Customs Duty On Vessels Fixed On Import Date, Not On Foreign To Coastal Run Conversion: Madras High Court

The Madras High Court recently held that customs duty on a vessel is fixed on the date of its import and cannot be reopened later merely because the vessel is converted from foreign-going to coastal run. The court said a later change in how the vessel is operated does not create a fresh tax liability.

A bench of Justice Anita Sumanth and Justice Mummineni Sudheer Kumar said the date of import is the only point that matters for determining liability under the customs law.

“The critical event in order to attract liability under Notification No.12/2012 would be the date of import alone and not their subsequent run as a conveyance,” the court said.

The ruling came in a challenge by Great Eastern Shipping Company Ltd. to duty demands raised on its vessels Jag Rahul and Jag Rishi. Jag Rahul was imported in 2005, when the law did not require filing a bill of entry. Jag Rishi was imported in 2011, and a bill of entry was filed on 28 March 2011. Both vessels entered Indian waters before 17 March 2012.

After that date, Notification No. 12/2012-Cus granted exemption from basic customs duty and countervailing duty to foreign-going vessels while requiring payment of duty when such vessels are converted to coastal run.

Once the two vessels were permitted to operate on coastal routes, customs authorities issued communications calculating countervailing duty and directing the company to make payment within a fixed period. The revenue argued that duty became payable at the stage of conversion.

The High Court rejected that approach. It held that a vessel is treated as goods only at the time of import and functions merely as a conveyance thereafter. An exemption notification cannot be used to impose a levy outside the charging provisions of the Customs Act, nor can it be applied retrospectively.

The court also found that the communications were not merely advisory, since they quantified the duty and required payment within fourteen days. The demands were set aside, and the writ petitions were allowed.

For Petitioner: Karthik Sundaram

For Respondent: S. Gurumoorthy