Holding

The appellant is not entitled to abatement of customs duty and the assessable value must be the price paid in the original international import transaction.

Summary

Udayani Ship Breakers Ltd. purchased a ship that had been imported by another Indian company for ship‑breaking. The ship was damaged after arrival in India and was sold to the appellant on an "as is where is" basis for a reduced price of Rs 12.01 crore, whereas the original import price was Rs 24.78 crore. The appellant declared the reduced price in its Bill of Entry, but the Revenue rejected it, valuing the ship at the original import price. The Commissioner (Appeals) allowed the appellant’s claim for duty abatement under Section 22 of the Customs Act, treating the sale as a high‑seas transaction. The Customs, Excise and Gold (Control) Appellate Tribunal reversed, holding no abatement was available because no written claim was made and the sale was a domestic transaction. The Supreme Court affirmed the Tribunal, holding that the transaction occurred after import, thus was domestic, the assessable value must be the price paid in international trade, and no abatement could be granted without a proper claim.

Issues considered

The appellant’s entitlement to duty abatement under Section 22 of the Customs Act for a ship damaged before examination.
Whether the reduced sale price in a domestic transaction can be used as the assessable value under Section 14(1) of the Customs Act.
Whether the sale between the importer and the appellant constitutes a transaction in the course of international trade (high‑seas) or domestic trade.
Whether a claim for abatement must be made in writing to the assessing authority.

Legislation cited

Customs Act, 1962s. 14, s. 22
Customs Tariff Act, 1975s. 3
Customs Valuation (Determination of Price of Imported Goods) Rules, 1988s. Rule 3, s. Rule 4

Subjects

customs dutyabatementSection 22valuationtransaction valuedomestic tradeinternational tradehigh seasship breakingBill of EntryCustoms Valuation Rules

Judgment

A MIS UDA YANI SHIP BREAKERS LTD. '-r-
v.
COMMNR. OF CUSTOMS AND CENTRAL EXCISE, RAJKOT

FEBRUARY 8, 2006

B [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)
c 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 of Entry with Revenue declaring the value of the
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)
D allowed the appeal of the 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 of the Revenue-Correctness of-Held, the appellant is 1
not entitled to abatement of customs duty under the Act in absence of a
E specific claim from the Revenue-On facts, the transaction between the importer
and the appellant is a transaction in course of domestic trade and not in the
course of international trade-Hence, the reduced price cannot be assessable
value for levy of customs duty under the Act.

An importer entered into a memorandum of agreement with a
F 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
G
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
H 138
/

~

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 A
trade and appraised the value of the ship at the price at which it had been
purchased from the foreign seller. The appellant, being aggrieved, filed
an appeal before Commissioner (Appeals). The Commissioner (Appeals)
allowed the appeal holding that the appellant was entitled to benefit of
abatement of customs duty under section 22 of the Customs Act, 1962 since
the ship was damaged before examination under section 17 of the Act. The B
Commissioner (Appeals) further held that the appellant had purchased
.... the ship on high seas basis during the course of international trade .

The Revenue, being aggrieved, filed an appeal before Customs,
Excise and Gold (Control) Appellate Tribunal. The Tribunal allowed the
appeal holding that the appellant is not entitled to abatement of duty under
c
section 22 of the Act as no request to that effect has been made to Assistant
Commissioner of Customs. The Tribunal further held that the appellant
could not claim the purchase of ship on high seas basis.

Dismissing the appeal of the appellant, the Court D
>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 E
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.
F
.... (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
G
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]
H
140 SUPREME COURT REPORTS (2006] 2 S.C.R.

A 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)

B 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
C 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)

D 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<hority. No such case had been made out
E before the Assessing Authority before the goods were actually cleared.
Adoption of two different values for the same goods for the purpose of
charging duty of customs under Section 12 of the Act and Section 3 of the
Customs Tariff Act, 1975 is not only unprecedented but also patently
illegal. [147-C-D)
F
1.6. Memorandum of understanding, the agreement to sell and the
bill of sale are after the goods had arrived in India. Under the
circumstances, the appellant could not claim the sale in its favour on High
Seas basis as indicated in the agreement of sale. The Tribunal was right
in observing that from the conduct of the parties it cannot be ruled out
G that the action seemed to be to evade the duty payable at the proper value.
(148-B)

J.M. Industries v. Commissioner of Central Excise. Rajkot, (1989) 39
EL T 109 (Tribunal), referred to.

H
/

~-

UDA YAN! SliW BREAKERS LTD."· COMMR. OF CUST0\15 AND CENTRAL EXCISE (BHAN. J ) J4 J

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2338 of2001. A
From the final Order No.C-l/l l/WZB/2000 dated 2.1.200 I in Appeal
No.C/533-V/99/Bom passed by the Customs, Excise and Gold (Control)
Appellate Tribunal, West Regional Bench at Mumbai.

V.M. Doiphade and Rajesh Kumar for the Appellant B
K. Radhakrishnan, Rupesh Kumar and P. Parmeswaran for the
"'\
Respondent

The Judgment of the Court was delivered

BHAN, J. The assessee-appellant has filed this appeal under Section
c
130(E) of the Customs Act, 1962 (for short "the Act") against the final Order
No.C-l/Il/WZB/2000 dated 2.1.200 I in Appeal No.C/533-V/99/Bom passed
by the Customs Excise and Gold (Control) Appellate Tribunal, West Zonal
Branch at Mumbai (hereinafter referred to as "the Tribunal") whereby the
Tribunal reversed the order in appeal passed by the Commissioner of Central D
_JI
Excise on 8.3.1999 and held that the appellant could not be granted abatement
of the duty.
~
Briefly stated the facts of the case are:-

Mis. Priya Blue Industries Pvt. Ltd., Plot No. V-1, Sosiya (hereinafter E
referred to as "the importer") hold import export code number and also
Central Excise Registration. It imported vessel MV VLOO ARUN under
OGL for the purpose of breaking. The vessel weighing 40,017 LDT had been
purchased for US$ 68,49,839.00 i.e. @US$ 167 per Long Ton. Importer got
a letter of Credit bearing No.58 IDC 21.97 dated 12.8.1997 opened in favour
F
J.,
of Ruby Enterprise Inc., 2018, Antwerp, Belgium, the foreign sellers for US$
68,49,839.00 which amount was remitted by the Vysya Bank Ltd., Mumbai
to the beneficiaries on 12.8.1997 itself. The importer had thereafter sought
and been granted permission for beaching the vessel at the designated plot by
the proper officer of Customs. On account of heavy current and storm the
vessel got dragged towards Plot No. V-5 Sosiya and got grounded there. The G
importer vide its application dated 24.6.1997 requested the Assistant
t\ Commissioner of Central Excise Division, Bhavnagar for extension of time
for filing the Bill of Entry for home consumption in respect of the aforesaid
vessel. The requisite permission was granted by the jurisdictional Assistant
Commissioner. The importer, however did not file the Bill of Entry and
H
i

142 SUPRE~E COLRT REPOR!S [20061 2 S.C.R.

A sought further extension of time which was declined by the Assistant
Commissioner, Bhavnagar. The importer thereafter entered into a memorandum
of understanding on 10th September, 1997 with Udyani Ship Breakers Ltd.
("the appellant" herein) who are the owners of Plot No.V-5, Sosiya in front
of which the vessel was grounded for sale of the ship for Rs.12,01,00,000/
B -. An agreement to sell was executed on 11th September, 1997 and the sale
was effected by Bill of sale on 26th December, 1999.

The appellant also holds import export code number as well as Central
Excise Registration for ship breaking. The appellant presented a Bill of Entry
bearing No.SBY-111/59/97-98 dated 12.9.1997 before the Superintendent of
C Customs, SBY-Alang. The price declared by the appellant was
Rs.12,01,00,000/-. As the price declared by the appellant was abnormally
low a reference was made to the appellant for making a correct declaration
with regard to the price.

Importer and the respondent produced copies of the following
D documents:-

(a) the original Memorandum of Agreement dated 2.6. I 997 entered
into between the foreign seller and the importer,
(b) a copy of the commercial invoice issued by the foreign seller in
favour of the importer,
E
(c) Letter of Credit opened in favour of the foreign seller for the
amount of US$ 68,49,839.00 by Vysya Bank Ltd., Mumbai on
behalf of the importer.
(d) a copy of the Memorandum of Agreement between the importer
F and the respondents, and
(e) a copy of the Letter of Credit bearing no.KHG/ILC/I 03/97 dated ..
12.12.1997 for Rs.12,01,00,000/- issued by Dena Bank,
Bhavnagar by the respondents on Dena Bank, Mumbai in favour
of the importer.
G (f) a copy of the commercial invoice in their favour issued by the
importer to the respondent.

Thus, the facts which emerge from the above are: Importer ent.ered into
an agreement of memorandum with the foreign seller on 2.6.1997. On 4.6.1997
the importer took physical delivery of the ship. On 24.6.1997 the importer
H requested time for filing the Bill of Entry. On 12.8.1997 LC was opened and
UD., YANI SHIP BREAKERS LTD.'" COM MR. OF CUSTO,IS AND CENTRAL EXCISE [BHAN. J.] J4)

on the same day the amount was remitted to the foreign seller. Thereafter A
importer sought and was given permission for beaching the vessel. The
. · agreement of sale between the importer and the appellant was executed on
11.9.1997. The appellant presented the Bill of Entry on 12.9.1997 and the
price was stated to be Rs. 12,01,00,000/-. On 9.6.1997 itself the vessel had
started drifting. The importer transferred the title to the buyer in pursuance B
to the memorandum of understanding and the agreement of sale entered into
between them on 26.12.997 by executing the bill of sale in favour of the
appellant on "as is where is" basis for a consideration of Rs. 12,01,00,000 i.e.
after the passing of the assessment order dated 23 .12.1997.

The Assessing Authority in his assessment order dated 23.12.1997 held
that the value declared by the appellant was not the price in the course of
c
international trade and ac·cordingly did not accept the price declared by the
appellant in the Bill of Entry and appraised the value of the vessel at the price
at which it had been purchased by the importer in the course of international
trade.
D
Aggrieved by the aforesaid assessment order the appellant filed an
.Ji appeal before the Commissioner of Customs (Appeals) who vide its order
~- dated 26.2.1999 allowed the appeal. It was held that the appellant was entitled
to the benefit u/s 22 of the Act as the warehoused goods had been damaged
after unloading but before their examination u/s 17 on account of accident
not due to any wilful -act, negligence or default of the importer. It was also E
held that appellant had purchased the vessel on high seas basis during the
course of internationa! trade. Order in original was set aside with consequential
relief. Reliance was. placed upon the decision of the Tribunal in the ca~e of
J.M Industries v. Commissioner of Central Excise, Rajkot, (1989) 39 ELT
I 09 (Tribunal). F
-" . The Revenue being aggrieved, filed an appeal before the Tribunal which
allowed the appeal and inter alia held that the abatement of duty under
Section 22 could not be granted as no request to that effect had been made
to the Assistant Commissioner of Customs and that the Assistant Commissioner
was required to record its satisfaction that a case had been made out under G
Section 22 for abatement of duty on the damaged and deteriorated goods.
The judgment in the case of J.M Industries (supra) was distinguished. It was
{
·\.,
further held that transfer by execution of bill of sale between the appellant
and the importer was dated 26.12.1997 after the arrival of the vessel in India
in June 1997 and therefore the appellant could not claim that it was a sale
H
i
144 SUPREME COURT REPORTS [2006] 2 S.C.R.

A on high seas basis as indicated in the agreement of sale dated 11.9.1997. The
entire action seems to be to evade the duty payable at proper value and
accordingly held the order passed by the Commissioner of Customs (Appeals)
to be wrong in law and restored the order in original.

Counsel for the panies have been heard.
B
Section 22 of the Act reads:

"22. Abatement of duty on damaged or deteriorated goods.- (I) Where ,.
it is shown to the satisfaction of the Assistant Commissioner of Customs or
Deputy Commissioner of Customs -
c
(a) that any imponed goods had been damaged or had deteriorated
at any time before.or during the unloading of the goods in India;
or
(b) that any imponed goods, other than warehoused goods, had
D been damaged at any time after the unloading thereof in India
but before their examination under section 17, on account of any
accident not due to any willful act, negligence or default of the
imponer, his employee or agent ; or
.\

(c) that any warehoused goods had been damaged at any time
before clearance for home consumption on ~ccount of any
E
accident not due to any willful act, negligence or default of the
owner, his employee or agent,
such goods shall be chargeable to duty in accordance with the
provisions of sub-section (2).

F (2) The duty to be charged on the goods referred to in sub-section (I)
shall bear the same proportion to the duty chargeable on the goods
before the damage or deterioration which the value of the damaged
or deteriorated goods bears to the value of the goods before the
damage or deterioration.
G (3) For the purposes of this section, the value of damaged or
deteriorated goods may be ascertained by either of the following
methods at the option of the owner:-
,~
.
(a) the value of such goods may be ascertained by the proper
officer, or
H
(._
!

UDAYANI SHIP BREAKERS LTD. 1·. ('QMMR OF CUSTOMS AND CENTRAL EXCISE [BHAN. J.J 145
~·1/ (b) such goods may be sold by the proper officer by public A
auction or by tender, or with the consent of the owner in any
other manner, and the gross sale proceeds shall be deemed to be
the value of such goods."

A reading of Section 22 shows that it is for the party claiming the
abatement to show to the satisfaction of the Assistant Commissioner of B
Customs or Deputy Commissioner of Customs that any imported goods had
-\ been damaged or deteriorated at any time before or during the unloading of
the goods in India ; or that any imported goods, other than warehoused
goods, had been damaged at any time after the unloading thereof in India but
before their examination under section 17, on account of any accident not
due to any willful act, negligence or default of the importer, his employee or
c
agent ; or that any warehoused goods had been damaged at any time before
clearance for home consumption on account of any accident not due to any
willful act, negligence or default of the owner, his employee or his agent.
Thus to claim the benefit of the abatement under Section 22, the party claiming
the abatement has to satisfy the Assessing Authority that a case had been D
made out under Section 22 for abatement of duty on damaged or deteriorated
,.'(
goods. In the absence of any claim made under Section 22 in writing to the
+- Assessing Authority the appellant could not claim the abatement under Section
22 and 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 E
appellant for abatement of duty under Section 22 of the Act.

The act of "Import" in this case was over as soon as the letter of credit
was opened by the importer in favour of the foreign seller and remitted the
sum of Rs. 24,78,27,175/- to the foreign seller on 12.8.1997 in term~ of the
F
.J.
letter of credit opened with the Vysya Bank Ltd., Mumbai through ABN
Amro Bank, N.V. Brussels. The term "import", "India", "Indian customs
water" have been defined under Clauses 23, 27 & 28 of Section 2 of the Act
as under :-

(23) "import", with its grammatical variations and cognate expressions, G
means bringing into India from a place outside India;

1~-\
(27) "India" includes the territorial waters of India;

(28) "Indian customs waters" means the waters extending into the sea
up to the limit of contiguous zone of India under section 5 of the
Territorial Waters, Continental Shelf, Exclusive Economic Zone H
146 SLJPREME COl:RT REPORTS !20061 2 S.C.R.

A and other Maritime Zones Act, 1976 (80 of 1976) and includes
any bay, gulf, harbour, creek or tidal river;

Section 14, which is the relevant provision for valuing the vessel sold
by the importer, reads:-

B "Sec. 14 - Valuation uf guods fur purpose uf assessment. -

(I) For the purposes of the Customs Tariff Act, 1975 (51 of 1975) or
any other law for the time being in force where under 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
C or like goods are ordinarily sold, or offered for sale, for delivery at
the time and place of importation or exportation, as th.: case may be,
in the course of international trade, 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 or offer for sale."

D [Emphasis supplied]

The price of the vessel in the course of international trade was the price JL
[US$ 68,49,839.00] paid by the importer to the Ruby Enterprises Inc., Belgium
in terms of the Memorandum of Agreement dated 2.6.1997 in terms of sub-
section ( 1) of Section 14 of the Act. The transaction between the importer
E and the respondent in terms of the Memorandum of understanding dated
10.9.1997 cannot be described as the 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 is over, can only be described as a sale in the
course of domestic trade and not a sale in the course of international trade.
F
Under sub-Section (1) of Section 14· of the Act the imported goods are
required to be assessed at the price ordinarily charged for them in the course
of international trade. As pointed out hereinal.iove the sale price of the aforesaid
vessel during the course of international trade which has actually been paid
was US$ 68,49,839.00 equivalent to Rs. 24, 78,27, 175/-. The reduction in the
G price to Rs. 12,01,00,000/- was not during the course of international trade
but domestic trade. The reduced price, therefore, cannot be accepted for
Jetermining the value under sub-Section ( 1) of Section 14 of the Act.

Introduction of the Customs Valuation (Determination of Price of
Imported Goods) Rules, 1988 with effect from 16.8.1988 does not alter the
H
,
.,..,.

VDAYANI SfHP BREAKERS LTD. r. COM MR. OF CUSTOMS AND CENTRAL EXCISE (BHAN. J.] 147

- 'r' above position as under Rule 3 of the aforesaid Rules it is provided that the A
value of the "imported goods" shall be transaction value thereof. The
transaction value in terms of sub-Rule (I) of Rule 4 of the aforesaid Rule is
the price actually paid or payable for the goods when sold for export to India.
Such transaction value in this case is US$ 68,49,839.00 and 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
B
of the main definition of the term "value" given under sub-Section (I) of
_...., Section 14 of the Act or in terms of sub-Rule (I) of Rule 4 of the aforesaid
Rules.

This apart, no application was made by the buyers i.e. importer in this
case to the Assistant Commissioner of Customs, Bhavnagar for any abatement
c
of duty on the damaged goods as the importer has not come forward for the
clearance of the aforesaid vessel. The appellant i.e. buyer who had purchased
"" the vessel 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
Authority. No such case had been made out before the Assessing Authority D
before the goods were actually cleared. Adoption of two different values for
>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 E
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".
F
_.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 :-
G
"TO HA VE AND TO HOLD the said vessei and appurtenances there

-· t
'
into belonging upto the buyer, its successors and assign for ever.
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 H
148 SUPREME COURT REPORTS [20061 2 S.C.R.

A 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
B in the agreement of sale 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 of sale was executed by the importer
on 26.12.1997. Thus the title to the goods passed to the appellant on
c 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.
D B.S. Appeal dismissed.

-I

.
' .