Import of Rig for Mere Repair would not Constitute ‘Taxable Import’: SC [Read Judgment]

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Provisions of the Customs Act must be complied with, says Supreme Court.

The supreme Court of India today, in Commissioner of Customs v. M/S Aban Loyd Chiles  Offshore Ltd. & Ors, held that a rig imported to India solely for the purpose of repair would not constitute a “taxable import” since it is not a “good” under the Act.

However, the bench comprising of Justice Deepak Misra and Justice Prafulla C Pant clarified that 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 and the importer is liable for penalty in case of violation of such provisions.

The assessee was granted with license to import rigs for oil field services from ONGC and accordingly, purchased a rig in the year 1987.In the years 1996 and 1998, the said rig was anchored for the purpose of repair and after repair, it was taken out of the terriitoral waters of India. The Customs authorities directed to confiscate the rig and imposed fine on the importer by finding that the importer has contravened the provisions of the Customs Act since the rig was imported for home consumption for which customs duty was payable.

While concluding the matter in favour of the importer, the Tribunal noted that 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.It was also observed that since 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. On the basis of these findings, it was concluded that in the circumstances payment of duty on the rig did not arise and even if the rig was liable to duty. The Tribunal further reduced the fine imposed on the importer by finding that as there was no deliberate intention to contravene the said regulations although there had been clear negligence and rules had not been followed.

Aggrieved by the Order of the Tribunal, the Revenue approached the apex Court by contending that when the rig came into India, it lost its character as rig and became goods and its importation is complete.

The bench observed that as per s. 2(22) of the Act, the term ‘Goods’ includes vessels, aircrafts and vehicles. However, the definition is relevant 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 used as a conveyance of an imported good, the position would be different.”

It was further said that in view of s. 43, Sections 30, 41 and 42 shall not apply to a vehicle, which carries no goods other than the luggage of the occupants.Furthermore, s. 2(42) defines the term‘vehicle’ as 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 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.”

Analyzing the provisions of s.2(21), the bench pointed out that 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.”

The bench rejected the Tribunal’s finding that the repairs undertaken would complete the act of import, for the requirement of home consumption was satisfied. In the opinion of the bench, the finding is unacceptable and faulty. It was clarified that “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.”

“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.”

“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.”

Read the full text of the Judgment below.