Case Law Details
P. J. Johnson & Sons Ship Chandlers & Engineers Vs Commissioner of Customs (CESTAT Bangalore)
Introduction: In a landmark decision, the Customs, Excise, Service Tax Appellate Tribunal (CESTAT) in Bangalore quashed a penalty levied against P. J. Johnson & Sons Ship Chandlers & Engineers. The Tribunal maintained there was no violation of Section 89 of the Customs Act, upending the original verdict to revoke their permission to operate as ship chandlers.
Analysis: The penalty was imposed following an incident involving the export of 2,00,000 3-ply non-woven masks to the Philippines Navy vessel BRP Davao Delsur, deemed as a violation of the Customs Act. However, the Tribunal argued that the appellant had adhered to the Customs Act, demonstrating compliance by filing a Manual Shipping Bill, obtaining permission from the jurisdictional officers, and evidencing the masks’ use for the Philippines Government’s COVID-19 mitigation efforts. The counsel also argued that as ‘Ship Stores,’ the applicability of the DGFT Notification is irrelevant. Thus, the imposed penalty and revocation of permission to operate as ship chandlers were deemed unwarranted.
Conclusion: The CESTAT ruling exemplifies the complex interplay between export rules and the Customs Act. This verdict clarifies that the operation as a ship chandler, when executed within the guidelines of the Customs Act, can withstand the scrutiny of a penal imposition. It highlights the importance of due diligence and documentation in navigating the legal seas of custom duties and international shipping, thus serving as a precedent for similar cases in the future.
FULL TEXT OF THE CESTAT BANGALORE ORDER
P. J. Johnson and Sons Ship Chandlers and Engineers, the appellant herein, was permitted to carry out regular Ship Chandler’s work at Cochin port vide Order in F. No.S25/290/2017- I & B. Cus; dated 3.1.2020.
2. On investigation, it is found that 2,00,000 Nos. of 3 ply non-woven masks which were loaded into the Philippines Navy vessel BRP DAVAO Delsur as ships stores were carried to Philippines. The said goods appeared to fall under prohibited items for export as per DGFT Notification No. 44/2015-2020 dated 31.1.2020 amended vide Notification Nos. 47/2015-2020 dated 8.2.2020, 48/2015-2020 dated 25.2.2020 and No. 52/2015-2020 dated 19.3.2020, hence notice was issued to the appellant for revocation of permission granted for operating as Ship Chandler’s and penalty under Section 117 was also proposed.
3. In the impugned order, the Commissioner held that as per Section 89 of the Customs Act, 1962, stores are to be freely However, the goods to be supplied onboard the foreign going vessel as stores should be in such quantum taking into cognizance the number of passengers and crew and the length of voyage. He further states that even ascertaining the passengers and crew on board numbers about 280 as declared by the appellant, the number of masks required would be 68600 and therefore 2,00,000 masks supplied onboard was seer violation of the provisions of Customs Act, 1962. He holds that the appellant should have intimated to the department and refused to carry out the activity except with the express permission and hence, he has failed in his duty as a ship chandler. Accordingly, revocation of order to operate as ship chandler was issued and Rs.4,00,000/- penalty was imposed on the appellant under Section 117 of the Customs Act, 1962.
4. The learned counsel on behalf of the appellant took us through the Trade Facility Notice No.71/2013 dated 23.5.2015 where simplified custom procedures for supply of fuel, ship stores, provisions and fresh water to vessels on Cochin port has been laid down. Accordingly, the appellant vide their letter dated 5.5.2020 sought permission to file manual shipping bill which was admittedly permitted by the Preventive Officer. Manual Shipping Bill was filed for export of duty-free goods wherein it was clearly mentioned number of boxes as 59 boxes, description of the goods as non-woven 3-fold mask (3 ply) (Donation to Government of Philippines) quantity mentioned as 2,00,000 pieces which was assessed and Let Export order was issued and allowed for shipment. Letter dated 6.5.2020 is also on record, which is an application for daily/weekly pass where the name of the vessel is clearly mentioned as ‘PH NAVY VESSEL – BRP DAVAO DELSUR’ and the items are also mentioned as’ supply of non-woven 3-fold mask (3 ply) 59 Box to the vessel’, which is signed by the jurisdictional officers. Letter dated 6.5.2020 of the appellant is extracted below:
4.1 They also placed on record the letter dated 14.5.2020 issued by Embassy of the Republic of Philippines, New Delhi to the Commissioner of Customs stating that 2,00,000 pieces of disposal 3 ply masks were loaded on to the Philippines Navy Vessel, in support to the Philippines’s Government efforts to mitigate the impact of COVID19 Pandemic. In view of the above, permissions granted by the respective authorities for exporting the same, the question of suspension of his permission or imposing of penalty does not arise. Hence, requested for allowing the appeal.
5. The learned Authorised Representative for the Revenue submits that since the case were prohibited, the question of allowing these goods for export was not correct and hence, the authorities were right in revocation of the permission and imposing penalty.
6. It is an admitted fact that 2,00,000 of 3 ply non-woven masks which were loaded on to the Philippines Navy vessel BRP DAVAO Delsur was meant for Philippines Government. The Trade Facility Notice No.17/2019 dated 23.5.2019 clearly laid down the procedures for ship stores which was followed by the appellant by filing a Manual Shipping Bill and clearly mentioning that supply of non-woven 3-fold mask (3 ply) 59 Boxes were being shipped on to the vessel. The appellant has placed all the necessary permissions and records filed and signed by the respective authorities at different stages. It is also an admitted fact that the goods are meant for Philippines Government as is admitted by the Embassy of Republic of Philippines, New Delhi vide their letter dated 5.2020 issued by Embassy of the Republic of the Philippines, New Delhi which is reproduced herein below:
EMBASSY OF THE REPUBLIC OF THE PHILIPPINES
NEW DELHI
14 May 2020
Dear Commissioner Yousaf,
Greetings from the Embassy of the Philippines in New Delhi.
Please be informed that a maximum of fifty-nine (59) boxes of medical cargo containing 2,00,000 pieces of disposal (3 ply) anti dust and ear loop face masks were loaded onto the Philippine Navy Vessel BRP Davao del Sur (LD 602) in the Port of Cochin, Kerala, India on 07 May 2020 as a donation to the office of the Civil Defense of the Philippine Department of National Defense in support of the Philippine Government efforts to mitigate the impact of the COVID- 19 pandemic.
The port of destination will be at Pier 13, South Harbor, Manila, Philippines.
Hence, it appears that the appellant (Ship Chandler) had not deviated nor violated any of the provisions of the Customs Act, 1962 and there is no allegation in the impugned order of violation of any of the provisions of the Customs Act, 1962.
6.1 Since the goods were ‘Ship Stores’, the applicability of the DGFT Notification is not relevant. The only allegation stated by the Commissioner in the impugned order is Section 89 of the Customs Act, 1962 which reads as follows:
‘Stores to be free of export duty’ – Goods produced or manufactured in India and required as stores on any foreign going vessel or aircraft may be exported free of duty in such quantities as the proper officer may determine, having regard to the size of the vessel or aircraft, the number of passengers and crew and the length of the voyage or journey on which the vessel or aircraft is about to depart.”
The above provisions clearly state that the Proper Officer i.e., the customs authorities have to determine taking into consideration the size of the vessel or aircraft the number of passengers and crew and the length of the voyage on which the vessel or aircraft, have to determine the quantity that need to be supplied as stores on to the vessel. Hence, it was the duty of the concerned authorities to verify these facts before allowing 2,00,000 of 3 ply non-woven masks having been permitted and loaded on to the Vessel, they cannot now turn around and make the appellant having grossly failed in his duty to intimate the authorities.
7. In view of the above discussions, the Appellant in fact has followed all the procedures and with necessary permissions has loaded the said goods on to the vessel. In view of this, the impugned order is set aside and the appeal is allowed.
(Order pronounced in open court 26.07.2023.)
