2014(03)LCX0234

IN THE CESTAT, WEST ZONAL BENCH, AHMEDABAD

S/Shri M.V. Ravindran, Member (J) and H.K. Thakur, Member (T)

WADIA BOAT BUILDERS

Versus

Commissioner Of Central Excise & Service Tax, Daman

Final Order Nos. A/10326-10331/2014-WZB/AHD, dated 3-3-2014 in Appeal Nos. E/173, 174, 176 & 177/2010-DB and E/l 0061/2013-DB

Cases Quoted -

Barot Exports - 2006(05)LCX0289 Eq 2006 (203) ELT 0321 (G.O.I.) - Referred [Para 5]
BE Office Automation Pvt. Ltd. v. Commissioner - 2004(06)LCX0010 Eq 2004 (171) ELT 0460 (Tribunal)
-Referred [Para 4]
Collector v. Nuchem Plastics Ltd. - 1998 (101) L.L.I. 120 (Tribunal) - Referred [Para 4]
Collector v. Nuchem Plastics Ltd. - 1999(03)LCX0040 Eq 2003 (157) ELT A085 (S.C.) - Referred [Para 4]
Commissioner v. Carrier Aircon Ltd. - 2006(07)LCX0005 Eq 2006 (199) ELT 0577 (S.C.) - Referred [Para 4]
Commissioner v. Ravi Foods Ltd. - 2011(03)LCX0288 Eq 2011 (271) ELT 0436 (Tribunal) - Referred [Paras 5, 9.2]
Commissioner v. Simplex Mills Co. Ltd. - 2005(03)LCX0009 Eq 2005 (181) ELT 0345 (S.C.) - Referred [Para 4]
CS India Steel Pvt. Ltd. - 2009(02)LCX0129 Eq 2009 (239) ELT 0496 (AAR) - Referred [Para 4]
Dunlop India Ltd. v. Union of India - 1975(10)LCX0016 Eq 1983 (013) ELT 1566 (S.C.) - Referred [Para 4]
GSL (India) Ltd. - 2010(09)LCX0286 Eq 2012 (276) ELT 0116 (G.O.I.) - Referred [Para 5]
H.C.L. Ltd. v. Union of India - 1992(03)LCX0043 Eq 1992 (059) ELT 0507 (Cal.) - Referred [Para 41
Hydraulics India Services Pvt. Ltd. v. Commissioner - 2013 (294) ELT 163
(Tribunal) - Referred [Paras 5, 9.2]
Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner
-1991(08)LCX0031 Eq 1991 (055) ELT 0437 (S.C.) - Referred [Para 5]
Menor Ploatel I td. v. Commissioner - 1999(02)LCX0272 Eq 1999 (111) ELT 0933 (Tribunal) - Referred [Para 4]
Motor Industries Co. Ltd. v. Assistant Collector - 1992(03)LCX0008 Eq 1992 (062) ELT 0013 (Mad.) - Referred [Para 4]
\etlon India Ltd. v. Commissioner - 2000(08)LCX0307 Eq 2000 (121) ELT 0675 (Tribunal) - Referred [Para 4[
New Century Impex v. Commissioner - 2002(03)LCX0084 Eq 2002 (142) ELT 0701 (Tribunal) - Referred [Para 4]
Poulose and Mathen v. Collector - 1997(02)LCX0119 Eq 1997 (090) ELT 0264 (S.C.) - Referred [Para 4]
Rajasthan Industries v. Commissioner - 2005(12)LCX0269 Eq 2006 (196) ELT 0295 (Tribunal) - Referred [Paras 5, 9.2]
Repro India Ltd. v. Union of India - 2007(12)LCX0289 Eq 2009 (235) ELT 0614 (Bom.) - Referred [Paras 5, 9.2]
Semco Electrical Pvt. Ltd. v. Commissioner - 2009(12)LCX0078 Eq 2010 (018) STR 0177 (Tribunal) - Referred [Para 5]
Shrenik Pharma Ltd. - 2011(06)LCX0252 Eq 2012 (281) ELT 0477 (G.O.I.) - Referred [Para 5]
Sun Export Corporation v. Collector - 1997(07)LCX0044 Eq 1997 (093) ELT 0641 (S.C) - Referred [Para 4]
Super Spinning Mills Ltd. v. Commissioner - 2009(07)LCX0407 Eq 2009 (247) ELT 0805 (Tribunal)
- Referred [Paras 5, 9.2]
Tatra Trucks India Ltd. v. Commissioner - 2008(04)LCX0079 Eq 2008 (227) ELT 0269 (Tribunal) - Referred [Para 4]
Terai Overseas Ltd. v. Commissioner - 2001(07)LCX0097 Eq 2001 (134) ELT 0337 (Cal.) - Referred [Para 4]
Texla Enterprises v. Commissioner - 2002(07)LCX0164 Eq 2002 (145) ELT 0537 (Tribunal) - Referred [Para 4]
Texport Industries Pvt. Ltd. v. Commissioner - 2011(08)LCX0091 Eq 2011 (024) STR 0553 (Tribunal)
- Referred [Paras 5, 9.2]
Vinergy International Pvt. Ltd. - 2011(05)LCX0190 Eq 2012 (278) ELT 0407 (G.O.I.) - Referred [Para 5]

Advocated By -

S/Shri V.S. Nankani, V.K. Jain, Amit Laddha and
Ms. Dimple Goh.il, Advocates, for the Appellant.
Shri Raju, Jt. DR,for the Respondent.

[Order per : M.V. Ravindran, Member (J)]. -

All these appeals raise the common question of law and facts and hence are being disposed of by the common order.


2. The relevant basic facts, which are taken from the appeals of M/s. Wadia Boat Builders (hereinafter referred to as "WBB") and M/s. ABC, Shipyard (hereinafter referred to as "ABG") indicates that M/s. Raymond Ltd. has placed an order on M/s. WBB for manufacturing of "wooden hull motor yacht". M/s. WBB after entering into contract with M/s. Raymond Ltd. made wooden hull with super structure like lower deck, main deck, upper deck and sun deck. WBB fitted ancillary items like engines, propeller, shafts on the said wooden structure and vide their letter dated 23-10-2003 delivered the wooden hull and super structure to M/s. Raymond Ltd. and also issued the invoices dated 7-9-2004 for the work undertaken by them indicating therein wooden vessel bare hull and al-lowed the said structure towed to M/s. ABG, Surat for carrying out further work. After the investigation conducted by the Department, it was noticed that the wooden vessel hull cleared by the appellant would merit classification under Heading 89.03 of CETA and liable to Central Excise duty. Investigation was also further carried to M/s. ABG and it was found that M/s. ABG also did not discharge the Central Excise duty on the completion of the yacht. The authorities issued show cause notice to both M/s. WBB and M/s. ABG directing them to show cause as to why Central Excise duty be not demanded from them along with interest, penalties be not imposed on them and individuals (whose appeals are listed) also directed to show cause as to why penalties be not imposed on them for violation of various provisions of Central Excise law. The entire tenor of show cause issued to M/s. WBB and M/s. ABG was on the ground that there was misclassification of the structure under Chapter Heading 89.06 of CETA while the said structure cleared by M/s. WBB and M/s. ABG was correctly classifiable under 89.03 of CETA. The adjudicating authority in the case of M/s. WBB as well as M/s. ABG did not accept the contentions raised by the noticees, confirmed the demands that interest imposed involved penalties on M/s. WBB and M/s. ABG and also imposed on the individuals.


3. Ld. Shri V.S. Nankani (Advocate) along with Shri Amit Laddha (Advocate) appeared on behalf of M/s. WBB and individuals, while Advocate Shri V.K. Jain along with Advocate Ms. Dimple Gohil appeared on behalf of M/s. ABG and Revenue was represented by Shri Raju - Commissioner (Authorized Representative).


4. The submissions made by Id. Counsel of M/s. WBB is summarized as under :
> The relevant point under consideration is whether the structure cleared by the appellants had acquired essential character of a vessel of a particular kind? The said structure would be classifiable under Chapter Heading No. 8906 if the same does not have the essential character of a vessel of a particular kind.
> Note to Chapter 89 of CETA provides that a Hull, an unassembled or incomplete vessel, assembled, unassembled or disassembled or a complete vessel unassembled or disassembled, is to be classified in Heading No. 8906 if it does not have the essential character of a vessel of a particular kind. In the present case, the respondent has not shown any evidence which proves that the said structure has the essential character of a Pleasure Yacht at the time of clearance of the goods from the factory of the appellants. Burden is upon the Department to prove that the said structure had attained essential character of Yacht. On the contrary, the appellants proved with evidences to substantiate its claim in respect of classification of structure that wooden bare hull with bare structure cleared by them were classifiable under Chapter Heading 8903.

> Term "Hull" and "Yachts" or "pleasure Yacht" has not been defined in CETA and therefore meaning provided in various dictionaries are required to be taken into consideration :

Hull - The body or frame of a ship, airship, flying ship, etc.
Oxford English Dictionary (1995) at pg. 689.

A term used in its widest sense to signify the ship itself exclusive of masts, funnel and top hamper, but including superstructure.

SB Sarkar's "Words and Phrases of Excise, Customs & Service Tax, 4th Edit on, at pg. 2081.
Yacht - A light sailing vessel equipped for racing, a large usu. Power driven vessel equipped for racing
Oxford English Dictionary (1995)

A light fast sailing vessel, a sailing steam powered etc. vessel elegantly fitted out for pleasure trips or racing
The Chambers Dictionary

The terms "hull" and "yacht" as have been defined in the Wikipe-dia is reproduced hereinunder :

Hull - hull is the body of a ship or boat. It is a central concept in floating vessels as it provides the buoyancy that keeps the vessel from sinking.

General Features

Nearly all watercraft, from small boats to the largest ships, adhere to a general form that serves the needs of stability and efficient propulsion, featuring :

o Horizontal cross-sections that have narrow, usually pointed, fronts (at the bow).

o Smooth widening from the bow until roughly the middle of the length (midships), and often narrowing smoothly but usually significantly to the extreme end (the stem), whose width may range from a large to an insignificant fraction of the beam.

Yacht - A yacht is a recreation boat. It designates two rather different classes of watercraft, sailing and power yachts. Yachts arc differentiated from working ships mainly by their leisure purpose On perusal of the above definition, it is clear that a hull is a mere frame of a vessel and its main function is to provide stability and buoyancy to vessel in order to keep them from sinking. It is not navigable on its own and has no other utility. In contrast, a Pleasure Yacht is a vessel complete with all the amenities such as living accommodation in the nature of cabins/rooms/suites, decks, etc.

> The respondent failed to appreciate the fact that hull and yacht are completely distinct and different in terms of their utility /use and functions. While all vessels including a Yacht will have a hull as its central concept/foundation for the purpose of sailing and navigation, however, a vessel cannot be said to be a hull and it will have its own characteristics, utility and functions.

> The respondent failed to appreciate the fact that the structure constructed by them was not capable of being used as such as with minor adjustments as the said structure was merely a wooden hull in which engines and other ancillary facilities was just fitted, which is standard practice of construction of a hull. For considering the said structure as a Yacht, various items as mentioned at page Nos. 139 and 140 of Memo of Appeal are required to be fitted on the vessel to consider the same as "Yacht". The said equipments, accessories and other essential fittings or fixtures were not fitted by the appellants at the time of clearance of goods from its factory, but it appears from the proceedings that the same were fitted into the said structure/hull at ABG Shipyard Ltd. and Green Line Yacht Interiors lnd. Co. LLC, Dubai respectively. In the following decisions, it is held that classification of a product is to be determined on the basis of the condition in which it is removed from the factory and subsequent processing and resultant product cannot determine the classification of a product at the time of clearance from the factory.

a. Nelton India Ltd. v. C.C.Ex. - 2000(08)LCX0307 Eq 2000 (121) ELT 0675 (T).

b. CCEX v. Nuchem Plastics Ltd. - 1998(03)LCX0030 Eq 1998 (101) ELT 0120 (T) - af
firmed by the Hon'ble Supreme Court reported in 2003 (157)
ELT A85.

c. CS India Steel Pvt. Ltd. - 2009(02)LCX0129 Eq 2009 (239) ELT 0496 (AAR).

> The respondent failed to appreciate the fact that the structure/hull cleared by the appellants was without having equipments/characteristics of the pleasure yachts mentioned at Page Nos. 140 and 141 of Memo of Appeal and the same were fitted later on by ABG Shipyards Limited and Green Line Yacht Interiors Inds. Co. The structure made by the appellants was having the following components :

o Hull and Superstructure without doors/windows
o Sea/fresh water, fuel systems electrical cabling, AC Piping which were partially done
o Alignments of the two main engines and shafts
o Generators commissioned and dummy load tested.
It is clear from the perusal of the equipments/characteristics of the pleasure yacht and the said structure that

o The vessel was launched at the appellants yard as an incomplete hull, and was thereafter taken in tow by an ocean going tug and towed to Dubai for fitting.
o The said structure was not capable of self propulsion.
o The said structure was not capable of steering herself.
o The said structure had no living accommodation available.
o The said structure had no navigational capabilities.
o The said structure was not fitted with communication equipment.

Therefore, the structure cannot be said to have essential character of a pleasure Yacht inasmuch as the said structure is not capable of being used as such that manner adjustments as major work was required for construction of the pleasure yacht. In the case of Tatra Trucks India Ltd. v. CCL, reported in 2008 (227) ELT 269, the issue was arisen whether product viz. "Dumper" Chassis manufactured by the assessee has acquired the essential characteristic of "Dumper" and therefore, is to be classified as finished goods viz. Dumper. The Hon'ble Tribunal while examining the products and their characteristics held that products manufactured by the assessee has not acquired the essential character of the finished products viz. "Dumper" as the function/characteristics of the said product is different from the finished products viz. "Dumper".

In the present case, the said structure is incomplete and cannot be said to have acquired the essential character for pleasure yacht as the said structure does not contain the components required for manufacturing of pleasure Yacht. It is submitted that in terms of Note 1 to Chapter 89 and sub-rule (a) of Rule 2 of the General Rules of Interpretation, a hull, an unfinished or incomplete vessel, assembled, unassembled or disassembled merits classification only under Heading 8906 so long as it does not have the essential character of a vessel of any particular kind. In other words, the classification of the said structure dependent on the meaning of the expression "essential character" and whether the said structure had attained the "essential structure of a pleasure Yacht". The Hon'ble Madras High Court in Motor Industries Co. Ltd. v. Assistant Collector of Customs -1992(03)LCX0008 Eq 1992 (062) ELT 0013 (Mad.) and Texla Enterprises v. CC reported in 2002(07)LCX0164 Eq 2002 (145) ELT 0537 (T) on the issue as to when can a incomplete or unfinished goods be said to have essential character of complete or finished goods for the purposes of classification has held that the incomplete or unfinished goods can said to attain the essential character of compete and finished products when the articles are capable of being used as such without the said articles being subjected to any further process, except for some minor adjustment. In the present case the appellant had made detailed submission in their reply to show that to become a yacht the said structure required major additions. In fact, as aforesaid, the said structure, in the state in which the same was cleared, was not even a complete vessel in as much as it did not have important attributes of being steered and navigated, which is central to all vessels, whatever be the nature. The vessel even lacked basic necessities and amenities like anchor and/or its allied outfit, equipment and accessories, mooring ropes, navigational lights, search lights, fire fighting equipments, lighting and allied electrical systems, sanitary system, weather light hatches, sea water inlet and outlet etc. The vessel thus was merely a floating structure without any capability of being identified as any particular kind of vessel. As submitted by the appellants in Paragraph 4.13 of their reply to the show cause notice there were at least 37 identifiable equipments/components necessary for making the said structure into a vessel, much less could it be called a yacht meant for pleasure.

> It is submitted that CCE v. Simplex Mills Co. Ltd., 2005(03)LCX0009 Eq 2005 (181) ELT 0345 (S.C.); CCE v. Carrier Aircon Ltd., 2006 (147) STC 421 (S.C.) = 2006 (199) ELT 577 and Dunlop India Ltd. v. UOl, 1975(10)LCX0016 Eq 1983 (013) ELT 1566 (S.C.) to state that recourse to General Interpretative Rules cannot be had when classification is determinable on the basis of Chapter and Section notes and descriptions of tariff headings and sub-headings and that the end-use of goods subsequent to clearance from factory cannot determine classification which has to be decided as per the condition of the goods at the time of clearance.

> The respondent failed to appreciate the fact that the cost involved in making the said structure was Rs. 6,79,50,000/- which form a small part of total cost of construction of pleasure yacht which was Rs. 65.42 crores. The said difference in the cost was due to the fittings of various machines, equipments and other essential accessories which were required for manufacture of pleasure yacht in Dubai. It is submitted that cost of goods constructed by the appellants shows that the appellants constructed wooden hull which was thereafter used for the construction of the pleasure yacht. In the following decisions, it is held that if the total cost of equipments/parts imported is less than that of the complete/finished products then, such equipments/parts cannot be said to have acquired the essential character of the finished products :


(a) HCL v. Union of India -1992(03)LCX0043 Eq 1992 (059) ELT 0507 (Cal.)
(b) B.E. Office Automation (P) Ltd. v. C.C. - 2004(06)LCX0010 Eq 2004 (171) ELT 0460 (T)
(c) New Century Impex v. CC - 2002(03)LCX0084 Eq 2002 (142) ELT 0701 (T)


> The appellants place reliance upon the decisions of Menor Floatel Ltd. v. C.C, Calcutta -1999(02)LCX0272 Eq 1999 (111) ELT 0933 (T).

> The respondent failed to appreciate that in terms of Rule 1 General Rules of Interpretation of Tariff ("GRI" for short) classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes. Rule 2(a) of GRI itself provides that any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. Thus Rule 2(a) would apply in case where the incomplete or unfinished article demonstrates essential/distinct characteristics of the complete or unfinished article. Where the article concerned is prima facie classifiable under two or more headings, Rule 3(a) provides that the heading more specific to the article in question ought to apply. Applying the aforesaid Rules of Interpretation of Tariff to the case on hand it is amply clear that the said structure does not have the essential char-acteristics of a yacht much less a pleasure yacht the same is required to be classified under Customs Tariff Heading 8906 as claimed by the appellants.

> The respondent failed to appreciate the fact that it is settled law that while classifying an article the heading most specific to the same ought to be preferred. In the instant case Chapter Heading 8906 is the most specific heading when considered in the light of Note 1 to Chapter 89 read with Rule 2(a) and Rule 3(a) of the GRI and, therefore, the same ought to be preferred as against the Heading sug-gested by the department.

> Without prejudice to the submissions and in any event the respondent failed to appreciate that it is settled law as held by the Hon'ble Supreme Court in case of Poulose and Mathen v. CCE, 1997 (090) ELT 264 in case of issues relating to classification where two opinions are possible, assessee should be given benefit of doubt and the opinion favourable to it should be given effect to. In Terai Overseas Limited v. Commissioner, 2001 (134) ELT 337 the Hon'ble Calcutta High Court held that if two opinions are possible in the matter of classification of goods, assessee to be given benefit of doubt and opinion favourable to assessee to be given effect to. The Hon'ble Supreme Court in case of Sun Export Corporation v. CC, 1997 (093) ELT 641 held that in case of classification of goods assuming that there are two views possible, it is well settled that one favourable to the assessee in matters of taxation has to be preferred.

> Without prejudice to all the submissions, the respondent failed to appreciate that in any event the said structure was ultimately exported to Dubai for carrying out other jobs. It is well known that the stated policy of the Government of India is that exports ought not to be taxed. Thus duty, if any, paid on the said structure even otherwise would have been refunded.

> Without prejudice to the aforesaid and in any view of the matter the respondent failed to appreciate that in the instant case the said structure was manufactured and thereafter cleared in the month of October, 2003, while the show cause notice was issued on 20-6-2008 by invoking the larger period of limitation. The issue in the present case was a pure question of law viz. classification of the said struc-ture. The issue clearly is interpretation of the tariff entries. There can be no allegations of mala fide in the issue as in the present case merely because the appellant interpreted the tariff headings differently.


5. Ld. Counsel appearing on behalf of M/s. ABG made submission which on merits are :

(i) While adopting the argument made by the counsel for M/s. WBB on the classification of the case, it is the submission the burden of classification is on the department. It is submitted that the adjudicating authority has proceeded on erroneous premises that vessel at M/s. ABG's yard obtained essential character of a yacht. He would submit that the department's arguments is contrary to their own inasmuch as, if the wooden structure which was received by them is classifiable as a yacht, further work undertaken by the appellant on such an act cannot result in manufacturing of another yacht.

(ii) Without prejudice to the submissions made, the demand which has been raised on M/s. ABG along with interest and penalties imposed, are totally untenable inasmuch as it is admitted fact in the show cause notice as well as findings of the authority that, on completion of the job given to M/s. ABG, the vessel was exported to Dubai under shipping bill No. F-30/04-05, dated 9-2-2005. He would then draw our contention to the copy of the shipping bill annexed in the appeal memoranda and also draw our attention to the various documents like examination report of the customs authority and would submit that the vessel Which was cleared for export was incomplete wooden cargo vessel ASHEMA and declaration was in conformity to declaration in the invoices and the packing list sub-mitted. It is his submission that the appellant had in fact on their own paid service tax on the activity conducted by them on the wooden structure received from M/s. WBB. It is his submission that the appellant had categorically stated in the service tax returns that they are undertaking an activity of repairs and maintenance/job work on the boat received from M/s. WBB.

(iii) It is his submission that the following case laws specifically record that when goods have been exported, no duty can be demanded.

(a) Barrot Exports v. CC, 2006(05)LCX0289 Eq 2006 (203) ELT 0321 (G.O.I.)
(b) Rajasthan Industries v. CC, 2005(12)LCX0269 Eq 2006 (196) ELT 0295 (Tri.-Del.)
(c) CCE, Hyderabad v. Ravi Foods, 2011(03)LCX0288 Eq 2011 (271) ELT 0436 (Tri.-Bang.) '
(d) Shrenik Pharma ltd. v. G.O.I., 2011(06)LCX0252 Eq 2012 (281) ELT 0477 (G.O.I.)
(e) Vinergy International Pvt. Ltd. v. G.O.I., 2011(05)LCX0190 Eq 2012 (278) ELT 0407 (G.O.I.)
(f) GSL (India) Ltd. v. G.O.I., 2010(09)LCX0286 Eq 2012 (276) ELT 0116 (G.O.I.)
(g) Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, 1991(08)LCX0031 Eq 1991 (055) ELT 0437 (S.C.).

(iv) It is also his submission that it is a settled law by the various decisions of the Tribunal that only goods have to be exported and not duties and taxes thereon. He submits that this proposition of the law is clearly applicable for in the appellant M/s. ABG's case as it is not in dispute with the said vessel/wooden structure received from M/s. WBB was clear for export to Dubai for further activity of construction of luxurious yacht. He would rely upon following cases in the proposition:

(a) Hydraulics India Services Pvt. Ltd. v. CCE, Bangalore, 2011-TIOL-1752-CESTAT-BANG = 2011(10)LCX0360 Eq 2013 (294) ELT 0163 (Tri.-Bang.)

(b) Super Spinning Mills v. CCE, Coimbatore, 2009(07)LCX0407 Eq 2009 (247) ELT 0805 (Tri.-Chennai)

(c) Semco Electrical Pvt. Ltd. v. CCE, Pune, 2009(12)LCX0078 Eq 2010 (018) STR 0177 (Tri.-Mumbai)

(d) Repro India Ltd. v. I/O/, 2007(12)LCX0289 Eq 2009 (235) ELT 0614 (Bom.)

(e) Texport Industries Pvt. Ltd. v. CCE, 2011(08)LCX0091 Eq 2011 (024) STR 0553 (Tri.-Mumbai).

6. Ld. Departmental Representative on the other hand would draw our attention of the provisions of CETA, 1985 and more specifically to the Chapter No. 89. He would submit that the said chapter starts with the note which would indicate that hull will get classified into Chapter Heading No. 89.06 only, if it does not have essential character of vessel of particular kind. He would submit that the product hull cleared by M/s. WBB had already attained an essential character of a yacht. After taking us through the various findings of the adjudicating authority, he would submit that the hull which was cleared by M/s. WBB was in fact could not have been used for any other purpose other than a yacht. He would also draw our attention to the explanatory note of HSN as regards Chapter 89 and submit that the wooden structure as cleared by M/s. WBB was rightly classified under Chapter 89.03. He would read the findings recorded by the adjudicating authority for the classification of the product in Chapter Heading No. 89.03. He would submit that there being a misstatement extended period was correctly invoked by the authorities. As regards the arguments put forth by the counsel for M/s. ABC, the Id. DR submits that the adjudicating authority has correctly recorded the findings against M/s. ABG.


7. Heard both sides and perused the records.


8. We have to put on record that though the case of demand of duty of M/s. WBB and M/s. ABG are indicated, the findings need to be recorded individually in this case.


9. As regards the demand of duty on M/s. ABG since the issue involved is a short question, is whether duty liability arises on export of goods or not. Both sides agreed and did riot dispute the fact that M/s. ABG had received a wooden structure from M/s. WBB for further fittings in their shipyard, it is also undisputed that the appellant M/s. ABG had undertaken further activity on the wooden structure received from M/s. WBB and they had discharged the service tax liability on such job work undertaken by them on behalf of M/s. Raymond Ltd. under Business Auxiliary Services.

9.1 The main plank of confirmation of demand of duty against M/s. ABG is on the ground that M/s. ABG had misclassified the activities and had manufactured the yacht and the said yacht was having essential character for classification under 89.03 of CETA, 1985. We find that the adjudicating authority, though recorded various findings on the said classification, the main issue which is not considered is regarding the fact that when the goods/yacht in the condition it was cleared from M/s. ABG, was in fact exported by filing the shipping bill No. F-30/04-05, dated 9-2-2005. The findings of the adjudicating authority on this submission is not correct as even if shipping bill is filed by M/s. Raymond Ltd., the declarations made on such bill indicates that the said yacht was for all practical purposes, cleared for export from premises of M/s. ABG, is supported by the following documents (scanned copies).
Date: 07* February 2005
The Port Officer, Magadaila Port, Surat
Sub: Incomplete Wooden Cargo Vessel "Ashena" on tow Harmony -1
Dear Sir,
Please refer to Hie above subject, this Is to request your good office thai incomplete wooden vessel (Hull) arrived in our Shipyard -o:. farther Job w "* was docked in our yard on 29^ dciotUr 2003. For your information the said i
was built at Blliimora and after completion of the job work the said vessel w * undocked on 06.02.05 and as per the instruction of our principal, the vessel w .1 be towed to Dubai on tow Harmony -1 for final job work.
This is for your kind information and needful action please.
Thanking you,
Yours fail ForABflSfcbipyard Ltd.
(Authorised Signatory)
It can be noticed from the above scanned copies of the documents that M/s. ABG had been always stating that the yacht is to be exported from their premises which has been allowed by the port officer as well as customs au-thorities. In view of the above, we hold that the adjudicating authority has erred in coming to the conclusion that the yacht was cleared from the M/s. ABG shipyard to home consumption. Yet in an another angle to the ABG's case, we find that M/s. ABG had considered the activities undertaken by them as a job work and had paid the service tax on such activities undertaken by them and reported the same to the authorities. In our view, the holding the services as being manufacturing activities may not arise as there is no dispute to the fact that M/s. WBB had cleared a wooden hull with super structure to the appellant, on which further activities were undertaken; the resultant structure was cleared for further fitment to Dubai, in terms of these, it cannot be held that the appellant M/s. ABG had intention to evade duty and hence misclassified the product. We also find strong force in the contentions raised by the Id. Counsel that if the goods have been exported, there cannot be any demand of duty and the minor procedural irregularities, if any, ought to be condoned, is the law settled by various decisions of the Tribunal. We also agree to the proposition that only goods have to be exported not duties and taxes thereon.
9.2 In view of the foregoing, we are of the view that the impugned order which confirmed the demand against M/s. ABG along with interest and imposed penalties is unsustainable in law and needs to be set aside to that extent, we do so. Since we have disposed of the appeal of M/s. ABG on merits itself, we are not recording any findings on various other submissions made by both sides.


10. Now, this takes us to appeal filed by M/s. WBB against the demand of the duty on the wooden structure cleared by them by holding the classification under Chapter Heading No. 89.06 and consequent penalties.

10.1 We have considered the submissions made by both the sides on the issue. Undisputed facts are M/s. Raymond Ltd. had placed an order of a complete yacht with M/s. WBB. M/s. WBB had manufactured a wooden structure a hull with the super structure and cleared the same to M/s. ABG shipyard for further activities of converting the said wooden structure into a yacht. It is pertinent to consider the rival headings i.e. heading No. 89.03 as claimed by Revenue and 89.06 as claimed by the assessee which is as under :


"Heading No. Sub-heading No. Description of goods Rate of duty
89.03 8903.00 Yachts and other vessels for pleasure or sports; rowing boats and canoes 16%
89.06 8906.00 Other vessels, including warships and lifeboats other than rowing boats Nil"

It is also pertinent to reproduce note to Chapter 89 which is as under :
"CHAPTER 89 SHIPS, BOATS AND FLOATING STRUCTURES
Note:

A hull, an unfinished or incomplete vessel, assembled, unassembled or disassembled, or a complete vessel unassembled or disassembled, is to be classified in Heading No. 89.06 if it does not have the essential character of a vessel of a particular kind."

It can be noticed from the various documents on record that M/s. Raymond Limited had placed an order for design, structure, supply and delivery of wooden hull motor yacht on M/s. WBB on 12-12-2000. On perusal of records, it transpires that a quotation given by M/s. WBB to an enquiry from M/s. Raymond Ltd. for wooden hull motor yacht, we find that the order placed by M/s. Raymond Ltd. was in respect of a "wooden hull motor yacht". Even, if it is contended by M/s. WBB that they could not construct a complete yacht but what was constructed in WBB's yard was a hull with super structure, it had an essential character of a yacht. This factual position is disputed by Id. Counsel for M/s. WBB by reading chapter note and stated that essential character of a vessel of a particular kind has to be read as these should be presence of an independent/complete yacht in place. We do not agree with the proposition made by the Id. Counsel, as in our considered view, hull which has came into existence in WBB's premises, by any stretch of imagination could not have been used for any other floating structure other than a yacht. The essentiality of constructing a yacht has been laid down by the hull and super structure built by M/s. WBB. The argument of the Id. Counsel that the said wooden structure cleared by them cannot be termed as a yacht or vessel for pleasure as it lacked so many minimum requirements like electrical wirings and other navigational equipments, fail, as in our view the words "essential character of vessel of a particular kind" needs to be read as to whether the hull and super structure thereon satisfies the basic requirement of a yacht or any other floating vessel or a structure. In our view the findings recorded by the adjudicating authority that the wooden hull cleared by M/s. WBB has attained character of a yacht is correct and the classification as done by the adjudicating authority under Chapter Heading 89.03 does not require any interference.

10.2 On merits, we find that the appellants arguments needs to be rejected and the classification as done by the adjudicating authority has to be upheld.

10.3 The appellants M/s. WBB have been canvassing before the authorities that they had bona fide belief that the said hull cleared by them gets classified under 89.06 and not under 89.03 and at the most it can be a question of misclassi-fication which does not require invocation of extended period for demand of duty. In our view, the submissions made by the Id. Counsel needs due weightage for more than one reason. Firstly, it is seen, from the records that the appellant M/s. WBB had raised a bill on M/s. Raymond Ltd. in the month of October, 2003 and indicated therein wooden vessel bare hull, the bona fide belief of the appellant that this vessel bare hull can be classified under 89.06 as other vessels, cannot be called in dispute as the note to Chapter 89 can be understood in more than one way. It is also to be noted that though they had taken such a specific plea before adjudicating authority, the adjudicating authority in the discussion and findings has not recorded any reasoning for disagreeing with the appellant on the invocation of extended period. Secondly, on perusal of the entire OIO in the case of M/s. WBB, we find that adjudicating authority has not recorded a single finding on the limitation, but has recorded the findings on merits, confiscation and interest and penalties, we hold that it is necessary for adjudicating authority to record some findings on the question of limitation. To that extent we find that matter needs reconsideration. Upholding the classification as done by the adjudieating authority, in respect of the goods cleared by M/s. WBB, we remand the matter back to him for recording findings on limitations as canvassed by M/s. WBB, and can reconsider the issue of interest and penalties on M/s. WBB.


11. Since the entire issue in all these appeals is of interpretation of the entries in Chapter 89, we find that there was no reason for visiting individuals (who are appellants herein) with penalties. Accordingly, penalties imposed on all individuals who have filed appeals before Tribunal, are set aside and their appeals are allowed.


12. All the appeals are disposed of as indicated hereinabove.
(Pronounced on 3-3-2014)

Equivalent 2015 (315) ELT 0123 (Tri. - Ahmd.)