2004 (97) ECC 609 (Tri)

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL

West Regional Bench -- Mumbai

Shri S.S. Sekhon, Member (T) and Shri Anjaneyulu, Member (J)

Commissioner of Customs, Jamnagar

Versus

Hussain Sheth Ship Breakers Pvt. Ltd.

Appeals No. C/40/04, C/98/04

[Arising out of Order-in-Appeal No. 331/2003 (108-JMN)Cus/Commr(A)/Ahd dated 10.10.2003 & No. 467/2003 (190-JMN)Cus/Commr(A)/Ahd dated 9.12.2003 passed by the Commissioner (Appeals), Customs, Ahmedabad]

Order No. A/792, 793/WZB/2004-CII, dt. 31.8.2004, Certified on 12.9.2004

Valuation (Customs)

Appeal against Commissioner (A) order rejected Revenues appeal as regards the valuation of an old and used Vessel imported -- Failure of Commr. (A) to consider original price of first MOA, relevant for arriving at assessable value, simply because the said price is relevant only for Importer-I and not for said party -- However, while passing said order he failed to interpret as to whether there is any other price available of said goods or like goods at the time of importation of the subject vessel -- Reduced price of second MOA could never be considered as the transaction value -- The reasons for the value difference are not explained and therefore are not exported -- Directed Commr. (A) to re-determine the appropriate valuation as per law -- Customs Act, 1962, Section 14.

[Para 2]

Refund (Customs)

Remand -- Case remanded to Commr.(A) to re-determine the issue of refund, after he arrives at valuation, since the refund eligibility and quantum will be directly relevant to the valuation determined now in the matter of C-1404 now remanded.

[Para 2]

PRESENT :

Shri Vimlesh Kumar, SDR for the appellant.

Shri M.C. Dhruve, Advocate for the respondent.

Cases Cited :

1. Birla VXL Ltd. v. CCE, Vadodara, 2002 (145) ELT 614 (Tri-Mum)....................... [Para 3]

2. Howrah Mills Co. Ltd. v. Kolkata, 2002 (139) ELT 599 (Tri-Kolkata).................... [Para 3]

3. Malwi Ship Breaking Co. v. Commr. (A) A'bad, 1999 (111) ELT 417.................... [Para 3]

4. Trilokchand Chaudhry Family Trust v. CC, Bombay, 1996 (84) ELT 510.............. [Para 3]

5. VXL India Ltd. v. CCE, Rajkot, 1998 (100) ELT 138.......................................... [Para 3]

Per: S.S. Sekhon

Revenue is in appeal as the Commissioner (Appeals) has rejected the revenues appeal as regards the valuation of an old and used vessel imported at Bhavnagar.

2. The grounds taken are as follows:

The Order-in-Appeal No. 331/2003 (108-JMN)Cus/Commr(A)/Ahd dated 10.10.2003 passed by Commissioner (Appeals), Customs, Ahmedabad is not proper and legal on the following grounds:

While discussing the facts of case from Para 1 to 6 of the said order, the Commissioner of Customs (Appeal), Ahmedabad, the said Commissioner (Appeals) have mentioned the fact that the following removals, detected by the independent Surveyor, M/s. Metcalfe & Hodgkinson, Bhavnagar, in the presence of the Customs officials and the representative of the Buyer, on 8.11.2001, prompted the Importer-1 to cancel the first MOA dated 22.10.2001 and also aided the said party to reduce the price of the subject vessel:

Sr. No. | Name of the Removal Items | Nos.(Set)
1 | Auxiliary Boiler | 02
2 | Emergency Generator | 01
3 | Cargo Pumps | 18
4 | Hydraulic Power Pack | 02
5 | Oil Purifier | 05
6 | Anchor with Chain | 01
7 | Harbor Generator | 01
8 | Air Compressor | 02

In the instant case, the Importer-1 had left the vessel, purchased by them under the MOA dated 22.10.2001 and the said party had re-purchased the vessel at a reduced price, under the new MOA dated 24.10.2001, due to the above mentioned shortcomings/removals.

However, on scrutiny of both the above mentioned MOAs dated 22.10.2001 & 24.10.2001, it was observed as under:

(a) Clause 1 of both MOAs

"The Seller hereby agree to sell, free of all items and encumbrances and the buyers hereby agree to buy, on terms and conditions hereinafter set forth the chemical tanker M/T "HATAN" of about 5119 Gross registered Tons and about 2,350 Net registered tonnage with Light Displacement of 3,042.5 Metric-(2,994.58 Long) Tons, built 1074, Norway, together with whatever available outfit, equipment, anchors and chains, if any, in safely afloat condition, free of charter, free of cargo, but excluding items mentioned in Clause No. 20 of this MOA,

(b) Clause 20 of both MOAs

"Removals/exclusions from the sale:

1. 1x 800kVA Harbour Generator & Emergency Generator, 145 kVA & 11 kVA.

2. Aux. Boiler-2 set

3. Cargo Pumps 96 out of 24, Sea Water Cooling Pumps & Generator Service Pumps.

4. Hydraulic Power Packs-2 sets

5. Purifiers-3 sets

6. Air compressor main-1 set & Emergency Compressor-1 set

7. One Anchor with full chain."

Hence it is very clear from the above clauses, that the said vessel was sold by her owner to importer-1 and said party, under MOA dated 22.10.2001 and 24.10.2001 respectively, under the clear instruction that the sale is exclusive of the items shown in the Clause 20 of both the MOAs.

Therefore, the facts appearing in the impugned order of the said Commissioner (Appeals) are erroneous inasmuch as the removals detected by the independent surveyor in present (sic, presence) of Customs Officials on 8.11.2001 are already detailed in Clause 20 of both the MOA's. Therefore, the pretext of the said party for reduction of price on this account is not correct, which can be observed from the below mentioned comparative chart

Sr. No. | Name of the Removal Items | Corresponding para in both the MOAs. Showing the exclusion of the said items
1 | Auxiliary Boiler | Para 20(2)
2 | Emergency Generator | Para 20(1)
3 | Cargo Pumps | Para 20(3)
4 | Hydraulic Power Pack | Para 20(4)
5 | Oil Purifier | Para 20(5)
6 | Anchor with Chain | Para 20(7)
7 | Harbor Generator | Para 20(1)
8 | Air Compressor | Para 20 (6)

Thus, it is clear that the above mentioned removals, as claimed by the earlier importer-1 and the said party, are not unlawful removals by the Owner by the subject vessel; but are removals as per the provisions of both the MOAs dated 22.10.2001 and 24.10.2001. Hence, the claims of the importer-1 and said party, that the goods received by them are not same which was offered for sale through the respective MOAs, is not true

Further, at para 7 of the said order, the Hon'ble Commissioner of Customs (Appeal), Ahmedabad, had observed as under:

"I have carefully gone through the case records, grounds of appeal and the submissions made at the time of hearing. The only ground for filing appeal against the impugned order is that the price mentioned in the MOA dated 22.10.2000 is the price at the time of importation. There is no quarrel with the aforesaid proposition. However, the said proposition has two exceptions. First, the price mentioned in the first MOA is relevant for the buyer to whom it was offered. If that buyer has refused to accept the goods on certain valid grounds, the seller is not debarred from offering the same goods at a price agreed upon between the second buyer and the seller. Secondly, the claimant proves that the goods are not the same, which was offered for sale through the MOA. This can be shown by proving with evidence the removals or any other discrepancy which changes the complexion of the Vessel vis-a-vis the description in the MOA. In such case the price mentioned in the MOA may not be relevant for arriving at the assessable value. This view is supported by the decision of the Tribunal in the case of Atam Manohar (supra)."

The Hon'ble Commissioner of Customs (Appeals), Ahmedabad, has accepted the fact that, the price mentioned in the first MOA dated 22.10.2001, agreed upon with the importer it is the price at the time of importation. It is true that the price mentioned in the first MOA dated 22.10.2001 is relevant for the buyer to whom it was offered i.e. Importer-1. It is also true that if a buyer has refused to accept the goods on certain valid grounds, the seller is not debarred from offering the same goods at a price agreed upon between the second buyer and the seller.

However, in the instant case, the Hon'ble Commissioner of Customs (Appeals), Ahmedabad, has missed the fact, that the importer-1 has refused to accept the goods/vessel, without any valid ground. As discussed above, in para 1 of the grounds of the appeal, all the removals, on the basis of which the Importer-1 has cancelled the first MOA dated 22.10.2001, had already been detailed under exclusion list in para 20 of the said MOA. Hence, as the importer-I had already agreed to accept the said vessel under MOA dated 22.10.2001, alongwith the above mentioned exclusion, the removal of these items could never be a valid reason for refusing to accept the said goods/vessel.

Similarly, the Hon'ble Commissioner (Appeals), Ahmedabad, has also erred, in concluding in para 7 of the said order, that the said party have proved that the goods received by them are not the same which was offered for sale to them through the MOAs. The said party have found certain removals in the subject vessel, but as discussed supra, all the said removals were already detailed as exclusive items, in para 20 of both the MOAs dated 22.10.2001 and 24.10.2001. Hence, the importers could never claim that the goods/vessel, received by them are not the same which was offered for sale to them through the MOAs.

The Hon'ble Commissioner (Appeals), Ahmedabad, has also erred in inferring from these facts that the price mentioned in the MOA dated 22.10.2001 is not relevant for arriving at the assessable value.

Actually the sy tern (sic, System) of sale of a Vessel in the ship breaking industry is quite different rom normal Imports. In normal imports of any other commodity, alter (sic, a letter) of credit is opened, based on Performa invoice and thereafter on getting confirmation, the Seller sends the goods. On the receipt of the notice of arrival, the buyer goes to the bank and after ensuring payment for the goods, he gets the document for claiming the ownership of the goods which he presents to Customs for assessment and delivery. Thus, it is common that the invoice will be issued on or before the dispatch of the goods by the Seller. However, in the ship breaking industry, instead of giving Performa (sic, pro forma)invoice, the practice is of arriving at a Merrlfrandum (sic, Memorandum)of Agreement (MOA) which incorporates the details of the ship/and the price agreed upon based on the LOT of the vessle. The value therefore does not normally depend on the availability of accessories or the condition of the vessel, but the total LDT of the vessel. Thus, Memorandum of Agreement becomes very relevant as it serves the purpose of invoice. Generally, first clause of the MOA quotes the price of the vessel per Long Ton of LOT alongwith total purchase price of ship and second clause speaks about mode of payment i.e. irrecoverable Letter of Credit in favour of Seller and thereafter the seller will instruct the rvlaster (sic, Master) of the vessel to give the Physical Delivery of the vessel to the Buyer. Further, the sale is outright and final, and not subject to any negotiation.

MOA is therefore as good as an invoice and any invoice issued later which is not in conformity with the Memorandum of Agreement and issued after the arrival of the vessel at the port for breaking of the vessel is an after thought. Accordingly if the price originally agreed upon is reduced I re-negotiated on examination of vessel at Alang Anchorage i.e. after arrival of the vessel in India, such reduced price cannot be treated as `transaction value' within the cognate expression of law, as it is not the price paid or payable at the time of importation. All the Addendums or MOAs produced by the importer/importers, subsequent to the arrival of a vessel at Alang

Anchorage thus does not fit into the meaning of Transaction value of the vessel. Further it appears that successive Addendums or MOAs to claim reduction in price to originally agreed price of MOA, is at the insistence and in the interest of Buyer, as the Seller being foreigner, re-negotiates the deal under stress as it is cheaper for them to re-negotiate the deal with the present Importer or another Importer immediately, than to divert the vessel to any other port or to add demurrage in finding other buyer offering reasonable competitive price at the same port. Further, Addendums or MOAs, through which the price were reduced and agreed upon by both the parties, is an amicable compromise, with a view to avoid litigations. Thus, by this tactics buyer succeeds in reducing price of the vessel, from the seller and such deal is nothing but `distress sale'.

On a simple perusal of the first MOA and second MOA dated 22.10.2001 and 24.10.2001 respectively, and as discused above in para 1 of the "Grounds of Appeal", all the removals, on the basis of which the first tv10A (sic) was cancelled by the Importer 1 and re-purchased by the said party at a reduced price under second MOA, were actually already been shown as exclusive items and thus not inclusive in the said deals. Thus, there does not remain any scope for anybody to cancel the MOA or to reduce the price of the vessel as the vessel was found to be as per the terms and condition of both the MOAs. This clearly shows that, as there was no change in the specification of the vessel, there was no scope for re-negotiating the Transaction value of the goods. Yet the earlier importer had left the subject vessel without any valid reason, and the said party had reduced the price of the subject vessel, also without any valid reason. In spite of such favourable conditions, the Seller had to re-negotiate the sale of the vessel with another Importer' and reduce ......the price of the vessel, by US$ 62,049.50, clearly proving that such sales are nothing but distress sale. Further, it was noted that the LOT and all other specification of the vessel were exactly same in both the MOAs. This proves that the second MOA is merely agreed upon the contracting parties to reduce the price with no reason that reflects the mentor behind the reduction of value i.e. the distress sale or a compulsive sale on the part of the seller in aboard. Hence, the MOA-II, subsequently issued after arrival of the vessel, is not acceptable for the purpose of Transaction value.

Further the provisions of Section-14 of the Customs Act, 1962, are as under:

"Valuation of goods for purposes of assessment -- (1) For the purposes of [the Customs Tariff Act, 1975 (51 of 1975)], or any other law for the time being in force whereunder 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

(a) the Seller and the Buyer have no interest in business of each other; or

(b) one of them has no interest in the business of the other, and price is the sole consideration for the sale or offer for sale.

(1A) Subject to the provisions of sub-section (1), the price referred to in that sub-section in respect of imported goods shall be determined in accordance with the rules made in this behalf."

While passing the said order and inferring that the price mentioned in the first MOA dated 22.10.2001 is not relevant for arriving at the assessable value, the Hon'ble Commissioner of Customs (Appeal), Ahmedabad has failed to interpret the "transaction value" in respect to its cognate expression of law. The value of the goods has been clearly defined under Section 14 of the Customs Act, 1962 as the price at which such or like goods are ordinarily sold, or offered for sale or delivery at the time and place of importation in the course International trade. Here, what is more relevant and crucial for determining the value of the goods is the time and place of importation in international trade, arid (sic) the Hon'ble Commissioner of Customs (Appeals), Ahmedabad had already acceptYIB (sic) in para 7 of the said order that the price mentioned in the first MOA dated 22.10.2001 is the price at the time of Importation.

In the said order the Hon'ble Commissioner of Customs, (Appeal), Ahmedabad-I has not considered the original price of the first MOA dated 22.10.2001, relevant for arriving at the assessable value, simply because the said price is relevant only for the Importer-1 and not for the said party. However, while passing the said order he failed to interpret as to whether there is any other price available, of the said goods or like goods, at the time of importation of the subject vessel. Here it is important to note that the reduced price of the second MOA, is not the price of the vessel, available at the time of importation. The only price available at the time of importation was that sho'.rJn in (sic) the first MOA. Hence, the reduced price of the second MOA could never be considered as the transaction value as per the provisions of Section 14 of the Customs Act, 1962. Even though the price mentioned in the first MOA is not relevant for the said party, he has to pay duty on the value of the said goods or like goods which are ordinarily sold, or offered for sale, at the time of importation, as per the provisions of. Section 14 of the Customs Act, 1962. Even if the price of the first MOA is not relevant for the importer-2, the same should necessarily be relevant for considering it as the value of like goods, available at the time of importation. Thus, by ordering that the price of the first MOA is not relevant for arriving at the assessable value, the Hon'ble Commissioner of Customs (Appeal) has not only erred but wanted to shift the focus of the issue involved in that case. The only issue which is vital in the instant case is the value of the goods or like goods available at the place and time of importation.

All other grounds, discussed in para 7 of the said order for not considering the original price of the first MOA dated 22.10.2001, relevant for arriving at the assessable value. viz. the Importer-1 has refused to accept the goods/vessel on valid grounds, the goods/vessel received by the Importers are not the same which was offered for sale through the MOAs, etc. does not apply in the instant case, as discussed above.

In para 8 of the said order, the Hon'ble Commissioner of Customs (Appeal), Ahmedabad, had observed as under:

"In the instant case, the MOA agreed between the respondent and the seller is covered by both the exception. Once, the first buyer MIS Haryana refused to accept the goods, the MOA dated 22.10.2000 becomes void unless the department proves that such an arrangement was a sham to hoodwick the Customs. No such allegation has been made. The removal repotted by the Surveyor has not been disputed by the department. Such removals rendered the vessel not in accordance with the MOA dated 22.10.2000. The price agreed in the second MOA with the respondent is considering the removals and that is the price for ascertaining the assessable value. The assessment order is legally sustainable."

It has been discussed in detail in para 1 above that the first buyer, M/s Haryana refused to accept the goods purchased in terms of the MOA dated 22.10.2001, without any valid reason. Hence, nothing more remains to be proved, the conclude that the said refusal to accept the goods/vessel by the Importer-1, is nothing but a sham to hoodwick the Customs.

Further it is true that the removals reported by the Surveyor, has not been disputed by the department. But the Hon'ble Commissioner of Customs (Appeals) Ahmedabad, has erred in concluding from this that these removals have rendered the vessel not in accordance with the MOA dated 22.10.2001. As discussed in detail in Para 1 above, these removals are the same that has been detailed in para 20 of both the MOAs, as the items of exclusion, and both the Importers' have accepted to purchase the subject vessel, excluding these removed items. Hence, it could never be concluded that such removals rendered the vessel not in accordance with the MOA dated 22.10.2001. The Hon'ble Commissioner of Customs (Appeal), Ahmedabad, has also erred in concluding from these facts that the price agreed in the second MOA dated 24.10.2001, with the said party have arrived at after consideration of the removals and that is the price for ascertaining the assessable value. However, while concluding that, he has missed the fact that the price agreed in the first MOA dated 22.10.2001, with the Importer-1, is also arrived after consideration of the above mentioned removal.

Further, the Hon'ble Commissioner of Customs (Appeal), Ahmedabad, has already accepted in para 7 of the said order that the price mentioned in the first MOA dated 22.10.2001, should invariably be considered as the price for ascertaining the assessable, simply because the same is the price arrived at after consideration of the said removals and the same is also the price available at the time of importation.

3. After hearing both sides and considering the issues it is found that

(a) The reliance of the Commissioner (Appeals) on the case of Atam Manohar Ship Breakers Pvt. Ltd. in support and his views cannot be accepted in the facts of this case. There is no material change in the ship filaments to be missing from the ship. The ship were found suitable for sale and for delivery at Alang port and brought to Alang Port on 19.10.2001. If thereafter, certain goods (ship filaments) are missing then the provision of Section 13 of the Customs Act would come into play. What was missing from the ship and not sold by the foreign seller appears from & is already listed in the MOA with the earlier importer. Any subsequent shortages found will be case short shipment or landed but missing. Duties liabilities cannot simply be wished away on such items. We found no reason to follow the decision in the case of Atam Manohar Ship Breakers Pvt. Ltd (2003 (156) ELT 151 as we find no material change, in the goods have been found for delivery at Alang between the first importer and the second importer. The reasons for the value difference are not explained and therefore are not exported.

(b) Relying on the following case law.

(i) M/s Rajkumar Knitting Mills (P) Ltd. v. Collector of Customs

(ii) C-I/680-81/WZB/2000

(iii) C-II/1997/WZB/2003

(iv) 1996 (84) ELT 510-of M/s Trilokchand Chaudhry Family Trust v. CC, Bombay

(v) 1999 (111) ELT 417 Malwi Ship Breaking Co. v Commr (A) A'bad

(vi) 1998 (100) ELT 138, in the case of M/s VXL India Ltd. v. CCE, Rajkot

(vii) 2002 (145) ELT 614 (Tri-Mum), in the case of M/s Birla VXL Ltd. v. CCE, Vadodara.

(viii) 2002 (139) E.L.T. 599 (Tri-Kolkata), in the case of M/s Howrah Mills Co. Ltd. v. Kolkata

4. We find that the matter here has to be re-determined, in view of these decisions and appropriate valuation, as to be arrived at as per law. The Appeal No. C/40/04 Mum is therefore allowed as remand to the Commissioner (Appeals) with direction to rehear the party and re-determine the issues as per the law of the subject. Since the issues of valuation is being remanded for re-determination. We allow the Appeal C/98/04 and remit the same back to the Commissioner (Appeals) to re-determine the issue of refund, after he arrives at, in this case on valuation an order, since the refund eligibility and quantum will be directly relevant to the valuation determined now in matter of C/40/04 now remanded.

5. The two appeals are therefore allowed as remand in above terms.

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