REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION CIVIL  APPEAL NO  . 1908 OF 2006   

M/S  CHAUDHARY  SHIP  BREAKERS

— APPELLANT  

VERSUS

COMMISSIONER OF  CUSTOMS, AHMEDABAD

— RESPONDENT

J U D G M E N T

D.K. JAIN, J.:

I.A.   Nos.3 and 4 of 2005   

1. In the absence of any resistance,  both the applications  

are allowed and the additional documents are taken on  

record.  Applications stand disposed of.

2. Delay condoned.

3. This civil appeal under Section 130E of the Customs Act,  

1962 (for short “the Act”) is directed against order dated  

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2nd February 2005,  passed by the Customs,  Excise and  

Service Tax Appellate Tribunal (for short “the Tribunal”),  

whereby the appeal preferred by the appellant herein has  

been dismissed, confirming the levy of additional customs  

duty by virtue of the final assessment order passed by the  

Deputy  Commissioner  (Customs),  Bhavnagar  on  28th  

August 2000.

4. Shorn of unnecessary details, the facts, material for the  

adjudication  of  the  present  appeal,  may  be  stated  as  

follows:

M/S Chaudhary Ship Breakers, the appellant before us,  

imported  an  old  vessel  for  demolition  purpose  under  

Memorandum of  Agreement  (for  short  “MOA”)  dated 19th  

November 1997 with Standard Marine Trading Inc.,  New  

York on “as is where is” basis. As per the said MOA, the  

total  purchase  price  of  the  vessel  was  agreed  at  US  $  

992887.20 at the rate of US $ 172 per long ton.  The Light  

Displacement  Tonnage (LDT)  of  the  vessel  was  shown at  

5772.6 LDT.  As per Clause 12(B) of the MOA, the buyer  

was  given  an  option  to  seek  proportionate  reduction  in  

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purchase price if the vessel suffered any partial damage so  

as  to  affect  the  vessel’s  LDT.  Clause  15  contained  the  

description/ specifications of the vessel wherein the ballast  

tanks of the vessel were described as “double bottom tanks,  

fore  peak  tank,  AFT peak  tank  and  wing  tank.”  Further,  

Clause  16  provided  that  any  dispute  relating  to  the  

interpretation  of  the  said  MOA  would  be  referred  to  

arbitration.  Clause 25 gave seller  the option to repudiate  

the agreement if  there was any dispute in relation to the  

description of the vessel.

5. The  vessel  arrived  at  the  Alang  Anchorage  on  21st  

November 1997. The surveyors carried out inspection on  

22nd November 1997, and submitted their report on 7th  

July  2000.  The  said  report  stated  that  “since  the  side  

tanks  are  meant  for  the  receipt/carriage  of  sea  water  

ballast for the ship’s stability, the plating over the years  

undergo heavy corrosion (wastage.) Accordingly, the ship  

breaker  is  bound to suffer  additional  (illegible)  loss  on  

this account.”

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6. It seems that in light of the afore-quoted observations by  

the surveyors, fresh negotiations took place between the  

seller  and  the  appellant,  which  resulted  in  a  fresh  

agreement  in  the  form  of  an  addendum  dated  8th  

December  1997  to  the  original  MOA.   In  the  said  

addendum, the price of the vessel was reduced to US $  

929388.60.  The  addendum  mentioned  that  the  price  

reduction was due to the “double skin.” The bill of entry  

was filed on 19th December 1997 at the reduced price of  

the vessel.

7. A provisional assessment was made at the reduced price  

mentioned  in  the  addendum,  and  differential  duty  of  `  

6,76,415/- was sought to be levied. The final assessment  

order  was  passed  by  the  Deputy  Commissioner  of  

Customs, Bhavnagar on 28th August 2000, at the original  

transaction value of the vessel at US $ 992887.20.

8. The appeal filed by the appellant against the said order of  

adjudication  was  dismissed  by  the  Commissioner  of  

Customs (Appeals) on 5th November 2003 on the ground  

that the importer had not produced any evidence to show  

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that the vessel was not the same as was offered to them  

under the MOA, as was required to be demonstrated by  

the importer in light of the decisions of the Tribunal in  

Commissioner  of  Customs,  Ahmedabad  Vs.  Atam  

Manohar Ship Breakers Pvt. Ltd.1 and Commissioner  

of  Customs,  Ahemdabad  Vs.  Guru  Ashish  Ship  

Breakers2. The Commissioner (Appeals) observed that:

“10.  The  description  does  not  show  that  the  vessel, which was contracted, was Single Skin or  Double Skin. The Survey Reports of M/s. Erison &  Richards dated 22.1.97 does not mention anything  about the discrepancy claimed by the appellant….  …. …. …. …. …. …. …. …. …. …. …. …. …. …. ….  …. …. …. …. …. … 11. I rely on the observation of the Tribunal in  the case of Atam Manohar (supra)and hold that  the appellant has not produced any evidence to  show that  the  vessel  was  not  the  same as  was  offered to them vide MoA dated 19.11.97.  They  have  failed  to  produce  any  cogent  reason  for  reduction in price from the MoA.”

9. Aggrieved  by  the  said  order,  the  appellant  carried  the  

matter in further appeal to the Tribunal.  Distinguishing  

the  decision  of  the  Tribunal  in  the  case  of  Atam  

Manohar  (supra), on which reliance was placed by the  

1 2003 (156) E.L.T. 151 (Tri.-Mumbai) 2 2003 (157) E.L.T. 277 (Tri.-Mumbai)

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appellant,  the  Tribunal  dismissed  the  appeal,  holding  

thus:

“In the present case there is no provision in  the Memorandum of agreement for reduction  of  price  on  any  account.  We  find  that  Tribunal  in  the  case  of  Guru  Ashish  Ship  Breakers (supra) held that in absence of any  provision in the memorandum of agreement  regarding variation in price, the reduction in  price after import is not sustainable. In the  present  case as  discussed above,  the price  was revised after import and in the absence  of any provisions regarding price variation in  the memorandum of agreement, we find no  merit in the appeal.”

10.Hence, the present civil appeal by the importer.

11. Mr. Pawan Shree Agrawal, learned counsel appearing for  

the  appellant,  while  assailing  the  impugned  order,  

strenuously urged that since under Section 14 of the Act  

the value of the goods is deemed to be the price at which  

such or  like goods are ordinarily  sold in the course of  

international  trade,  the price that was actually paid by  

the appellant in terms of addendum dated 8th December  

1997, is to be adopted as the “transaction value” in terms  

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of Rule 3 read with Rule 4(1) of the Customs Valuation  

(Determination of Price of Imported Goods) Rules, 1988  

(for short “the 1988 Rules”)  for the purpose of levy of  

customs  duty  under  the  Act.   Learned  counsel  

commended  us  to  the  GATT  Customs  Valuation  Code,  

which,  inter-alia,  contemplates that if  the parties agree  

upon  a  price  adjustment  promptly,  even  if  there  is  

nothing  in  writing  between  them  on  the  subject,  the  

Customs should accept the adjusted price as the basis for  

transaction value.

12. Per  contra,  Mr.  V.  Shekhar,  learned  senior  counsel  

appearing  for  the  revenue,  supported  the  order  of  the  

Tribunal.   Learned  counsel  emphasised  that  in  the  

absence of any stipulation in the MOA for reduction in  

the  agreed  price,  the  revised  price  mentioned  in  the  

addendum  is  of  no  consequence  for  the  purpose  of  

Section 14 of the Act.   

13. At  the  outset,  we  may  note  that  the  decision  of  the  

Tribunal in Atam Manohar  (supra) was questioned by  

the revenue before this Court in Civil Appeal No.146 of  

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2004.  While allowing the appeal and setting aside the  

order of  the Tribunal  primarily  on the ground that the  

addendum  was  a  self-serving  document,  the  Court  

observed thus:

“We may also point out that in this case we are  basically concerned with the genuineness of the  addendum to the MoA dated 13th April, 1999.  If  one looks at the said addendum, we find that the  date on which the said addendum stood executed  is  not  given.   Further,  when did  the addendum  stand incorporated in the MoA.  We do not find  the date on which the clause stood inserted in the  MoA.  Further, the said addendum does not give  any reason for reduction in the price from US $  9,70,960.23  to  US $  8,70,960.23.   Further,  the  most clinching factor to be seen is that the said  addendum appears to have been executed at the  request of the buyer.  In our view, this is a self- serving document.  In this connection, it may also  be  noted  that  the  MoA  dated  13th April,  1999  states that the vessel is bought on “as is where is”  basis.   If  that  be the case,  we do not  know on  what basis the value of the vessel stood reduced  from  US  $  9,70,960.23  to  US  $  8,70,960.23.  Lastly, it is stated on record that one of the items  was  not  in  a  working  condition  and  by  way  of  damages,  the price stood reduced.   It  is  not so  stated  in  the  addendum.   If  it  is  the  case  of  damages,  then,  surely  it  would  have  been  so  stated in the addendum.”

14. It  is  manifest  that  the  Court  expressed  the  view  that  

where the price of the vessel had been reduced by way of  

an addendum to the original agreement, the acceptance  

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of the revised price would depend on the genuineness of  

the  said  addendum.   In  other  words,  the  Court  laid  

greater emphasis on the genuineness or otherwise of the  

addendum  and  not  on  the  factum  of  absence  of  a  

provision in the original agreement for reduction of price  

for the reasons stated in the addendum, as held in the  

case of Guru Ashish Ship Breakers (supra), relied upon  

by the Tribunal in the present case.

15. According  to  Section  14(1)  of  the  Act,  assessment  of  

customs duty under the Customs Tariff Act, 1975 is to be  

made on the value of  the goods imported.   Unless the  

value of the goods is fixed under the sub-section (2) of  

Section 14,  the value has to be determined under sub-

section (1) of the said Section.  The value, as per Section  

14(1), as it stood prior to its amendment with effect from  

10th October 2007,  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  

–  in  the  course  of  international  trade.   The  word  

“ordinarily”  is  clarified  in  the  Section  itself,  which  

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describes an “ordinary” sale as one “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…”.  

According to Section 14(1A) price of imported goods is to  

be determined in accordance with the Rules framed in  

this behalf.  Under Rule 3(i) of the 1988 Rules, the value  

of the imported goods shall  be the “transaction value”.  

Transaction  value  has  been  defined  in  Rule  2(f)  as  

meaning the value determined in accordance with Rule 4.  

Rule 4(1),  in turn, states that “the transaction value of  

the  imported goods shall  be  the price  actually  paid  or  

payable  for  the  goods  when  sold  for  export  to  India,  

adjusted in accordance with the provisions of Rule 9 of  

these Rules.”  It is clear from a conjoint reading of Rule  

3(i) and Rule 4(1) that the adjudicating authority is bound  

to accept the price actually paid or payable for the goods  

as  the  transaction  value,  except  where  exceptions  

enumerated in Rule 4(2) are attracted, which is not the  

case here.   It  is,  therefore,  manifest  that  both Section  

14(1) and Rule 4 provide that in the absence of any of the  

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special  circumstances  indicated  in  Section  14(1)  and  

particularised in Rule 4(2) of the 1988 Rules, the price  

paid by an importer to the seller in the ordinary course of  

commerce is to be taken as the transaction value for the  

purpose of valuation of goods.

16. Having  regard  to  the  afore-stated  legal  position,  the  

controversy  at  hand  narrows  down  to  the  question  

whether the transaction value of the vessel is to be price  

mentioned  in  the  original  MOA  or  the  reduced  price  

indicated in the addendum.  We are of the opinion that in  

light  of  the  statutory  provisions,  the  factum  of  actual  

payment of the price in terms of the addendum cannot be  

ignored while determining the value of the vessel under  

Section 14 of the Act.  We may, however, hasten to add  

that in such a situation the genuineness and the necessity  

of reduction in the price are required to be scrutinised  

very carefully.  

17.As afore-stated, in the instant case, the Tribunal has not  

examined  the  genuineness  of  the  addendum,  and  has  

proceeded to reject  the appeal  of  the appellant  on the  

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short  ground  that  there  was  no  provision  for  price  

variation in the original  MOA.  We may,  however,  add  

that  the  Commissioner  (Appeals)  did  examine  the  

cogency of the reasons for price reduction though he was  

not convinced to accept the same.

18. For  all  these  reasons,  we  are  of  the  opinion  that  the  

Tribunal  needs  to  examine  the  matter  afresh.  

Accordingly, the appeal is allowed; the impugned order is  

set aside, and the matter is remitted back to the Tribunal  

for  fresh  consideration,  particularly  in  relation  to  the  

genuineness of the addendum entered into between the  

appellant and the supplier on 8th December 1997.

19.Parties to bear their own costs throughout.

.……………………………………J.            (D.K. JAIN)  

                             .…………………………………….J.           (H.L. DATTU)

NEW DELHI; OCTOBER 22, 2010

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