Case Law Details

Case Name : A.G. Enterprise Vs. Commissioner of Customs (Preventive)
Appeal Number : [(2014) 51 taxmann.com 71 (Ahmedabad - CESTAT)]
Date of Judgement/Order :
Related Assessment Year :

A.G. Enterprise (the Appellant) are ship breakers, who imported old and used ships for purpose of breaking up. At the time of ship breaking, the ships/ vessels contained Marine Gas Oil (HSD) [MGO (HSD)] in the tanks of the vessel in addition to the MGO (HSD) lying in the tank of the ship engine. In terms of the Agreements, buyers of the ships/ vessels also take over the oil bunkers, unused lubricants and unused stores and provisions at the port of delivery of the ships/ vessels without any extra payments. Hence, the commercial invoice showing the purchase of the ships/ vessels does not disclose any extra price for the MGO (HSD) etc., so acquired by the Appellant. The Appellant paid the applicable duty on MGO (HSD).

The Revenue contended that MGO (HSD) is a canalized item as per ITC (HS) 2012, Schedule I of import policy and HSD is subject to import only through IOC subject to Para 2.11 of the Foreign Trade Policy (FTP) and imports of such MGO (HSD) is restricted and hence will be classified accordingly.

Thereafter, both the Lower Authorities held that the Appellant has contravened the provisions of Para 2.11 of the FTP, thus ordered confiscation of MGO (HSD) under Section 111(d)of the Customs Act, 1962 (the Customs Act) read with CBEC clarification issued under F. No. 528/74/2012-GTO(TV) dated January 22, 2013 (CBEC Clarification).

Being aggrieved, the Appellant preferred an appeal before the Hon’ble CESTAT, Ahmedabad wherein the Appellant contented that in terms of EXIM Policy Heading 27 10 1940 and 20 10 19030, LDO and HDO are canalized items to be imported only through State Trading Agencies and vessels and other floating structures for breaking up are classified under EXIM code 8908 00 00 of the same EXIM Policy, import of which is free.

Further, MGO (HSD) is not separately imported but is received along with the ships/ vessels as ship stores, along with other ship stores and no extra price is paid for such MGO (HSD), hence as per DGFT Clarification vide letter F.No. IPC/4/5(684)/97/82/PC-2(A) dated June 26, 2013 (“DGFT Clarification”) surplus fuel stored in the fuel tanks (whether inside or outside the engine room) form an integral part of the vessels machinery and is classifiable under EXIM code 89.08 of the EXIM Policy.

The Hon’ble Tribunal, Ahmedabad relying on the decision made in the case of Cine Land Vs. Commissioner of Customs [1999 (114) ELT 653 (Tri. – Chennai)] and after observing that in terms Para 2.3 of FTP if any doubt arises in respect of classification of any item in ITC (HS) or HPBv1 or HBPv2 or Schedule of DEPB Rates, it should be referred to DGFT whose decision shall be final and binding, held that:

  • In the matters of FTP, DGFT Clarification will be binding on theCustoms as against CBEC Clarification;
  • As per DGFT Clarification, surplus fuel stored in fuel tanks of the ships/ vessels imported for breaking up should be considered as an integral part of the ships/ vessels and thus classifiable under ITC(HS) 89.08 along with the main vessel, import of which is free;
  • Hence, MGO (HSD) cannot be held as liable for confiscation under Section 111(d) of the Customs Act and no penalties are imposable upon the Appellant.
(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)

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