ORDER
Gowri Shankar, Member (T)
1. This application is for waiver of penalty of Rs. 5.00 crores imposed on the applicant, and for stay of operation of the order of the Commissioner by which he has ordered confiscation under Clauses (d), (f), (g), (h) and (j) of Section 111 of the Customs Act, 1962 of the drilling rig Trident II with an option to redeem it on payment of fine of Rs. 15.00 crores, in addition to any duty and charges payment under Sub-section (2) of Section 125 of the Act.
2. The applicant and the department were heard on 8.3.2000 and 13.3.2000.
3. In the order, the Commissioner finds that the drilling rig had been imported into various designated areas by notification under Section 7(7) of the Territorial Waters, Continental Shelf, Exclusive Economic Zones Act, 1976 to which the provisions of the Customs Act, 1962 had been made applicable. He finds that these areas are part of India. He finds that the rig was first imported into India in 1988 without a bill of entry being filed for it as required under Section 46 of the Customs Act, 1962 (hereafter referred to as the Act for short). After 29.12.1988, it was once again, after long absence brought into designated area without filing a bill of entry and without payment of duty. It was therefore liable to confiscation and the applicant before us liable to penalty for the reason that despite knowing to the contrary they did not comply with the Customs formalities or paid the duty.
4. The contentions raised by the Advocate on behalf of the applicant are summarised below. When the rig was imported and first brought to India in 1988, its presence was indicated in the manifest filed for the ship MV Mighty Servant as a towed rig Trivent. There was a reference to it in light dues receipt at the relevant time it was exempted from duty under Notification 516/86. The rig was on contract with the Oil & Natural Gas Commission (ONGC for short) for various periods up to 1998. In December 1998 after an absence, it was again on contract with ONGC. It was a practice in the department not to insist upon a bill of entry for such drilling rigs and as many as 27 or more rigs have been brought in without a bill of entry being filed. The department failed, despite the applicant asking, to furnish details of such rigs. The bills of entry were filed in three rigs, not during their first entries into the Indian waters but they were purchased much later by Indian parties. This practice has been confirmed by various Courts in the following judgments, (i) Chowgule & Co.Pvt. Ltd. and Anr. v. Union of India and Ors. (ii) Union of India v. V.M. Salgaoncar & Bros. (P) Ltd. ; (iii) Jalyan Udyog, Calcutta and Anr. v. Union of India and Ors. , (iv) Shiva Marketing v. C.C. (Tribunal’s unreported decision). Letters dated 4.12.1989 of the Assistant Collector, and 6.5.1991 of Collector of Customs, and Public Notice dated 17.7.1984 of the Collector all indicate that no manifest has to be filed.
5. The department was fully aware of the view that entry and movement of the rig was evidenced by various documents such as show cause notice dated 17.5.1994 etc., and no action was taken. The import occurs only when the goods cross the Customs barriers or are brought in to the mass of the country, as explained in the Supreme Court’s judgment in Apar Ltd. v. Union of India ; Garden Silk Mills Ltd. v. Union of India , Kiran Spinning Mills v. Union of India . The rigs are therefore not imported goods. The same position will hold true with regard to movement to designated drilling platforms. Since the applicant has acted in accordance with the established practice, the confiscation of the rigs and imposition of penalty are uncalled for.
6. The value of US $ 49 million adopted for the rigs is inflated. This value was indicated by the applicant in a tender submitted to the ONGC. The applicant had given big bond example to earnest for a large amount, which would be forfeited its bid were accepted by the ONGC. Since it was at the same time bidding for another contract, it had deliberately kept the value high. The value was itself reduced by it later to US$ 28 million and it later restricted its liability for payment of duty to US$ 18 million. Two reputed surveyors, Noble Denton Associates and John Lebourhis both valued the rig at US$ 13 million in 1988 and later at US$ 14 million in 1998. There have been actual transactions of comparable rigs Kedarnath at US$ 6 million, lle d’ Amsterdam at US$ 9.55 million and Hitdrill 1 at US$ 14.06 million. These values have not at all been considered.
7. The Bombay High Court, during the pendency of the proceedings before the Commissioner, had permitted the rig to be operated till March 15, 2000. Permitting i not to operate during the pendency of the adjudication would cause irreparable harm not only to the applicant but to the ONGC. The order of the Commissioner itself thus is manifestly illegal and would cause grave hardship and stay of it operation is prayed.
8. In response to enquiries which were made at the earlier date of hearing, it was stated that the ONGC was willing to undertake to give four days’ notice before movement of the rig from the designated area to another designated area. The rig in any case would not be moved after the middle of May when the monsoon set in. Its movement across highseas out of India would entail atleast two weeks preparation and would require specialised craft. Such a movement was not likely to arise in any case since its contract with the ONGC subsisted till 28.12.2000. The applicant in any case would undertake to inform the department well in advance of its movement outside India. It is willing to give bank guarantee to the extent of Rs. 20.00 crores.
9. The learned Advocate for the department contends as follows. It is first contended that it is only after the Tribunal decides to grant waiver of deposit of penalty, that the question of its exercising inherent powers to stay the operation of the order would arise. The rig was not declared as cargo in the manifest which was filed for the vessel ‘Mighty Servant II’ when it was first brought into India in 1988, The provisions of the Customs Act extended to the designated platform ‘NV’ to which the provisions of the Customs Act, 1962 have been made applicable. When the rig was brought into this platform in December 1998 no import procedure was followed. It was not declared in the manifest filed for the vessel which stored it. No separate manifest was filed for the rig either. The rig was liable to payment of duty at concessional rate @ 43% of the Notification 121 /98 subject to production of essentiality certificate from the appropriate authority and otherwise at the tariff rate at around 63%. No duty had either been paid or Customs formalities complied with when it was imported into India. The applicant had taken legal opinion which clearly advised that Customs formalities were required to be complied with and duty payable. The Supreme Court in Chawgule & Co. v. Union of India, have held vessels to be goods for purposes of Section 46(1) of the Act. The Bombay High Court has held in its judgment part of which was up set by the Supreme Court’s judgment. There was no practice of clearance of these rigs without filing bills of entry and only by a manifest. Even if there was a practice, the applicant cannot take advantage of it, contrary to the legal requirement. The duty liability in fact was specified in the charterparty with the ONGC who was to bear the major burden of duty. The applicant’s conduct was therefore clearly designed not to pay duty which it had been advised to pay and otherwise complied with the formalities. Therefore, on merits the applicant has no case. There is no argument of financial hardship and hence waiver of deposit of penalty is not justified.
10. The contention that closure of operation of the rig would cause hardship to the ONGC is belied by the fact that the ONGC itself has not approached the Tribunal claiming any such action. Any hardship would only be caused to the applicant who were earning sizable daily income from the deals. The Customs formalities have been complied with in a number of other rigs, details of which have been intimated. It was clearly indicated the rig as cargo at Singapore. Remy Baizan, District Manager of the applicant, had in his statement admitted its intention not to comply with the Customs formalities.
11. The value of US$ 49 million for the rig was declared by the applicant with the ONGC. The contention that this was necessitated by commercial considerations unconnected with the goods has not been substantiated. The applicant’s undertaking not to remove the rig has to be viewed in the background of Remy Baizan’s District Manager’s conduct, after undertaking not to leave the country without intimation during the investigation, he did so.
12. There is therefore no case for waiver of deposit of penalty or stay of operation of the order of the Commissioner.
13. For the purposes of entertaining the appeal, we are only concerned with the deposit of penalty of Rs. 5.00 crores. However, the goods are still under seizure and the deposit of redemption fine also therefore does not arise for this purpose. However, stay of the operation of the order has been asked for by the applicant. This would involve consideration of the duty payable by the applicant under Section 125(1) of the Act would apply and if so, the aspect relating to the valuation and of duty payable on the rig will have to be considered.
14. We do not find that the applicant has a strong prima facie case with regard to penalty. It is not possible for us to say at this stage with any degree of certainty whether the practice in the Custom House in the recent past has been to insist on or not on the filing of the bill of entry for such goods. There were categorical statements made by either side in support of their claim, both however, without any supporting evidence. The Custom House’s public notice related to a period prior to 1998, the entry in which year of the rig into the designated area is what has been considered by the Commissioner. The Commissioner has referred to the legal advice obtained by the applicant in this regard in 1996. Paragraph 9 (7 (sic) and 8 referred to “opinion of Mr. DB Engineer of M/s. Crawford Bayley & Co and Mr. Velu Swamy, Customs consultant”, both of them appear to have indicated that if the rig did not enter the Indian territorial waters or the designated area, it would not amount to import, solely on the ground that it entered the exclusive economic zone and therefore no bills of entry need be filed. The inference from this is prima facie clear that if the rig did enter the Indian territorial waters or of designated area, it would amount to import. This would prima facie have atleast caused some doubt in the mind of the employees of the applicant with regard to the correctness of the practice, assuming it to have existed of not filing a bill of entry. Despite this, however, no bill of entry have been filed when the rig finally enter the designated area in 1998.
15. Next arises the question with regard to confiscation of the goods. Here considerations other than the belief of the applicant would arise. It appears to us on a prima facie consideration that by application of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 (Act No. 80 of 1976 for short), and the Customs notification issued there under extending the application of the Customs Act, 1962, to the designated area, the provisions of the Act relating to filing of the bill of entry etc. would have applied to the rig whenever it entered the designated area and whenever it left such an area. Therefore, confiscation of the vessel for ordering of which mens rea is prima facie not applicable would appear to be in order.
16. The next aspect to be considered would be the duty liability. Although, neither side raised this point, we put it to the learned Advocate for the department that, even if duty was payable, draw back would be available under Section 74 of the Act, when the rig left the designated area. After some discussion, it emerged that the draw back could be around 85% taking into account the extend [extent] of use of the duty payable. We hastened to add that this was stated to be a figure off the cuff and appreciate the reservation expressed by Mr. Sethna that he would require reasonable time to quantify this amount with greater precision. The question would also arise as to whether, when the place and point of import was known to the department, Section 125(2) of the Act apply at all, in the light of the decision of the Tribunal in HCL HP Ltd. v. CC .
17. We appreciate the point made by the Advocate for the department that ONGC itself has not come before us to ask for continuance of the functioning of the rig; in fact the ONGC’s reactions to the suggestion which we made to the applicant on the first hearing that it may safeguard by giving due notice of removal of the rig from the designated area or out of the country altogether has been luke worm [lukewarmjin its letter which was produced before us on 13.3.2000. ONGC suggests four days notice. This, in our view, is entirely insufficient. We also take note of the fact that there is no financial hardship, and the contention raised for the Commissioner, the applicant earns from the rig US $ 28,000 per day (although we also note that this was the gross figure). At the same time, however, we are aware of the fact that the High Court in its two orders had permitted the rig to work up to 15 March, 2000, without any security of any kind. We however agree that there has been a crucial change, in that, while the rig now stands confiscated to the Government and is a Government property, that was not the case when the High Court passed its order.
18. We also take note of the objection raised by the Advocate for the Government and the decision of the Supreme Court in Union of India v. Lexus Exports Pvt. Ltd. . However, the order of the High Court which was struck down by the Supreme Court, in that judgment was passed during the pendency of the adjudication, when the quantum of redemption fine was not known and in the case before us, the quantum of fine and penalty are clearly known as is the upper limit of the duty payable. We say “upper limit” because the valuation of the rig itself is in question ranging between US$ 49 million first quoted by the applicant in 1988 and US$ 13 million by a surveyor in the same year.
19. We in the circumstances, waive deposit of penalty in excess of Rs. 3.00 crores and stay its recovery, on payment being made of Rs. 3.00 crores within a month from the receipt of this order. Having regard to the facts of the case, and the circumstances of the High Court’s order, we stay the operation of the Commissioner’s order subject to the applicant undertaking before the Commissioner to pay, in the event of the appeal being decided against it the duty applicable on the value of the rig that may be arrived at the redemption fine fixed and the balance of the penalty supported by a bank guarantee of Rs. 50 crores. The bond and the bank guarantee has to be furnished within a month of receipt of this order. The stay is subject to the further condition that the applicant gives notice in writing so as to reach the Commissioner of Customs, 15 days prior to the rig leaving the designated area where it is presently located, and one month where the rig is to leave the waters in the exclusive economic zone and also one month notice before the charter with the ONGC is terminated.
20. Having regard to the value of the goods and peculiar circumstances of this case, we also accept the prayer made by the advocate for the department for out of turn hearing and list the appeal for hearing on 5th June, 2000.