The status of a vessel as a foreign going vessel under the Customs Act is based on contractual engagement and operational readiness, not merely its physical presence within territorial waters.

JUDGMENT :

A.K. Jayasankaran Nambiar, J.

1. The above appeal filed by the Commissioner of Customs, Cochin impugns the final order dated 18.02.2020 of the Customs, Excise & Service Tax Appellate Tribunal, Bangalore that allowed an appeal filed by the respondent herein impugning the orders of the Customs Department that found that the vessel Asean Explorer engaged by it in carrying out repairs of cables in the Indian Ocean was not a foreign going vessel for the purposes of claiming exemption under Section 87 of the CUSTOMS ACT , 1961 in relation to spares and consumables contained in its store.

2. The brief facts necessary for the disposal of this appeal are as follows:

The vessel Asean Explorer is a Singapore vessel that was engaged to carry out repairs of cables located in Indian Ocean, and was berthed at Kochi for operating the zones connecting India, different Asian and West Asian Countries and Australia. The repair activities were in relation to cables spread over an area of 1.05 lakh kms of which 256 kms was within the territorial waters of India. As per the time charter under which the vessel was engaged, it was expected to move across various Ports inside India and also beyond the Indian waters and during these excursions, the vessel would carry spares, bunkers, crew and technical staff on board. It appears to have been the bone fide belief of the respondent that the vessel in question was a Foreign Going vessel and that therefore,the spares and consumables in the store of the vessel would not attract the levy of customs duty under the CUSTOMS ACT .

3. The appellant Department found that during the period between 11.07.2007 and 24.04.2012, the vessel was berthed at Cochin Port for almost 1750 days and was on voyage only for approximately 301 days. A show cause notice dated 10.07.2012 along with a corrigendum dated 14.08.2012 was therefore issued to the vessel and its Master alleging that the vessel could not be categorized as a Foreign Going vessel, and hence, duty would have to be imposed on the various spares and consumables carried in its stores during the aforesaid period. A separate proposal for confiscation of the vessel and imposition of penalty on the vessel and its master was also incorporated in the show cause notice.

4. Although the vessel and its master preferred detailed replies to the show cause notice producing copies of the agreement dated 13.05.2005 that the vessel had executed with VSNL indicating that the ship was engaged on a time charter contract for carrying out submarine cable repairs for a period of five years, and it was contended that the subsistence of the contract was sufficient to indicate that the vessel merited classification as a Foreign Going vessel, the Commissioner of Customs who adjudicated the matter ordered a confiscation of the vessel and imposed a redemption fine, duty, penalty and interest as proposed in the show cause notice. The adjudication order dated 04.04.2013 of the Commissioner of Customs was produced as Annexure 1 in the appeal memorandum.

5. The respondent impugned the said order of the Commissioner of Customs before the Appellate Tribunal which, by a detailed order, allowed the appeal preferred by the respondent and upheld its contention as regards the status of the vessel as a Foreign Going vessel during the period covered by the show cause notice. In the present appeal, it is the said order of the Appellate Tribunal that is impugned by the Commissioner of Customs.

6. We have heard Sri.N. Venkataraman, the learned Additional Solicitor General for the appellant and Sri.Rohan Shah, the learned senior counsel assisted by Smt.Ste