ORDER
M. Veeraiyan, Member (T)
1. These are departmental appeals against Order of the Commissioner No. 746 to 747/2001(174 to 175-CCP)Cus/Commr(A)/Ahd. dated 27.11.2001 relating to import of vessels for ship breaking.
2. None appeared for the respondents. Heard learned D.R. for the department on the issue of valuation of vessels bought for ship breaking relating to these appeals. The matter was referred to the Larger Bench vide Tribunal’s order No. M/906-907/WZB/2006/CB dated 28.6.2006 and the Larger Bench after considering the issue referred to them, answered the reference by their order dated 26.2.2007 and, sent the matter to the refereal Bench for passing appropriate order. Accordingly, these appeals are taken up for final disposal.
3. The relevant facts of the case relating to these appeals are brought out in the submissions of learned D.R. as recorded in the Order of the Larger Bench, which are reproduced below:
He then invited attention to the memorandum of agreement, entered into by the two respondents M/s. Lucky Steel Industries and Y.S. Investment under which purchase price of vessel was indicated as US$ 122 per one longer tone of LDT and US$ 133 per longer ton of LDT in the case of Lucky Steel Industries and Y.S. Investment respectively. There was no clause contemplating any price variation on any account whatsoever. In case of any discrepancy or dispute between the parties, the only course available was to go for arbitration proceedings. It was submitted that in both the cases the vessel on their arrival were duly surveyed by the surveyor and the LDT in both the cases was confirmed by the surveyor and thereby it is established that there has been no change in the LDT of the two vessels. However, in the case of Lucky Steel three addendums were issued on 03.09.1998 and 06.10.1998. While the first two addendums related to some change in description of the vessel and some damages, suffered the third addendum extended the date of delivery but still maintained the original price even though the date of delivery was changed from 10.09.1998 to 30.09.1998. Earlier the delivery date was not before 10.09.1998 but not later than 18.09.1998. The vessel arrived on 29.09.1998 and was surveyed on 30.09.1998 and LDT was confirmed on the same date. However, an addendum was issued on 06.10.1998 whereby the purchase price of the vessel was reduced from US $ 122 per long tone to US $ 118 per long ton without citing any reason for reduction in the price. Similarly in the case of Y.S. Investment the memorandum of agreement was entered into on 14th September 1998 wherein the vessel was required to be delivered under own power during 1st October/31st October 1998 with 31st October 1998 canceling date canceling in buyer’s option. Subsequently four addendums were issued, two on 15.10.1998, 3rd on 27.10.1998 and 4th on 23.11.1998. While the addendum carried out by first two addendums were of minor nature, the addendum issued on 27.10.1998 called for a reduction in price from US $ 133 per long ton to US$ 126 per long ton. The 4th addendum issued on 23.11.1998 inter alia provided for further reduction in price to US$ 120 per long ton if the vessel is beached on or before 24.11.1998 on its own power etc. Both these addendum did not indicate any reason for reduction in price.
4. It is noticed that in these present cases the original memorandum of agreement was for the sale of the ships in “as is where is basis” with an option for arbitration proceedings in the event of any dispute. There was no discrepancy in the list of items agreed upon and the items actually imported as seen from surveyor’s report. It has been specifically noted that there has been no change in the LDT of the vessels. The reduction in prices brought about by addendum signed after completion of import did not indicate any reason for reduction in the price. There was no dispute which arose between the parties warranting arbitration proceedings as envisaged in the original memorandum of agreement. It is also specifically recorded that the memorandum of agreement did not contain any price variation clause which could justify such reduction by subsequent addendum to the memorandum of agreement.
5. In the light of the above facts the Larger Bench answered the reference in the following terms:
In the nutshell it is held that any reduction in price mutually agreed upon by the parties to the contract prior to the date of import will be relevant and taken into consideration for the purpose of determining assessable value under Section 14 of the Customs Act, 1962. However, if there is any variation in price after the date of import the same shall not be relevant for the purpose of determining assessable value under Customs Act unless the reduction is on account of facts that the goods are not the ones which have been contracted for or that there has been serious beach of the terms of the contract which makes the contract void/voidable. In the latter case the new/reduced price under the new/revised contract will be admissible, provided it is in conformity with the value as defined under Section 14 of the Customs Act read with the Valuation Rules.
6. As already mentioned there is no justifiable reason for lower price adopted by the addendum entered into at a date latter than the date of import of the vessels. Therefore, the decision of the Commissioner (Appeals) in accepting the lower prices is not justifiable. Therefore, the order of Commissioner (Appeals) in so far as they relate to acceptance of lower value for the vessels is set aside and the order-in-original is restored. Both the appeals are, therefore, allowed on the aspect of valuation of vessels.
(Dictated & pronounced in the Open Court.)
(Justice R.K. Abichandani)
President
(M. Veeraiyan)
Member (Technical)
K.K. Agarwal, Member (T)
1. Heard both sides.
2. The basic issue referred for decision by the Larger Bench is that in case of import of ships for the purpose of scrapping whether any price variation on the basis of addendum issued to Memorandum Of Agreement (MOA) can be allowed after the vessel has entered the territorial waters of India specially when there is no clause for price variation in the MOA and the only recourse provided in the case of discrepancy is arbitration which was not taken recourse to, and the vessel is sold on the basis of LTD of the vessel by agreeing to a particular amount per Ton of LTD and there is no change in the LDT at the time of importation.
3. The learned D.R. Shri Pardeshi on behalf of the Revenue submitted that ships for scrapping are generally sold on the basis of the LDT of the vessel by agreeing to a particular amount per Ton of LDT and that this is an established practice of selling the vessel for breaking in international trade. LDT is a well defined term in maritime law and is commonly understood by all those who deal in the sale and purchase of old ships for the purpose of scrapping. Even the custom duty was earlier imposed on the basis of LDT of the vessel. He then invited attention to the memorandum of agreement, entered into by the two respondents M/s Lucky Steel Industries and Y.S. Investment under which purchase price of vessel was indicated as US $ 122 per one longer ton of LDT and US$ 133 per longer ton of LDT in the case of Lucky Steel Industries and Y.S. Investment respectively. There was no clause contemplating any price variation on any account whatsoever. In case of any discrepancy or dispute between the parties, the only course available was to go for arbitration proceedings. It was submitted that in both the cases the vessel on their arrival were duly surveyed by the surveyor and the LDT in both the cases was confirmed by the surveyor and thereby it is established that there has been no change in the LDT of the two vessels. However, in the case of Lucky Steel three addendums were issued on 03.09.1998, 23.09.1998 and 06.10.1998. While the first two addendums related to some change in the description of the vessel and some damages suffered the third addendum extended the date of delivery but still maintained the original price even though the date of delivery was changed from 10.09.1998 to 30.09.1998. Earlier the delivery date was not before 10.09.1998 but not later than 18.09.1998. The vessel arrived on 29.09.1998 and was surveyed on 30.09.1998 and LDT was confirmed on the same date. However, an addendum was issued on 06.10.1998 whereby the purchase price of the vessel was reduced from US $ 122 per long ton to US $ 118 per long ton without citing any reason for reduction in the price. Similarly in the case of Y.S. Investment the memorandum of agreement was entered into on 14th September 1998 wherein the vessel was required to be delivered under own power during 1st October/31st October 1998 with 31st October 1998 cancelling date cancelling in buyer’s option. Subsequently four addendums were issued, two on 15.10.1998, 3rd on 27.10.1998 and 4th on 23.11.1998. While the addendum carried out by first two addendums were of minor nature, the addendum issued on 27.10.1998 called for a reduction in price from US $ 133 per long ton to US $ 126 per long ton. The 4th addendum issued on 23.11.1998 inter alia provided for further reduction in price to US $ 120 per long ton if the vessel is beached on or before 24.11.1998 on its own power etc. Both these addendum did not indicate any reason for reduction in price.
4. Shri Pardeshi submitted that under Section 14, the value for the purpose of custom duty is the price at which the goods are ordinarily sold or offered for sale for delivery at the time and place of importation in the course of international trade. Therefore, the value which is relevant, is the value at the time of import and any reduction in value after the date of import is not acceptable. In support thereof he referred to the decision of the Tribunal in the case of Commissioner of Customs, Ahmedabad v. Guru Ashish Ship Breakers wherein it was held that when there is no provision in original agreement for reduction of price for reasons as stated in the addendum, price of goods as stated in original agreement which was available at the time of import of goods and not, the reduced price as agreed under addendum to original agreement to be taken as transaction value. Similarly in the case of Commissioner of Customs v. Chaudhry Industries , it was held that when agreement for sale does not provide for reduction in price after finding of discrepancy therein but only provides for arbitration which was not held then addendum to agreement reducing price cannot be taken into consideration and valuation as per original price is to be upheld. A similar decision was given in the case of Chaudhary Ship Breakers v. Commissioner of Central Excise, Ahmedabad wherein it was held that mutual reduction of price after import of goods into India by executing addendum to original agreement is not acceptable when there was no provision regarding price variation in the memorandum of agreement and the reduction in price was carried out after the import of the ships. Reference was also invited to the Tribunal decision in the case of Commissioner of Customs, Jamnagar v. Shree Ram Steel and Rolling Industries 2005 (188) E.L.T. 30 wherein it was held that the price at which the goods are sold in international trade in the ordinary course should be value for the purpose of custom valuation. Once the vessel has entered the territorial waters of India, the importation is complete. Any reduction in price thereafter cannot be accepted. Similarly in the case of Commissioner of Customs & Central Excise, Ahmedabad v. Saibaba Ship Breaking Corporation vide Order No. C-I/680-81/WZB/2000 dated 14.02.2000 – variation in price on account of certain missing items was disallowed on the ground that it was not clear as to whether the items went missing either before or after date of importation and further held that date of beaching cannot be considered as date of importation. The above decisions have been followed in the case of Commissioner of Customs v. Gautam Ship Breaking Industries Pvt. Ltd. vide Order No. A/228/WZB/AHD/2006 dated 07.11.2006.
5. Shri Pardeshi then referred to the decisions which take a view contrary to the above decisions i.e. Commissioner of Customs, Ahmedabad v. Atam Manohar Ship Breakers Pvt. Ltd. , Jai Jagdish Ship Breakers Pvt. Ltd. v. Commissioner of Customs, Jamnagar 2004 (177) E.L.T. 928 (Tri.-Del.) and Commissioner of Central Excise, Rajkot v. Jai Bharat Steel Industries 2005 (192) E.L.T. 792 (Tri.-Mumbai).
6. It was submitted that in the case of Atam Manohar (cited supra) the reduction in price was allowed on the ground that certain shortcoming in the goods were noticed after import and therefore what was imported was different to what was agreed upon. It was submitted that in this case numerous variations were noticed between the goods which were agreed upon to be imported and those which arrived and even though the contract was on “as is where is” basis, Clause 7 of the agreement itself provided the exceptions and capacity of the generator was one of the exception which was found to be different. IN the case of Jai Jagdish Ship Breakers and Jai Bharat Steel Industries (cited supra) it was held that once there is nothing to show that the addendum was prepared just to evade payment of duty and once the amount paid was as per the addendum mutually agreed, reduced price cannot be overlooked and will have to be given effect to. Further in the case of Jai Bharat Steel Industries, the relevant date for the purpose of arriving at the value was considered to be the date of delivery and it was held that unless the title in the goods is passed on to the buyers, seller remains the owner of the goods and any price reduction mutually agreed upon cannot be rejected even though the vessel has been sold on “as is where is” basis as the vessel agreed to be supplied on “as is where is” basis was required to be delivered on that very “as is where is basis.” It was held that there was no embargo on the parties to bring about any alternation in the price of the goods notwithstanding any such clause. The learned D.R. submitted that in none of these decisions the aspect of date of import was considered and therefore these decisions have to be considered as per incuriam and will not have binding effect.
7. In view of above it was submitted that all these decisions overwhelmingly hold that the price on the date of import is the price which is relevant and any subsequent reduction in price mutually agreed upon, which is not in accordance with the original MOA cannot be given effect to after the date of importation.
8. Learned advocate for the respondents Shri Sridharan submitted that revenue has laid a great emphasis on the fact that the price should be one which is prevailing on the date of import and the date of import has been considered as synonymous with the date of entering the territorial watery of India. He then invited attention to provision of Section 2(23) and 2(27) of the Customs Act which read as follows:
“Import” with its grammatical variations and cognate expressions means bringing into India from a place outside India.
“India” includes the territorial waters of India
9. It was submitted that the revenue’s submission that import of goods into India would be completed with the entry of vessel in the territorial waters of India and it is the value at this point of time which alone can be taken into consideration for the purposes of assessing the customs duty was considered by the Hon’ble Supreme Court in the case of Garden Silk Mills Ltd. v. Union of India and there it was observed by the Apex Court that the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country, the taxable event being reached at the time when the goods reached the custom barriers and the bill of entry of home consumption is filed. It was further observed that Section 14 of the Act provides that the value of the goods shall be deemed to be the price of the goods for delivery at the time and place of importation in the course of international trade. The value has to be determined with relation to the time when physical delivery to the importer can take place. Physical delivery can take place only after bill of entry, inter alia, for home consumption is filed and it is the value at that point of time which would be relevant. It was further submitted that the Apex Court disagreed with the view taken by the Supreme Court in the case of Union of India v. Apar Industries wherein it was held that word import occurring in Section 12 can only mean that the moment goods have entered territorial waters, the import is complete. Accordingly it was submitted that import continues till the time the bill of entry for home consumption is filed and any addendum in the memorandum of agreement issued prior to filing of the bill of entry has to be considered as in the course of import or prior to that and therefore the reduction in price cannot be rejected on the ground that they have been agreed upon after the date of import i.e. after the vessel enters the territorial waters of India.
10. As to the contention that unless the original memorandum of agreement has a price variation clause or provides for reduction in price under certain contingencies, the reduction in price cannot be carried out if it is not in accordance with the original memorandum of agreement, it was submitted that under the Contract Act, the parties to the agreement are always at liberty to amend, alter or substitute a new contract and as per Section 62 of the Contract Act, if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, then the original contract need not be performed. Thus there is no bar in altering the contract. He then referred to Anson’s Law of Contract in which it has been mentioned that business men often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defect; but, on the contrary, the court should seek to apply the old maxim of English law, verba it s sunt intelligenda ut res magis valeat quam pereat. It was accordingly submitted that even though the reasons for reduction in price may not be forthcoming in the addendum issued by the importers, they are well understood between the parties and need not be spelt out. It was submitted that under the Sale of Goods Act, time is always essence of the contract especially when the parties have expressly agreed to treat time as essence of the contract. Generally speaking stipulations regarding time for delivery of the goods are deemed to be of the essence of the contract in mercantile transaction. Where time is essence, and is extended, the extended date becomes, itself the essence of the contract. In both the appeals there was delay in delivery of the ship and the time was extended by mutual agreement which shows that the delivery date was very much the essence of the contract and therefore the reduction in price was on account of delay in delivery and such reduction in price cannot be rejected. However on query from the bench the learned advocate admitted that in the case of Lucky Steel, the delay upto 30.09.1998 was mutually agreed without any reduction in price but there was delay thereafter of seven days as the physical delivery was taken on 7th October. He however could not explain as to what was the reason for delay in taking delivery when the ship has arrived on 29th September and was duly surveyed on 30th September, and when its LDT was confirmed and nothing was found missing and thereafter there has been no survey whatsoever as per available record. Similarly in the case of Y.S. Investment, the learned advocate submitted that the reduction in price was on account of delay in beaching which was duly intimated to the customs authorities, who are required to give permission for beaching. He was however unable to explain as to how the delay in beaching can result in reduction in price because beaching only starts after the delivery of the ship is taken and payment is made thereof, as also provided in Clause 14 of the memorandum of agreement. He however submitted that once the price has been reduced it has to be presumed that there must be sufficient and cogent reason for the same, as no business man will agree to reduction in price unless there are some reasons for the same.
11. Reference was also invited to the decision of the Supreme Court in Eicher Tractors Ltd. case 2000 (122) E.L.T. 321 (S.C.) wherein it was held that the transaction value cannot be rejected unless there are special circumstances which are particularized in valuation rules. It was submitted that in the present cases none of these special circumstances referred to in the valuation rules exist and therefore the transaction value could not have been rejected.
12. The learned D.R. in the rejoinder however submits that the Supreme Court decision in the case of Garden Silk Mills (cited supra) related to landing charges and not on the value of the goods on the date of importation and there is a direct decision of the Supreme Court on this point in the case of Rajkumar Knitting Mills (P) Ltd. v. Collector of Customs, Bombay – wherein it was held that relevant date for determination of value for assessment of customs duty is the date of importation. Therefore the value at the time of importation only has to be considered and any reduction thereafter cannot be taken into account.
13. We have considered the submissions. We find that the basic issue is whether any price variation carried out after the date of import (i.e. after the ship enters in territorial water of India), can be given effect to for the purpose of determining customs duty when there is no provision for variation in price in the original MOA, which only provides for arbitration in case of dispute and where the ship is sold in terms of LDT only without specifying any other factors which have been taken into account for determining the LDT. The other issues are regarding reduction in price without taking recourse to arbitration proceeding provided for in MOA or when some items mentioned in MOA are found missing at the time of import.
14. The first but most important issue to be decided is whether any reduction in price after date of import can be carried out and whether such reduction in price will be relevant for the purpose of determining duty. Here we note that under Section 14, value for the purpose of the determining duty is the price at which the goods are ordinarily sold in the course of international trade at the time and place of delivery. In view of this the time of import is the essential criteria for determination of duty and the value has to be determined with reference to the price prevailing on the date of import. This is the view taken by Tribunal in almost all cases except that of Atam Manohar and Jai Bharat Steel cited supra. However in both these eases the aspect of time of import was not considered at all. On the other hand Supreme Court has in Rajkumar Knitting Mills case cited supra held that relevant date for determination of value for assessment of customs duty is the date of importation only. The Supreme Court decision in the case of Garden Silk Mills is not relevant, because in that case what was under consideration was landing charges and it was held that since the goods have to be in deliverable state the charges incurred upto the stage when the seller is in a position to delivered the goods are includible in the assessable value. The Supreme Court was not called upon to determine the date of import under Section 14. Even otherwise Garden Silk Mills held that the import commences when the goods cross the territorial water but continues and is completed when the goods become part of mass of the goods within the country. It therefore admits that the import commences when the goods cross into the territorial waters of India. In such a situation the date of import or time of import has to be considered as the date on which the ship/vessel enters the territorial waters of India. A date of import has to be one definite date and not dates of import. It has therefore to be the date on which the ship enters the territorial waters of India. In view of this the price prevalent on the date of import only has to be considered and not a price arrived after the date of import. The Supreme Court decision in the case of Eicher Tractors does not come to the rescue of respondents as in that case also the Supreme Court has held that subject to three conditions laid down in Section 14(1) of time, place and absence of special circumstances, the price of imported goods is to be determined under Section 14(1)(a) in accordance with the rule framed in this behalf. In the present case, the reduced prices no longer remain the price at the time of import and therefore cannot be given effect to.
15. As regards the other issue that once the memorandum of agreement does not contain any price variation clause, the price cannot be mutually reduced and the only course available is arbitration and once a recourse to arbitration has not been taken, then mutually agreed reduced price cannot be given effect to, we are of the view that under the Contract Act there is no bar against the parties to amend, alter or substitute a contract. As long as the two parties agree on the revised terms and conditions, the same cannot be objected to on the ground that the same is not provided for in the original MOA. It is the revised contract which has to be given effect to and the obligation under the original MOA cease to exist. However, it is only such amendments which take place before the date of import that can be considered for determining value under Section 14 & not after that.
16. The other issue is whether the price can be reduced on account of the fact that certain items are found missing at the time of import when the price in original MOA was arrived on the basis of LDT. Here we hold that though the price may be agreed on the basis of LDT it is possible that the price per LDT may take into account various goods which are specifically mentioned in the MOA and therefore once the items which are specifically mentioned in the MOA are not found in place at the time of import, it can be stated that the goods are not in accordance with what was contracted for and in that case a different price may have to be arrived at provided it satisfies all the ingredients of Section 14 of Customs Act read with Valuation Rules. Similarly where the delivery is of essence of the contract and is specifically insisted upon in the contract, any variation in the same may call for re-determination of the price as may be mutually agreed again provided the reduced price arrived at is in conformity with value as defined under Section 14 of Customs Act and the Valuation Rules.
17. In a nut-shell it is held that any reduction in price mutually agreed upon by the parties to the contract prior to the date of import will be relevant and taken into consideration for the purpose of determining assessable value under Section 14 of the Customs Act, 1962. However, if there is any variation in price after the date of import the same shall not be relevant for the purpose of determining assessable value under Customs Act unless the reduction is on account of facts that the goods are not the ones which have been contracted for or that there has been serious beach of the terms of the contract which makes the contract void/voidable. In the latter case the new/reduced price under the new/revised contract will be admissible, provided it is in conformity with the value as defined under Section 14 of the Customs Act read with the Valuation Rules.
Reference is accordingly answered in the above terms and the matters are sent back to the referral bench for passing appropriate orders.
(Pronounced in Court on 26.2.07)