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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.