REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL  APPEAL NO. 3788 OF 2003

M/S. MUSTAN TAHERBHAI — APPELLANT  

VERSUS

COMMNR. OF CENTRAL EXCISE &  CUSTOMS

— RESPONDENT

J U D G M E N T

D.K. JAIN, J.:

1. This appeal, under Section 130E of the Customs Act, 1962 (for short “the  

Act”), is directed  against order dated 18th February, 2003, passed by the  

Customs, Excise & Gold (Control) Appellate Tribunal, as it existed at the  

relevant  time,  (for  short  “the  Tribunal”).  By  the  impugned  order  the  

Tribunal  has  dismissed  the  appeal  filed  by  the  appellant  herein  and  

confirmed the levy of customs duty on the ocean going vessel, registered  

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as M.V. Jagat Priya, purchased by them in a Court auction, for breaking/  

scrapping purpose in terms of Notification No. 133/87-Cus.

2. M.V. Jagat Priya was manufactured by M/s. Hindustan Shipyard Ltd. in  

the  year  1975  in  a  Customs  Bonded  Warehouse  at  Vishakapatanam,  

using  certain  imported  items.  The  said  vessel  was  cleared  on  30th  

November, 1975, and was delivered to M/s. Dempo Steamship Ltd. for a  

consideration of `7,61,12,400/- and Central Excise duty at the rate of 1%  

was paid thereon.  The vessel was registered as Indian vessel tonnage and  

flying an Indian flag. However, it ceased to ply and was grounded at Bedi  

Bunder, Jamnagar, in June 1986.  On 16th October, 1992, an order was  

passed by the High Court of Judicature at Bombay in Admiralty suit at  

the instance of Union of India and the Shipping Credit and Investment  

Co. of India Ltd. for auction of the vessel on “as is where is” basis “free  

from all encumbrances and existing liens”.  

3. On 12th February, 1993, the vessel was auctioned and being the highest  

bidder, the appellant viz. M/s. Mustan Taherbhai purchased the vessel.  

The sale in favour of the appellant was confirmed by the High Court and  

in furtherance thereof,  the possession of the ship was delivered on 4th  

March,  1993.  Thereafter,  on  10th May,  1993,  on  the  direction  of  the  

Superintendent of Central Excise  & Customs, the appellant filed a bill of  

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entry claiming that the ship was an Indian built ship, and therefore, no  

customs duty was payable.  On 12th May,  1993, the  Superintendent  of  

Central  Excise,  Jamnagar  passed  a  provisional  assessment  order  

demanding customs duty @ 5%, and an additional duty of  `1000/- per  

LDT.  

4. Being aggrieved, the appellant preferred Special  Civil Application No.  

4924 of 1993 before the High Court of Gujarat. The High Court, vide  

interim order dated 25th May, 1993, permitted the appellant to clear the  

materials obtained by breaking the ship in question without payment of  

provisional duty on the condition that the appellant will file a bond with  

security  deposit.  Vide  order  dated  23rd July,  1993,  the  High  Court  

disposed  of  the  said  application,  and directed  the  appellant  to  file  an  

appeal  before the Commissioner (Appeals).  Accordingly,  the appellant  

preferred an appeal before the Commissioner (Appeals).

5. The  Commissioner  (Appeals),  vide  order  dated  29th April,  1994,  

dismissed the appeal and confirmed the order of provisional assessment  

dated 12th May, 1993.

6. Being aggrieved, the appellant preferred an appeal before the Tribunal.  

Vide  order  dated  10th July,  1998  the  Tribunal  dismissed  the  appeal.  

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Relying on the decision of this Court in Union of India & Ors. Vs. M/s.   

Jalyan  Udyog  & Anr.1,  the  Tribunal  observed  that   Notification  No.  

133/87-Cus  was  applicable  in  the  instant  case,  and  therefore,  the  

appellant  was  liable  to  pay  customs  duty  on  the  vessel  at  the  rate  

prevalent at the time of breaking of ship.

7. Being dissatisfied,  the appellant preferred an application under Section  

129(B)(2) of the Act praying for rectification of mistakes in the order,  

dated 10th July, 1998, on the ground that the Tribunal had erroneously  

concluded  that:  (i)  the  goods  manufactured  in  a  customs  bonded  

warehouse were similar to goods imported under the Act; (ii) the issue  

for determination before it was whether Notification No. 133/87-Cus was  

applicable or not, whereas the real issue for determination was whether  

the vessel was imported or indigenously manufactured; (iii) the customs  

duty under Notification No. 133/87-Cus was payable when Notification  

No. 118/59-Cus was applicable; (iv) since the vessel was subsequently  

being broken up, its clearance would be governed by Notification No.  

262/58-Cus; and (v) the decision in Jalyan Udyog (supra) was applicable  

to the facts of the present case.

1 (1994) 1 SCC 318

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8. Vide  order  dated  13th April,  1999,  the  Tribunal  dismissed  the  said  

application  on  the  ground  that  it  is  a  settled  position  that  goods  

manufactured in a customs bonded warehouse are treated akin to goods  

manufactured in a foreign country, and when the vessel was taken out of  

the country for plying as foreign going vessel, and subsequently, the said  

vessel is brought back to India for breaking purposes, it amounts to re-

import.

9. Aggrieved, the appellant preferred yet another application under Section  

129(B)(2)  of  the  Act  for  rectification  of  mistakes  in  the  order  of  the  

Tribunal dated 13th April, 1999 on the ground that in Union of India Vs.   

Baijnath Melaram2, this Court had affirmed the Bombay High Court’s  

decision wherein it was held that no customs duty was payable on vessels  

which are subject to breaking, if the said vessels had been manufactured  

in India. Vide order dated 8th October, 1999, the Tribunal dismissed the  

said  application  as  well,  holding  that  it  had  correctly  relied  on  the  

decision of this Court in Jalyan Udyog (supra).

10.Still aggrieved, the appellant preferred C.A. No. 1998 of 2000 before this  

Court. Vide order dated 30th August, 2001, this Court, while remanding  

the matter back to the Tribunal, observed thus:

2 1998 (97) ELT 27 (SC)

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“It appears from the judgment of the Tribunal that the matter  was argued without reference to facts which are now stated in  the special leave petition, namely, that the vessel was built in  India  and  excise  duty  was  paid  thereon  at  the  time  of  its  clearance.  It was delivered to an Indian party.  The contention  on these facts is that this was not a transaction of export and  import which would render the appellants liable to the payment  of     customs duty.

Reliance by the Tribunal upon the decision of this Court in the  case of Union of India & Ors.  vs.  Jalyan Udyog &  Ors.  (1994  (1) S.C.C.  318) would be misplaced  if  these are, indeed, the  facts for that was not a case that related to a  vessel  that  was  built  in India  and  cleared  for  home consumption.   We think  it  appropriate,  in  the  circumstances,  that  the  order  under  challenge should be set aside and the matter be remanded to the  Tribunal to be considered afresh. In so doing, the Tribunal shall  determine, first, the facts     and then the law.  The Tribunal  may  take  note  of  the  judgment  of  the   Bombay  High Court  delivered on 5th February, 1992  in the  case of M/s.  Baijnath  Melaram vs.  Union of India & Ors. (Writ Petition No.1478 of  1983),  special  leave  petitions  whereagainst  were  summarily  dismissed.  It may be noted that we express no  opinion on the  merits of the case  on  either side.”

It is plain from a bare reading of the said order that this Court had directed  

the Tribunal to first appreciate the facts of the case and then determine the  

question of leviability of import duty on an Indian built ship which was sold  

for breaking. It is evident from the afore-extracted paragraph that the Court  

had observed that reliance by the Tribunal on the decision of this Court in  

Jalyan Udyog (supra) would be misplaced.   

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11.Accordingly, the Tribunal re-considered the matter. As stated above, vide  

the  impugned order,  the  Tribunal  has  dismissed the  appeal,  observing  

thus:

“The  fact  that  Notification  No.  118/59-Cus.  was  not  in  existence at the date on which the vessel was cleared by HSL  having been superseded by Notification No. 163/65-Cus. came  to light only on the submissions made by Shri Pundir. It would  appear that at all times it was wrongly presumed that the earlier  Notification was in existence. We do not see the revelation as  bringing on record new facts.  We see it  as correction of  the  factual error, which had existed in the record at all times. We  find no substance in the submissions of Shri Doiphode, that a  new case is being made out by the Revenue at the present stage.

14. It has been held by the Hon'ble Supreme Court that as far as  facts are concerned, the Tribunal is the final authority and the  Court  would go into only the questions of law at  the appeal  stage.  Therefore,  the  Tribunal  would  first  record  the  correct  facts and then in the factual perspective would locate and apply  the relevant law.

15. When the fact is accepted that Notification 118/59-Cus. did  not  exist  at  the  time  of  clearance  of  the  vessel  from  the  Shipyard, the persistent plea that the ship was manufactured in  the warehouse and that it was manufactured in India and that it  attracted excise duty alone need not be considered at all. Since  on  the  date  of  such  clearance,  the  notification  in  force  was  113/83-Cus., the provisions thereof would apply and the duty  would  be  payable  in  terms  of  the  conditions  in  the  said  notification.

16. Since we have so held the question of the applicability of  the High Court judgment in the case of Baijnath Melaram does  not arise.”

12.Hence, the present appeal.

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13.Mr. Joseph Vellapally, learned senior counsel appearing on behalf of the  

appellant, strenuously urged that in the instant case the imported goods  

lost their identity when they were used in the manufacture of vessel along  

with  domestically  procured  goods,  and  were  cleared  as  such,  and  

therefore, the revenue cannot claim on the one breath  that the ship was  

“manufactured” in India and attracted excise duty at the time of clearance  

and on the other breath cannot contend that the ship was manufactured  

abroad and was exigible to levy of customs duty when it is to be cleared  

for breaking at an Indian coast.  Learned counsel urged that once excise  

duty has been levied and paid on goods, there is no question of levy of  

customs duty under Section 3 of the Customs Tariff  Act,  1975 as the  

latter is meant to neutralize the non-levy of excise duty.

14.Learned counsel contended that Section 21 of the erstwhile Sea Customs  

Act,  1878 provided that when any article  liable to duty forms part  or  

ingredient of a good, then such good would be liable to full duty as if it  

was entirely composed of such article. In the absence of such a charging  

provision in the Act, ships manufactured by Hindustan Shipyard in India  

cannot be subjected to customs duty at the time of clearance for home  

consumption.  Relying  on  the  decisions  of  this  Court  in  The State  of   

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Tamil Nadu  Vs.  M.K. Kandaswami & Ors.3 and  In Re. Sea Customs  

Act, 1878  S. 20.4, learned counsel submitted that no customs duty was  

chargeable in the instant case, in as much as the ship was not a “taxable  

good” as it was not imported as defined under Section 2(25) of the Act.  

Moreover, there was no “taxable event” as there was no import in the  

instant  case,  and  the  appellant  being  an  auction-purchaser  cannot  be  

likened to an importer  under the Act.  Relying on the decision of  this  

Court  in Baijnath  Melaram  (supra),  learned  counsel  urged  that  no  

customs  duty  can  be  levied  on  Indian  built  ships.  Learned  counsel  

asserted that the Tribunal had not complied with the order of this Court  

dated  30th August,  2001  in  as  much  as  it  has  failed  to  consider  the  

judgment  of  the  Bombay High  Court  in  M/s.  Baijnath  Melaram  Vs.   

Union of India & Ors.  (W.P. 1478 of 1983), nor has it determined the  

question  of  liability  to  import  duty  of  an  Indian  built  ship,  after  

evaluating   the  factual  background  of  the  case  as  was  specifically  

directed. Relying on the decision of this court in Hyderabad Industries  

Ltd. & Anr. Vs. Union of India & Ors.5, learned counsel urged that even  

if it is held that customs duty is payable in the instant case, no additional  

customs duty is leviable as excise duty had already been paid.

3 (1975) 4 SCC 745 4 (1964) 3 SCR 787 5 (1999) 5 SCC 15

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15.Per contra,  Mr. Hairsh  Chander,  learned senior  counsel  appearing on  

behalf  of  the  Revenue,  while  supporting  the  impugned  judgment,  

contended  that  at  the  time  of  clearance  of  the  ship,  Notification  No.  

118/59-Cus  was  not  in  force,  as  the  same  had  been  superseded  by  

Notification No. 163/65-Cus. At the time the appellant presented the bill  

of entry, however, Notification No. 133/87-Cus was in force, as rightly  

concluded by the Tribunal.  

16.Learned counsel  urged that  when a ship is  manufactured in a bonded  

warehouse, for all purposes, it is deemed to be manufactured in a foreign  

country, and by virtue of Notification No. 133/87-Cus, a legal fiction is  

created whereby when the ship manufactured in a bonded warehouse is  

brought to India for breaking purposes, it is deemed to be manufactured  

in a foreign country and appropriate duty has to be paid for clearance for  

ship breaking.  Learned counsel contended that  the said Notification is  

clear, and admits of no ambiguity, and it is settled that when a fiction is  

created by law, the Courts must give full effect to the fiction. Learned  

counsel urged that in terms of the Notification and as was observed by  

this Court in Jalyan Udyog (supra), the date relevant for determining the  

value and rate of the customs duty chargeable is the date on which the  

ship  is  broken  up,  which  should  be  reckoned  as  the  date  on  which  

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permission  for  breaking  up  is  accorded  by  the  Director  General  of  

Shipping. Learned counsel submitted that the fact that the appellant was  

an auction-purchaser is inconsequential in as much as Notification No.  

133/87-Cus was a conditional notification, viz. when the ship is broken,  

customs duty as prevalent on the date of breaking will have to be paid,  

and therefore, customs duty was required to be paid in terms of Sections  

12 and 15 read with Section 68 of the Act. Learned counsel also argued  

that Section 68 of the Act makes it clear that when the importer of any  

warehoused goods intends to clear them for home consumption, then a  

bill of entry for home consumption has be to be filed, and the import duty  

leviable on such goods has to be paid by the importer, as was held in  

D.C.M. & Anr. Vs. Union of India & Anr. 6. Learned counsel submitted  

that Section 9 of the Act makes it  clear that clearance from a Bonded  

warehouse is to be treated as an import into India. It was also stressed  

that clearance of vessel was in terms of the exemption notification, which  

stipulated payment of appropriate customs duty prevalent at the time of  

its  breaking.  Reliance  was  placed  on  the  decisions  of  this  Court  in  

Hansraj  Gordhandas  Vs.  H.H.  Dave,  Assistant  Collector  of  Central   

Excise & Customs, Surat & Ors.7; Novopan India Ltd., Hyderabad Vs.   

6 1995 Supp (3) SCC 223 7 (1969) 2 SCR 253

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Collector of  Central  Excise  And  Customs,  Hyderabad8 and  

Commissioner of Central Excise and Customs, Indore  Vs.  Parenteral   

Drugs India Ltd.9 to contend that the terms of an exemption notification  

have to be construed strictly.

17.Having bestowed our anxious consideration, we are constrained to hold  

that the impugned judgment deserves to be set aside on the short ground  

that  while  deciding  the  case,  the  Tribunal  has  ignored  the  specific  

directions issued by this Court, vide order dated 30th August, 2001. It is  

evident from the impugned order, in particular from paras 15 and 16 that  

the Tribunal has not appreciated the facts obtaining in the present case in  

their correct perspective, which  has resulted in vitiating its decision on  

the question of leviability of import duty.  Although, from para 14 of the  

impugned  order  it  is  evident  that  the  Tribunal  was  conscious  of  the  

direction of this Court that it was required to first record the correct facts  

and then in the factual perspective locate and apply the relevant law, yet  

in the very next paragraph it proceeds to hold that when it is accepted that  

Notification No. 118/59-Cus. did not exist at the time of clearance of the  

vessel  from  the  ship  yard,  the  persistent  plea  that  the  ship  was  

manufactured in a warehouse located in India and therefore, it attracted  

8 1994 Supp (3) SCC 606 9 (2009) 14 SCC 342

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excise duty alone need not be considered at all.  In our opinion, in light of  

the decision and directions of this Court in C.A. 1998 of 2000, judicial  

discipline  obliged the  Tribunal  to  examine  the  entire  legal  issue  after  

ascertaining the foundational facts, regardless of its earlier view in the  

matter. Therefore, the decision of the Tribunal cannot be sustained.   

18.We are thus, convinced that it is a fit case which should be remanded  

back  to  the  Tribunal  for  fresh  adjudication  and  determination  of  the  

question of leviability of import duty on an Indian-built ship brought into  

India for breaking purpose.   For the view we have taken,  we deem it  

unnecessary to deal with other contentions urged by the learned counsel.  

19.Resultantly, the appeal is allowed; the impugned order is set aside, and  

the matter is remanded back to the Tribunal for fresh consideration, in  

accordance with law, bearing in mind the observations of this Court in  

C.A. No. 1998 of 2000.  There will, however, be no order as to costs.

…….……………………………………       (D.K. JAIN, J.)  

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…….……………………………………      (ASOK KUMAR GANGULY, J.)  

                           …..…………………………………….        (H.L. DATTU, J.)

NEW DELHI; FEBRUARY 28, 2011.

RS

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