of Customs (Imports), Mumbai Vs. M/S. Tullow India Operations Ltd  Insc
617 (28 October 2005)
B.P. Singh & S.B. Sinha With
Civil Appeal No. 1882 of 2004 and Civil Appeal No. 854 of 2005 S.B. Sinha, J :
Interpretation of notification issued in terms of sub-section (1) of Section
25 of the Customs
Act, 1962 being General Exemption No. 121 is in question in these appeals
which arise out of judgment and order dated 9.12.2003 passed by the Customs,
Excise and Service Tax Appellate Tribunal in Appeal No. C/1210/Mum &
The relevant portion of the said general exemption notification dated
28.2.1999 is as under:
"In exercise of the powers conferred by sub- section (1) of section 25
of the Customs Act, 1962 (52 of 1962), the Central Government being satisfied
that it is necessary in the public interest so to do, hereby exempts the goods
of the description specified in column (3) of the Table below or column (3) of
the said Table read with the relevant List appended hereto, as the case may be,
and falling within the Chapter, heading No. or sub- heading No. of the First
Schedule to the Customs Tariff Act, 1975 (51 of 1975) as are specified in the
corresponding entry in column (2) of the said Table, when imported into India,
- (a) from so much of the duty of the customs leviable thereon under the said
First Schedule as is in excess of the amount calculated at the rate specified
in the corresponding entry in column (4) of the said Table;
(b) from so much of the additional duty leviable thereon under sub-section
(1) of section 3 of the said Customs Tariff Act,
as is in excess of the rate specified in the corresponding entry in column (5)
of the said Table, subject to any of the conditions, specified in the Annexure
to this notification, the condition No. of which is mentioned in the
corresponding entry in column (6) of said Table.
Provided that nothing contained in this notification shall apply to goods
specified against serial Nos. 174, 175, 176, 177, 178 and 179 of the said Table
on or after the 1st day of April, 2000.
Explanation For the purposes of this notification, the rate specified in
column (4) or column (5), is ad valorem rate, unless otherwise specified."
The goods specified in Sl. Nos. 182, 184 and 231 of the Table of the
Notification read as under:
Chapter or heading No. or sub-heading No.
Description of goods 182.
84, 85 or any other Chapter Goods specified in List 11 required in
connection with petroleum operations undertaken under petroleum exploration
licenses granted by the Government of India to the Oil and Natural Gas
Corporation or Oil India Limited on nomination basis.
84 or any other Chapter Goods specified in List 11 required in connection
with petroleum operations undertaken under specified contracts 231.
49 or 85.24 The following goods, namely:- (i) Information Technology
Software, and (ii) Document of title conveying the right to use Information
Technology software Explanation. "Information Technology Software"
means any representation of instructions, data, sound or image including source
code and object code, recorded in a machine readable form, and capable of being
manipulated or providing interactivity to a user, by means of an automatic data
Relevant portion of Condition Nos. 34 and 36 annexed to the said
notification read as under:- "34.If (a) the goods are imported by the Oil
and Natural Gas Corporation or Oil India Limited (hereinafter referred to as
the "licensee") or a sub- contractor of the licensee and in each case
in connection with petroleum operations to be undertaken under petroleum
exploration licences granted by the Government of India on nomination basis;
(b) where the importer is a licensee, he produces to the Assistant
Commissioner of Customs, at the time of importation, the following, namely,
certificate from a duly authorized officer of the Directorate General of Hydro
Carbons in the Ministry of Petroleum and Natural Gas, Government of India, to
the effect that the imported goods are required for petroleum operations
referred to in clause (a) and have been imported under the licences referred to
in that clause, and.." "36. If (a) the goods are imported by an
Indian Company or Companies, a Foreign Company or Companies, or a consortium of
an Indian Company or Companies and a Foreign Company or Companies (hereinafter
referred to as the "contractor") or a sub-contractor of the
contractor and in each case in connection with petroleum operations to be
undertaken under a contract with the Government of India;
(b) where the importer is a contractor, he produces to the Assistant
Commissioner of Customs, at the time of importation, the following, namely:-
(i) a certificate from a duly authorized officer of the Directorate General of
Hydro Carbons, in the Ministry of Petroleum and Natural Gas, Government of
India, to the effect that the imported goods are required for petroleum operations
referred to in clause (a) and have been imported under the contract referred to
in that clause, and (ii) a certificate, in the case of a contract entered into
by the Government of India and a Foreign Company or Companies or, the
Government of India and a consortium of an Indian Company or Companies and a
Foreign Company or Companies, that no foreign exchange remittance is made for
the import of such goods undertaken by such Foreign Company or Companies;."
M/s. Oil and Natural Gas Corporation Limited (for short "ONGC") is a
Government of India Undertaking and is engaged in the business of exploration
and exploitation of oil and gas on shore and off shore. With a view to find out
the possibility of exploring oil/ gas, they carry out seismic survey wherefor
the contracts are awarded to the companies specializing therein. It conducted
3-Dimensional Seismic Surveys in Heera, South Heera and Neelam areas of the
international waters of the West Coast of India in course of exploration for
M/s. Tullow India Operations Limited (for short "Tullow"),
Respondent in Civil Appeal No. 5900 of 2004 also conducted such surveys in the
Gulf of Kutch. The processes consisted of creating shock wave by means of
controlled explosions which travel through the waters of the sea and the land
mass beneath. The response to these waves indicates the probability of the
presence of oil or gas deposits. The response to the surveys are recorded on
magnetic tapes and converted to digital form and thereafter processed at the
Processing Centre using software applications named Seismos. The Central
Processing Centre is located on Indian territory and, these tapes in the form
of cartridges are imported by the assesses who claim exemption from customs
duty in terms of the aforementioned exemption notification. The same tapes were
claimed to be IT softwares.
It is not in dispute that ONGC awarded two contracts in favour of M/s. SEDCO
Forex Int. Drilling Inc. to carry out the said seismic survey on or about
15.02.1999 and 9.03.1999 respectively for a consideration of US$ 13,803,600/-
and US $ 2,96,230/- respectively. In pursuance of the said contracts, a seismic
survey vessel, namely, M.V. GECO SAPHIRE was brought in India by the said
contractor for carrying out seismic survey. The said seismic survey vessel
carried out seismic survey during the period 22.05.1999 and 22.06.1999. The two
bills of entry No. BOE NO. 12443 and 9888 were filed.
A notice to show cause was issued by the Customs Department, Mumbai asking
the ONGC to show cause as to why:
"(a) 3-D seismic data tapes should not be classified under CTH8524.99
and charged to duty @BCD40% + 16%CVD+4%SAD and M.V.
GECO SAPPHIRE should not be classified under CTH 8905.20 and charged to duty
@40% + 8%CVD + 4% SAD.
(b) Value of 3-D seismic data tapes should not be ascertained at US$
13,803,600/- + US$2,968,230 = US$16,771,830 = Rs.
72,11,886,90/- and value of the vessel M.V. Geco Sapphire be ascertained as
US$45,000,000/- = Rs.
193,50,00,000/- on the basis of contract provided by you under section 14 of Customs Act,
1962 read with Rule 4 with adjustments as provided under Rule 9 of Customs
Valuation (Determination of Price of Imported Goods) Rules, 1988.
(c) Customs duty of Rs. 160,46,18,960/- on the assessable value should not
be demanded from you under the provision of Section 12 of the Customs Act, 1962.
(d) 3-D seismic data tapes and M.V.GECO SAPPHIRE and equipments valued at
72,11,88,690/- and Rs. 194,50,00,000/- respectively imported illegally
should not be confiscated under section 111(m) and 111(o) of Customs Act, 1962.
(e) Penalty under section 112(a) of Customs Act, should not
be imposed on importer." In reply to the aforementioned show cause notice,
ONGC filed a reply wherein the technical aspect of the matter had been stated
in para 4.22 thereof. It was further contended that in a seismic vessel, there
is no connectivity between the ship and the mother earth while the drilling
rigs/ production platforms have.
However, it is also not in dispute that ONGC had applied for grant of
exemption certificate before the Directorate General of Hydrocarbons in the
month of April, 1999. The said essentiality certificate, however, could not be
produced before the appropriate authority when importation took place as the
same had not thence been granted as a result whereof a provisional clearance of
the said tapes was made on 6th September, 1999. The appeal thereagainst before
the Tribunal came to be dismissed in December, 2003.
Essentiality certificate, however, was granted in favour of ONGC on
Tullow had also applied for grant of essentiality certificate. Whereas ONGC
could not produce essentiality certificate before the Tribunal, Tullow did.
The Tribunal rejected the contention of the importer that the said
cartridges would come within the purview of expression "IT Software"
within the meaning of the said provision. The Tribunal, in its judgment
impugned before us, despite holding that the benefit of exemption from duty on
imported goods contained in the notifications should not be denied merely on
the ground that the certificates were required to be produced at the time of
importation only, dismissed the appeal of the ONGC on the ground that the same
had not been produced even before it and allowed the appeal of Tullow and
remitted the matter back to the Commissioner for his consideration as regards
acceptability thereof and consequently upon the availability of the exemption
and related matter.
ONGC and the Commissioner of Customs, Mumbai are, thus, in appeal before us.
ONGC before this Court filed an application for urging additional grounds
before this Court that it may be permitted to rely upon the said essentiality
certificate dated 23.6.2004.
It also filed an application before the Tribunal praying for recall of the
said order dated 27.9.2001 relying on or on the basis of the said certificate,
but the same was rejected on the ground that the matter is pending before this
Court. An appeal has been filed thereagainst also by ONGC.
The learned counsel appearing on behalf of the ONGC would raise three
contentions in support of these appeals.
(i) The value of services, which are rendered under a pure service contract
cannot be subjected to customs duties on the ground that the results of seismic
surveys are recorded in tapes or discs and, thus, would not be 'goods' within
the meaning of provisions of Customs Act, 1962.
(ii) The exemption notifications having been issued for exemption of goods
imported in India for petroleum exploration subject, of course, to filing of
the essentiality certificate issued by the Directorate of Hydrocarbons and as
such an essentiality certificate had been produced even before this Court, it
is entitled to such exemption.
(iii) In any event, having regard to the fact that the Tribunal accepted
such essentiality certificate in the case of Tullow, there is no reason why the
same benefit would not be granted in its favour. In any event, as the tapes and
discs are softwares within the meaning of Serial No. 231 of the Notification,
it is entitled to the benefit of the aforementioned exemption notification No.
20 of 1989 having regard to the fact that the same has liberally been construed
in terms of the explanation appended thereto.
Mr. V. Lakshmikumaran, learned counsel appearing on behalf of 'Tullow'
relied upon a public notice issued by the Madras Custom House and would submit
on the basis thereof, which reads as under:
"The following clarifications are hereby notified for information of
importers, Clearing Agents and others concerned:
Subject Clarification 7.
Applicability of various certificates required under different notifications
issued after the date of importation If the substantive clauses of a
notification are fulfilled by an importer, concessional assessment should not
be denied on the ground of time factor." Relying on or on the basis of
said public notice, it was submitted that on the same reasoning production of
the essentiality certificate even at a later stage could serve the purpose.
Mr. A.K. Ganguly, learned senior counsel appearing on behalf of the
Commissioner of Customs (Imports), Mumbai, on the other hand, submitted that
the exemption notifications are required to be construed very strictly and in
view of the fact that a condition precedent has been attached thereto, namely,
production of essentiality certificate at the time of importation, triggering
event cannot be shifted to a later date. It was submitted that if it be held
that production of such certificate at any point of time is considered to be
sufficient compliance for the purpose of obtaining benefit under the said
exemption notification, the same will have to be read in the manner that it was
not necessary to be produced at the time of importation. Even if such a
construction is possible, the learned counsel would contend that the same should
be produced only within a reasonable time, particularly, in view of the fact
that the exemption notification was valid for one year.
As regard public notice issued by the Madras Custom House, the learned
counsel urged that one issued by a particular Custom house cannot be equated
with the circular issued by the Board in exercise of its statutory power under
Section 151A of the Customs Act.
The exemption notification being a statutory one cannot be clarified by one
custom house as the same must emanate from a notification issued by some
Mr. Ganguly argued that the Customs Act
makes a difference between the certificates which are conditions precedent and
those which are conditions subsequent as would appear from Section 18 of the
Act. Reliance Collector of Customs, Bombay [2001 (138) ELT 1335]. Our attention
has been drawn to an order of this Court dated 11.05.2000 passed by this Court
dismissing the SLP (Civil) CC No. 3364 of 2000 filed thereagainst by Modest
Shipping Agency Pvt. Ltd. reported in [2002 (140) ELT A 95] It was further
urged that the public notice issued by the Madras Custom House refers to certificates
which may be necessary to be produced within the meaning of the provisions of
the Customs Act
as, for example, certificate to prove country of origin or certificate to prove
valuation, as may be necessary, by reason of the conditions imposed for import
which are not conditions precedent or exemption notification.
Both the importers are licensees. Indisputably, they were entitled to the
benefit of the exemption notification subject, of course, to the condition that
they would produce the essentiality certificate granted by the Directorate
General of Hydrocarbons at the time of importation of goods.
Grant of essentiality certificate was not in the hands of the assesses. It
was a function of a department of the Central Government. The essentiality
certificate admittedly was not granted by the Directorate General of
Hydrocarbons within a reasonable time. The importers could not be blamed
therefor. It is possible that delay in granting the said essentiality
certificate was by way of default on the part of the authorities concerned.
The essentiality certificate granted in favour of ONGC refers to the
notification, the relevant certificate number of the table, list 11 and
condition number 34 or 36, as the case may be, of the notification. It even
refers to the serial number of the consignments. The serial number of the tapes
had also been mentioned therein. Except for the purpose of grant of benefits
under the said exemption notification, the said essentiality certificate would
not serve any other purpose whatsoever.
Construction of an eligibility clause contained in an exemption notification
depends inter alia upon the purpose for which an exemption is sought to be
granted. The exemption notification was issued by the Central Government in
exercise of its power conferred upon it under Sub-section (1) of Section 25 of
the Customs Act.
An exemption thereunder is granted, if the Central Government is satisfied that
it is necessary so to do in public interest. Such exemption can be granted
either absolutely or subject to such conditions, as may be specified therein.
Such conditions are required to be fulfilled before or after clearance as may
be specified. Such exemption would be in relation to the goods of specified
description from the whole or any part of duty or customs leviable thereon.
Serial Nos. 182 and 184 of the notification refer to the goods falling under
Chapter 84 and specified in List 11 required in connection with petroleum
operations undertaken by a licensee.
ONGC is a licensee for exploration of petroleum products. ONGC has
specifically been mentioned at Serial No. 182 of the said notification. It is
not in dispute that importation, if any, has been made in connection with
petroleum operations to be undertaken under petroleum exploration licenses
granted by the Government of India on nomination basis. The benefit of
exemption notification would inter alia be available to the licensee if it is
shown in terms of a certificate granted by the Directorate General of
Hydrocarbons and the Ministry of Petroleum and Natural Gas that the imported
goods are required for petroleum operation referred to in clause (a) of
condition No. 34 and under the licence referred to herein.
The Directorate General of Hydrocarbons is under the Ministry of Petroleum
and Natural Gas of the Government of India. The functions performed by it are
public functions. The notification never contemplated that a public
functionary, having regard to the importance of the subject matter and in
particular when such importations are being made in public interest, would not
dispose of the application for grant of essentiality certificate within a reasonable
time so as to enable the importer to avail the benefit thereof. Applicants for
grant of such certificates, having regard to their importance, should have been
processed by the Directorate General of Hydrocarbons as expeditiously as
possible but they did not choose to do so probably having regard to the fact
that no time schedule therefor was prescribed. It is trite that when a public
functionary is required to discharge its public functions within a time
specified therefor, the same would be Singh and Others, (2005) 6 SCC 776] Both
the Customs Department and Ministry of Petroleum and Natural Gas are
departments of the Central Government. The substantive provisions which were
required to be complied with for the purpose of obtaining the benefits under
the said exemption notification have indisputably been complied with. It is not
the case of the department that the assesse has anything to do with the grant
of certificate except to pursue the matter to the best of its abilities. It is
not in dispute that the importers were, but for production of the certificate,
otherwise entitled to the grant of benefit in terms of the said notification.
The conditions referred to in Sub-section (1) of Section 25 as regard time
when such certificate is to be produced would, thus, mean those which were
within the control and power of the importer. If it is not within the power and
control of the importer and depends upon the acts of other public
functionaries, non-compliance of such condition, subject to just exception cannot
be held to be a condition precedent which would disable it from obtaining the
benefit therefrom for all times to come.
It is no doubt true that the fiscal liability has to be certain. There
cannot, however, be any doubt that in a case of this nature ONGC being a
government company for all intent and purport was also certain that it would
get the requisite exemption, subject of course, to its fulfilling the condition
of obtaining such essentiality certificate.
There is no universal law, as was suggested by Mr. Ganguly, that fiscal
liability cannot be deferred. In a statute where there is a provision for a
provisional assessment and/ or provisional clearance, subject to compliance of
certain conditions, such conditions may be fulfilled at a later stage, namely,
at the stage of final clearance or final assessment.
The question may be considered from another angle. The Directorate General
of Hydrocarbons was indisputably aware about the existence of such exemption
notification. The certificate in accordance with law has not only been granted,
the same expressly refers to the exemption notification, the entry of the
table, the relevant clauses applicable therefor also the bills of entries dated
22.05.1999 and 22.06.1999. Indisputably, therefore, the Directorate General of
Hydrocarbons was aware of all requisite requirements necessary therefor. It may
presume that the department was also aware of the provisions of the Customs Act and
the consequences likely to be suffered by the importer in the event of its
inability to produce the same before the competent authority at the time of
importation. The exercise undertaken by the said department, thus, was not to
end in futility.
In almost a similar situation, the question came up before this Court in ELT
485] (wherein one of us, B.P. Singh, J. was a member) which was answered
stating that an assessee although was otherwise entitled to obtain the benefit
of an exemption certificate, the same should not ordinarily be denied to it
because of any administrative delay over which he had no say in the following
" In a case of this nature it is only reasonable to take the view that
the benefit of exemption will accrue to a unit found to be a small-scale
industrial unit from the date on which the application was made for the grant
of registration certificate. Such a unit should not be deprived of the benefit
to which it is otherwise entitled as a small-scale industrial unit merely
because the authorities concerned took their own time in disposing of the
application. We therefore, agree with the majority view of the Tribunal and
hold that the benefit of exemption under the notification in question should be
extended to the respondent with effect from the date on which the application
for grant of registration was made by it before the competent authority."
The essentiality certificate, thus, must be treated to be a proof of the fact
that the importers have fulfilled the conditions enabling them to obtain the
benefit under the exemption notification.
The principles as regard construction of an exemption notification are no
longer res integra; whereas the eligibility clause in relation to an exemption
notification is given strict meaning wherefor the notification has to be
interpreted in terms of its language, once an assessee satisfies the
eligibility clause, the exemption clause therein may be construed liberally.
An eligibility criteria, therefore, deserves a strict construction, although
construction of a condition thereof may be given a liberal meaning.
The decision of this Court in Jindal Drilling and Indus. Ltd. (supra),
relied upon by Mr. Ganguly has no application to the facts and circumstances of
the instant case.
It is true that ordinarily, the golden rule of literal interpretation must
be given effect to. But it is also well-settled that where literal
interpretation gives rise to an anomaly or absurdity, the same should be
avoided. [See Ashok Lanka and Another vs. Rishi Dixit and Others (2005) 5 SCC
598] Colgate Palmolive (India) Ltd. vs. MRTP Commission and Others (2003) 1
Furthermore, it is also well-settled that the Legislature always intends to
avoid hardship. In a situation of this nature, the exemption notification cannot
be construed in a way which would prove to be oppressive in nature.
However, we do not intend to lay down a law that delay on the part of the
authorities in granting such certificates would automatically enable an
assessee to obtain refund. Each case has to be judged on its own facts.
We, however, do not agree with the contention of Mr.
Lakshmikumaran that by reason of a public notice issued by a Custom House
situate in a State, the effect and purport of statutory notification can be
taken away. In terms of Section 151A of the Customs Act, it
is only the Board which may issue instructions. Even under the aforementioned
provision, the Board exercises a limited power. [See Pahwa Chemicals (P) Having
regard to the facts and circumstances of this case, we are of the opinion that
the Tribunal has committed no illegality in remitting the mater back to the
Commissioner. Civil Appeal No. 5900 of 2004 is, therefore, dismissed.
We for the reasons aforementioned remit the matter to the Commissioner for
similar purpose in the matter of ONGC for consideration of the matter afresh.
The Commissioner is directed to send a copy of its order to this Court. Other
contentions raised by the parties herein shall remain open. It is made clear
that in the event the order of the Commissioner goes against the contentions of
the assessee Tullow, it will be open to it to question the correctness thereof
before an appropriate forum.
Civil Appeal Nos. 1882 of 2004 and 854 of 2005 are adjourned sine die. These
appeals shall be listed as and when the order of the Commissioner is received.