CVD Exemption on Vessels Converted to Coastal Run: Madras High Court Ruling
Introduction
The Madras High Court has delivered a significant judgment in the matter concerning the levy of countervailing duty on vessels that underwent conversion from foreign-run operations to coastal-run operations. The principal question before the Court was whether vessels imported into the country before the issuance of notification no. 12/2012-Cus. dated 17.03.2012 would attract countervailing duty [CVD] liability when subsequently converted for coastal operations. This ruling has far-reaching implications for shipping companies and vessel importers across the nation.
Background of the Dispute
Vessels Under Consideration
The petitioner, a prominent shipping entity, approached the Court challenging the demand notice dated 11.07.2012 pertaining to two specific vessels named 'Jug Rahul' and 'Jug Rishi'. The revenue authorities had issued communications demanding payment of countervailing duty following the conversion of these vessels from foreign-going operations to coastal-run operations.
Import Timeline
The vessel 'Jug Rahul' was brought into India during 2005. At that juncture, the prevailing customs regulations did not mandate the submission of a Bill of Entry, and consequently, none was filed. The second vessel, 'Jug Rishi', had its Bill of Entry submitted on 28.03.2011. Both these importation events occurred substantially ahead of the notification dated 12/2012.
Notification Framework
The contested communication from the revenue department made reference to Notification No. 12/2012, wherein serial number 462 provided that goods falling under tariff heading 8901, pertaining to foreign-going vessels, would receive exemption from basic customs duty (BCD) as well as CVD. However, this exemption came with a stipulation requiring payment of appropriate duty upon conversion of such vessels to coastal-run operations.
Judicial Precedent from Orissa High Court
Great Eastern Shipping Company Ltd and Ors v Union of India and Ors
The petitioner drew the Court's attention to a judgment rendered by the Orissa High Court in Great Eastern Shipping Company Ltd and Ors v Union of India and Ors. This case involved an identical legal challenge concerning three different vessels - 'Jug Arnav', 'Jag Ratan', and 'Jag Rani'. These vessels had entered Indian waters on 30.04.2003, 13.11.2007, and 26.08.2011, respectively.
Prospective Application Principle
The Orissa High Court had categorically held that Notification No. 12/2012 would operate prospectively and could not adversely affect imports that had already been completed prior to 17.03.2012, which was the date of issuance of the notification. This principle of prospective application became crucial to the determination of the present case.
Revenue's Acceptance
An important factor highlighted before the Madras High Court was that the revenue department had accepted the Orissa High Court's decision without filing any appeal against it. This acceptance indicated that the ratio laid down in that judgment had attained binding force and should be consistently applied to similar factual scenarios.
Legal Distinction Between Goods and Conveyances
Supreme Court Clarification
The judgment extensively relied upon the authoritative pronouncement of the Supreme Court in Commissioner of Customs, Mumbai v Aban Loyd Chiles Offshore Ltd. This landmark decision elaborated on the fundamental distinction between vessels as 'goods' and vessels as 'conveyances' under the customs framework.
The Supreme Court had observed:
"13. To appreciate the controversy, it is necessary to understand certain concepts as envisaged under the Act. `Goods' for the purpose of the Act includes vessels, aircrafts and vehicles as defined in sub-section (22) to Section 2, yet the distinction has to be recognized between a vessel or an aircraft as a mere good and when the vessel or an aircraft comes to India as a conveyance carrying imported goods. When a vessel or an aircraft is imported into India as a good, customs duty is payable thereon. However, when a vessel is used as a conveyance of an imported good, the position would be different."
First Entry Principle
This distinction becomes particularly significant because customs duty liability arises when a vessel enters Indian territory for the first time as 'goods'. After this initial import, the vessel transforms into a 'conveyance' for customs purposes. Subsequent entries and exits from Indian waters do not constitute fresh imports, and therefore, the vessel itself does not attract customs duty on these occasions.
Critical Date for Determining Liability
Date of Import as Decisive Factor
The Madras High Court emphasized that the determinative event for attracting liability under Notification No.12/2012 must be the original date of import, rather than any subsequent utilization of the vessel as a conveyance. In the instant case, the critical dates of import were 2005 for 'Jug Rahul' and 2011 for 'Jug Rishi', both predating the notification by considerable margins.