M/S CHOUDHARY SHIP BREAKERSversusCOMMISSIONER OF CUSTOMS, AHMEDABAD

                      [2010] 12 S.C.R. 854


A              M/S CHOUDHARY SHIP BREAKERS
                                  V.
         COMMISSIONER OF CUSTOMS, AHMEDABAD
               (Civil Appeal No. 1908 of 2006)

                        OCTOBER 22, 2010
B
               [D. K. JAIN AND H. L. DATTU, JJ.]

         Customs Act, 1962 - s. 14 - Valuation of goods for
    purposes of assessment - Import of old vessel under
C   Memorandum of Agreement and purchase price agreed -
    Reduction in purchase price by way of addendum to the
    original agreement - Customs duty - Assessment of -
     Tribunal upholding levy of additional customs duty by the
    Department at original transaction value of the vessel - On
D   appeal, held.· Price paid by importer to seller in the ordinary
    course of commerce is to be taken as the transaction value
    for the purpose of valuation of goods - On facts, while
    determining value of vessel uls 14, factum of actual payment
    of price in terms of addendum cannot be ignored - However,
E   in such a situation genuineness and necessity of reduction
    in price is to be scrutinised very carefully - Tribunal did not
    examine the same and rejected the assessee's appeal -
    Thus, matter remitted back to the tribunal for consideration
    afresh - Customs Valuation (Determination of Price of
F   Imported Goods) Rules, 1988 - r. 4(2).

       The appellants imported an old vessel under
  Memorandum of Agreement (MOA). As per the MOA, the
  total purchase price of the vessel was agreed. The vessel
  arrived and the surveyor on inspection submitted the
G report that the ship breaker is bound to suffer additional
  loss since side tanks have undergone heavy corrosion
  (wastage). The seller and the appellant entered into a
  fresh agreement in the form of an addendum to the

H                               854
CHOUDHARY SHIP BREAKERS v. COMMISSIONER 855
       OF CUSTOMS, AHMEDABAD
original MOA. In the addendum, the price of the vessel         A
was reduced. The Deputy Commissioner of Customs
passed the final assessment order at the original
transaction value of the vessel and levied additional
customs duty. The Commissioner of Customs dismissed
the appeal. The tribunal upheld the order passed by the        B
Commissioner of Customs. Therefore, the appellant filed
the instant appeal.

   . Remitting the matter to the tribunal, the Court

     HELD: 1.1 It is manifest that both Section 14(1) of the   C
Customs Act, 1962 and Rule 4 of the Customs Valuation
(Determination of Price of Imported Goods) Rules, 1988
provide that in the absence of any of the special
circumstances indicated in Section 14(1) and
particularised in Rule 4(2) of the 1988 Rules, the price       D
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. The word 'ordinarily'
is clarified in the Section itself, which describes an
'ordinary' sale as one 'where the seller and the buyer have    E
no interest in the business of each other and the price is
the sole consideration for the sale'. Rule 4(1) 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           F
provisions of Rule 9 of the Rules.' [Para 15] [861-G-H; 862-
A-B-C-D]

     1.2 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. However, in such a
situation the genuineness and the necessity of reduction
in the price are required to be scrutinised very carefully.
[Para 16] [862-G-H]
    856      SUPREME COURT REPORTS               [2010] 12 S.C.R.


A      1.3 In the instant case, the tribunal did not examine
  the genuineness of the addendum, and proceeded to
  reject the appeal of the appellant on the ground that there
  was no provision for price variation in the original MOA.
  However, the Commissioner (Appeals) examined the
8 cogency of the reasons for price reduction though he
  was not convinced to accept the same. Therefore, 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
C into between the appellant and the supplier. [Paras 17
  and 18] [863-A-C]

      Commissioner of Customs, Ahmedabad Vs. Atam
  Manohar Ship Breakers Pvt. Ltd. 2003 (156) E.L.T. 151;
  Commissioner of Customs, Ahemdabad Vs. Guru Ashish
D Ship Breakers 2003 (157) E.L.T. 277 - Referred to.

                         Case Law Reference:
          2003 (157) E.L.T. 277   Referred to.          Para 8

E         2003 (156) E.L.T. 151   Referred to.          Para 8

        CIVIL APPELLATE JURISDICTION : Civl Appeal No.
    1908 of 2006.

       From the Judgment & Order dated 02.02.2005 of the
F Customs, Excise & Service Tax Appellate Tribunal, New Delhi
  in C/86/04-N B-A.

      V. Shekhar, Rashmi Malhotra, Mohd. Mannan,
  Vinamra,B.K. Prasad, Pawan Shree Agrawal, Alok Yadav,
G M.P. Devanath, Amar Dave, Gaurav Goel, Mahesh Agarwal,
  Rishi Agrawala, E.C. Agrawala, Meenakshi Arora for the
  appearing parties.

          The Judgment of the Court was delivered by

H
CHOUDHARY SHIP BREAKERS v. COMMISSIONER 857
       OF CUSTOMS, AHMEDABAD
    D.K. JAIN, J.                                                    A

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.
                                                                     B

    2. Delay condoned.

     3. This civil appeal under Section 130E of the Customs
Act, 1962 (for short "the Act") is directed against order dated      C
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            D
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,           E
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            F
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 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           G
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
                                                                     H
    858      SUPREME COURT REPORTS                 [2010] 12 S.C.R.


A   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
8 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.)
C Accordingly, the ship breaker is bound to suffer additional
  (illegible) loss on this account."

       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
D in the form of an addendum dated 8th December 1997 to the
  original MOA. In the said addendum, the price of the vessel wa~
  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
E 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,
F 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
G Customs (Appeals) on 5th November 2003 on the ground that
  the importer had not produced any evidence to show 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
H
CHOUDHARY SHIP BREAKERS v. COMMISSIONER 859
  OF CUSTOMS, AHMEDABAD [D.K. JAIN, J.]
Customs, Ahmedabad Vs. Atam Manohar Ship Breakers Pvt. A
Ltd. 1 and Commissioner of Customs, Ahemdabad Vs. Guru
Ashish Ship Breakers. 2 The Commissioner (Appeals)
observed that:

      "10. The description does not show that the vessel, which
                                                                         8
      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. .............................................. .

                                                                        c
      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 D
      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), E
on which reliance was placed by the 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 F
      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 G
      regarding price variation in the memorandum of
      agreement, we find no merit in the appeal."

1.   2003 (156) E.L.T. 151 (Tri)-Mumbai)
1.   2003 (157) E.L.T. 277 (Tri)-Mumbai)                                H
    860      SUPREME COURT REPORTS               [2010] 12 S.C.R.


A         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
8
  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 of Rule 3 read with Rule 4( 1) of
  the Customs Valuation (Determination of Price of Imported
C 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
D 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.
E   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
F   Tribunal in Atam Manohar (supra) was questioned by the
    revenue before this Court in Civil Appeal No.146 of2004. 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:
G
          "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
H         addendum stood executed is not given. Further, when did
 CHOUDHARY SHIP BREAKERS v. COMMISSIONER 861
   OF CUSTOMS, AHMEDABAD [D.K. JAIN, J.]

    the addendum stand incorporated in the MoA. We do not              A
    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            B
    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          c
     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
                                                                       0
    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 of the
revised price would depend on the genuineness of the said              E
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
hel'd in the case of Guru Ashish Ship Breakers (supra), r.elied        F
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      G
has to be determined under sub-section (1) of the said Section.
The value, ·as per Section 14(1), as it st.ood prior to its
amendment with effect from 10th October 2007, shall be
deemed to be the price at which suc.h or like goods are
                                                                       H
    862       SUPREME COURT REPORTS                  [2010] 12 S.C.R.


A  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 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
B 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
c 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
0
  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 special
E 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.

F      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,
G 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
H very carefully.
CHOUDHARY SHIP BREAKERS v. COMMISSIONER 863
       OF CUSTOMS, AHMEDABAD [D.K. JAIN, J.]
       17. As afore-stated, in the instant case, the Tribunal has   A
not examined the genuineness of the addendum, and has
proceeded to reject the appeal of the appellant on the 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          B
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,    C
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.              D
N.J.                                            Appeal. allowed.