2011(12)LCX0239

IN THE CESTAT, WEST ZONAL BENCH, MUMBAI [COURT NO. I]

S/Shri S.S. Kang, Vice-President and Sahab Singh, Member (T)

Commissioner of Central Excise, Goa

Versus

Waterways Shipyard Pvt. Ltd.

Final Order No. A/1027/2011-WZB/C-IKEB), dated 2-12-2011 in Appeal No. E/1623/2004

Cases Quoted -

Collector v. Wood Craft Products Ltd. - 1995(03)LCX0070 Eq 1995 (077) ELT 0023 (S.C.) - Referred [Paras 8,12]

Urmila and Co. Pvt. Ltd. v. Collector - 1998(04)LCX0061 Eq 1998 (104) ELT 0097 (Tribunal) - Referred [Para 18]

Advocated By -

Shri R.K. Mahajan, Commissioner (AR), for the
Appellant.
Shri Naresh Thacker, Advocate, for the Respondent.

[Order per : Sahab Singh, Member (T)]. -

This is an appeal filed by the Revenue against the Order-in-Original No. 3/Commr.Goa/CX./2003, dated 27-2-2003.

The brief facts of the case are that M/s. Waterways Shipyard Pvt. Ltd., Goa (hereinafter referred to as "WSPL") manufactured a vessel called "M.V.CARAVELA' at their shipyard in Vasco-da-Gama, Goa, which was cleared by them in February, 2001 without payment of appropriate Central Excise duty leviable on the vessel. The said vessel has been retrofitted and presented as an entertainment destination and India's first ever offshore Casino having pleasure games.

M/s. Advani Pleasure Cruise Pvt. Ltd. hereinafter referred to as "APCPL", which is joint venture between Advani Hotels & Resorts India Ltd. (M/s. AHRIL) and Casino Austria International, had undertaken the activity of interior design of the vessel for Casino and entertainment activity at the yard of M/s. WSPL and had taken the said vessel from M/s. WSPL on lease basis for the period of 5 years. Because of special type of fittings the said vessel acquired status of pleasure vessel. The department initiated inquiries and investigation for the purpose of classification of the vessel in question under the Central Excise Tariff Act.

Shri Narendra Punj, the Casino Director of the said vessel in his statement recorded on 27th March, 2001 admitted that the said vessel is engaged in Casino gaming activities. In view of this Revenue believed that the said vessel would be appropriately classifiable under Central Excise Heading 8903.00 of CET, being a vessel meant for pleasure and not for transporting passengers. Accordingly, the said vessel was seized by the department under panchanama on 27th March, 2001 from possession of M/s. Advani Pleasure Cruise Pvt. Ltd. However, the vessel was ordered to be released by the High Court vide its order dated 22-4-2001.

Investigation conducted by the department further revealed that although the vessel was awarded a class VII categorization under the Merchant Shipping (Construction and Survey of Passenger Ship) Rules, 1997 by the Director General of Shipping wherein the passenger ships are those engaged in voyages in fair seasons between ports in India during the course of which they do not go more than 5 miles from the nearest land but M/s. Caravela was not found to be engaged in conducting voyages and was only anchoring off the river bay and live casino gaming was conducted on the vessel.

The master of the vessel Captain Ajay Sareen admitted in his statement dated 24-8-2001 that vessel was not designed to operate in the High Seas. He further stated that the vessel did not have crew space i.e. crew accommodation for the exclusive use of crew and throughout his tenure as master of the vessel, the vessel has remained within the Panjim Port limit and the nature of the activities being conducted in the vessel were casino like gaming. In the lease agreement dated 4-12-1999 executed between M/s. WSPL & M/s. AHRIL the sole intention of the acquisition of the said vessel by M/s. AHRIL was to set up and operate a casino. Various documents, photographs, brochure, paper cuttings, advertisements, etc,, in relation to the said vessel projected it as exclusively meant for Casino gaming. It was also observed that M/s. APCPL is operating feeder launch services between the Fisheries Jetty, Panaji and the said vessel, when it anchored in the bay of the Mandovi River, for commuting the persons, food articles. This showed that said vessel is not taking any voyage and that intentions of M/s. WSPL to manufacture & M/s. AHRIL to acquire the said vessel was for the sole purpose of operating Casinos, rather than using it as Cruise ship. Heading 8903.00 in the HSN states that this Heading includes yachts, marine jets and other sail boats and motor boats, dinghies, kayaks, sculls, skiffs, pedals (a type of pedal operated float), sports fishing vessels inflatable craft and boats which can be folded or disassembled and the word includes given in the said clarification is in the nature of illustration and the list is not exhaustive. It further showed that the classification would have been read with the preceding paragraph of the said classification which specifically states that Heading covers the vessel for pleasure or sports and all rowing boats and canoes. From the investigation department took a view that the said vessel is a casino gambling establish-ment specially designed for live casino gaming activities and therefore rightly classifiable under Chapter Heading 8903.00 of the Central Excise Tariff Act, 1985 and attracts Central Excise duty.

Accordingly, a show cause notice was issued to M/s. WSPL, M/s. AHRIL, M/s. APCPL and Shri Sunder G. Advani, Managing Director of M/s. AHRIL proposing the classification of the goods under sub-Heading 8903.00 and demanding the appropriate duty and also proposing penalty provisions against the noticees. The show cause notice was contested by all four notices. Commissioner of Central Excise Goa vide the impugned order has dropped the proceedings initiated against the noticees and has ordered the classification of the vessel under 8901.00 of the Central Excise Tariff. Against the said order the Revenue has filed the present appeal.

8(i). The learned Commissioner (AR) appearing for the Revenue submitted that the adjudicating authority has failed to observe that vessel M.V. Ca-ravela is basically a floating casino intended for providing pleasure to the occupants of the vessel and not for conveying them from one place to other or for mere cruise. He further submitted that Commissioner did not appreciate fact that the owner/lessee of the vessel M.V. Caravela are advertising and promoting the same as floating casino. It was not proper for the Commissioner to classify the vessel under Heading 8901 which covers only those passenger vessels which are principally meant for carrying passengers on cruise or voyage. Particularly, the Explanatory Notes to Chapter Heading 8901 clearly excludes vessels which are covered under Chapter Heading 8903 even though they may be capable of carrying persons. The LD. Commissioner (AR) further contended that it was wrong on the part of the Commissioner to conclude that Chapter 8903 necessarily covers smaller boats as the said Heading does not prescribe any parameter in regards to the size of the vessel, but it only prescribes the usage as pleasure and all vessels for pleasure or sports are covered under Heading 8903..

8(ii). It was further contended by the learned Commissioner (AR) that the adjudicating authority has erroneously relied upon the classification of the vessel awarded by the Mercantile Marine Department. It was further argued that it was incorrect on the part of the adjudicating authority to take a view that if ca-ino facilities are removed from the vessel it would render it useless as pleasure vessel. For the purpose of classification of the vessel, it is the intended use in the present condition and not when certain fitments or facilities are removed. He submitted that it is a fact on record that the vessel was conceived, manufactured, cleared and operated as a floating casino. He further submitted that Commissioner did not take cognizance of the fact that the said vessel is being clearly advertised as casino and commercially it is identified as place for pleasure or enter-tainment and not for voyage or cruise. It was wrong on the part of the Commissioner to rely upon the principle of nosciture a sociis, to hold that only small sports vessels qualify for classification under Chapter Heading 8903. It was further submitted by the learned Commissioner (AR) that adjudicating authority failed to apply the Rules of Interpretation, inasmuch as he directly resorted to Rule 4 for determining the classification of the vessel, without considering and eliminating the appreciation of Rules 1, 2 & 3 of the said Rules of Interpretation. The learned Commissioner also referred to para 30 of the show-cause notice referring to the Supreme Court decision in the case of C.C.E., Shillong v. Woodcraft Products Ltd. reported in 1995(03)LCX0070 Eq 1995 (077) ELT 0023 (S.C.) wherein it was held that for resolving dispute relating to Tariff classification, a safe-guide is the internationally accepted nomenclature structure of the Central Excise Tariff Act, and the Tariff Classification made therein. In case of any doubt, the HSN is the safe-guide for ascertaining the true meaning of any expression used in the Act. As per HSN explanatory notes the vessel in question should be classified under Heading 8903 only. He also referred to the para 4.2 (v) para 7.6 and para 12.3 of lease agreement between M/s. WSPL & M/s. AHRIL under which M/s. AHRIL had unrestricted control of the area for the purpose of casino games. He concluded his submissions stating that the vessel in question is correctly classifiable under Heading 8903 only.


9(i). The learned advocate appearing for M/s. WSPL submitted that M/s. WSPL were only the manufacturers of cruise ship and M/s. AHRIL had carried out intensive decoration, fitted all the casino games at their own cost and licence to that effect has been obtained by M/s. AHRIL. He further submitted that any passenger ship that has been constructed is bound to have the facilities for entertainment of the passengers on the board and merely because the facilities are provided, a passenger ship does not get converted into a vessel for pleasure or sports. He further submitted that the design of the vessel was approved by Bureau Veritas, a recognized international authority on classification of vessel and also by Indian Register of Shipping. He contended that classification under Heading 8901 is based on the basic characteristic of the vessel i.e. ferrying passengers-or capable of doing so from one destination to another. He submitted that Chapter Heading 8903 is meant for different types of vessels which were small crafts, meant for individual or private possessions, essentially not for commerce or available to public. He contended that although Explanatory Note of HSN, below Chapter Heading 8903 is inclusive and not exhaustive, yet this inclusive definition has to be restricted in order to confine only such type of ves-sels which are 'noscitur a sociis' with the description of the vessels in the Explanatory Notes. It does not cover all vessels for pleasure or sports.

9(ii). He further continued that all the cruise ships making trips round the world are generally equipped with facilities for pleasure and enjoyment of passengers. He also submitted that the said vessel is classified as class VII passenger ship by the Director Genera] of Shipping, it is capable of plying on the coastline within, 5 nautical miles. Tbe said vessel has cabins for passengers, a swimming pool, a sun deck, a casino, a restaurant, bars, etc. He further submitted that according to the Survey Certificate issued by Mercantile Marine Department under the Merchant Shipping Act, 1958. The said vessel can operate with crew not staying on board the vessel when off duty.

9(iii). The learned Advocate submitted that Revenue's argument that the vessel in question is a pleasure vessel cannot be accepted. He contended that though the pleasure vessel had not been defined in the "Indian Shipping Act" but it has been clearly defined in UK, Australia and Canada. He referred to the definition of pleasure vessel given in the UK Statutory Instruments and Principal Merchant Shipping Act, wherein a pleasure vessel means any vessel which at the time it is being used is wholly owned by an individual or individuals and used only for the sport or pleasure of the owner or the immediate family or friends of the owner. If it is owned by a body corporate it is used only for sport or pleasure and on which the persons on board are employees or officers of the body corporate. Similarly he read over the definition of pleasure vessel under the Western Australian Marine Act, under which the pleasure vessels is a vessel held wholly for the purpose of recreational or sporting activities and not for hire or reward. He further referred to the definition of pleasure vessels under the Canadian law under which a pleasure vessel is a vessel used by individuals for their pleasure for recreational or sporting purpose and not for any commercial purpose. The learned Advocate also referred to the various advertisement materials in respect of the vessel in question which clearly show that the vessel M.V. Caravela is a cruise ship that houses India first live gaming Casino.

9(iv). It was the contention of the learned Advocate that on the basis of mercantile marine department classification certificate as well as on the basis of noscitur a sociis, the Commissioner has correctly classified the goods under Heading 8901 and if the Revenue wants to take support from the HSN Notes then Revenue has to consider the international practices with regard to the definition of the vessel for pleasure as prevalent in U.K., Australia and Canada. He therefore submitted that vessel in question is correctly classifiable under Heading 8901. He also submitted that the show-cause notice is also hit the time limitation as the duty has been demanded under Section 11A much after the normal time limit as there was no any suppression of fact on their part.


10. After hearing both the sides we find that issue in the appeal is related to the classification of the vessel M/s. M.V. Caravela, Revenue contends that the vessel in question is classifiable under Heading 8903 as the vessel is used for playing the casino games and its rightly classifiable under Heading 8903 as a vessel for sports or pleasure. On the other hand the respondent contends that the vessel has been correctly classified by the Commissioner under 8901 of the Central Excise Tariff.


11 For the sake of the convenience of the Central Excise Tariff of Heading 8901 and 8903 are reproduced below:

12. In the show cause notice Revenue relying on the Supreme Court judgment in the case of C.C.E., Shillong v. Wood Craft Products Ltd. contends that the HSN can be relied upon for the purpose of classification under the Central Excise Tariff. Therefore, the Revenue submits that the Entry 8901 of the HSN covers the vessels, which are principally designed for the transport of persons or to the transport of the goods. Since, the vessel M/s. M.V. Caravela is not principally designed and manufactured for the purpose of transport of persons or goods it cannot be classified under Heading 8901. We find that Entry 8901 of the HSN is as under :-

89.01 - Cruise ships, excursion boats, ferry-boats, cargo ships, barges and similar vessels for the transport of persons or goods. 8901.10 - Cruise ships, excursion boats and similar vessels principally designed for the transport of persons; ferry-boats of all kinds 8901.20 - Tankers 8901.30 - Refrigerated vessels, other than those of sub-Heading 8901.20 8901.90 - Other vessels for the transport of goods and other vessels for the transport of both persons and goods.

This Heading covers all vessels for the transport of persons or goods, other than vessels of Heading 89.03 and lifeboats (other than rowing boats), troop-ships and hospital ships (Heading 89.06); they may be for sea navigation or inland navigation (e.g. on lakes, canals, rivers, estuaries).

The Heading includes :

(1) Cruise ships and excursion boats.

(2) Ferry-boats of all kinds, including train-ferries, car-ferries and small river-ferries.
(3)
(4)
(5)
(6)
(7)
From the entry in HSN it is noticed that Heading 8901.10 covers Cruise ships, excursion boats and similar vessels principally designed for the transport of persons and the Entry 8901.90 covers other vessels for the transport of goods or both persons and goods. Since present vessel is not used and manufactured for the purpose of transport of goods it will not be qualifying for its classification under Heading 8901.90. Only sub-Heading where the vessel can be classified under Heading 8901 is 8901.10 where the Cruise ships, excursion boats and similar vessels principally designed for the transport of persons are classifiable. Therefore, it is an important to know whether the vessel was principally designed for transport of persons or the vessel falls under the category of cruise ships or excursion boats. After going through the advertising material published, we find that vessel is shown as advertised cruise ship which forms the India first gaming casino . Cruise is defined in New Shorter Oxford Dictionary as :

"Cruise - A voyage in which a ship sails to and fro over a particular region, esp. for the protection of shipping or for pleasure; a sail for pleasure making for no particular place or calling at a series of place."

The vessel as a cruise ship is classifiable under Heading 8901 of Central Excise Tariff.

13. It is also noticed from the explanation below the sub-heading 8901 as HSN Explanatory Notes states that "this Heading covers all vessels for the transport of persons or goods, other than vessels of Heading 89.03 " From this explanation it is also inferred that some vessels of transport of persons or goods are also classifiable under Heading 8903 because of the use of the words "other than vessels of Heading 8903" in this explanation. Entry 8903 of the HSN reads as under :-.

89.03 - Yachts and other vessels for pleasure of sports; rowing boats and canoes (+). 8903.10 - Inflatable

Other:

- Sailboats, with or without auxiliary motor

- Motorboats, other than outboard motorboats 8903.99 - Other

This Heading covers all vessels for pleasure or sports and all rowing boats and canoes.

This Heading includes yachts, marine jets and other sailboats and mo-torboats, dinghies, kayaks, sculls, skiffs, pedals (a type of pedal-operated float), sports fishing vessels, inflatable craft and boats which can be folded or disassembled.

The Heading also covers lifeboats propelled by cars (other lifeboats fall in Heading 89.06).

Sailboards are, however, excluded (Heading 95.06).

o Heading 8903 is meant for yachts and other vessels for pleasure or sports and rowing boats and canoes. As per HSN explanation under the Heading, this Heading covers all vessels for pleasure or sports and all rowing boats and canoes, which means that all vessels which are used for pleasure or sports are to be classified under Heading 8903 and similarly all rowing boats and canoes are to be classified under Heading 8903. The use of word all before 'vessels' in the 'all vessels for pleasure or sports' means that all vessels which are used for pleasure or sports are to be classified under Heading 8903 even if these vessels are used for transport of persons or goods in view of their exclusion from 8901 as per HSN explanation under Heading 8901.


14. Under the Merchant Shipping Act, 1958 'passenger' and the 'passenger ships' have defined under Section 3(24) & 3(25) which are as under :-

3(24) "passenger" means any person carried on board a ship except -.

a person employed or engaged in any capacity on board the ship on this business of the ship;

a person on board the ship either in pursuance of the obligations laid upon the master to carry shipwrecked, distressed or other persons or by reason of any circumstances which neither the master nor the character, if any, could have prevented or forestalled;

a child under one year of age;

3(25) "passenger ship" means a ship carrying more than twelve passengers;

Similarly, 'special trade', 'special trade passenger' and 'special trade pas-senger ship' have been defined under Section 3(47A) (47B) & (47C). The ship in question has been categorized by the Mercantile Marine Department as 'a special trade passenger ship'. Special trade means the conveyance of large number of passengers by sea within prescribed sea areas. Special trade passenger ship has been specifically defined as to mean a mechanically propelled ship carrying more than thirty special trade passengers. This is a fact that of the vessel M/s. M. V. Caravela carries more than thirty passengers and this vessel can go to a limited area in the sea. Therefore, this special trade passenger ship is defined under Section 3(47C) is different from the normal passenger ship as defined under Section 3(25).

Now we have to see whether this special trade passenger ship can be classified under Heading 8901 in the category of the vessel used for transport of passengers. The passenger and special trade passenger have been separately defined under the Merchant Shipping Act. The special trade passenger ship can be taken a vessel meant for transport of the passenger as the special trade ship are meant for special trade as defined under Section 3(47A) of the Act and by virtue of words 'other than the vessels under Heading 8903' in HSN Explanatory Notes of Heading 8901 [this Heading covers all vessels for transport of persons or goods other than vessels of Heading 8903] it is classifiable under Heading 8903.

The contention of the respondent is that their vessel cannot be cate-gorized as a vessel meant for pleasure or sports as internationally known vessels of pleasure or sports as defined in U.K., Australia and Canada are only those vessels which are owned, privately by the owners or body corporate for their personal use or use for their family and the employees of the body corporate. Since the vessel does not fall under this category this cannot be classified as vessel for pleasure or sports. We find that definition of the vessel for pleasure or sports has not been incorporated in the Indian Merchant Shipping Act, which governs the registration and movement of the vessels in India. On the other hand, the Merchant Shipping Act specially defines Special Trade Passenger Ship and present vessel in question has been categorized as special trade passenger ship. The present vessel is used for casino games for people who_are transported by the ferry to the vessel by the owner/lessee of the vessel. These activities fall under the category of special trade as defined under the Indian Merchant Shipping Act and would therefore be taken as a activities for the purpose of casino games, which are meant for pleasure of the people. Therefore, this would bring the vessel more appropriately under the Heading 8903 of the Central Excise Tariff.

Another argument taken by the respondent is that on the basis of nosciture a sociis' the Commissioner has rightly held classification under Heading 8901 as articles in the Heading 8903 have to be identified by the company they keep and only a small sports vessels appear to qualify for classification under Heading 8903. We find that the first explanation in the Heading 8903 clearly states that this Heading covers all vessels for pleasure or sports. The word all' is sufficient enough to cover the vessels for pleasure whether small or big. Therefore, the principle of nosciture a sociis will apply only to the second explanation and not to the first explanation.

In the case of Urmila & Co. Pvt. Ltd. v. Collector of Customs, Bombay reported in 1998(04)LCX0061 Eq 1998 (104) ELT 0097 (Tribunal) it was held by the Tribunal that it is the basic design of the vessel that determines its classification. The para 18 of the said decision is reproduced as under :

"We have already referred to above that the vessel in question was de-signed and registered as a vessel for pleasure. Its fittings, fixtures and equipment indicated that it was usable not for carrying cargoes or passen-gers for commercial purposes but was for vacation, enjoyment etc. The items for survey which were not part of the basic design of the vessel could not change the character and classification of the vessel."

In the instant case the vessel M/s. M.V. Caravela is designed for the purpose of casino games therefore by applying the ratio of the said decision it should more appropriately be classifiable under Heading 8903 as vessel for pleasure or sports.


19. It is seen from the above that the vessel in question on one hand Is classifiable as a cruise ship under Heading 8901 and on the other hand it is classifiable as a vessel for pleasure under Heading 8903. In such a situation the Rules for interpretation of the classification come into play Rule 1, 2 & 3 of the Rule for Interpretation of the Schedule are reproduced as under :

1. The titles of Sections and Chapters are provided for case of refer-ence only; for legal purposes, classification shall be determined according to the terms of the Headings and any relative Section or Chapter Notes and provided such Headings or Notes do not otherwise require, according to the provisions hereinafter contained.


2. (a) Any reference in a Heading to goods shall be taken to include a reference to those goods incomplete or unfinished, provided that the incomplete or unfinished goods have the essential character of the complete or finished goods. It shall also be taken to include a reference to those goods complete or finished (or falling to be classified as completed or finished by virtue of this rule), removed unassembled or disassembled.

ib) Any reference in a Heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partially of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles contained in Rule 3.

3. When by application of sub-rule (b) or Rule 2 or for any other rea-son, goods are, prima facie, classifiable under two or more Headings, classification shall be effected as follows :

The Heading which provides the most specific description shall be preferred to Headings providing a more general description. However, when two or more Headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set, those Headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets, which cannot be classified by reference to (a), shall be classified as if any consisted of the material or component which gives them their essential character, in so far as this criterion is applicable.

When goods cannot be classified by reference to (a) or (b), they shall be classified under the Heading which occurs last in the numerical order among those which equally merit consideration."

Since the Rule 1, 2, & 3-(a) or (b) are not applicable in the present situation, we find that under Rule 3(c) when the goods cannot be classified by reference to Rule 3(a) & (b) they shall be classified under Heading which occurs last in the numerical order among those which equally merit consideration. Therefore, following this Rule of Interpretation the vessel in question is more appropriately classifiable under Heading 8903 of the Central Excise Tariff. We hold accordingly

Since Commissioner has not given any finding on other aspects such as valuation of vessel, limitation whether there was any suppression of facts and imposition of penalty, we remand the matter back to original authority for deciding these issues in accordance with law and after giving opportunity to the appellant of being heard.

Impugned order is set aside and Revenue appeal is allowed in so far as classification of vessel is concerned. Matter is remanded back to Commis-sioner for decision on other issues stated in para 20 above.

(Pronounced in Court on 2-12-2011)

Equivalent 2013 (297) ELT 0077 (Tri. - Mumbai)