Ghaziabad Ship Breakers vs Commissioner of Cus. (Prev.), Ahmedabad>2002(11)LCX0105

2002(11)LCX0105

IN THE CEGAT, COURT NO. II, NEW DELHI

S/Shri S.S. Kang, Member (J) and V.K. Agrawal, Member (T)

GHAZIABAD SHIP BREAKERS

Versus

COMMISSIONER OF CUS. (PREV.), AHMEDABAD

Final Order Nos. 474-478/2002-B, dated 13-11-2002 in Appeal Nos. C/549/2001-B, C/332/2002-B, C/251/2002-B, C/546/2001-B and C/602/2001-B

Cases Quoted

Commissioner v. Delhi Iron and Steel Company Pvt. Ltd. — 1995 (98) S.T.C. 2002 (Bom.) — Distinguished [Paras 2, 6]

Jindal Drilling and Industries Ltd. v. Commissioner — 1999(08)LCX0160 Eq 2000 (116) ELT 0297 (Tribunal) — Referred [Para 3]

State of Tamil Nadu v. Raman and Company — 1994 (93) S.T.C. 185 (S.C.) — Distinguished [Paras 2, 6]

DEPARTMENTAL CLARIFICATION CITED

C.B.E. & C. Circular No. 37/96-Cus., dated 3-7-1996................................................ [Paras 3, 4, 7]

Advocated By : Shri A.D. Maru, Advocate, for the Appellant.

Shri Jagdish Singh, JDR, for the Respondent.

[Order per : V.K. Agrawal, Member (T)]. - In these five appeals - three filed by M/s. J.M. Industries and two appeals filed by M/s. Ghaziabad Ship Breakers - arising out of different orders in Appeals, the common issues involved are whether the Special Additional Duty of Customs is leviable on ships imported for breaking and whether fuel and oil are to be classified along with the ship and not chargeable to Customs duty separately and whether the Customs duty is leviable on foodstuff.

2. Shri A.D. Maru, learned Advocate, submitted that the Appellants imported old ships for breaking, falling under Heading 89.08 of the first Schedule to the Customs Tariff Act; that Special Additional Duty of Customs (SAD in short) was imposed by the Finance Act, 1988 in lieu of Sales Tax; that Notification No. 56/98-Cus., dated 1-8-98 exempts SAD in respect of goods which are imported for sale as such, subject to the condition that they are imported at the time of clearance for home consumption, importer makes a specified declaration to that effect in the Bill of Entry; that the first proviso also provided that Exemption shall not apply if the importers sells the imported goods from a place, locality or in an area where no tax is chargeable on sale or purchase of goods. He, further, submitted that the ship breaking yard ‘Alang’ is a place where sales tax has been paid and the ship breakers are liable to pay sales tax on sale of goods and materials obtained by breaking up of ships; that the Department is denying the exemption on the plea that the ship is not sold as such; that the Department has failed to appreciate the fact that the ships are imported only for the purpose of breaking up and can be sold only after breaking up into a resultant goods and materials obtained therefrom and can not be sold as such because in that condition these are not fit for sale as being incapable of being navigation which is there general use; that accordingly the words, “as such” used in the notification would take in the goods and materials obtained by breaking up within its ambit, and such goods and materials would not attract SAD as Sales Tax is payable in the area where the goods and material are sold. The learned Advocate relied upon the decision in the case of Commissioner of Sales Tax v. Delhi Iron and Steel Company Pvt. Ltd. - 1995 (98) STC 2002 (Bombay) wherein it was held that the condemned and unserviceable ships purchased by the dealer was not a ship but re-rollable scrap in the form of an old ship for dismantling. In fact, the dealer acquired only the old materials and articles contained therein which were sold by it in the form, in which they were acquired. No process whatsoever would apply to the goods which looses in the process of manufacture. The question of using the goods purchased in the manufacture of other goods, therefore, did not arise. Reliance has also been placed on the decision in the case of State of Tamil Nadu v. Raman and Company - 1994 (93) STC 185 (S.C.).

3. Ld. Advocate also mentioned that the appellants are not liable to pay the duty on fuel oil of the ships on classifying it separately because it is covered by Para 2(b) of the Board’s Circular No. 37/96-Cus., dated 3-7-96; that Para 2(b) of the Circular provides that fuel and oil contained in the vessel, machinery and engine can also be regarded as forming integral part of the vessel and hence be classified under Heading 89.08; that Para 2(d) of the said Circular provides that remaining fuel and oil and other ships stores, including drinks, food stuff are classifiable separately in their own appropriate Heading; that in the present matters there was no “remaining fuel and oil” and as such it was not to be classifiable separately; that it is bounded duty of the seller of the ships to provide sufficient fuel and oil and water so that the ships can undertake smooth voyage and also can reach properly at her own power; that price of the ships is determined on the basis of LDT and fuel and oil is included in the LDT. Finally, he submitted that as the foodstuff is consumed by the crew member on board the vessel, during their compulsory and necessitated stay period till beaching, no customs duty is payable on the foodstuff in terms of provisions of Sections 86 and 87 of the Customs Act. He relied upon the decision of the Tribunal in the case of Jindal Drilling and Industries Ltd. v. Commissioner of Customs, 1999(08)LCX0160 Eq 2000 (116) ELT 0297 (Tri.) wherein it was held that the ship stores are exempt from payment of Customs duty.

4. Countering the arguments, Shri Jagdish Singh, ld. DR submitted that the exemption provided under Notification No. 56/98-Cus. in respect of SAD is not available to the appellants as they are not selling ships “as such” which is the requirement under the Notification; that the Appellants’ contention, that since goods obtained out of the breaking up of ships are chargeable to Sales Tax, they are entitled to exemption, is not correct on the simple ground that the exemption from SAD is in respect of only those goods which suffered Sales Tax “as such”; that the activity of breaking up of ships amount to manufacture and the various goods which emerge may be chargeable to Sales Tax which will not mean that the vessel/ships itself has suffered the incidence of Sales Tax. The ld. DR further submitted that Section 86 of the Customs Act provides that any stores imported in a vessel may, without payment of duty, remain on Board such vessel while it is in India; that it means that Exemption is only in respect of vessel in transit; that Section 87 of the Act provides for consumption of stores on board a vessel during the period the vessel is a foreign going vessel; that both these sections are not attracted in the present matters as the ships have been imported for the purpose of breaking and they are not any more foreign going vessels as defined in the Customs Act. Finally, ld. DR submitted that as per Boards’ Circular dated 3-7-96 only the fuel and oil contained in the vessel, machinery and engine is to be regarded as forming integral parts of the vessels. The fuel and oil in other parts of the vessel is to be classified separately; that no material has been brought on record by the appellants to show that the fuel and oil in question was in the ship machinery and engine and not in other tanks; that the Commissioner (Appeals) in the impugned order has given his finding that the fuel tank in the engine room cannot be considered as part of the engine and machinery.

5. We have considered the submissions of both the sides. Under the Finance Act, 1998, Special Additional Duty of Customs was imposed on goods imported in order to provide the level playing field to the domestic industry. This levy was imposed as the indigenous goods are subjected to sales tax and other legal taxes where as the imported goods escape them by their very nature. Notification No. 56/98 S. No. 12 provides nil rate of SAD as under :

“All goods falling within the said First Schedule, which are imported for sale as such, other than by way of High Sea Sale and the importer at the time of importation or at the clearance of warehoused goods for home consumption under the provisions of Section 68 of the Customs Act, 1962 (No. 52/1962) as the case may be, makes a specific declaration to that effect in the Bill of Entry in the manner specified below :

Provided that the rate specified herein shall not apply if the importer sells the said imported goods from a place located in an area where no tax is chargeable on sale or purchase of goods.”

6. Declaration appended to S. No. 12 of the Notification was to be given in the following terms

“(a) Description of the Goods

(b) Bill of Entry No. and date

(d) Sale not from a place where no sales tax is chargeable.”

It is thus evident from the description given in S.No. 12 of the Notification and the declaration that the benefit of S. No. 12. is available only when the goods are imported for sale “as such”. It is not the case of the Appellants that the ship which was imported by them was sold “as such”. They are selling the material which is obtained by them after breaking up of ships imported by them. We agree with the ld. Departmental Representative that sale of such articles cannot be equated with sale of imported ships “as such”. It has also not been disputed by the appellants that the scrap which is obtained by breaking up of ships has been obtained on account of manufacturing activity and leviable to Central Excise Duty. The decisions relied upon by the ld. Advocate are not applicable to the facts as these decisions were under the Sales Tax Act and the issue involved was whether Purchase Tax under Section 13 of Bombay Sales Tax Act was leviable in the case of Delhi Iron and Steel Company. In the said matter, the assessee has proved before the Sales Tax Tribunal from relevant documents that what had been purchased was scrap and not the ship. In the present proceedings, there is no dispute that what has been purchased was a ship for the purpose of breaking up. Similarly in the case of Raman and Co. the assessee had purchased condemned Railway Coaches and components of Nissan Huts as scrap. As the appellants have not sold the ships as such, the exemption under S. No. 12 of Notification No. 56/98 is not available and they are liable to pay SAD.

7. As far as foodstuff is concerned, the provisions of Sections 86 and 87 of the Customs Act are not attracted as the foodstuff in the present matter, cannot be treated as ship stores. The stores are not chargeable to duty under Section 87 only when these are consumed as stores, during the period vessel is a “foreign going vessel”. As per Section 2 (21) of the Customs Act, ‘foreign going vessel’ means any vessel for the time being engaged in the carriage of the goods or passenger between any port in India and any port outside India. The vessel or ships in the present matters are not falling within the definition of the foreign going vessel and as such the provisions of Section 87 are not applicable. The Board’s Circular No. 37/96 dated 3-7-96 has been issued after consulting World Customs Organization, Brussels and according to which ship stores including drinks and foodstuffs are classifiable separately in their own appropriate headings. The Circular also mentions that fuel and oil contained in the vessel machinery and engine can only be regarded as forming integral part of the vessel and to be classifiable along with the vessel under heading No. 89.08, that the Circular, further provides that remaining fuel and oil has to be classified separately in their own appropriate heading. We find force in the submissions of the ld. Advocate that the engine room, tank is to be considered as containing fuel and oil in the vessel, machinery and engine. The fuel and oil contained in other tanks will fall within the category of “remaining fuel and oil” which is covered by Para 2(d) of the Circular. Accordingly, the fuel and oil in engine room tanks will be classified with the ships under Heading 89.08 and the fuel and oil in other tanks will be classifiable in their own headings and duty will be charged accordingly. The fuel and oil in other tanks and foodstuff will be charged to duty separately.

8. All the appeals are disposed of in the above terms.

Equivalent 2003 (151) ELT 636 (Tri. - Del.)

Equivalent 2003 (054) RLT 0619