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CASE NO.:

Appeal (civil) 2338 of 2001

PETITIONER:

M/s. Udayani Ship Breakers Ltd

RESPONDENT:

Commnr. of Customs & Central Excise, Rajkot

DATE OF JUDGMENT: 08/02/2006

BENCH:

ASHOK BHAN & P.K. BALASUBRAMANYAN

JUDGMENT:

J U D G M E N T

BHAN, J.

The assessee-appellant 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.

Briefly 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.

The 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 December, 1999.

The 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-

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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.

Importer and the respondent produced copies of the

following documents:-

(a) the original Memorandum of Agreement dated

2.6.1997 entered into between the foreign seller and

the importer,

(b) a copy of the commercial invoice issued by the

foreign seller in favour of the importer,

(c) 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.

(d) a copy of the Memorandum of Agreement between

the importer and the respondents, and

(e) a 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.

(f) a copy of the commercial invoice in their favour

issued by the importer to the respondent.

Thus, the facts which emerge from the above are:

Importer 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/-.

On 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.

The 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 international trade.

Aggrieved 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.

Reliance was placed upon the decision of the Tribunal in the

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case of J.M. Industries Vs. Commissioner of Central Excise,

Rajkot, 1989 (39) ELT 109 (Tribunal).

The 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.

Counsel for the parties have been heard.

Section 22 of the Act reads:

"22. Abatement of duty on damaged or

deteriorated goods.-- (1) Where it is

shown to the satisfaction of the Assistant

Commissioner of Customs or Deputy

Commissioner of Customs\027

(a) that any imported goods had been

damaged or had deteriorated at any

time before or during the unloading of

the goods in India ; or

(b) 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

(c) 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).

(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.

(3) 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

owner:\027

(a) the value of such goods may be

ascertained by the proper officer, or

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(b) such 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."

A 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.

The 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 :-

(23) "import", with its grammatical variations and

cognate expressions, means bringing into India

from a place outside India;

(27) "India" includes the territorial waters of India;

(28) "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 river;

Section 14, which is the relevant provision for valuing the

vessel sold by the importer, reads:-

"Sec. 14 - Valuation of goods for

purpose of assessment.\027

(1) 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

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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.

Under 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 international trade.

As 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.

Introduction 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.

This 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

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under Section 12 of the Act and Section 3 of the Customs Tariff

Act, 1975 is not only unprecedented but also patently illegal.

The Memorandum of Understanding was executed

between the importer and the appellant on 10.9.1997 which

provided :

"The 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".

The 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".

Memorandum 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.

It is 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 23.12.1997.

For the reasons stated above, we do not find any

merits in this appeal and dismiss the same with costs.