2014(11)LCX0136

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

S/Shri P.R. Chandrasekharan, Member (T) and Ramesh Nair, Member (J)

J.M. Baxi & Co.

Versus

Commissioner Of Cus. (Import), Mumbai

Final Order Nos. A/102-108/2015-WZB/CB, dated 25-11-2014 in Appeal Nos. C/86330-86332, 86724-86726 & 87210/2013-Mum

Cases Quoted -

Collector v. Wood Craft Products Ltd. - 1995 {77) ELT 0023 (S.C.) - Relied on [Para 4.2]
Commissioner of Trade Tax, P.P. v. Kartox International - 2011(04)LCX0035 Eq 2011 (268) ELT 0289 (S.C.)
- Referred [Para 3]
Pardeep Aggarbatti v. State of Punjab - 1997 (96) F..I..T. 219 (S.C.) - Referred [Para 3]

Advocated By -

S/Shri V. Sridharan, Sr. Advocate & T. Vishwana-
than, with Ms. Priyanka Patel, Ms. Lakshmi Menon & Ms. S. Priya, Advocates, for the Appellant.
S/Shri K.M. Mondal, Special Consultant & Senthil Nathan, Dy. Commissioner (AR), for the Respondent.

[Order per : P.R. Chandrasekharan, Member (T)]. -

There are 7 appeals arising from Order-in-Original No. 19/2013/CAC/CC(I)/AB/Gr. VB, dated 14-2-2013 passed by the Commissioner of Customs (Import), New Custom House, Mumbai. Vide the impugned order, the Id. adjudicating authority has confirmed a customs duty demand of Rs. 9,24,04,082/- along with interest thereon by classifying vessel 'Go Hind Sagar' imported by the appellant M/s. Hind Offshore Pvt. Ltd. (HIPL in short) under CTH 8905 19 90 as "Seismic Survey Vessel". He has imposed penalties on the following appellants under various provisions of the Customs Act (for their involvement in the transaction) as detailed below :-

Aggrieved of the same, the appellants are before us.



2. The submissions made by the Id. Counsel for the appellant can be summarised as below :-


(a) Dispute pertains to classification of the vessel "Geo Hind Sagar" imported by the appellant, which according to them is classifiable under CTH 8906 of the Customs Tariff whereas the department's contention is that the vessel is classifiable under CTH 8905 of the said Tariff.


(b) The vessel "Geo Hind Sagar" is used for undertaking Seismic study of the ocean floor and its subterranean surface. Seismic vessel is built with many special features including facilities for the seismic research crew, the instruments, helideck and quiet engines. The vessel mainly contains seismic instruments for recording of seismic data and controlling seismic streamer and energy sources firing. The navigation system consists of linkages to satellites, radio system, compasses, and various positioning control devices and monitors. The navigation or positioning equipment consist of buoy systems containing navigation instruments. Tail buoys are attached to the end of each of the streamers furthest from the vessel. Additional buoys can be attached to the source arrays and towing equipment. These are not the only buoys in the system however, and in complex multi streamer/source/boat arrangements, the navigators need a lot of other control and monitoring systems on sources, streamers and any other vessel so that the relative positions of all the equipment can be recorded. The seismic cable or streamer detects the very low level of reflection energy that travels from the seismic sources, through the water layer, down through the earth and back, up to the surface, using pressure sensitive devices called hydrophones. The hydrophones convert the reflected pressure signals into electrical energy, which is digitized and transmitted along the seismic streamer to the recording system on board the seismic vessel, where the data is recorded on magnetic tapes.


(c) The scope of using seismic methods in the exploration of petroleum reserves has been discussed in detail in Chapter 5 of the Chemistry and Technology of Petroleum. As per the said book, "seismic geophysical work is also carried out on the water, greatly aiding the search for oil on the continental shelves and other areas covered by water. A marine seismic project moves continually, with detectors towed behind the boat at a constant speed and fairly constant depth. Explosive charges are detonated at a position and time determined by the speed of the boat, so that a continuous survey of the reflecting horizons can be obtained."

(d) The vessel "Geo Hind Sagar" has installed a lot of equipment on board to perform the various functions and these are, Navigational Equipment, Seismic Survey/Research Equipment comprising of air guns, streamers, Seismic Data recording and processing equipment, facility for the personnel such as geo-physicists, etc., required for processing of seismic data and analysis. The details of various equipment are given in the technical specifications for the vessel which consists of Safety equipment, Seismic recording instrument, Deck machinery, Navigation Aids, Streamers, Energy source communication and Onboard processing.


(e) In particular the valuation report given by Sugao Shipping Japan while classifying the vessel as a 'seismic survey vessel' against Sr. No. 10 gives the details of the navigation equipment which consist of GMDDS, GPS, Radars, Gyro, Wind sensor, Navigation Echo Sounder, Electronic chart, Sonar, Tow system and so on.


(f) The Chartered Engineer's Certificate dated 7-10-2012 in respect of vessel also gives the vessel particulars and concludes that "Geo Hind Sagar" has to perform her task of conducting the research of sea bed by navigating a vast survey area running into hundreds of kilometers. The navigation of vessel is an important requirement for the activity she conducts. On the basis of survey, it has been certified that "Geo Hind Sagar" is a 'Seismographic Research Ship'.

(g) In the vessel survey report of Det Norske Veritas, Norway, given in August, 1998, the vessel has been classified as a seismic Research Ship. Further, the Indian Registry of Shipping in the provisional registration certificate dated 22-12-2009 and Final Certificate dated 8-2-2010, had classified 'Geo Hind Sagar' as a 'Seismographic research ship' and accordingly, the vessel was described as 'seismographic research vessel' in the import documents. During the investigation, the custom department also had written to the Director General, Shipping requesting to undertake survey of vessel to determine whether 'Geo Hind Sagar' is a seismographic research vessel or not. On the direction of the Director General Shipping, another survey was undertaken by the Indian Registry of Shipping with the assistance of C.S. Rao, Surveyor to Indian Registry of Shipping. In the certificate dated 12-5-2010 issued after undertaking the survey and examination at length and physical verification of the vessel, the surveyor has certified that "Geo Hind Sagar" is a seismographic research ship.


(h) The appellant had entered into contract with the ONGC on 9-3-2011 and as per the said contract, the vessel will be used for undertaking the seismic survey of the areas/zones as specified. The said contract with the ONGC in para A9 to Appendix-A, describes in detail the navigational equipment requirements and work/quality control standards for navigation to be fulfilled by the vessel in question. Similarly in the contract entered into with National Centre for Ant-arctic and Ocean Research (NACOR) dated 7-2-2014 for undertaking survey of the area demarcated as per the contract specifically shows the navigational and work requirement required to be fulfilled by the vessel. These evidences on record clearly establish the fact that navigational capability of the vessel is an important requirement and it is not subsidiary to the main function of the vessel.


(i) From all the above evidences available on record, it is clear that "Geo Hind Sagar" is a seismographic research vessel and does not merit classification under CTH 8905 dealing with "light vessels, fire floats, dredgers, floating cranes, and other vessels, the navigability of which is subsidiary to their main function". As per HSN Explanatory Notes, vessels falling under Heading 8905 normally perform their main function in a stationary position and they include light vessels, drill ships, fire, floats, dredgers of all kinds, salvage ships for the recovery of sunken vessels, permanently moored air/sea rescue floats, bathyscaphes, pontoons fitted with lifting or handling machinery and so on. The vessel in question does not perform its main function of survey/research in a stationary position and the navigational ability of the vessel cannot be considered to be subsidiary to its main function. On the other hand CTH 8906 is the residuary entry covering all other vessel not covered by Heading 8901 to 8905. In particular, it covers scientific research vessels as is evident from the HSN Explanatory Notes. Therefore, the vessel merits classification under CTH 8906 attracting 'nil' rate of duty. Accordingly he pleads for allowing the appeals.

2.1 The Id. Counsel for the CHA, J.M. Baxi & Co., their agent, M/s. Ar-ya Offshore Service P. Ltd. and Shri Rajendra Devadiga, Manager (Operations) submits that they had filed the bill of entry and connected import documents, based on the documents given to them and as per the instructions received and accordingly they had classified the vessel as falling under CTH 8906. At the time of import, the custom officers had boarded the vessel and inspected/examined the same and also perused the various documents pertaining to vessel and had provisionally allowed the clearance of the vessel under CTH 8906. Therefore, the CHA and its agents cannot be faulted/held responsible for any misdeclaration at all.


2.2 Similarly, the counsel for Shri Hemant Kumar Joshi, Surveyor to the Indian Registrar of Shipping submits that there is no statutory obligation on him to perform any function under the Customs Act. He had surveyed the vessel as per the request received for classification of the vessel by the IRS and accordingly had examined the vessel and based on the documents given and the survey undertaken, he has classified the vessel as seismic research vessel. Therefore, he had not violated any of the provision of the Customs Act warranting any penal action.


3. The Id. Special Consultant appearing for the Revenue, on the other hand, contended that seismic vessels are a special class of vessels in which navigability is not its predominant purpose /function and therefore, the vessel merits classification under CTH 8905. CTH 8905 covers vessels undertaking specific functions, such as dredging, fire fighting etc. Since the seismic vessel is essentially a survey vessel, the principle of NOSITUR A SOCIIS would apply. Reliance is placed on the Apex Court decision in the case M/s. Pardeep Aggarbatti v. State of Punjab and Others, 1997 8 SCC 511 = 1997(10)LCX0012 Eq 1997 (096) ELT 0219 (S.C), wherein it was held that "Entries in the Schedule of sales tax and Excise Statutes list some articles separately and some articles are grouped together; when they are grouped together each word in the entry draws colour from the other words, therein. This is the principle of NOSITUR A SOCIIS." Reliance also placed on the decision of Apex Court in the case of Kartox International [2011(04)LCX0035 Eq 2011 (268) ELT 0289 (S.C.)], wherein also the principle of NOSITUR A SOCIIS was applied. It is contended that the seismic survey vessels are akin to the class and 'colour' of vessels, indicated in CTH 8905 and therefore, it cannot be consigned to the residuary entry "Other Vessels" covered by CTH 8906. It is also argued that off-shore seismic survey involves a ship towing a seismic source and is therefore akin to a tug. The seismic survey, work undertaken is designed to identify oil exploration targets and therefore, such a vessel cannot be considered as a research vessel. Further Notification No. 21/2002-Cus., dated 1-3-2002 grants exemption to seismic survey vessels subject to obtaining certificate from the Directorate General of Hydrocarbon, if used for oil exploration work. This would also imply that the goods are otherwise dutiable. It is also submitted that in the memorandum of agreement for sale the vessel and the bill of sale dated 10-12-2009, the vessel has been described as a seismic survey vessel. In the application made by the appellant to the Government of India, Ministry of Shipping for the purpose of registration, the appellant has declared the vessel as a seismic survey vessel and even in the technical in-formation pertaining to the vessel, it has been described as a seismic survey vessel. It is accordingly contended that being seismic survey vessel, it cannot be equated with a research vessel and therefore, the vessel would merit classification under CTH 8905. Consequently the duty demand confirmed in the impugned order is sustainable in law and the persons connected with the import clearance transaction are liable to penalty for aiding and abetting misclassifica-tion of vessel with an intent to evade customs duty.


4. We have carefully considered the submissions made by both the sides.


4.1 The competing entries of classification are CTH 8905 and CTH 8906 and they are reproduced below :-

4.2 According to HSN Explanatory Notes, heading 8905 covers vessel which perform their main function in a stationary position. The vessels covered by the said entry include light vessels, fire-floats, dredgers, floating cranes, floating docks; floating or submersible drilling or production platforms and all other vessels which perform their main function in a stationary position. On the contrary the vessel under import undertakes seismic survey of the sea bed and its subterranean surface in large area running into hundreds of square kilometers. Such survey vessels, cannot obviously perform the function if it remains in a Stationary position. This is material and significant difference in the nature of the function undertaken by 'Geo Hind Sagar' when compared with the vessels of CTH 8905. Further from the contracts entered into with ONGC and NACOR, it is seen that the vessel should possess significant navigational capability to undertake and perform the tasks assigned and there are specific standards laid down in this regard. If the vessel has to undertake the survey at constant speed and depth, its navigability cannot be said to be subsidiary to its main function and both are equally important. Further as per HSN Explanatory Note, vessels falling under CTH 8906 include scientific research vessels; laboratory ships, weather ships, etc., within its ambit. It is a settled position in law as held by the Hon'ble Apex Court in the case of Collector of Central Excise, Shillong v. Wood Craft Products Ltd. [2002-TIOL-278-SC-CX-LB = 1995(03)LCX0070 Eq 1995 (077) ELT 0023 (S.G)] that for resolving any dispute relating to tariff, classification, a safe guide is the internationally accepted nomenclature emerging from the HSN.


4.3 From the various certificates given by the authorities (both in India and abroad) including Indian Registry of Shipping and the professional surveyors who have undertaken the examination and classification of the vessel, the vessel in question is a "seismic research vessel". Seismic research is scientific research and therefore, the vessel is a scientific research vessel. There is no evidence produced by the Revenue to the contrary by way of any expert opinion and therefore, the contention of the Revenue that the vessel merits classification under CTH 8905 does not have any sound basis and accordingly, we reject this contention. An argument has been advanced by the Revenue to the effect that a survey vessel cannot be equated with a research vessel. We do not find any rational basis for this argument. The purpose of any scientific survey is to gather reliable data and from the analysis of the data, scientifically valid conclusions can be drawn. Thus collection of data is an integral part of any empirical scientific research and cannot be treated as a separate or distinct activity.



4.4 Revenue has placed reliance on the principle of NOSITUR A SOCIIS. As per this principle, entries in the schedule of sales tax and excise statutes list some articles separately and some articles are grouped together; when they are grouped together, each word in the entry draws colour from the other words, therein. If we apply above principle to the fact of the present case, heading 8905 refers to light vessels, fire-floats, dredgers, floating cranes, floating docks; floating or submersible drilling or production platforms and other vessel navigability of which is subsidiary to the main function. In other words what can come under CTH 8905 are only such vessels whose navigability is subsidiary to its main function. As observed in the preceding para, this condition is not satisfied in the present case and therefore, this principle has no application whatsoever to the facts obtaining herein.



4.5 It is a settled position in law that the primary responsibility of classification lies on the Revenue. In the present case there is not an iota of evidence (by way of expert opinion) produced by the Revenue to show that in respect of a seismic research vessel, the navigability is subsidiary. On the other hand, the technical specifications of the vessel, registration certificates issued in respect of the vessel by the competent authorities/expert surveyors in the field, the various contracts entered into by appellant for the vessel clearly show that the vessel is equipped with sophisticated navigational instruments/equipment and the navigational capability is a major pre-requisite to undertake the specific tasks assigned to the vessel. It is also evident that vessel undertakes the survey while being continuously on the move at constant speed and depth. The vessels of heading CTH 8905 do not have this capability and they perform their main function in a static/stationary position. Therefore, the principle of NOSITUR A SOCIIS quoted by the Revenue apart from being misplaced, in fact goes against the Revenue's contention. In our considered view, CTH 8906 which covers scientific research vessels is the most appropriate classification in respect of a seismic research vessel. Since there is no duty liability on the vessels falling under CTH 8906, the entire customs duty demand confirmed in the impugned order completely fails. Consequently the confiscation of the vessel and the penalties imposed on the main appellant and its officials, the CHA, its agent/officials and the surveyor of the Indian Register of Shipping are clearly unsustainable in law and have to be set aside and we do so. We also note that the penalty imposed on the Surveyor of the Indian Register of Shipping is completely bereft of any logic or reason and amounts to abuse of statutory powers. There is no statutory obligation on the Surveyor of the IRS to perform any functions under the Customs Act. If such an authority performs his function under some other statute, even if wrongly, the same cannot amount to any violation of the provisions of the Customs Act. Suffice to say that the finding of the adjudicating authority in this regard is quite perverse and is strongly condemnable. The C.B.E. & C. and the Chief Commissioner of Customs should issue suitable directions to its subordinate officers so as to prevent misuse/abuse of quasi-judicial power so that the taxpayers at large do not lose confidence in the departmental dispute resolution mechanism. We direct the registry to forward a copy of this order to the ju-risdictional Chief Commissioner of Customs and to the Chairman, C.B.E. & C. for appropriate and necessary action.



5. In view of the foregoing factual and legal analysis, we set aside the impugned order and allow the appeals with consequential relief, if any, in accordance with law.
(Operative part of the order pronounced in the Court)

Equivalent 2015 (318) ELT 0688 (Tri. - Mumbai)