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CASE NO.: Appeal (civil)  5900 of 2004

PETITIONER: Commnr. of Customs (Imports), Mumbai                     

RESPONDENT: M/s. Tullow India Operations Ltd.                                

DATE OF JUDGMENT: 28/10/2005

BENCH: B.P. Singh & S.B. Sinha

JUDGMENT: J U D G M E N T 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 & C/51/2002 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

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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 \026 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:

"S.No. 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. 184. 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. \026 "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 processing  machine.

       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-

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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\005\005.."

"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;\005."

       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 oil.

       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

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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 Rs.  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  23.6.2004.

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       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:

Sl. No. Subject Clarification 7. Applicability of

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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 authority.  

       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  in this behalf has been placed on Jindal Drilling and Indus. Ltd. Vs.  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

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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  construed to be directory in nature.  [See P.T. Rajan Vs. T.P.M. Sahir and  Others, (2003) 8 SCC 498 and Punjab State Electricity Board Ltd. Vs. Zora  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  

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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  Commissioner of Central Excise Vs. M.P.V. & Engg. Industries [2003 (153)  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 words:

"\005 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

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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 \026 (2005) 5 SCC 598]   Colgate Palmolive (India) Ltd. vs. MRTP Commission and Others \026 (2003)  1 SCC 129].  

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)  Ltd. Vs. Commissioner of Central Excise, New Delhi (2005) 2 SCC 720].

       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.