Vessel Engaged Under SEAIOCM Agreement Qualifies As 'Foreign Going Vessel' , Exemption u/s 87 of Customs Act: Kerala HC [Read Order]

The Kerala High Court ruled that a vessel hired via a SEAIOCM agreement was eligible for an exemption under section 87 of the Customs Act since it was a "foreign going vessel."

The Singaporean ship Asean Explorer was hired to repair cables in the Indian Ocean. It was anchored at Kochi to run the areas that connected Australia, various Asian and West Asian nations, and India. The respondent, Asean Cableship Pvt. Ltd., seems to have really believed that the vessel in question was a foreign-going vessel and that, as a result, the consumables and spare parts in the vessel's store would not be subject to the Customs Act's customs tax levy.

According to the Department/appellant, the ship was only on the road for about 301 days and was berthed at Cochin Port for over 1750 days. Therefore, a show-cause notice was sent to the ship and its master, claiming that the ship could not be classified as a foreign-going vessel and that, as a result, duty would have to be applied to the different consumables and spare parts that were kept in its storage throughout the specified time.

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The vessel was seized by the Commissioner of Customs, who also applied the redemption fine, duty, penalty, and interest as were suggested in the show cause notice. Before the Appellate Tribunal, the respondent contested the Commissioner of Customs' order, and the challenge was granted.

The division bench consists of Justices A.K. JayasankaranNambiar and P.M. Manoj held that the vessel can be categorized as a foreign going vessel for the purposes of claiming exemption under Section 87 of the Customs Act.

The bench disagreed with the department's assertion that the vessel would lose its status as a "foreign going vessel" due to the agreement made between the assessee and the Cochin Port Trust, which committed the assessee to berthing the vessel in Cochin Port for a certain number of days in a calendar year in order to receive a concessional rate of berthing charges. In reality, the vessel remained within territorial waters for a significant portion of the year.

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It was also noted that it could not be claimed that the vessel was not involved in the operations envisioned under the agreement just because it was not really doing repairs on one or more days during the time charter. The fact that it was not actually performing those repair services on certain days was irrelevant as long as it was still bound by a contract to perform the tasks.

Although it may be true that an exemption provision under the taxing statute must be strictly interpreted against an assessee and in favor of the revenue, the bench held that the respondent vessel in this case satisfies the definition of a "foreign going vessel" even when the Statute's language is not interpreted strainedly.

According to the bench, it is evident that the respondent vessel falls under the definition of a "foreign going vessel" and is thus eligible for the exemption provided by Section 87 of the Customs Act. The bench rejected the appeal in light of the aforementioned.

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