2013(03)LCX0078

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

Ms. Archana Wadhwa, Member (J) and Shri B.S.V. Murthy, Member (T) Third Member on Reference : Shri M.V. Ravindran, Member (J)

Priya Blue Industries Ltd.

Versus

Commissioner of Customs, Jamnagar

Final Order Nos. A/W501-10504/2013-WZB/AHD, dated 14-3-2013 and Misc. Order Nos. M/195-198/2009-WZB/AHD, dated 17-12-2008 in Appeal Nos. C/613-614/1999 and 324-325/2008

Cases Quoted -

Commissioner v. Dhakad Metals Pvt. Ltd. - 2008 (229) ELT 0402 (Tribunal) - Inapplicable [Paras 19,24]

Continental Petroleum v. Commissioner - 1999(12)LCX0050 Eq 2001 (137) ELT 1437 (Tribunal) - Referred [Para 6]

Union of India v. Indian Aluminium Co. Ltd. - 1995(04)LCX0130 Eq 1995 (077) ELT 0268 (S.C.) - Referred [Para 12]

Advocated By -

Shri B.L. Narasimhan, Advocate, for the Appellant.
Shri Sameer Chitkara, SDR, for the Respondent.

[Order per : B.S.V. Murthy, Member (T)]. -

The impugned order has been passed as per the directions of the Tribunal in the order Nos. A/270-271/2006-WZB/C-II(CSTB), dated 8-3-2006 [2006(03)LCX0098 Eq 2006 (199) ELT 0140 (Tri.-Mumbai)] on an appeal filed by the Revenue and the relevant paras are reproduced below :-

"5. On consideration of the rival submissions, we find that there is no finding thereof that the area where the vessel was permitted to be beached is not declared by the Customs as Customs area. Therefore the vessel cannot be said to have been removed from Customs area before the out of charge order was given. The wireless equipment and Radio room were required to be broken to avoid misuse as per instructions on the subject and this was carried out '-y the officers of Customs in compliance to Board's instructions. The liabil' / to confiscation under Section lll(j) of the Customs Act, 1962 therefore cannot be upheld.

6. In this view of the matter, when no conclusive evidence would be available for upholding the confiscation under Section 111 (J) as regards the liability of duty of sludge/sediments, the marketability of the said item & use, has to be established and duty can be determined once it is found to be commercial quantity and was not manifested and not declared, then liability to confiscation of the vessel and the goods could be determined along with duty on such sludge/sediments. For this purpose, the orders are set aside and the matter is remitted back to determine the liability to duty and consequent confiscation and penalty on the two appellants could be determined. In this view of the matter, the order is set aside and the matter remitted back to re-determine the issue of liability from the sludge/sediments as arrived at thereon above and thereafter the question of confiscation and penalty to be determined after hearing the assessee importer."

However two appeals filed by the appellants No. C/613, 614/99 remained pending. This order disposes of all the appeals.


2. Heard both the sides. The LD. Advocate Shri B.L. Narasimhan on be-half of the appellants submits that the Department has failed to prove the marketability of the sludge/sediments. He contends that the Commissioner has relied upon two bills of entries filed by two other importers wherein they have paid duty classifying the sludge/sediments under CTH 2710; reliance has also been placed on the Asst. Commissioner's report saying that the recognized recy-clers of used/waste oil revealed that the goods in question are usable as industrial fuel after recycling. He has also relied upon the opinion of the Chemical Examiner, according to which, the Flash point is 65 deg. C, density at 15 deg. C. is 0.93191 gm/ml and Smoke point is less than 10 mm; the Chemical Examiner also said that the sample contained approximately 4% water. He submits that they had let out the sludge into the sea which cannot be admitted in view of the pollution control laws. However, the LD. Advocate submits that no evidence has been put forth by the Revenue to show that the product is marketable. He further submits that CVD is not leviable on the product since similar products are not manufactured in the country. This is in view of the fact that this is the left over in the crude oil tanker which cannot be sold as part of the crude oil. Further LD. Ad-vocate also drew out attention to the survey report. According to the LD. Advocate, survey report also shows that the product under consideration is a residue of crude transported over a period which could not be taken out of the tank and remained in the tank. He also submits that the Commissioner has confiscated the vessel under Section 115 on the ground that the vessel has been used to transport sludge/sediments and therefore has been held to be liable for confiscation. He admits that there is no limitation involved in this case.


3. Ld. DR on the other hand submits that the Department has shown that the goods are marketable in view of the fact that there are re-cycling units which are engaged in the business of re-process of used /waste oil and further the sludge/sediments could not have been let out in the sea in view of the pollution control laws and also in view of the fact that there are recyclers who are willing to purchase the same. He also drew our attention to the observations of the Commissioner in para 26 wherein he has discussed in details about marketability. Further he also drew our attention to para 27.1 of the order of the Commissioner wherein he has observed that the appellant have been giving different versions about the disposal of sludge/sediments before different authorities. Further even before the CEGAT in their cross-objections, assessees have submitted that sludge/sediments cannot be dumped out in the open. Further he also drew our attention to the observations of the Commissioner wherein Shri S.P. Mehta in his statement dated 26-3-1997 had stated that the contents in Tank No. 8 (product under dispute) were drained into the sea for maintenance of ballast while breaking the ship. Once the ship is safely beached for breaking, question, arises where is the need for maintenance of ballast.


4. We have considered the rival submissions. We feel that the contention of the Revenue that the product is marketable has to be upheld in view of the following :-

(a) The product cannot be let out to the sea which is contrary to the pollution control law and therefore it has to be necessarily sold or disposed of as per the law.

(b) Recyclers are available for used/waste oil and the Department has reported that the product can be used as industrial fuel after the same is made fit for the same by the recyclers. This shows that there is a market and recyclers would be willing to take the same.

(c) The fact that other two importers have filed the bills of entry and paid duty and cleared the same also supports the view of the Revenue.

(d) The appellants have not been able to show why evidence produced by Revenue is not acceptable.

(e) The appellants also have not been able to show why the arguments put forth by the Revenue are not acceptable.

(f) The contradictory statements of the appellants regarding the sludge/sediments also supports the contention of the Revenue.

(g) The Chemical Examiner's report also shows that the product fulfils the requirements for classification under chapter 2710 and this has also been not disputed.


5. In view of the above, we hold that the classification and dutiability as held in the order are correct and we uphold the same. The value has not been disputed and accordingly the same is upheld.


6. As regards CVD, we do agree with the LD. Advocate that this item cannot be considered as a manufactured item. This is in view of the fact that the LD. Advocate's argument is based on the theory that the sludge/sediments arise as a result of the process of storage of crude oil and transport and removal thereof from the tank. It cannot be held that the manufacturing process of sludge/sediment is the storage transportation and removal of crude from the tank even though sludge/sediment would have arisen as a result of the same. We also find that the decision of the Tribunal in M/s. Continental Petroleum v. CC, Ahmedabad reported in 1999(12)LCX0050 Eq 2001 (137) ELT 1437 (Tri.-Del.) supports the case of the appellants as regards levy of CVD. Therefore, we hold that no CVD is leviable. We agree with the LD. Advocate's contention that vessel was not liable for confiscation under Section 115 of the Customs Act. It cannot be said that the intention of the owners was to carry the sludge. The vessel was brought to India for breaking and this is under no dispute. While dutiability of sludge/sediment can be disputed, the confiscation of the vessel in which sludge was found under Section 115 is not justifiable and accordingly set aside. As regards penalty, we find that penalty has been imposed under Section 112 of the Customs Act on the appellants and the Managing Director. However, we find that penalty of Rs. 50 lakhs on the company and Rs. 20 lakhs on the Managing Director is excessive when we see that the total customs duty amounted to only Rs. 13,83,543/- and the value of the goods was only Rs. 26,70,933/-. Accordingly, we reduce the penalty on the appellant-company to Rs. 50,000/- (Rupees fifty thousand only) and on Shri San-jay P. Mehta, Managing Director to Rs. 20,000/- (Rupees twenty thousand only).


7. All the appeals are disposed of on above terms.

(Pronounced in Court on )

Sd/-
(B.S.V. Murthy)
Member (Technical)


8. [Per : Archana Wadhwa, Member (J)]. - As is clear from the order proposed by my LD. Brother, the dispute revolves around the question of marketability of sludge and sediments in the tank of the vessel, which stands imported by the appellant for breaking. Before arriving at a conclusion, we have to keep certain facts in mind. The vessel brought for breaking was a "tanker vessel" used for the transportation of crude oil. The sludge /sediments, which are part of crude oil, accumulate in the tank over a period of time. As per the appellants the same are useless, non-commerce and non- marketable and are to be destroyed or thrown away and therefore the same were not declared in the declaration filed by them. However, the same were declared in the Gas Free Certificate for Hot Work dated 5-12-1996 as also in the declaration in Oil Lab & Marine Surveyors Co. Ltd.'s certificate dated 27-11-1996. Even as per the Surveyors report dated 21-1-1997, sludge/sediment is not considered as cargo and as per IOPP rules cannot be pumped out in the open or protected sea water and as such are retained on board.


9. The Revenue's case is that such sludge and sediments are marketable and classifiable under Heading 2710.00 of the Schedule annexed to the Customs Tariff Act, 1975. For better appreciation, I reproduce the said heading as under :-

"2710.00 : Petroleum Oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations."


10. Revenue has relied upon the chemical test report dated 3-2-1997 of the sample of the sludge/sediments which reads as under :-

"The sample is in the form of black coloured thick free flowing liquid. It is composed of mainly mineral hydrocarbon together with small amount of sediment and water (approx. 4%). It has following constants :-

(i) Flash point 65°C
(ii) Density at 15°C - 0.9301 gm /ml
(iii) Smoke point-less than 10 mm."


11. The appellants have attacked the above report as not correct inasmuch as according to the test report, 96% of the total quantity of sludge/sedi-ments contain mineral Hydrocarbon and only 4% would be sediment and water. They have submitted that the above report is prima facie erroneous inasmuch as the same is not only contrary to normal prudence but is also contrary to the surveyor's report and Gas Free Certificate. If the same is relied upon, then 167.904 MTs out of the total quantity of 174.900 MTs would be mineral oil. If that is so, how such big quantity of oil escaped from the attention of surveyors. Gas Free Certificate and even the Customs authorities. There is also no clarification in the test report as to how physical properties of the thick free flowing liquid oil as indicated in the report can match with the properties of the crude oil/Hydrocarbon. Inasmuch as the said Chemical Examiner was not offered for cross-examination, not much reliance can be placed on the above report, which on the face of itself seems to be self-contradictory.


12. I have seen from the order proposed by my LD. Brother that sludge and sediments have held to be marketable on the ground that the same are being sold to recyclers as also some of the importers have filed bills of entries showing duty payment on the same. My LD. Brother has also referred to the fact that the product cannot be let out in the sea being contrary to Pollution Control Law and as such it is necessary to sell or dispose of the same. Apart from the fact that in the present case, appellants have taken a clear stand that they have not sold the said sludge, it is well settled law that the marketability of a product does not depend upon the stray sales in the market. The test of marketability requires the product "as capable of being bought and sold in the market as a routine" and the same must be having its own identity as a distinct identifiable commodity, which during the normal course of business comes to the market for being bought and sole. The above proposition does not require the support of any judgments, though reference can be made to the Hon'ble Supreme Court's decision in the case of UOl v. Indian Aluminium Co. Ltd. [1995(04)LCX0130 Eq 1995 (077) ELT 0268 (S.C.)]. The nature of the sludge and sediments in the present case needs to be analysed for weigh-ing the marketability, as a fact. The Gas Free Certificates by Oil Lab & Marine Surveyors Co. Ltd. and Govt., of India, Min. of Explosives have stated that the contents of the subject tank has to be considered as SLOP/sludge/sediments having no commercial value. Further the process through which such sludge comes into existence also establishes that the same cannot be considered as commodity known in the commerce and worthwhile to be traded in. It is not in each and every case where some sale has taken place that has to be held as the marketable product. Any waste/rubbish produced can have some use and thus some sale value but this fact itself is not sufficient to establish the marketability, which needs to be established by showing regular sale purchase or the capability of the same being bought to the market for sale purchase purposes or for trading purposes.


13. Further reliance on the bill of entries is also not appropriate in the absence of the details as regards the quality of the sludge imported under the cover of those bills of entries. The origin of the sludge imported is also relevant. There is no indication as to what type of sludge was imported by the other persons. Further, it is seen that the sludge in the present case is in the nature of SLOPs arising from the crude oil tanker vessel and the accumulation of the various impurities at the bottom of the tank over a period of time during the course of transportation of the crude oil. It cannot be said that there was any conscious import of sludge by the appellant, which came along with the ship and failure on the part of the appellant to declare the same was a conscious decision. As such, I agree with the LD. Advocate that the sludge/sediments, accumulated in the tank over a period of time, in the present case cannot be held to be marketable, merely because they can fetch some price in the market for the purposes of recycling.


14. I also note my LD. Brother has recorded that the appellants have not disputed the value of the same and therefore, it is being upheld. However, I note that the appellants have strongly contented that the value of the sludge adopted by the Revenue as the rate of US $ 420 PMT is erroneous and there is no reasons given by the Revenue to adopt such a high value. In any case having held that such import of sludge is not leviable to duty as sold cannot be held as marketable, I give no findings on the disputed issue of valuation.


15. I agree with my LD. Brother as regards the issue of CVD or the con-fiscation of the vessel. As regards the penalty on the company and the Managing Director, having held that no duty liability arising against the appellant, I hold that no penalty is required to be imposed upon them.


16. Accordingly by, I set aside the impugned order in its totality and allow the appeals with consequential relief to the appellant.

Sd/-
(Archana Wadhwa)
Member (Judicial)

DIFFERENCE OF OPINION

(h) Whether the sludge/sediments, in the present case are required to be held as marketable and hence classifiable under Chapter 27 and consequently dutiable, as held by Member (T) or they have to be held as non-marketable and consequently non-dutiable as held by Member (J)?

(ii) As to whether the value of sludge and sediments, was not disputed as held by Member (T) or the same stands disputed by the appellant, as held by Member (J) (even though no finding on the value stands given in view of the order holding sludge/sediments as not marketable.)

(iii) As to whether the penalty on the appellant-company is required to be reduced to Rs. 50,000/- and on Shri S.P. Mehta, Managing Director to Rs. 20,000/- as held by Member (T) or the same is required to be set aside in its totality as held by Member (J).

Sd/- Sd/-
(B.S.V. Murthy) (Archana Wadhwa)
Member (Technical) Member (Judicial)


17. [Per : M.V. Ravindran, Member (J)]. - This Difference of Opinion is placed before me as per the directions of the Hon'ble President to sort out the following differences :-

(i) Whether the sludge/sediments, in the present case are required to be held as marketable and hence classifiable under Chapter 27 and consequently dutiable, as held by Member (Technical) or they have to be held as non-marketable and consequently, non-dutiable as held by Member (Judicial)?

(ii) As to whether the value of sludge and sediments, was not disputed as held by Member (Tech.) or the same stands disputed by the appellant, as held by Member (Judicial), (even though no finding on the value stands given in view of the order holding sludge/sediments as not marketable.)

(iii) As to whether the penalty on the appellant-company is required to be reduced to Rs. 50,000/- and on Shri S.P. Mehta, Managing Director to Rs. 20,000/- as held by Member (Tech.) or the same is required to be set aside in its totality as held by Member (Judicial).
18. Heard both sides and perused the record.


19. Learned counsel appearing on behalf of the appellant submits that the issue involved in this case is marketability of the sludge/sediment oil found in the Tank No. 8 of the vessel TT Theo Strous, brought for breaking by the appellant. He would explain the reasons for such sludge/sediment being present in the Tank No. 8 as to that such sludge was nothing but cleared residue of the oil and other impurities in the tanker. It is his submission as there is prohibition to discharge this kind of oil into sea, the said sludge was in the tank when the ship was brought for breaking purpose. It is his submission that this oil was not declared by the appellant as the same is of no commercial value and for which pur-pose he would rely upon the gas free certificate issued by Oil Lab and Marine Surveyors Company Limited, which indicate that sludge/sediment cannot be considered as cargo and are of no commercial value. Besides being relying upon various other decisions, as were placed before the Bench at first place, he would rely upon the decision of this Bench in the case of Dhakad Metals Pvt. Limited -2008 (229) ELT 0402 (Tri.-Ahmd.) which has been upheld by the Apex Court on an appeal by the department against the judgment of the Hon'ble High Court, which examined the marketability of the waste and has held that distinct identi-fiable of the commodity does not mean it is marketable and marketability needs selling of the commodity to the commerce.


20. Senior authorized representative of the department, on the other hand would submit that the similarly placed ship breakers in the same Commis-sionerate had filed Bill of Entry for the very same product which was found in the hold of the ship which they imported for breaking. He would rely upon the bill of entry dated 29-5-1998 filed by M/s. G.N. Ship Breakers and bill of entry dated 28-5-1998 filed by M/s. Kothi Ship Breaking Industries. It is also his submission that the Revenue has produced evidence of the marketability of the sludge/sediment oil in form of certificate of recyclers who are buyers of such sludge/sediment (oil). It is also his submission that the quantity of such sludge found in the ship TT Theo Strous is of commercial quantity i.e. 174.900 MT, while the quantity which was declared by M/s. G.N. Ship Breakers and M/s. Kothi Ship Breaking Industries were 12.8 MT and 10.8 MT respectively. It is his submission that the chemical test report also indicates that sludge/sediment is composed mainly of mineral hydrocarbon and small amount of segment water which is approximately 4%. He would submit that the goods which were imported, there is no question of any marketability. It is his submission that the reliance placed by the learned counsel is in respect of the products which are manufac-tured in India and the waste arises during the course of manufacture. It is his submission that both the Members have clearly held that CVD is not applicable on the sludge/sediment, which is imported by the appellant.


21. I have considered the submissions made at length by both sides and perused the record.


22. In my considered view, the entire difference of opinion can be sorted by answering only one question, i.e. whether the product which was found in the ship's hold/tank No. 8 is marketable or not.


23. It is undisputed that the appellant herein is a ship breaker and had imported ship for breaking and filed bill of entry "import of vessel and contents therein for ship breaking". In my considered view, the goods that land in India are considered as import, their question of marketability need not be gone into, as the customs duty is leviable on the goods which are imported into India. On the question of classification, I find that the said question of classification does arise as Chemical Test Report indicates that the sludge/sediment (oil) is mixture of hydrocarbon with small water contents which is 4% of the total sludge/sediment found in the ship. Be that as it may, I find that in this case, Revenue has discharged the burden of marketability by producing two bills of entry filed by similarly placed ship breakers, who had procured ship for breaking and had the very same item sludge/sediment oil, which was declared by the said ship breakers in bills of entry dated 28-5-1998 and 29-5-1998, as mentioned hereinabove. If that be so, the marketability of the said product imported, may not be required, but has been proved to be marketable by the trade or commerce of the industry in which the appellant is operating. I also find that there are Government licensed recyclers who are permitted to procure this kind of oil and recycle the same, have given the certificate that said sludge/sediment oil is procured by them and recycled. In my view, though the marketability question does not arise for the goods imported, the Revenue has discharged the said burden.


24. The judgment relied upon by the learned counsel in the case of Dhakad Metals Pvt. Limited (supra) as upheld by the Apex Court will also not carry the case of appellant any further as in that case, the department had failed to produce any evidence to substantiate their charge that the goods are marketable and marketable commodities. In my view, there is sufficient evidence to hold that the products which were imported along with the ship for breaking can be considered as marketable.


25. As regards the valuation of the sludge/sediment oil, I find though the learned Member Judicial has not recorded any findings but has held that there is a dispute as regards the valuation. On perusal of the record, I find it so.


26. In view of the above, the difference of opinion is answered as follows :-

(j) The sludge/sediment oil in the present case is required to be dealt with as marketable and classifiable under Chapter 27, due to the composition of their being found in the chemical examiner's certificate as mixture of hydrocarbons and held to be marketable..

(ii) As regards the value, the valuation to the said sludge which has ar-rived at by the revenue seems to be disputed by the appellant before the lower authorities and the value adopted by the Revenue has not been justified. In my view, since the valuation of the said sludge/sediment is disputed, the correct duty liability needs to be worked out (though this is not a question of dispute between the Members but, as I held that there is a dispute which has been raised by the appellant as regards valuation, hence this clarification by me) in accordance with law.

(iii) As I have already that sludge/sediment is marketable, order passed by the Member (Technical) as to reduction of penalty on the company as well as on the Managing Director, seems to be correct and to that extent I agree with the learned Member (Technical).


27. In view of the above, I hold that the order passed by the Member (Technical) as regards the marketability and demand of customs duty along with penalties imposed, is correct but the valuation for charging customs duty being disputed by the appellant before the lower authorities, the correct amount of customs duty needs to be reworked out.


28. The difference of opinion is disposed of.


29. Registry is directed to place this file before the Members for appro-priate action.

Sd/-
(M.V. Ravindran)
Member (Judicial)

MAJORITY ORDER

30. [Per : B.S.V. Murthy, Member (T)]. - In view of the majority opin-ion, the following order is passed :

(i) The sludge/sediments are held as marketable and hence classifiable under Chapter 27 and consequently dutiable and therefore the impugned order has to be upheld as regards classification and durability.

(ii) The penalty imposed on the appellant-company is reduced to Rs. 50,000/- (Rupees Fifty thousand only) and penalty on the Managing Director Shri P. Mehta is reduced to Rs. 20,000/- (Rupees Twenty thousand only).

(iii) Since the valuation of sludge and sediments for the purpose of levy of duty has been disputed, the matter is remanded to the original adjudicating authority for deciding the valuation aspect.

Sd/- Sd/-
(Archana Wadhwa) (B.S.V. Murthy)
Member (Judicial) Member (Technical)

Equivalent 2013 (293) ELT 0547 (Tri. - Ahmd.)