International Drilling Inc Vs. The Oil & Natural Gas Corporation Ltd. 
Insc 216 (20 April 2006)
D E R
is a foreign company incorporated in Panama. It is engaged in providing rigs on charter- higher basis for offshore
April, 1988, the rig was brought into India. It operated in territorial waters, continental shelf and other
the contract dated 23.8.1988, ONGC (non-applicant) is liable to reimburse the
applicant for customs duty paid on import of rig. This is under clause 15.5 of
the contract. Under this clause, ONGC is liable to reimburse/pay all customs
duty payable on the rig.
July 1999, the customs department issued a show-cause notice to the applicant
and to the non-applicant, in which it alleged that customs procedure had not
been followed for the initial entry of rig in 1988.
order dated 27.1.2000, the commissioner of customs held that the import of the
rig had taken place in 1988 and on several occasions thereafter and that the
duty was payable on the rig in respect of its movement to a designated platform
by the adjudication order, the applicant herein preferred an appeal to the
Customs, Excise and Service Tax Tribunal (for short "the tribunal").
By order dated 2.2.2001, the tribunal came to the conclusion that the duty was
payable on the import in 1988 on a value of US$ 13 million; that, in the
absence of an essentiality certificate, the applicant was not entitled to
exemption under notification no.516/86. However, the tribunal permitted the
applicant herein to pursue its claim for the essentiality certificate.
had imported the rig without filing of the bill of entry.
it to state that in February 2001, the applicant made payment of the customs
duty amounting to Rs.26,67,94,320/-. This was in accordance with the order of
strength of the essentiality certificate, the applicant applied for refund of
the customs duty paid by the assessee. However, by order dated 1st/4th
February, 2002, the additional commissioner of customs rejected the claim for
11.2.2002, the applicant called upon the ONGC to reimburse the applicant with
the said amount of Rs.26,67,94,320/-. ONGC responded by letters dated 20.3.2002
and 13.6.2002 denying its liability to reimburse the customs duty paid.
vide letter dated 31.3.3003, the applicant herein invoked the arbitration
clause 28.0 and suggested that the dispute be referred to arbitration. By the
said letter, the applicant appointed its nominee on the Arbitral Tribunal and
called upon the ONGC to appoint its nominee, so that both the arbitrators could
jointly appoint a third arbitrator.
not necessary, at this stage, to go into the chequered history of the earlier
round of litigation and the circumstances under which the non- applicant did
not agree to the continuance of the proceedings before the duly constituted
Arbitral Tribunal. Suffice it to state, that the applicant had called upon the
non-applicant to appoint its nominee to the Arbitral Tribunal, failing which it
has been constrained to move this application for appointment of an arbitrator
to the Arbitral Tribunal to decide the disputes referred to arbitration under
the 1988 contract by applicant vide its letter dated 31.3.2003.
of counter affidavit, the ONGC has inter alia contended that the applicant is estopped
from moving this arbitration application because ONGC had issued the
essentiality certificate to enable the applicant to seek refund of the customs
duty already paid; that, the certificate was issued as far back as 21.12.2001
and that the same was handed over to the applicant to enable them to avail of
the exemption as provided under notification no.516/86 dated 30.12.1986, as
amended from time to time. ONGC contends by its counter affidavit that
non-utilization of the essentiality certificate is a matter between the
applicant and the customs department in which ONGC has no role to play. At this
stage, it may be stated that till today, the respondent has not received the
revalidated essentiality certificate from the office of the Director General of
Hydrocarbons, New Delhi. In the circumstances, ONGC has
denied the demand of the applicant for arbitration.
factual aspect, my attention is invited to the judgment of the Division Bench
of the Bombay High Court dated 22.3.2006 in writ petition No.481/2001 filed by
the applicant herein against the customs department in the matter of
computation of duty paid on the value of the rig as it existed in 1988. This
writ petition was essentially on the working out of the liability. By the said
judgment, the High Court has directed the customs department to compute the
duty liability to the assessee in terms of para 48 of the judgment of the tribunal.
By the said judgment, the additional commissioner of customs is directed to
assess the duty liable as per the order of the tribunal dated 2.2.2001 treating
the import of the rig in 1988 having the value of US$ 13 million. By the said
judgment, the High Court left it open to the applicant to claim its entitlement
under the essentiality certificate before the additional commissioner of
customs, who is directed to pass appropriate orders in that regard. Till today,
the decision of the additional commissioner is awaited.
above facts, it is argued on behalf of the non-applicant that the matter is
pre-mature, particularly, when the additional commissioner of customs has not
pronounced its decision on the entitlement of the applicant under the essentiality
certificate and, therefore, invocation of the arbitration clause by the
applicant was pre-mature and consequently, the application under section 11(4)
of the Arbitration & Conciliation Act, 1996 is not maintainable.
present case, the applicant has paid customs duty amounting to Rs.26,67,94,320/-
as far back as February 2001. It seeks reimbursement of the duty paid in terms
of the contract. The applicant has invoked the arbitration clause as far back
as 31.3.2003. The accrual of liability, as a concept, is different from
quantification of the liability. In the present case, the liability to pay
customs duty has accrued. In the circumstances, it cannot be said that the
application under section 11(4) of the Arbitration & Conciliation Act, 1996
Hon'ble Mrs. Justice Sujata V. Manohar (retired) and Hon'ble Mr. Justice V. N. Khare
(former CJI) are appointed as Arbitrators to decide all disputes and
differences between the parties. The two arbitrators shall appoint an umpire in
terms of clause 28.0 of the contract.
arbitrators may fix their own terms and conditions as to their remuneration.
as fixing of date of hearing is concerned, liberty is given to the parties to
approach the arbitrators, who will decide the due date according to their
arbitration petition is accordingly disposed of.