Vessel Engaged Under SEAIOCM Agreement Qualifies As 'Foreign Going Vessel' For Exemption U/S 87 Of Customs Act: Kerala High Court

The Bench consists of Justices A.K. Jayasankaran Nambiar and P.M. Manoj was addressing the issue of whether in the backdrop of the terms of engagement of the vessel under the SEAIOCM Agreement, the vessel can be categorized as a foreign going vessel for the purposes of claiming exemption under Section 87 of the Customs Act.

In this case, 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.

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.

The appellant/Department found that the vessel was berthed at Cochin Port for almost 1750 days and was on voyage only for approximately 301 days.

A show cause notice 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.

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 respondent challenged the order of the Commissioner of Customs before the Appellate Tribunal which was allowed.

The bench disagreed with the department that on account of the agreement entered into between the assessee and the Cochin Port Trust, committing to berth the vessel in Cochin Port for a specified number of days in a calendar year so as to obtain a concessional rate of berthing charges, and in fact remaining within territorial waters for a good part of the calendar year, the vessel will lose its status as a 'foreign going vessel'.

“Merely because the vessel was not actually engaged in repair activities on any one or more days during the time charter, it could not be said that the vessel was not engaged in the activities contemplated under the agreement. So long as it was under an existing obligation by contract to carry out the activities, the mere fact that on particular days, it was not actually engaged in carrying out those repair activities, was irrelevant,” stated the bench.

The bench opined that while it may be a fact that the terms of an exemption provision under the taxing Statute have to be strictly construed against an assessee and in favour of the Revenue, the instant case to be one where the respondent vessel satisfies the definition of 'foreign going vessel' even without any strained interpretation of the words used in the Statute.

It is therefore a clear case where the respondent vessel comes within the ambit of the phrase 'foreign going vessel' and therefore entitled to the benefit of exemption under Section 87 of the Customs Act, added the bench.

In view of the above, the bench dismissed the appeal.

Case Title: The Commissioner of Customs v. M/s Asean Cableship Pvt. Ltd.

Case Number: CUS. APPEAL.NO.1 OF 2021

Citation: 2025 LiveLaw (Ker) 315

Counsel for Appellant/Department: N. Venkataraman, O.M. Shalina and P. Vijayakumar

Counsel for Respondent/Assessee: Rohan Shah, Stella Joseph, Yash Desai

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