CAG raps DSS for needless payment of customs duty on procurement of spares

Report by: 
EOI BUREAU
Port Blair
15 Apr 2018

The Comptroller and Auditor General (CAG) of India has indicted the Directorate of Shipping Services (DSS) for making avoidable payment of Rs 57.99 lakh towards customs duty on procurement of imported spares for routine repair and maintenance of an ocean-going vessel. In its report for the year ending March 2017, the CAG observed that DSS failed to avail the benefit of exemption from payment of customs duties in terms of Custom Notifications issued under the Customs Act, 1962, which should have been availed of by the company and the benefit passed on to DSS.
The CAG report tabled in Parliament recently, the audit noted that on 12 December 2012, the Directorate of Shipping Services, Andaman and Nicobar Administration, entered into an agreement with a private company for engine and thruster maintenance and supply of spare parts and price guarantees in respect of spares and availability of spares for the vessel M.V. Campbell Bay, ship owned by the DSS equipped with main engines, auxiliary engines and other equipment manufactured/supplied by Yanmar Co. Ltd, Japan and thrusters by Kawasaki Heavy Industries Limited, Japan. In terms of the agreement, any exemptions from payment of direct and indirect taxes availed of due to applicable laws of the time were to accrue to the Andaman & Nicobar Administration.
The CAG audit observed that DSS paid Rs 2.80 crore to the company between November 2015 and June 2016 towards supply of engine spare parts for M.V. Campbell Bay which included the component of customs duty amounting to Rs 57.99 lakh. Although DSS functioned as an SRU, it failed to avail exemption under the provisions of the Customs Act cited above which resulted in avoidable payment of Rs 57.99 lakh towards customs duty on procurement of imported spares for routine repair and maintenance of MV Campbell Bay.
“In terms of Customs Notification No.12/2012 dated 17 March 2012 issued under Section 25(1) of the Customs Act, 1962, Ship Repair Units (SRUs) registered with the Directorate General of Shipping were exempted from payment of customs duty on import of capital goods and spares thereof, raw materials, parts, material handling equipment and consumables when such procurement was required for repairs of ocean-going vessels. Subsequently, by Customs Notification No.43/2015 dated 4 August 2015, the Ministry of Finance (Department of Revenue) removed the requirement for registration of SRUs with Directorate General of Shipping for availing of the exemption,” as per the CAG report.
In its reply on May 2017, DSS stated that though Article 12 of the agreement empowered the Administration to avail exemption of customs duty on spares, availing of such exemption was practically not possible since it was a time consuming process and delay in supply of spares could have adversely affected the operational availability of the vessel. However, the matter has been taken up with the appropriate authority for availing such exemption. In July 2017, DSS added that the Marine Dockyard under the DSS was responsible for repairs and maintenance of the fleet of ship/boats and there would not be any savings to the Government exchequer since the pricing of the spares were as per the price list of original equipment manufacturers. “The reply of DSS is not tenable since customs duty on spares for ocean going vessels was exempted by the Government of India that should have been availed of by the company and the benefit passed on to DSS. The matter has been referred to the Ministry of Home Affairs,” concluded the audit report.