M-S UDAYANI SHIP BREAKERS LTD. v. COMMNR. OF CUSTOMS AND CENTRAL EXCISE, RAJKOT

Citation: [2006] 2 S.C.R. 138

Court: Supreme Court of India

Bench: ASHOK BHAN, P.K. BALASUBRAMANYAN

Case summary

M-S UDAYANI SHIP BREAKERS LTD. v. COMMNR. OF CUSTOMS AND CENTRAL EXCISE, RAJKOT.pdf

Judgment text

MIS UDAYANI SHIP BREAKERS LTD. v. COMMNR. OF CUSTOMS AND CENTRAL EXCISE, RAJKOT FEBRUARY 8, 2006 [ASHOK BHAN AND P. K. BALASUBRAMANYAN, JJ.

] Customs Act, 1962-Sections 14 and 22--Customs Tariff Act, 1975-- Section 3-Customs Valuation (Determination of Price of Imported Goods) Rules, 1988-Rules 3 and 4-lmporter imported a ship for purpose of breaking-Ship got grounded and damaged due to bad weather-Importer, thereafter, sold the ship on 'as is where is' basis to appellant at a reduced price-Appellant filed a Bill ofEntry with Revenue declaring the value ofthe ship at the reduced price-Revenue rejected the value declared as it was not the price paid in the course of international trade-Commissioner (Appeals) allowed the appeal ofthe appellant holding that the appellant purchased the ship on high seas basis and allowed abatement of customs duty under Act since the ship got damaged prior to examination by Revenue-Tribunal, in appeal, held in favour ofthe Revenue-Correctness of-Held, the appellant is 1 not entitled to abatement of customs duty under the Act in absence of a specific claim from the Revenue-Onfacts, the transaction between the importer and the appellant is a transaction in course ofdomestic trade and not in the course ofinternational trade-Hence, the reduced price cannot be assessable value for levy ofcustoms duty under the Act.

An importer entered into a memorandum of agreement with a foreign seller for import of a ship for purpose of breaking for a consideration of Rs. 24. 78 crores. After taking delivery of the ship it paid the consideration to the foreign seller. On account of heavy current and storm, the ship got dragged and grounded. The importer sought time from Revenue to file Bill of Entry. On seeking further extension of time, the Revenue declined. The importer, thereafter, entered into a memorandum of understanding and an agreement of sale with appellant for sale of the ship on "as is where is" basis for a consideration of Rs. 12. 01 crores. ,The importer transferred the title in favour of the appellant by execution of a , , bill of sale. The appellant presented the Bill of Entry stating the price as Rs. 12. 01 crores. The Revenue rejected the value declared by the appellant / ~ UDAYANI SHIP BREAKERS LTD. v. COMMR. OF CUSTOMS AND CENTRAL EXCISE 139 in the Bill.

of Entry as it was not the price in the course of international "~ I HELD: 1. 1. To claim benefit of the abatement of customs duty under Section 22 of the Customs Act, 1962, the party claiming the abate'! 1ent > has to satisfy the Assessing Authority that a case had been made out under the Section for abatement of duty on damaged or deteriorated goods. In the absence of any claim made under the Section in writing to the Assessing Authority, the appellant could not claim the abatement under Section 22 of the Act. 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. (145-D-E] .... 1. 2.

The act of import was over as soon as the letter of credit was opened by the importer in favour of the foreign seller and remitted the sum to the foreign seller in terms of the letter of credit opened with the Bank. The transaction between the importer and the appellant in terms of a Memorandum of understanding cannot be described as a 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 if over can only be described as a sale in the course of domestic trade and not a sale ' in the course of international trade. (145-F; 146-E] 1. 3. The sale price of the vessel during the course of international '- ; trade which has actually been paid was Rs. 24. 78 crores. The reduction in the price to Rs. 12. 01 crores was not during the course of international trade but domestic trade. The reduced price, therefore, cannot be accepted for determining the value under Section 14(1) of the Act.

(146-G) 1. 4. The Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 does not alter the position. Under Rule 3 of the Rules, it is provided that the value of the "imported goods" shall be 'transaction .. value' thereof. The 'transaction value' in terms of Rule 4(1) of the Rules is the price actually paid or payable for the goods when sold for export to India. The transaction value in this case 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" under Section 14(1) of the Act or under Rule 4(1) of the Rules. (146-H; 147-A-B) 1. 5. No application was made by the importer to the Assistant Commissioner of Customs for any abatement of duty on the damaged goods as the importer has not come forward for the clearance of the ship.

The appellant, who had purchased the ship 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 Au I, the same goods for the purpose of charging duty of customs under Section I- 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 I (one) day i. e. upon receipt of full purchase price and buyer shall accept the vessel "as is where is" at Sosiya". _. l. 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 vessei and appurtenances there into belonging upto the buyer, its successors and assign for ever. t 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 I0. 9. 199 7, 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 ofsale 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 ofsale 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. B. S. Appeal dismissed. -I .. ' .