Priya Blue Industries Pvt. Ltd. v. Commr. of Cus. (Prev.), Jamnagar

[Order per : P.K. Das, Member (J)]. - The relevant facts of the case, in brief, are that M/s. Priya Blue Industries Pvt. Limited, the appellant entered into an agreement with M/s. Kenmore Limited, Kingstown for purchasing a vessel ‘RITA’, at lump-sum value. On 14-7-2005, the vessel ‘S.S. RITA’ arrived at Alang anchorage for the purpose of breaking under the agency of M/s. Shreeji Shipping Agency, Bhavnagar. M/s. Shreeji Shipping Agency filed Import General Manifest (IGM) on behalf of the Master of the said vessel and submitted various declarations as envisaged under Section 30 of the Customs Act, 1962 read with Import General Manifest (Vessels) Regulations, 1971. The appellant, as per agreement dated 23-6-2005 filed bill of entry SBY/48/2005-2006, dated 23-6-2005, which is provisionally assessed to duty of Rs. 7,40,00,574/-, deposited by the appellant on 15-7-2005. On 23-7-2005 and 25-7-2005 during rummaging of vessel, 34 boxes bearing marking Ships spares in Transit, containing some items were found in store at “PROMANADE DECK” and one Chimney/Funnel lying near Hatch No. 6 on ‘B’ Deck. The said items were seized by the officers.

2. A show cause notice dated 24-2-2006 was issued proposing to confiscate the seized goods, to demand of duty of Rs. 7,49,138/- under proviso to Section 28(1) of the Customs Act, 1962 along with interest under Section 28AB of the said Act and to impose penalty. It has been alleged that the seized goods were not declared in the Cargo declaration in the said IGM. Further, these goods were also not included in the Bill of Entry and these are rendered liable to confiscation under Section 111(iii)(f) and 111(l) of the said Act. By the impugned order, the Commissioner of Customs confiscated the seized goods, which have already been provisionally released and are not available for confiscation, imposed redemption fine of Rs. 20,000/- and Rs. 1,00,000/-. It is also ordered that the said goods should be assessed finally as per the revised valuation and as per prescribed procedure in respect of goods at Serial Nos. 1 to 10 except Serial No. 324 of Annexure to show cause notice and confirmed demand of duty of Rs. 4,68,395/- along with interest on Serial No. 34 of Annexure to show cause notice and imposed penalty of equal amount of duty and also imposed penalty of Rs. 10,000/- on Shri Sanjay Mehta, Authorised Signatory and Managing Director of the appellant company, amongst others.

3. Learned Advocate on behalf of the appellants submits that they have purchased vessel ‘RITA’ for breaking purpose as per agreement dated 23-6-2005. He drew the attention of the Bench to the relevant portion of the agreement. It is revealed from the agreement that the terms and conditions of purchase are “As is Where is” basis. All stores and equipments lying in the vessel are included in the value. The value of ship spares and Chimney/Funnel are already included in the price and they have paid the duty on the transaction value. So, the demand of duty cannot be sustained. He relied upon the decision of the Hon’ble Supreme Court in the case of Commissioner of Customs (Prev.), Gujarat v. Atam Manohar Ship Breakers Limited - (S.C.) followed in the case of Chaudhary Ship Breakers v. Commissioner of Customs, Ahmedabad - (S.C.).

4. On the other hand, learned Authorised Representative for the Revenue submits that the appellant had not declared the ship spares and spare Chimney in their Bill of Entry, which were recovered during rummage. He drew the attention of the Bench to the relevant portion of the adjudication order to substantiate that the seized spare chimney and ship spares were used in the oil field, whereas the said vessel was a passenger vessel. So, these items are not form part and parcel of the vessel and the adjudicating authority rightly assessed the value of these items and demanded duty separately. It is further submitted that these items were not declared in their IGM and bill of entry and liable for confiscation under Section 111 of the said Act.

5. After hearing both the sides and on perusal of the records, we find that the appellant purchased vessel “RITA” for ship breaking purpose vide Memorandum of Agreement dated 23-6-2005. The relevant portions of the said agreement are reproduced below :-

“1.     THE VESSEL “RITA” LIGHT DISPLACEMENT OF 26610.00 L.T. INCLUDING 590.00 L.T. OF PERMANENT BALLAST BUILT IN 1960 U.K., AT LUMP-SUM USD 7,406,000.00 (UNITED STATES DOLLAR’S SEVEN MILLION FOUR HUNDRED SIX THOUSAND ONLY) HEREINAFTER CALLED THE PURCHASE PRICE, DELIVERY UNDER TWO C.I.F. SOSIYA/ALANG.

2.       THE TOTAL PURCHASE PRICE OF THE VESSEL, BE LUMP-SUM USD 7,406,000.00 (UNITED STATES DOLLAR’S SEVEN MILLION FOUR HUNDRED SIX THOUSAND ONLY) SHALL BE PAYABE BY MENAS OF A 100% CONFIRMED IRREVOCABLE LETTER OF CREDIT NEGOTIABLE AT 270 DAYS FOR USD 7,406,000.00 (UNITED STATES DOLLAR’S SEVEN MILLION FOUR HUNDRED SIX THOUSAND ONLY) FROM THE DATE OF PHYSICAL DELIVERY OF THE VESSEL TO THE BUYERS.

LETTER OF CREDIT TO BE ESTABLISHED LATEST BY 28TH JUNE, 2005 AS PER THIS MOA THROUGH ANY NATIONALISED BANK (HEREINAFTER CALLED THE OPENING BANK) FOR CONFIRMATION AND ADVISED TO “INDIAN OVERSEAS BANK, CENTRAL BRANCH, HONGKONG” (HEREINAFTER CALLED THE NEGOTIATING BANK)

THE LETTER OF CREDIT SHALL HAVE AN EXPIRY DATE OF NOT EARLIER THAN 28-7-2005, UNLESS EXTENSION OF DELIVERY DATE IS MUTUALLY AGREED UPON. THE LETTER OF CREDIT IS NEGOTIABLE IMMEDIATELY AFTER VESSEL HAS BEEN PHYSICALLY DELIVERED TO THE BUYERS OR THEIR AUTHORISED REPRESENTATIVE BUT NOT LATER THAN 3 (THREE) WORKING DAYS OF SELLERS TENDERING THE NOTICE OF READINESS AND SUBJECT TO THE STIPULATION OF THE LETTER OF CREDIT AND SUBMISSION OF THE DOCUMENTS DETAILED IN CLAUSE 3 HEREINABOVE.

3.       (i) to (iii) ……...

(iv)    COPY OF THE TELEX/FAX FROM THE SELLERS VIA THEIR AGENTS INCORPORATING INSTRUCTIONS TO THE MASTER OF THE VESSEL TO PHYSICALLY DELIVER THE VESSEL TO THE BUYERS OR THEIR NOMINATED REPRESENTATIVE ON ‘AS IS WHERE IS”, BASIS AT A SAFE ANCHORAGE AT SOSIYA/ALANG NOT LATER THAN 15-7-2005 ON CONDITION, SHE IS SAFELY AFLOAT. PORT WORTHY, FREE OF LEAKAGES, FREE OF ARMS AND AMMUNITIONS, FREE OF CARGO, CHARTER FREE AND UNDER TOW.

4.       THE SELLERS SHALL TENDER THE NOTICE OF READINESS TO DELIVER AND THE BUYERS SHALL TAKE DELIVERY OF THE VESSEL ON “AS IS WHERE IS” BASIS AT A SAFE ANCHORAGE AT SOSIYA/ALANG NOT LATER THAN 15TH JULY, 2005 AT SELLER’S OPTION, BUT NOT BEFORE 23RD JUNE, 2005 HOWEVER CANCELLING DATE IS AT BUYER’S OPTION. THE VESSEL SHALL BE DELIVERED SAFELY AFLOAT, PORTWORTHY, FREE OF ARMS AND AMMUNITION, FREE OF CARGO AND UNDER TOW.

5.       …...

6.       THE VESSEL WITH EVERYTHING BELONGING TO HER SHALL BE AT SELLERS RISK AND EXPENSES UNTIL SHE IS DELIVERED TO THE BUYERS, BUT SUBJECT TO CONDITIONS OF THE CONTRACT, THE VESSEL WITH EVERYTHING BELONGING TO HER SHALL BE DELIVERED AND TAKEN OVER AS SHE IS AT THE TIME OF DELIVERY INCLUDING REMOVALS IF ANY AND REMAINING OF BUNKERS, AFTER WHICH THE SELLERS HAVE NO RESPONSIBILITY FOR POSSIBLE FAULTS OR DEFICIENCIES OF ANY DESCRIPTION. ANY ADDITIONAL GENERATORS, ANCHOR, SPARE TAIL SHAFT, SPARE PROPELLOR/BLADE, STORES, SPARES OR ANY OTHER EMERGENCY/DECK GENERATOR THOUGH NOT MENTIONED IN THE MOA BUT FOUND ON BOARD THE VESSEL WILL BE BUYERS PROPERTY WITHOUT ANY EXTRA COST TO THEM.

7.       TO 9.             ……

10.     THE VESSEL SHALL BE DELIVERED ON “AS IS WHERE IS” BASIS WITH WHATEVER AVAILABLE SPARES/EQUIPMENT AND WITH REMOVALS IF ANY.

11.     THE PHYSICAL DELIVERY OF THE VESSEL SHOULD BE MADE BY THE SELLERS TO THE BUYERS OR THEIR NOMINATED REPRESENTATIVES FOR DEMOLITION ONLY.

12.     To 16.            ….

17.     ALL STORES & EQUIPMENTS SUCH AS DECK GENERATORS/ SPARE TAIL SHAFT/SPARE PROPELLOR/SPARE BLADES/ANCHORS & STORES ON BOARD LYING ANYWHERE IN THE VESSEL ARE INCLUDED IN THE MOA PRICE.”

6. On perusal of the said agreement, it is clearly evident that the appellant purchased the vessel “RITA” for ship breaking purpose. The seller of the vessel delivered the vessel on “AS IS WHERE IS” basis at a safe anchorage on condition that vessel is safely afloat, port-worthy, free of leakage, free of arms and ammunition, free of cargo, charter free and under tow. Clause 10 of the agreement stipulates that vessel was delivered to the appellant on “AS IS WHERE IS” basis and whatever spares available on the vessel would be the property of the appellant. It has negotiated the price on the basis that all stores and equipments lying in the vessel are included in the MOA price. In fact, any spares, stores and equipments available in the vessel would be the property of the appellant and no extra consideration would be paid by them. The MOA price is lump-sum amount. There is no dispute that seized goods, mainly spares and spare chimney were lying in the vessel. It is seen from the detention memo dated 5-9-2005 that the vessel arrived at Alang anchorage on 14-7-2005 and was boarded and partly rummaged. The master of the vessel filed IGM on 14-7-2005 in the cargo declaration form, forming part of the IGM. The vessel M.V. ‘RITA’ itself was declared as cargo for demolition and other ‘cargo’ and ‘same bottom cargo’ were declared as Nil. On 15-7-2005, the appellant paid customs duty of Rs. 7,40,00,574/-.

7. The adjudicating authority assessed the seized goods value at Rs. 21,53,453/-, which were not included in the assessable value as declared in the bill of entry. The adjudicating authority observed that there is difference between the size of dimension and the seized chimney/funnel and the one installed chimney/funnel and that the chimney/funnel was a pre-fabricated structure of the aluminium. That if it has been fabricated as spare then the size and dimension of it would be the same as installed one. Regarding the 34 boxes of spares, it was clear from the expert opinion that they were used in the oil field, wherein the vessel in question was a passenger vessel and there is no reason to connect with the contents of the said boxes. Thus it is clear that these items were not part and parcel of the vessel and if they were so, they would have been brought on record and declared as ship stores. Hence these items are nothing but ‘cargo’/’goods’, which ought to have been declared in the IGM.

8. We find that there is no dispute on genuineness of the MOA dated 23-6-2006 between the parties. The appellant purchased the vessel MV ‘RITA’ for ship breaking on “AS IS WHERE IS” basis and the seized goods were lying in the vessel. Clause 17 of the Agreement categorically stated that all stores and equipment lying in the vessel are included in MOA price. So, the contracted MOA price is to be accepted, as the Department has not proved undervaluation by showing the transaction value not being genuine. There is no material available on record that these items were kept in the vessel from other source. Hence, the findings of the adjudicating authority has no relevancy. It is also noted that the terms of the payment on lump-sum basis and if any stores and equipment are available in the vessel, would be included in the lump-sum value. There is no evidence that the appellant had paid any amount for the seized goods. Hence, the transaction value as declared by the appellant on the vessel would liable to be accepted. Demand of duty on these seized items separately cannot be sustained which has already been included in MOA price as per agreement on lumsum basis.

9. In the case of Chaudhary Ship Breakers v. Commissioner of Customs, Ahmedabad (supra), the Hon’ble Supreme Court observed that price actually paid or payable would be acceptable as transaction value except in case of exceptions and impugned case is not covered under exceptions. The actual payment of price as per MOA cannot be ignored. In the present case, the appellant paid the price on lump-sum basis as per MOA on the vessel “as is where is” basis and such price would be accepted as transaction value and the demand of duty cannot be sustained.

10. We find force in the submission of the learned advocate that there is no misdeclaration on the part of the appellant. IGM was filed by the master of the vessel. The appellant filed bill of entry on the basis of IGM. It is seen from the MOA that the appellant purchased vessel SS ‘RITA’ for ship breaking purpose. There is no material available that the appellant had knowledge of the seized items lying in the vessel. So the confiscation of the goods and imposition of redemption fine are not warranted.

11. In view of the above discussion, the impugned order cannot be sustained. Accordingly, it is set aside. The appeals filed by the appellants are allowed.

(Operative part of the order pronounced in the Court)