ORDER
K.L. Rekhi, Member (T)
1. In this appeal, the main dispute is on the true value of the second hand granite block cutting machine imported by the appellants. Incidental to that is the question whether the import licence tendered by the appellants had adequate value to cover the import of the machine. In the appeal before us the appellants have claimed the benefit of the lower rate of customs duty for project imports under Heading 84.66 of the Tariff also. We find that the show cause notice issued by the lower authority proposed to deny this benefit. The appellants made their submissions before the adjudicating authority but the said authority, the Additional Collector, has recorded no finding on the admissibility or otherwise of the project import rate in his impugned order. This Tribunal cannot take up this matter direct. The appellants will have to obtain a separate order from the Additional Collector first on the question of project import rate. The Additional Collector, on being approached by the appellants, should pass such order as early as possible.
2. The facts regarding the valuation dispute before us, in brief, are as follows. The appellants are an exporter of granite blocks and slabs. Before the granite rock or block is fed into the gang-saw machine for slicing into slabs, the four sides of the rock or block have to be slimmed to make them smooth. The machine, which is the subject of dispute before us, is used for this primary slimming. Before the port of this machine, the appellants were doing the slimming work manually which was not as good as the machine would give it. They spotted one second-hand machine lying idle with a Dutch party in Europe. The Dutch party had purchased this machine on 20.10.1980. They used it for over four years. The machine was dismantled by the Dutch party on 15.1.1985. The appellants showed interest in its purchase and the sale contract was concluded. The machine was shipped to the appellants on 20.12.1986. The appellants filed the requisite bill of entry for clearing the second-hand machine from customs. They declared the value of the machine at Rs. 98,498.56 and supported this declaration with the import invoice which showed the FOB value of the machine as DM 14,000. The Customs noticed that the declared value did not include the amount spent on freight. The value taken for customs purposes is normally the c.i.f . value, i.e., the value inclusive of freight and insurance. The Customs inquired about the freight amount. It was found to be about Rs. 34,000/-. The high freight of Rs. 34,000/- for the second-hand machine costing about Rs. 98,000/-raised doubts in the mind of the customs officer whether the declared value of the machine was genuine and correct. It appears that the customs officer made some oral inquiries about the fair price of such a machine. There is no written record of such inquiries. The result of these inquiries further strengthened the doubts in the mind of the customs officer. Therefore, he asked the appellants to produce the original sale invoice of the machine by which the machine, when new, had been sold to the Dutch supplier on 20.10.1980. The appellants produced the said invoice. It showed that the Dutch supplier had purchased it for Dutch Guilders 1,77,000. The Chartered Engineer’s certificate dated 8.4.1986 which the appellants produced for clearance of the imported secondhand machine stated that by that time the cost of such new machine had risen to Dutch Guilders 2,15,000. i.e., an increase of about 25% over the 1980 price. The certificate further stated that the second-hand machine, before its shipment to the appellants, would be reconditioned/renewed. The Chartered Engineer certified the residuary life of the machine as six years. The Customs authorities calculated that after giving reasonable depreciation from the original price of Dutch Guilders 1,77,000, the price of the machine ought to have been over Rs. 7 lakhs and not as low as Rs. 98,000/- or so as declared by the appellants. The authorities, therefore, issued a show cause notice to the appellants alleging undervaluation and setting out the liability of the machine to confiscation under Sections 111(d) and 111(m) of the Customs Act, 1962. It was also proposed to impose a penalty on the appellants under Section 112 of the same Act. On adjudication, the Additional Collector held that the machine had been undervalued. He assessed the fair value of the machine at Rs. 7,27,391/- for the purpose of assessment of customs duty. For such assessment of value, the Additional Collector proceeded under Section 14(1)(b) of the Customs Act, 1962 read with Rule 8 of the Customs Valuation Rules, 1963, i.e., on the basis of Best Judgment Assessment on original cost less depreciation for the period of use of the machine. Taking the same value for the purpose of the import licence, the licence value was found to be short by Rs. 6,44,791/-. The Additional Collector ordered confiscation of the machine under Section 111(d) of the Act and adjudged the fine for its redemption at Rs. 5 lakhs. He also imposed a penalty of Rs. 2 lakhs on the appellants under Section 112 of the Act.
3. During the hearing before us, the appellants pressed for the following three pleas :
(1) The declared price of Rs. 98,498.56 should be accepted as the true and bona fide price of the machine.
(2) In the alternative, the original purchase price of the Dutch supplier should first be converted into rupees at the rate of exchange prevalent in October-November, 1980 and the depreciation allowed thereafter on such converted price.
(3) The fine and the penalty should be remitted in full.
4. We heard both sides at length and have carefully considered their submissions and the record. Section 14(1)(a) of the Customs Act, 1962, requires the price at which the goods are ordinarily sold or offered for sale in the course of international trade to be taken as the assessable value of the goods. Here the goods involved were a secondhand four wire sawing machine for cutting granite blocks and included four saw bodies of steel of D.M. 2700 mm. It was not the situation where quite a large number of such second-hand machines of identical make and model, having identical period of use and being in identical condition at the time of import were available for ascertaining the price ordinarily charged for them. There was just one such machine only, i.e., the subject machine which is before us. There was no scope for any comparison with sales or offers for sale of other identical machines. There is no evidence on record of the prices paid for comparable machines in the recent past. No authoritative international literature listing fair prices of such second-hand machines is available either. All that we have is that the original purchase price of the machine six years before its import was Dutch Guilders 1,77,000 and at the time of its import the said price had gone up by about 25% to Dutch Guilders 2,15,000. Judged in that light, the price declared by the appellants meant a 92% depreciation over the original purchase price when half of the machine’s life was still intact. This is diffcult to believe. The appellants argued that the machine required constant attendance of a worker and since the labour cost was very high in Europe, the Dutch supplier could not afford it and so dismantled the machine. No doubt, the labour cost in Europe is comparatively high but that was so even in late 1980 when the Dutch supplier originally purchased the machine. There is nothing to show that any radical change took place in Europe between late 1980 and 1985 so far as the labour cost is concerned. There is also no evidence that newer models of granite block cutting machines had come into the market and rendered this machine totally obsolete. The machines of this model were still being produced and quoted at 25% higher price as compared to their late 1980 price. In the circumstances, we agree with the learned representative of the department that the declared price – at about 8% of the original purchase price – was too low, it could not be the true value of the machine and hence not acceptable as the basis of assessment of customs duty under Section 14(1) of the Act. And since no other similar second-hand machines were available for comparison of prices, there was no alternative to the lower authority except to take resort to the Best Judgment Assessment under Rule 8 of the Customs Valuation Rules, 1963 framed under Section 14(1)(b) of the Act.
5. It is not that the lower authority has done the Best Judgment Assessment on any whimsical basis; the authority has taken the original purchase price of the machine, given depreciation for the period of use and then converted the depreciated value into Indian currency at the rate of exchange as in force at the time of import. The proviso requiring adoption of the rate of exchange as in force at the time of import, no doubt, occurs below Clause (a) of Section 14(1) and not below Clause (b) thereof. But the Clause (b) requires that the value determined thereunder should be “the nearest ascertainable equivalent” of the value in Clause (a). This can only be if the rate of exchange as in force at the time of import is applied uniformally to value under Clause (a) as well as Clause (b). Application of two very different rates of exchange will give very different values and not the nearest ascertainable equivalent. The plea of the appellants that under Clause (b) the rate of exchange as in force on the date of the original purchase of the machine by the Dutch supplier should be adopted is not acceptable.
6. So far as the rate of depreciation is concerned, the lower authority has adopted the same rate as for motor vehicles. The appellants have no quarrel with the rate of depreciation adopted. We find that the lower authority has been quite liberal inasmuch as he has neither made any addition on account of the 25% value appreciation in the cost of the new machine, nor added any amount on account of reconditioning/renovation of the subject machine nor even added any amount for the four extra plates that have come alongwith the machine. The learned representative of the department very fairly stated even further that the method of calculation adopted by the lower authority, on reducing balance method, was not the one usually followed by the Customs Houses for calculation of motor vehicle depreciation and that the method usually followed in the department was the method of straight deduction. The department gave 16% depreciation for the first year, l2% for the second year, 10% for the third year and 8% for the fourth year. On straight deduction method, this rate gave 46% depreciation at the end of four years. But by adopting the reducing balance method, the lower authority had, in fact, given only about 32% depreciation to the appellants. The learned representative of the department had no objection if 48% depreciation was allowed for five years period for which the machine was in use abroad. So far as the idle period thereafter is concerned, he left the matter to the discretion of the Bench. He would not mind if another 2% was added on account of the idle period since the machine was bound to suffer some depreciation on account of non-maintenance during the idle period. We find the stand of the learned representative of the department very just and fair. Since the machine had spent about half of its life period abroad, even on a rough working 50% depreciation was deserved. We order that 50% depreciation over the original purchase price of the machine should be given to the appellants. In other words, 50% of the original purchase price should be taken as the basic price to which the usual additions for freight, insurance, landing charges etc. should be made.
7. The question then arises as to what value should be debited to the import licence. No doubt, there is no direct evidence of the appellants having remitted any extra foreign exchange towards the price of the machine. Yet, we are not convinced that such ridiculously low price as declared by them at about 8% of the original purchase price could be the bona fide and true price of the machine. So far as extra remittance is concerned, there are numerous indirect ways of doing it. The appellants were exporters of granite blocks and slabs. The foreign supplier was an importer of these goods. In such a situation, there is ample scope for price adjustments which, if done over a period of time, would not be noticed by anybody. Since we do not find the declared price as bona fide, we order that the value re-determined according to our observations in the preceding paragraph should be debited to the licence also. Bombay High Court Judgment in the Glaxo Laboratories case [1984 (17) ELT 284] is quite distinguishable on facts. Incidentally, we find that even the declared value fell short of the licence value by about Rs. 25,000/-. Confiscation of the machine under Section 111(d), on account of shortfall of the licence value was, therefore, in order. The machine was also liable to confiscation under Section 111(m) on account of mis-declaration of value. Even though Section 111(m) was not specifically mentioned by the Additional Collector in his final order of confiscation, that makes no difference since the allegation of mis-declaration of value and violation of Section 111(m) were specifically spelt out in the show cause notice and after a proper adjudication the Additional Collector had recorded a clear finding in his order that the goods had been undervalued. The Madras High Court Judgment at 1983 ELT 322 relied on by the appellants was on different facts inasmuch as in that case it had not been stated at any stage whether the adjudicating officer was proceeding under Clause (a) or Clause (b) of Section 112 of the Customs Act. In the present case, Section 111(m) alongwith the detailed statement of allegations were clearly put to the appellants in the show cause notice. The Madras High Court Judgment, therefore, does not help the appellants.
.8. Since the goods were liable to confiscation, the appellants were liable to a penalty under Section 112 as well. The impugned order imposing fine in lieu of confiscation and penalty is legally quite in order. However, considering the fact that the machine, on its importation, has remained under detention for well over a year, incurring port demurrage, we feel that some reduction in fine and penalty is called for. Considering all facts and circumstances, including the higher amount of depreciation allowed by us, we reduce the redemption fine from Rs. 5 lakhs to Rs. 25,000/- (Rupees twenty five thousand only) and the penalty from Rs. 2 lakhs to Rs. 10,000/- (Rupees ten thousand only).
9. The appeal is partly allowed in the above terms and the lower order modified as above is confirmed.