Ship Breakers Ltd. Vs. Commnr. of Customs & Central Excise, Rajkot  Insc 89 (8 February 2005)
Bhan & P.K. Balasubramanyan Bhan, J.
has filed this appeal under Section 130(E) of the Customs Act, 1962 (for short
"the Act") against the final Order No.C-I/II/WZB/2000 dated 2.1.2001
in Appeal No.C/533-V/99/Bom passed by the Customs Excise and Gold (Control)
Appellate Tribunal, West Zonal Branch at Mumbai (hereinafter referred to as
"the Tribunal") whereby the Tribunal reversed the order in appeal
passed by the Commissioner of Central Excise on 8.3.1999 and held that the
appellant could not be granted abatement of the duty.
stated the facts of the case are:- M/s. Priya Blue Industries Pvt. Ltd., Plot
No.V-1, Sosiya (hereinafter referred to as "the importer") hold
import export code number and also Central Excise Registration. It imported
vessel MV VLOO ARUN under OGL for the purpose of breaking.
vessel weighing 40,017 LDT had been purchased for US$ 68,49,839.00 i.e. @ US$
167 per Long Ton. Importer got a letter of Credit bearing No.58 IDC 21.97 dated
12.8.1997 opened in favour of Ruby Enterprise Inc., 2018, Antwerp, Belgium, the
foreign sellers for US$ 68,49,839.00 which amount was remitted by the Vysya
Bank Ltd., Mumbai to the beneficiaries on 12.8.1997 itself. The importer had
thereafter sought and been granted permission for beaching the vessel at the
designated plot by the proper officer of Customs. On account of heavy current
and storm the vessel got dragged towards Plot No. V-5 Sosiya and got grounded
there. The importer vide its application dated 24.6.1997 requested the
Assistant Commissioner of Central Excise Division, Bhavnagar for extension of
time for filing the Bill of Entry for home consumption in respect of the
aforesaid vessel. The requisite permission was granted by the jurisdictional
Assistant Commissioner. The importer, however did not file the Bill of Entry
and sought further extension of time which was declined by the Assistant
Commissioner, Bhavnagar. The importer thereafter entered
into a memorandum of understanding on 10th September, 1997 with Udyani Ship
Breakers Ltd. ("the appellant" herein) who are the owners of Plot
No.V-5, Sosiya in front of which the vessel was grounded for sale of the ship
for Rs.12,01,00,000/-. An agreement to sell was executed on 11th September, 1997 and the sale was effected by Bill
of sale on 26th
appellant also holds import export code number as well as Central Excise
Registration for ship breaking. The appellant presented a Bill of Entry bearing
No.SBY-III/59/97- 98 dated 12.9.1997 before the Superintendent of Customs, SBY-Alang.
The price declared by the appellant was Rs.12,01,00,000/-. As the price
declared by the appellant was abnormally low a reference was made to the
appellant for making a correct declaration with regard to the price.
and the respondent produced copies of the following documents:-
original Memorandum of Agreement dated 2.6.1997 entered into between the
foreign seller and the importer,
copy of the commercial invoice issued by the foreign seller in favour of the
Letter of Credit opened in favour of the foreign seller for the amount of US$
68,49,839.00 by Vysya Bank Ltd., Mumbai on behalf of the importer.
copy of the Memorandum of Agreement between the importer and the respondents,
copy of the Letter of Credit bearing no.KHG/ILC/103/97 dated 12.12.1997 for
Rs.12,01,00,000/- issued by Dena Bank, Bhavnagar by the respondents on Dena Bank, Mumbai in favour of the importer.
copy of the commercial invoice in their favour issued by the importer to the
the facts which emerge from the above are:
entered into an agreement of memorandum with the foreign seller on 2.6.1997. On
4.6.1997 the importer took physical delivery of the ship. On 24.6.1997 the
importer requested time for filing the Bill of Entry. On 12.8.1997 LC was
opened and on the same day the amount was remitted to the foreign seller.
Thereafter importer sought and was given permission for beaching the vessel.
The agreement of sale between the importer and the appellant was executed on
11.9.1997. The appellant presented the Bill of Entry on 12.9.1997 and the price
was stated to be Rs. 12,01,00,000/-.
9.6.1997 itself the vessel had started drifting. The importer transferred the
title to the buyer in pursuance to the memorandum of understanding and the
agreement of sale entered into between them on 26.12.997 by executing the bill
of sale in favour of the appellant on "as is where is" basis for a
consideration of Rs. 12,01,00,000/- i.e. after the passing of the assessment
order dated 23.12.1997.
Assessing Authority in his assessment order dated 23.12.1997 held that the
value declared by the appellant was not the price in the course of
international trade and accordingly did not accept the price declared by the
appellant in the Bill of Entry and appraised the value of the vessel at the
price at which it had been purchased by the importer in the course of
by the aforesaid assessment order the appellant filed an appeal before the
Commissioner of Customs (Appeals) who vide its order dated 26.2.1999 allowed
the appeal. It was held that the appellant was entitled to the benefit u/s 22
of the Act as the warehoused goods had been damaged after unloading but before
their examination u/s 17 on account of accident not due to any wilful act,
negligence or default of the importer. It was also held that appellant had
purchased the vessel on high seas basis during the course of international
trade. Order in original was set aside with consequential relief.
was placed upon the decision of the Tribunal in the Rajkot, 1989 (39) ELT 109 (Tribunal).
Revenue being aggrieved, filed an appeal before the Tribunal which allowed the
appeal and inter alia held that the abatement of duty under Section 22 could
not be granted as no request to that effect had been made to the Assistant
Commissioner of Customs and that the Assistant Commissioner was required to
record its satisfaction that a case had been made out under Section 22 for
abatement of duty on the damaged and deteriorated goods. The judgment in the
case of J.M. Industries (supra) was distinguished. It was further held that
transfer by execution of bill of sale between the appellant and the importer
was dated 26.12.1997 after the arrival of the vessel in India in June 1997 and
therefore the appellant could not claim that it was a sale on high seas basis as
indicated in the agreement of sale dated 11.9.1997. The entire action seems to
be to evade the duty payable at proper value and accordingly held the order
passed by the Commissioner of Customs (Appeals) to be wrong in law and restored
the order in original.
for the parties have been heard.
22 of the Act reads:
Abatement of duty on damaged or deteriorated goods.—
Where it is shown to the satisfaction of the Assistant Commissioner of Customs
or Deputy Commissioner of Customs
any imported goods had been damaged or had deteriorated at any time before or
during the unloading of the goods in India ; or
that any imported goods, other than warehoused goods, had been damaged at any
time after the unloading thereof in India but before their examination under
section 17, on account of any accident not due to any willful act, negligence
or default of the importer, his employee or agent ; or
that any warehoused goods had been damaged at any time before clearance for
home consumption on account of any accident not due to any willful act,
negligence or default of the owner, his employee or agent, such goods shall be
chargeable to duty in accordance with the provisions of sub- section (2).
The duty to be charged on the goods referred to in sub-section (1) shall bear
the same proportion to the duty chargeable on the goods before the damage or
deterioration which the value of the damaged or deteriorated goods bears to the
value of the goods before the damage or deterioration.
For the purposes of this section, the value of damaged or deteriorated goods
may be ascertained by either of the following methods at the option of the
value of such goods may be ascertained by the proper officer, or
goods may be sold by the proper officer by public auction or by tender, or with
the consent of the owner in any other manner, and the gross sale proceeds shall
be deemed to be the value of such goods."
reading of Section 22 shows that it is for the party claiming the abatement to
show to the satisfaction of the Assistant Commissioner of Customs or Deputy
Commissioner of Customs that any imported goods had been damaged or
deteriorated at any time before or during the unloading of the goods in India ;
or that any imported goods, other than warehoused goods, had been damaged at
any time after the unloading thereof in India but before their examination
under section 17, on account of any accident not due to any willful act,
negligence or default of the importer, his employee or agent ; or that any
warehoused goods had been damaged at any time before clearance for home
consumption on account of any accident not due to any willful act, negligence
or default of the owner, his employee or his agent. Thus to claim the benefit
of the abatement under Section 22, the party claiming the abatement has to
satisfy the Assessing Authority that a case had been made out under Section 22
for abatement of duty on damaged or deteriorated goods. In the absence of any
claim made under Section 22 in writing to the Assessing Authority the appellant
could not claim the abatement under Section 22 and the Assessing Authority did
not record rightly its satisfaction that the appellant was entitled to the
abatement of the duty. The Tribunal is right in holding that the Commissioner
(Appeals) had erred in giving benefit to the appellant for abatement of duty
under Section 22 of the Act.
act of "Import" in this case was over as soon as the letter of credit
was opened by the importer in favour of the foreign seller and remitted the sum
of Rs. 24,78,27,175/- to the foreign seller on 12.8.1997 in terms of the letter
of credit opened with the Vysya Bank Ltd., Mumbai through ABN Amro Bank, N.V.
Brussels. The term "import", "India", "Indian customs
water" have been defined under Clauses 23, 27 & 28 of Section 2 of the
Act as under :-
"import", with its grammatical variations and cognate expressions,
means bringing into India from a place outside India;
"India" includes the territorial waters
"Indian customs waters" means the waters extending into the sea up to
the limit of contiguous zone of India under section 5 of the Territorial
Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones
Act, 1976 (80 of 1976) and includes any bay, gulf, harbour, creek or tidal
14, which is the relevant provision for valuing the vessel sold by the
importer, reads:- "Sec. 14 - Valuation of goods for purpose of assessment.
For the purposes of the Customs Tariff Act, 1975 (51 of 1975) or any other law
for the time being in force where under a duty of customs is chargeable on any
goods by reference to their value, the value of such goods shall be deemed to
be the price at which such or like goods are ordinarily sold, or offered for
sale, for delivery at the time and place of importation or exportation, as the
case may be, in the course of international trade, where the seller and the
buyer have no interest in the business of each other and the price is the sole
consideration for the sale or offer for sale." [Emphasis supplied] The
price of the vessel in the course of international trade was the price [US$
68,49,839.00] paid by the importer to the Ruby Enterprises Inc., Belgium in
terms of the Memorandum of Agreement dated 2.6.1997 in terms of sub-Section (1)
of Section 14 of the Act. The transaction between the importer and the
respondent in terms of the Memorandum of understanding dated 10.9.1997 cannot
be described as the transaction of purchase and sale during the course of
international trade. Any sale of goods after the act of "import"
within the meaning of the Act is over, can only be described as a sale in the
course of domestic trade and not a sale in the course of international trade.
sub-Section (1) of Section 14 of the Act the imported goods are required to be
assessed at the price ordinarily charged for them in the course of
pointed out hereinabove the sale price of the aforesaid vessel during the
course of international trade which has actually been paid was US$ 68,49,839.00
equivalent to Rs. 24,78,27,175/-. The reduction in the price to Rs. 12,01,00,000/-
was not during the course of international trade but domestic trade. The
reduced price, therefore, cannot be accepted for determining the value under
sub-Section (1) of Section 14 of the Act.
of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988
with effect from 16.8.1988 does not alter the above position as under Rule 3 of
the aforesaid Rules it is provided that the value of the "imported
goods" shall be transaction value thereof. The transaction value in terms
of sub-Rule (1) of Rule 4 of the aforesaid Rule is the price actually paid or
payable for the goods when sold for export to India. Such transaction value in this case is US$ 68,49,839.00
and has actually been paid by the importer to the exporter abroad. No other
price can be taken into consideration for determining the assessable value in
this case either in terms of the main definition of the term "value"
given under sub-Section (1) of Section 14 of the Act or in terms of sub-Rule
(1) of Rule 4 of the aforesaid Rules.
apart, no application was made by the buyers i.e. importer in this case to the
Assistant Commissioner of Customs, Bhavnagar for any abatement of duty on the damaged goods as the importer has not
come forward for the clearance of the aforesaid vessel. The appellant i.e.
buyer who had purchased the vessel in the course of domestic trade was not
entitled to seek any abatement of duty on the ground on which it claimed before
the Appellate Authority. No such case had been made out before the Assessing
Authority before the goods were actually cleared. Adoption of two different
values for the same goods for the purpose of charging duty of customs under
Section 12 of the Act and Section 3 of the Customs Tariff Act, 1975 is not only
unprecedented but also patently illegal.
Memorandum of Understanding was executed between the importer and the appellant
on 10.9.1997 which provided :
sellers shall deliver vessel to buyers within 1 (one) day i.e. upon receipt of
full purchase price and buyer shall accept the vessel "as is where
is" at Sosiya".
bill of sale executed by the importer in pursuance to the MOU entered between
the parties on 10.9.1997 and the agreement of sale dated 11.9.1997 on
26.12.1997 whereby the importer transferred the title of the vessel to the
appellant purely on "as is where is" basis for a consideration of
Rs.12,01,00,000/-. The said bill of sale stated as follows :- "TO HAVE AND
TO HOLD the said vessel and appurtenances there into belonging upto the buyer,
its successors and assign for ever. Seller hereby transfers title to vessel to
buyer outright 'as is where is' in standard condition and warrants that the
said vessel is free of all debts, loans, taxes encumbrances and litigation and
maritime lines and other claims whatsoever".
of understanding dated 10.9.1997, the agreement to sell dated 11.9.1997 as well
as the bill of sale dated 26.12.1997 are after the goods had arrived in India in June, 1997. Under the
circumstances, the appellant could not claim the sale in its favour on High
Seas basis as indicated in the agreement of sale dated 11.9.1997. The Tribunal
was right in observing that from the conduct of the parties it cannot be ruled
out that the action seemed to be to evade the duty payable at the proper value.
interesting to note that the bill of sale was executed by the importer on
26.12.1997. Thus the title to the goods passed to the appellant on 26.12.1997,
i.e., after the order in original passed by the assessing authority on
the reasons stated above, we do not find any merits in this appeal and dismiss
the same with costs.