Tugs Classified under Chapter 89, Not ‘Machinery or Equipment’: CESTAT Rejects Exemption Claim but Allows Drawback [Read Order]
CESTAT Ahmedabad ruled that the imported tugs were classifiable under Chapter 89 and not as machinery or equipment, denied the exemption, allowed Section 74 drawback, and remanded the matter for re-quantification of duty, fine, and penalties.
The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) held that two imported tugs used for the Oil and Natural Gas Corporation (ONGC) dredging project at Hazira were classifiable under Chapter 89 of the First Schedule to the Customs Tariff Act, 1975 and not as “machinery, equipment or tools,” and therefore not eligible for exemption.
Van Oord India Pvt. Ltd. imported two old and used tugs, namely Coaster Rambler and Coaster Voyager, on a temporary basis for execution of a dredging contract dated 15.06.2018.
The appellant claimed concessional duty and IGST, and the goods were cleared after execution of bond and bank guarantee, and later re - exported in December 2018 after completion of operations.
During investigation, the department issued a Show Cause Notice (SCN) dated 04.09.2023 proposing reassessment of the Bills of Entry and recovery of differential duty of ₹6,82,50,033 under Section 28(4) of the Customs Act, 1962 alleging misclassification and wrongful availment of exemption.
The adjudicating authority confirmed the demand, denied exemption, imposed redemption fine and levied penalties on the company and its employee, Umesh Kale.
In appeal, the appellant argued that the tugs formed part of “auxiliary equipment” essential to dredging operations, and therefore fell within the trade meaning of machinery and equipment.
The appellant also contended that the extended period could not be invoked since all facts were before the department, and that the tugs were re-exported after due verification, entitling them to 95% duty drawback. They further challenged confiscation on the ground that the goods were no longer available.
The Bench comprising Somesh Arora (Judicial Member) and Satendra Vikram Singh (Technical Member) examined the classification dispute, statutory conditions, and judicial precedents.
Relying on earlier rulings in Shipping Corporation of India (2014) and International Seaport Dredging Ltd. v. Commissioner of Customs (2019), the Tribunal held that tugs are goods classifiable under Heading 8904 as “ships, boats and floating structures,” and cannot be considered machinery or equipment for exemption purposes.
The Tribunal upheld invocation of the extended period, observing that the 2014 precedent on tugs was sufficient to establish that the benefit was ineligible. It also affirmed confiscation, holding that physical non-availability of the goods does not bar confiscation or imposition of redemption fine.
However, the Tribunal found the redemption fine excessive and held that it must be proportionate to the benefit sought to be availed.
On the alternative plea, the Tribunal found merit in the claim for drawback under Section 74 since both tugs had been re-exported after completing all customs formalities. Following the reasoning in Shipping Corporation of India (2014), it directed that differential duty be computed only after granting drawback, and that penalty under Section 114A be limited to the recomputed duty amount.
Accordingly, the Bench partly allowed the appeal by remanding the matter for re-quantification of duty, interest, redemption fine and penalty, and partly allowed the appeal of Umesh Kale.
The appellant was represented by B V Kumar along with B Venugopal and P P Jadeja, while Jaspreet Singh Sukhija appeared for the Revenue.
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