the vessel was undergoing

repairs and preparations were made to carry the cargo to

foreign ports, it did not cease to be a foreign going vessel. The

tribunal referred to the authority in Pride Foramer (supra)

wherein the Bombay High Court taking note of the judgment

in Amership Management Pvt. Ltd. (supra) had opined that

the imported stores supplied to a rig located in an area

9

designated under the Act 80 of 1976 would not fall within

Section 86 of the Act. The tribunal appreciated the fact that in

the said decision reliance was placed on the judgment of the

Division Bench of that Court in Salgaonkar Engineering v.

OJF Games

5

to hold that it is only that vessel which is

actually carrying at a given point of time the goods or

passengers between a port in India and a port outside India is

a foreign going vessel. Analysing the provisions of the Act and

the authorities in the field, the tribunal held that a ship that is

engaged in carriage of cargo or passengers between Mumbai

and Abu Dhabi is a foreign going vessel covered by the first

part of the definition and would be as such a foreign going

vessel throughout the length of its voyage, if, during its voyage

between these two ports, it touches other Indian Ports. It

further opined that a rig had been held in Amership

Management Pvt Ltd. (supra) as a foreign going vessel

because it was engaged in the operations outside Indian

territorial waters in view of clause (2) of the extended

definition, but it would not be appropriate to apply the first

5

1984 (86) Bom LR 127

10

part of the definition while considering the second. The

tribunal on that basis held that each of the three clauses of

the extended definition applied to different fact situations, and

each of these situations requires to be considered on its own

merits. Being of this view, it ruled:-

“It would therefore not be possible to say that a

craft which is anchored without undertaking any

operation whatsoever for long periods outside the

territorial waters is a foreign going vessel. So also,

when a rig enters Indian territorial waters for

purposes of repairs, it is obviously not engaged in

any operation outside India and loss its character of

foreign going vessel. It may no doubt resume its

character as a foreign going vessel when it leaves

Indian territorial waters and resumes its operation.

This is in fact that the view taken in Salgaonkar

Engineering v. OJF Games. We, therefore, do not

find it possible to say that the rig, on the occasion

when it entered Indian territorial waters, was a

foreign going vessel.”

7.Dwelling upon the contention that the rig had not been

imported, it opined:-

“It was not meant for home consumption and

therefore a bill of entry was not required to be filed.

A related contention is also raised, that the act of

importation in regard to the rig had not been

completed. The judgment of the Supreme Court in

Apar Pvt. Ltd. 1999 (112) ELT 3 is relied upon to

say that while the act of importation commences,

11

when the goods entered the territorial waters of

India, it continues and theses completed only when

the goods merge with the mass of the goods in the

country.”

8.After stating so, the tribunal dealt with the contention of

the department that when the rig came into India, it lost its

character as rig and became goods and its importation is

complete. The revenue had placed reliance on UOI v. Mustafa

and Najibhai Trading Co.

6

The tribunal found that the said

decision had been distinguished by the tribunal since the

import as understood by this Court in the facts of the case had

not taken place. The tribunal referred to the decision in

Chowgule & Co. v. UOI

7

wherein the Court was considering

whether two transshippers, which entered India, were goods

intended for home consumption and a bill of entry was

required to be filed with regard to it. It was held that there

was no justification for holding the vessels were not goods for

the purposes of Section 46(1) of the Act and, therefore,

addressed the question as to whether the vessels which were

to be used in Indian territorial waters for topping of bulk

6

1998 (101) ELT 529 SC

7

(1987) 1 SCC 730

12

carriers could be said to be vessels for home consumption

merely on that account. It said that for the purposes of levy of

customs duty, it is necessary to determine whether imported

goods are “goods for home consumption”. The Court in that

case after analysing the statutory provisions held thus:-

“15. In our view, for the purpose of the levy of

customs duty, in order to determine whether any

imported goods are “goods for home consumption”,

we have to find out the primary intended use of the

goods when the goods are brought into Indian

Territorial Waters. If the goods are intended to be

primarily used in India, they are goods for home

consumption notwithstanding that they may also be

used for the same or other purposes outside India.

We guard ourselves against saying that the converse

may be true. The question whether goods not

intended to be primarily used in India but used

occasionally for short periods in India also fall

within the meaning of the expression “goods for

home consumption” has not been examined by us.

We have only considered the question whether

goods brought into India for use primarily in India

are goods for home consumption notwithstanding

that they are occasionally or incidentally used

outside India. We are of the view that they are.”

9.After referring to the dictum laid down in the said

authority, the tribunal further referred to the authority in UOI

v. V.M. Salgaonkar & Bros. Pvt. Ltd.

8

wherein it has been

8

(1998) 4 SCC 263

13

opined by this Court that expression “home consumption” as

used in Section 46, does not warrant the construction that the

commodity should have been completely used up and even

putting the commodity to any kind of utility would amount to

home consumption. Analysing the ratio of the judgments, the

tribunal eventually concluded that according to these

judgments, if the goods are imported with the intention of

putting them to any kind of use in India, they are goods for

home consumption and even if the vessel is used occasionally

for short periods in India it would be goods for home

consumption; that the rig under consideration was not

intended to be used in India as it was only brought into India

for the purposes of repair; and that it cannot be said that a rig

brought into India for repairs and taken out after the repairs

was intended to be used in India because it could not be

properly put to use as repairs became necessary.

10.The tribunal further observed that in Sedco Forex

(supra), it was only concerned with a drilling rig which had

been imported into India in pursuance of a contract signed

14

with the ONGC for oil exploration and exploitation wherein it

noted that rigs are capable of use for offshore oil exploration or

exploitation in the Indian waters and, therefore, concluded

that it could not be said that the rig was not intended for use

in India, and thus, it would not follow that it had not merged

with the mass of the goods in the country. It further opined

that that the rig under consideration in Sedco Forex (supra)

was brought into India in the course of fulfilment of a contract

with the ONGC and later on with Enron Power and Gas Co.

and in the present case, the rig under consideration had not

entered the territorial waters for purposes of oil exploration or

exploitation but only had entered the territorial waters for

purposes of repair. The tribunal also observed that the rig was

not in the process of transit through Indian waters for the

purpose of going from one point to another for drilling and this

being the case, it cannot be said that the rig was goods

imported for home consumption and covered under Section

46(1) of the Act. It further held that the principles laid down

by this Court that while the act of import commences when

15

the goods enter the territorial waters, it continues and is

completed only when it merged with the mass of the goods in

the country, will apply to the facts before it and hence, it is

deducible that import had not been completed. On the

aforesaid basis, it concluded that in the circumstances

payment of duty on the rig did not arise and even if the rig was

liable to duty.

11.After so holding the tribunal addressed to the

contravention of the provisions of clauses (f), (g) and (j) of

Section 111 of the Act. Analysing various aspects, it opined

that the provisions of Section 111 would be attracted and,

therefore, contravention of clause (f) had been established. It

was also held that clause (g) would also be attracted as the

goods were unloaded without the permission of the competent

authority as required under Section 32 of the Act. It was also

held that clauses (h) and (j) would be applicable. Being of this

view, the tribunal opined that the rig was liable for

confiscation. However, it opined that as there was no

deliberate intention on the part of the importer to contravene

16

the said regulations although there had been clear negligence

and rules had not been followed. Having regard to the facts, it

reduced the fine for redemption of the rig. That has compelled

the revenue to prefer Civil Appeal Nos. 1784-1787 of 2004 and

M/s Aban Loyd Chiles Offshore Ltd. to file Civil Appeal Nos.

4342-4345 of 2004.

12.We have heard Mr. A.K. Panda, learned senior counsel

along with Mr. B. Krishna Prasad, learned counsel for the

appellant-department and Mr. Ramesh Singh, learned counsel

appearing for respondent No. 1 assessee in all the appeals.

13.To appreciate the controversy, it is necessary to

understand certain concepts as envisaged under the Act.

‘Goods’ for the purpose of the Act includes vessels, aircrafts

and vehicles as defined in sub-section (22) to Section 2, yet

the distinction has to be recognized between a vessel or an

aircraft as a mere good and when the vessel or an aircraft

comes to India as a conveyance carrying imported goods.

When a vessel or an aircraft is imported into India as a good,

customs duty is payable thereon. However, when a vessel is

17

used as a conveyance of an imported good, the position would

be different. In this context, reference to Section 43 of the Act

would be profitable. It reads as under:-

“43. Exemption of certain classes of conveyances

from certain provisions of this Chapter.— (1) The

provisions of sections 30, 41 and 42 shall not apply

to a vehicle which carries no goods other than the

luggage of its occupants.

(2) The Central Government may, by notification in

the Official Gazette, exempt the following classes of

conveyances from all or any of the provisions of this

Chapter—

(a) conveyances belonging to the Government or any

foreign Government;

(b) vessels and aircrafts which temporarily enter

India by reason of any emergency.”

14.As per the said provision, Sections 30, 41 and 42 shall

not apply to a vehicle, which carries no goods other than the

luggage of the occupants. The term ‘vehicle’ as defined in

sub-section (42) to Section 2 means conveyance of any type

used on land. As a logical corollary, it would not include a

ship or vessel. Sub-section (2) to Section 43 states that the

Central Government may by notification in the Official Gazette

exempt the different classes of conveyances from all or any

18

other provisions of the Act. However, we do find some

difficulty as taxation or taxability of the ‘foreign going vessels’

when they enter Indian territorial waters is not directly

addressed in the fasciculus of the Sections from 29 to 43 of

the Act. These provisions do make a distinction between

goods imported to be unloaded at the port for India and those

which are not to be unloaded and in transit. The said aspect

shall be elucidated at a subsequent stage.

15.At this stage, we would like to first adumbrate on the

definition of the term “foreign going vessel or aircraft” as

defined in sub-section (21) of Section 2 which reads as under:-

“(21) "foreign-going vessel or aircraft" means any

vessel or aircraft for the time being engaged in the

carriage of goods or passengers between any port or

airport in India and any port or airport outside

India, whether touching any intermediate port or

airport in India or not, and includes -

(i) any naval vessel of a foreign Government taking

part in any naval exercises;

(ii) any vessel engaged in fishing or any other

operations outside the territorial waters of India;

19

(iii) any vessel or aircraft proceeding to a place

outside India for any purpose whatsoever;”

16.The aforesaid expansive definition by way of deeming

fiction includes any vessel engaged in fishing or any other

operations outside the territorial waters of India. By legal

fiction, a vessel engaged in fishing outside the territorial

waters of India or any other operations outside the territorial

waters of India is to be treated for the purpose of the said Act

as a foreign going vessel. When the said conditions are

satisfied, whether the said vessel for the time being is engaged

in carriage of goods or passengers between a port in India and

a port outside India, is not of any relevance. Consequently, a

rig which is engaged in operations outside the territorial

waters of India would be a foreign going vessel. However, a rig

carrying on operations within the territorial waters of India

would not be a foreign going vessel. Be it clarified, it is not

necessary to dilate and examine the issue whether rigs are

vessels, for it is an accepted and admitted position settled

beyond doubt.

20

17.Coming to the core issue, we have to refer to the word

‘import’ as defined in sub-section (23) to Section 2 and the

expression “dutiable goods” as defined in sub-section (14) to

Section 2, sub-section (27) to Section 2 which defines “India”

and then refer to Section 12 of the Act. The said provisions

read as under:-

“Section 2. Definitions. - In this Act, unless the

context otherwise requires.

(23) "import", with its grammatical variations and

cognate expressions, means bringing into India from

a place outside India;

x x x x

(14) "dutiable goods" means any goods which are

chargeable to duty and on which duty has not been

paid;

x x x x

(27) "India" includes the territorial waters of India;

x x x x

12. Dutiable goods. – (1) Except as otherwise

provided in this Act, or any other law for the time

being in force, duties of customs shall be levied at

such rates as may be specified under the Customs

Tariff Act, 1975 (51 of 1975), or any other law for

the time being in force, on goods imported into, or

exported from, India.

(2) The provisions of sub-section (1) shall apply in

respect of all goods belonging to Government as

21

they apply in respect of goods not belonging to

Government.”

18.The expression “import” is a wide expression, which

would include cognate expressions and means bringing into

India from a place outside India. The word “India” for the

purpose of the Act includes the land mass as well as territorial

waters. The term “dutiable goods” are goods which are

chargeable to duty and on which duty has not been paid.

Once duty has been paid, the goods cease to be dutiable

goods. Section 12 of the Act begins with the words “Except as

otherwise provided in this Act or any other law for the time

being in force”. Thus, it gives primacy to any other law being

in force, and records that the said provision would apply when

otherwise not provided in the said Act. Therefore, when any

other provision of the Act or other law for the time being

provides differently, that would not attract customs duty

under Section 12. Duty of custom, subject to the above, is

levied at the rates specified under the Customs Tariff Act,

1975 or any other law for the time being in force on the goods

imported into or exported from India.

22

19.In Chowgule and Co. Pvt. Ltd. (supra) on the question

of chargeability of customs duty on a vessel which was being

used to ship iron ore from Mormugao Harbour to ocean going

carriers, it was held as under:-

“6. We may now refer to the relevant provisions of

the Customs Act. Section 2(22) of the Customs Act

defines that unless the context otherwise requires,

“goods” includes — “(a) vessels, aircrafts and

vehicles; (b) stores; (c) baggage; (d) currency and

negotiable instruments; and (e) any other kind of

moveable property”. “Import” is defined as meaning

“bringing into India from a place outside India”.

“India” is defined as including “the territorial waters

of India”. “Imported goods” are defined to mean “any

goods brought into India from a place outside India

but not including goods which have been cleared for

home consumption”. “Importer” is defined, “in

relation to any goods at any time between their

importation and the time when they are cleared for

home consumption” as “including the owner or any

person holding himself out to be the importer”.

“Conveyance” is defined to include “a vessel, an

aircraft and a vehicle”. “Bill of entry” is defined to

mean a “bill of entry referred to in Section 46”. A

“bill of export” is defined to mean a “bill of export

referred to in Section 50”. An “import manifest or

import report” is defined to mean “the manifest or

report required to be delivered under Section 30”.

“Stores” are defined to mean “goods for use in a

vessel or aircraft and includes fuel and spare parts

and other articles of equipment whether or not for

immediate fitting”.

23

And again:-

“8. Chapter VI of the Customs Act is concerned with

“provisions relating to conveyances carrying

imported or export goods”, Chapter VII deals with

“clearance of imported goods and export goods”.

Chapter VIII deals with “goods in transit” and

Chapter IX deals with “warehousing”. Sections 29 to

43 occur in Chapter VI and Sections 44 to 51 occur

in Chapter VII. Sections 45 to 49 are dealt with

under the heading “clearance of imported goods”

while Sections 50 and 51 occur under the heading

of “clearance of export goods”. Section 29 requires

the person in charge of a vessel or an aircraft

entering India from any place outside India not to

cause or permit the vessel or aircraft to call or land

(a) for the first time after arrival in India; or (b) at

any time while carrying passengers or cargo brought

in that vessel or aircraft, at any place other than a

customs port or a customs airport, as the case may

be. Section 30 imposes a duty on a person in charge

of the conveyance carrying imported goods to deliver

to the proper officer, within twenty-four hours after

arrival, an import manifest in the case of a vessel or

aircraft or an import report, in the case of a vehicle,

in the prescribed form. Section 31 prohibits the

master of a vessel from permitting the unloading of

any imported goods until an order has been given

by the proper officer granting “entry inwards” to

such vessel. An “entry inwards” order is not to be

given until an import manifest has been delivered or

unless the proper officer is satisfied that there was

sufficient cause for not delivering it. Section 39

prohibits the master of a vessel from permitting the

loading of any export goods other than the baggage

and mail bags, until an order has been given by the

proper officer granting “entry outwards” to such

vessel. Section 41 prescribes that an export

24

manifest in the case of a vessel or an aircraft and an

export report in the case of a vehicle should be filed

by the person in charge of a conveyance before the

departure of the conveyance from a customs

station. Section 42 prohibits the departure of a

conveyance which has brought any imported goods

or has loaded any export goods to depart from that

customs station without a written order of the

proper officer. Section 43 provides that the

provisions of Sections 30, 41 and 42 shall not apply

to a vehicle which carries no goods other than the

luggage of its occupants. Chapter VII, as we said,

deals with clearance of imported goods and export

goods.”

20.Thereafter, the Court adverting to Section 46, as it was of

primary concern, referred to Sections 53 and 54 of the Act.

Section 53 makes provision for permitting goods to be

transmitted without payment of duty if they are mentioned in

the import manifest or import report as to be for transit in the

same conveyance, to a place outside India. Section 54 of the

Act deals with transshipment of goods and the requirement to

furnish bill of transshipment or declaration of transshipment.

21.Subsequently, dealing with the question of levy of custom

duty, the Court scanning the anatomy of Section 46 of the Act

held that under the scheme of the Act the goods which are

imported into India from a place outside India or enter India,

25

can be classified as (i) goods entering for home consumption;

(ii) goods entering for warehousing; (iii) goods in transit; and

(iv) goods for transshipment. In case of goods in transit and

goods for transshipment, no duty is required to be paid,

subject to course to fulfilling the conditions mentioned in

Sections 53 and 54 referred to above and Sections 55 and 56

of the Act. In such cases, there is no need to present bill of

entry. Bill of entry is necessary and has to be presented in

case of goods for home consumption. Goods for home

consumption are required to be cleared on payment of duty.

Elucidating on the issue of charge to tax, i.e., the liability to

pay customs duty, the Court held as under:-

“12. Section 46(1) which we have extracted earlier

requires the importer of any goods for home

consumption or warehousing to present to the

proper officer a bill of entry in the prescribed form.

The question, which arises for consideration,

therefore, is whether the vessels in the two cases

before us are goods brought into India for home

consumption? Mixed up with this question is the

question whether a trans-shipper is an oceangoing

vessel? We will first consider the question whether a

vessel is goods so as to attract Section 46(1) of the

Customs Act. By definition a vessel, aircraft or

vehicle is included among goods, vide Section 2(22).

26

But, according to Shri Setalvad, notwithstanding

the definition, the scheme of Chapters VI and VII of

the Customs Act and the context in which the

expression “goods” is used in Section 46 of the Act

requires the expression to be interpreted for the

purpose of Section 46(1) as excluding a vessel,

aircraft or vehicle. In answer to a direct question by

us, Shri Setalvad confessed that if a vessel, aircraft

and vehicle are required to be excluded from the

meaning of the expression “goods” in Section 46(1)

of the Act, he was unable to suggest what other

purpose was to be served by the inclusive definition

of the expression which expressly brought within its

shadow “vessel, aircraft and vehicle”. He frankly

stated that he was unable to point out any provision

in the Act into which the inclusive definition could

be read. We cannot attribute redundance to the

legislature particularly in the case of a definition in

a taxing statute. We must proceed on the basis that

such a definition is designed to achieve a result.

Under Section 12 of the Customs Act what are

dutiable are goods imported into or exported from

India and if goods are defined to include vessels,

aircrafts and vehicles, we must take it that the

object of the inclusive definition was to bring within

the net of taxation vessels, aircrafts and vehicles

which are imported into India. It is undisputed and

indeed it is indisputable that Section 46(1) is a

prelude to the levy of duty or a first step in that

direction. It must, therefore, follow as a necessary

sequitur that vessels, aircrafts and vehicles are

goods for the purpose of Section 46(1). Any other

interpretation may lead to most anomalous results.

Under Section 15 of the Customs Act, the rate of

duty and tariff valuation in the case of goods

entered for home consumption under Section 46

shall be as on the date when the bill of entry is

presented, in the case of goods cleared from a

27

warehouse under Section 68 as on the date on

which the goods are actually removed from the

warehouse and in the case of any other goods as on

the date of payment of duty. Goods which are

entered for home consumption under Section 46

and goods which are warehoused are naturally

goods which are openly imported into India without

concealment. The expression “other goods”

mentioned in Section 15(c) is obviously meant to

cover other imported goods such as goods imported

clandestinely and goods which have otherwise

escaped duty.”

22.Explicating on whether there was a difference between

carriers which carry the goods and the goods, it was observed

that Section 46(2) and elsewhere the word ‘goods’ may be used

in a way that it does not include and in a contradiction to

conveyances in which the goods are carried, albeit the

significance of this difference depends upon the context. It

would be wrong to understand that the vessels or conveyances

would never be goods for the purpose of charging of duty as

dutiable goods. On the question of chargeability of duty on

the vessel in question, it was held:-

“14. The further question is whether the vessels

which have been converted into trans-shippers to be

used in Indian territorial waters for topping-up bulk

carriers, can be said to be vessels for home

28

consumption merely on that account, even though

when they entered Indian territorial waters they

came under their own power as oceangoing vessels

and notwithstanding that they are still capable of

being used as oceangoing vessels and are in fact so

used during the off-season when it is not

practicable to do topping-up operations and, for

that matter, even during the fair season when they

have necessarily to go into the open sea to go

alongside the bulk carriers in open anchorages. In

both the cases before us there can be no doubt that

the vessels are not only capable of being used but

are used as cargo ships to carry cargo from one

Indian port to another or sometimes to foreign

ports, necessarily going out on the high seas. They

are structurally and technically competent to go on

the high seas and they have been certified to be so

competent by appropriate maritime authorities.

Instead of remaining idle and getting rusty, during

off-season, that is when because of inclement

monsoon weather topping-up operations cannot be

done in Mormugao Harbour, the vessels do go out

into the open sea sometimes from one Indian port to

another and at other times to foreign ports. Of

course, even in the course of topping-up operations

during the fair season, it is necessary for the

trans-shippers to go into the open sea to reach the

bulk carriers. But, in our view these operations do

not make these vessels oceangoing vessels when

their primary purpose and the purpose for which

they were permitted to be purchased and brought to

Indian waters, the primary purpose for which they

were licensed and the primary purpose for which

they are used is to conduct topping-up operations

in Indian territorial waters and not to serve as

oceangoing vessels.”

29

Thereafter, the Court ruled what we have already

reproduced hereinbefore.

23.As is noticeable, in the said case, the vessel was in

operation and primarily used within the territorial waters of

India and was not used as an ocean going vessel. As a

sequitur, it was held that the vessel were “goods” imported

into India for home consumption for they were primarily to be

used as a vessel in India, i.e., in the territorial waters.

However, the Court was conscious and expressly guarded the

said proposition clarifying that it was not pronouncing any

dictum as to what would be the position if these goods (the

vessel) were not intended to be primarily used in India or used

occasionally for short period in India and whether in such

situation, the vessel should be treated as a good for home

consumption. As the vessel in the said case was brought in

India and was primarily used as a transshipper and

occasionally in the open seas, it was held to be a good

imported for home consumption.

30

24.This aforesaid authority, in our opinion, answers the

contention raised by the owner that rig in question was not

meant for home consumption as the rig never entered the land

mass. As long as the rig was used for operations within the

territorial waters of India, the rig would meet the requirement

and satisfy the condition that it was an imported good meant

for home consumption. There would be no doubt on the said

legal position in view of the subsequent pronouncement in

V.M. Salgaoncar (supra), wherein dwelling on the question of

home consumption it was held that the expression

‘consumption’ does not involve complete using up of the

commodity and would include putting the commodity to use to

any type of utility within the territory of India. Even when this

condition is satisfied, it would amount to home consumption.

The question raised in V.M. Salgaoncar (supra) was whether

the vessels used as transshippers can be treated as ocean

going vessels and reference was made to the larger Bench of

three Judges to consider the ratio in Chowgule and Co. Pvt

31

Ltd (supra). While deciding the said issue, it has been held as

under:-

“25. There is no dispute for the department that by

design and equipment, transhippers are intended to

be used mostly to carry the cargo from harbours to

the high seas and vice versa. That such

transhippers often move into the open sea is also

not disputed by the department. Thus considering

the question from all the different angles, it is

reasonable to take the view that merely because

transhippers are used for carrying cargo for loading

into the bulk carriers (those being unable to touch

the port) they cannot be excluded from the category

of ocean-going vessels. At any rate it has been

demonstrated by the Government that it was not

very much interested in segregating transhippers

from the category of ocean-going vessels as the

Government brought out a new notification

enveloping all vessels including transhippers within

the ambit of ocean-going vessels, almost

immediately after pronouncement of the decision in

Chowgule & Co. (P) Ltd. That subsequent

development on account of its close proximity to

time cannot be overlooked as of no impact.

26. In the result we accept the contention of the

owners of the trans-shippers that such vessels are

entitled to the benefit of the notification dated

11-10-1958. The appeals are disposed of in the

above terms.”

25.The aforesaid passage refers to the Government’s

decision that had brought out a new notification to envelop all

vessels including a transshippers within the ambit of ocean

32

going vessels immediately after the pronouncement in

Chowgule and Co. Pvt Ltd (supra).

26.The decision in V.M. Salgaoncar (supra) refers to the

limits of territorial waters fixed under Section 3(2) of the

1976 Act, which is distance of 12 nautical miles from the

nearest point of the appropriate baseline.

27.In Aban Lyod Chiles Offshore Limited and another v.

Union of India and Others

9

, the view of Division Bench of

the Bombay High Court in Pride Foramer (supra) was upheld.

In this case the rig was operational and used outside the

territorial waters limits, but in the designated areas of the

continental self and exclusive economic zones, which have

been declared by the notification to be a part of the territory of

India for limited purpose. The natural consequence of the said

notification was to extend the Customs Act and the Customs

Tariff Act to the designated areas outside the territorial waters

to introduce the custom regime in such areas resulting in levy

and collection of custom duty. The issue raised in the said

9

(2008) 11 SCC 439

33

case related to consumption of goods or stores imported by the

drilling contractor and supplied to the rig. The stores used for

consumption onboard the oil rigs, when stationed in the

notified or designated areas, which were deemed to be

territorial waters, was chargeable and customs duty was

payable.

28. In the case at hand, neither the adjudication order nor

the order passed by the tribunal has elucidated or held that

the rig in question was in operation in the territorial waters or

the designated/deemed territorial waters pursuant to the

notification. The issue of chargeability and liability to pay

customs duty has been on different precepts and grounds.

29.The adjudication order refers to and is predicated on the

rig being brought to the port for repairs in February, 1996 for

which permission was sought from the Commissioner of

Customs vide letter dated 12

th

February, 1996 under the

provisions of notification No. 153/94 Cus. The rig

subsequently moved out of the port after repairs. The rig was

brought for the second time to the Mumbai port for repair on

34

9

th

November, 1996 and had remained there till 2

nd

December,

1996. The rig thereafter was taken out and removed from the

territorial waters of India as is evincible from the adjudication

order. The rig was for the third time brought to the outer

anchorage in Mumbai/Mumbai port on 9

th

December, 1998

and removed from the customs area. On this occasion, for the

first time, the authorities felt that the rig had been imported

into India when the rig was brought within the territorial

waters for repairs. The adjudication order does not record

that the rig was in operation within the territorial waters of

India. On the other hand, the adjudication order does not spell

out that the rig did not operate outside the territorial waters of

India. The contention raised by the owner in this regard was

neither specifically rejected not a different finding was

recorded. The finding was that the rig when it is repaired in

India, it is imported into India for home consumption. The

adjudication order holds that the repairs undertaken would

complete the act of import, for the requirement of home

consumption was satisfied. The said finding, in our opinion,

35

is unacceptable and faulty. Mere repair of a vessel is not

putting the vessel to use in India and would not result in

home consumption as the vessel was not utilized within the

territory of India. Repairs are carried on the vessel and not to

utilize the vessel. It would not amount to utilization or

operation of the vessel/rig in India. Thus, it cannot be said

that the vessel, i.e., the rig, was imported into India when it

had anchored twice in 1996 and once in 1998 for the purpose

of repair, for the element of home consumption is missing even

when the vessel, i.e., the rig, had entered the territorial waters.

Thus, it would be incorrect to hold that mere repair of the

vessel in 1996 or in 1998 would constitute taxable import.

30.The authorities have laid emphasis on the factum that

the rig was purchased for being used in the oil field of ONGC

and for this purpose the owner had made an application and

permission/licence for import was granted by the Ministry of

Industry. The rig was purchased from foreign exchange

released by the Government on the basis of the import licence

for the rig. If the rig was not to be used in India, foreign

36

exchange would not have been released and import licence

would not have been granted. This argument on behalf of the

department does not further the stand. It cannot be regarded

as conclusive. Release of foreign exchange, approval and

licence, etc. are prior to the import. Import may not take place

in spite of this aforesaid clearances/licence and release of

foreign exchange. There may have been violation of another

enactment/provision as the rig was not imported, albeit for

deciding the question whether the rig was imported into India,

the requirement of home consumption has to be satisfied.

Then alone, the ‘good’, i.e., the vessel/rig would be taxable and

customs duty payable under the Act. Pertinently, the

adjudication order does not hold that the import had taken

place in 1987 when the rig first put into operation in the high

seas. This was not treated as the date of import or home

consumption. The import as per the authorities had taken

place when the rig was brought for repairs. The evaluation of

the rig has been done on the basis of the last visit of the rig for

repair in 1998.

37

31.While we are disposed to accept that there was no

import, we would not on the said finding hold that the owner

had not violated the provisions of the Act, which are much

broader and wider in scope. The Act regulates and mandates

compliance by the foreign going vessels when they enter the

territorial waters. Provisions of the Act are required to be met

and complied with even when no goods are to be unloaded for

import into India or the vessel is not a ‘good’ meant for home

consumption. Thus, violations recorded by the tribunal

cannot be found fault with.

32.Thus analysed, we are of the indubitable opinion, that

the decision rendered by the tribunal deserves our

concurrence and we so do. Consequently, all the appeals are

dismissed without any order as to costs.

…………………… ..J.

(Dipak Misra)

……………………… J.

(Prafulla C. Pant)

New Delhi;

February 02, 2017

ITEM NO.1A COURT NO.2 SECTION IIIB

S U P R E M E C O U R T O F I N D I A

RECORD OF PROCEEDINGS

Civil Appeal No(s). 1784-1787/2004

COMMNR.OF CUSTOMS MUMBAI Appellant(s)

VERSUS

M/S ABBAN LOYD CHILES OFFSHORE LTD & ORS Respondent(s)

WITH

C.A. No. 4342-4345/2004

Date : 02/02/2017 These appeals were called on for judgment today.

For Appellant(s) Mr. B. Krishna Prasad, AOR

M/s. Khaitan & Co.

For Respondent(s) M/s. O. P. Khaitan & Co.

Mr. E.C. Agrawala, AOR

Hon'ble Mr. Justice Dipak Misra pronounced the judgment of the

Bench consisting of His Lordship and Hon'ble Mr. Justice Prafulla

C. Pant.

The appeals are dismissed in terms of the signed reportable

judgment. There shall be no order as to costs.

(Gulshan Kumar Arora) (H.S. Parasher)

Court Master Court Master

(Signed reportable judgment is placed on the file)