M/S CHAUDHARY SHIP BREAKERS V/S COMMISSIONER OF CUSTOMS, AHMEDABAD - CIVIL APPEAL NO. 1908 OF 2006 (OCTOBER 22, 2010)

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
JUDGMENT
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 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

4
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