No CVD Liability on Pre-2012 Imported Vessels Converted to Coastal Run Later: Madras HC quashes Demand [Read Order]

The Madras High Court quashed countervailing duty (CVD) on two imported vessels later which later converted to coastal run after that date holding that the demand cannot be raised under customs Notification 12/2012 retrospectively.

The Great Eastern Shipping Company Ltd filed a petition challenging the communication dated 11.07.2012 in respect of two vessels i.e., ‘Jug Rahul’ and ‘Jug Rishi’ for non-payment of countervailing duty (CVD) on conversion from foreign to the coastal run.

As per the submissions of the petitioner, it was submitted that the communication referred to the Notification 12/2012 which exempted foreign-going vessels under tariff heading 8901 from BCD and CVD, but imposed a condition that “appropriate duty” must be paid when such vessels are converted to coastal run.

However, the petitioner asserted that ‘Jag Rahul’ was imported in 2005, when filing of Bill of Entry was not mandatory). With regards to ‘Jag Rishi’, when the vessel was imported with a Bill of Entry dated 28.03.2011, the Department sought to apply the 2012 notification condition to demand CVD upon their subsequent conversion to coastal trade.

Orissa High Court’s ruling in Great Eastern Shipping Company Ltd and Ors v Union of India and Ors was submitted by the petitioner before the court. The referred case is identical in that case as well and relates to three other vessels being ‘Jug Arnav’, ‘Jag Ratan’ and ‘Jag Rani’, that had been imported on 30.04.2003, 13.11.2007 and 26.08.2011, respectively.

In that ruling, the high court ruled that “Notification No. 12/2012 would not adversely impact those imports that had taken place prior to date of Notification being 17.03.2012 as the applicability of the Notification is prospective.”

Justice Anita Sumanth and Mummineni Sudheer Kumar noted the decision of the Supreme Court in Aban Loyd Chiles Offshore Ltd., that a vessel is only subject to customs duty when it is originally imported into India as "goods," and that after it transforms into a conveyance, further operations do not result in new import duty liability.

The court heard the department’s counsel’s submission that impugned communications are only advisory in nature, intending to put the petitioner to notice of an impending show cause notice. However, the bench rejected this argument.

It said that communications annexed a working sheet quantifying the duty and required filing of Bill of Entry and payment within 14 days. According to the court, this makes clear that the said communication is “demand”, not just a communication which is advisory in nature.

The court quashed the demand communications accordingly.

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