Court’s decision
The Customs excise and service tax appellate tribunal allowed the appeal and set aside the demand of central excise duty, interest, and penalty raised against the appellant in respect of supplies of High Viscosity Furnace Oil made as bunker fuel to a cable-laying vessel. It held that the supplies were correctly treated as exports under Rule 19 of the Central Excise Rules, 2002, as the vessel qualified as a foreign-going vessel within the meaning of the Customs Act.
The Tribunal observed that the excise authorities had mechanically relied upon a customs adjudication order without conducting an independent assessment of the nature of supplies and the status of the vessel. It further held that once the vessel was judicially recognised as a foreign-going vessel, bunker supplies made to it were eligible for duty-free clearance as exports.
In view of binding judicial precedents affirming the foreign-going status of the vessel, the Tribunal concluded that the issue was no longer res integra. Accordingly, the impugned order confirming duty demand, interest, and penalty was quashed in entirety.
Facts
The appellant was engaged in the manufacture of petroleum products and operated an export warehouse under the Central Excise law. High Viscosity Furnace Oil was cleared from the export warehouse without payment of duty for supply as bunker fuel to a cable-laying vessel engaged in international submarine cable maintenance operations.
The bunker supplies were effected under ARE-1 procedures and were supported by port clearances, shipping documents, and voyage details indicating international destinations. The vessel was owned by a foreign entity and was operating under an international agreement for maintenance of submarine cables in the Indian Ocean and South-East Asian regions.
The Department alleged that the vessel was not a foreign-going vessel since it remained berthed in Indian territorial waters for extended periods. On this basis, a show cause notice was issued proposing to deny export benefits and demanding excise duty on bunker supplies by invoking the extended period of limitation. bharat-petroleum-633938
Issues
Whether the vessel to which bunker fuel was supplied qualified as a foreign-going vessel under the Customs Act.
Whether bunker fuel supplied to such a vessel could be treated as export under Rule 19 of the Central Excise Rules, 2002.
Whether excise authorities could deny export benefit by relying on customs findings without independent examination.
Whether demand of duty, interest, and penalty was sustainable once the vessel’s status stood judicially settled.
Petitioner’s Arguments
The appellant contended that the vessel was engaged in international submarine cable maintenance and operated under a multilateral international agreement, thereby satisfying the statutory definition of a foreign-going vessel. It was argued that temporary berthing in Indian ports for operational reasons did not alter the vessel’s foreign-going character.
The appellant submitted that bunker supplies were made strictly in accordance with export procedures and were duly authorised by maritime customs authorities. It was further argued that excise authorities could not disregard binding judicial findings affirming the vessel’s foreign-going status.
The appellant relied on Tribunal and High Court decisions in proceedings involving the same vessel, where it was conclusively held that the vessel qualified as a foreign-going vessel and was entitled to duty-free treatment of ship stores.
Respondent’s Arguments
The Department argued that the vessel remained within Indian territorial waters for substantial periods and therefore could not be treated as a foreign-going vessel. It was contended that bunker fuel supplied during such periods did not qualify as export.
The Revenue submitted that the appellant had cleared furnace oil without payment of duty by misdeclaring the nature of the vessel’s operations. It was argued that reliance on customs adjudication findings justified the demand of excise duty.
The Department also defended invocation of the extended period, alleging suppression of material facts relating to the vessel’s operations.
Analysis of the law
The Tribunal analysed the definition of “foreign-going vessel” under the Customs Act and noted that a vessel engaged in international operations does not lose such status merely because it temporarily remains within territorial waters. The law focuses on the nature and purpose of the voyage, not the duration of stay in port.
The Tribunal further examined Rule 19 of the Central Excise Rules, which permits export of excisable goods without payment of duty. It held that bunker fuel supplied to a foreign-going vessel is treated as export and qualifies for duty-free clearance.
The Tribunal also emphasised that excise authorities are required to independently examine facts and cannot mechanically adopt findings recorded in customs proceedings, particularly when those findings have been overturned by higher judicial forums.
Precedent Analysis
The Tribunal relied heavily on earlier decisions concerning the same vessel, where it was held to be a foreign-going vessel engaged in international cable operations. Those decisions were subsequently affirmed by the jurisdictional High Court.
The Tribunal also relied on settled jurisprudence holding that ship stores supplied to foreign-going vessels qualify for export benefits. Precedents emphasising finality and binding nature of judicial determinations were applied to reject the Department’s stand.
These precedents conclusively governed the controversy and rendered the demand unsustainable.
Court’s Reasoning
The Tribunal found that the entire excise demand was predicated on a customs adjudication order which no longer held the field. Once higher judicial forums had recognised the vessel as foreign-going, the very foundation of the demand collapsed.
The Tribunal rejected the argument that prolonged berthing alters the vessel’s status, holding that operational realities of cable-laying work necessarily involve extended stays without affecting the international character of the voyage.
The Tribunal further held that there was no suppression or misstatement, as all bunker supplies were made under proper documentation and departmental supervision.
Conclusion
The Tribunal allowed the appeal and set aside the excise duty demand, interest, and penalty in full. It held that bunker fuel supplied to a foreign-going vessel qualifies as export and is not liable to excise duty.
Implications
This judgment provides important clarity on duty-free treatment of bunker fuel supplied to vessels engaged in international operations. It reinforces that operational berthing in Indian ports does not dilute foreign-going status.
The ruling also limits mechanical reliance on adjudication findings overturned by higher courts and strengthens certainty in export-related excise exemptions.
