TMI Blog2003 (3) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to as ESL) to arrange for shipment of iron ore pellets and as per ESL's advice, EGL agreed to import iron ore pellets in vessels hired on charter basis. It was understood between EGL and ESL that EGL would enter into a charter party agreement with ship owners and that EGL would reimburse all expenses including hire charges to ESL as well as pay ESL the agreed amount for organising and co-ordinating the shipments. Accordingly ESL entered into time charter agreement for five out of the six vessels which form the subject matter of the present dispute, while the sixth vessel, M.V. Nand Nidhi which belonged to ESL was directly hired by EGL on time charter basis. The goods were imported in six vessels in a total of nine voyages as detailed below : S. No. Name of the Vessel Bill of Lading Date Quantity (inMTs) Shipper 1. Maersk Santosa 2-9-1989 62,418.000 CVRD, Brazil 2. Sagay Stove 27-1-1990 62,006.000 CVRD, Brazil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessable value of imported pellets for the purpose of determination of duty liability, was issued, proposing recovery of Rs. 5,94,83,675/- under the proviso to Section 28(1) of the Customs Act, 1962, being the Customs duty leviable on the element of freight paid/payable by EGL to ESL, proposing confiscation of goods under Section 111(d), (1), (m) of the Act on account of shortfall in the availability of valid licence for debit purposes and for mis-declaration of value, and proposing penal action against EGL and others under Section 112 of the Act. Details of the actual amount charged by ESL to. EGL serial No. Shipment Amount 1. (a) Iron Ore from Brazil to India - Cargo quantity loaded as per Bill of Lading No. 62 on time charter vessel Maersk Santosa @ Rs. 336/- PMT Rs. 2,09,72,448/- (b) Being supervision charges at Rs. 50/- PMT for transportation of 62,418 MT of Iron Ore Pallets from Brazil-Vizag (should be Hazira) -Maersk Santosa Rs. 31,20,900/- (c) Iron Ore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1991 at 00.42. Rs. 79,07,576/- (b) Being additional freight @ Rs. 170/- PMT for the period 29-12-1990 to 5-2-1991. Rs. 68,52,196/- 7. (a) M.V. Jag Ravi - Being transportation charges of 35,965.32 MT of Iron Ore Pallets FROM Meena Saqur - Bahrain - Hazira from 3-4-1991 at 07.00 hours to 17-5-1991 at 18.30 hours. Rs. 82,00,093/- (b) Being additional freight @ Rs. 170/- PMT for transportation of 35,965.02 MT Iron Ore Pallets from Meena Saqur - Bahrain - Hazira for the period 3-4-1991 to 17-5-1991. Rs. 61,14,104/- 8. (a) M.V. Jag Ravi Voy-5 Being transportation of Iron Ore Pallets 29,832.604 MT from Hazira/Bahrain/Hazira for the period 17-5-1991 at 018.30 hours to 1-7-1991 at 05.50 hours. Rs. 86,36,539/- (b) Being additional freight @ Rs. 170/- PMT for transportation of 29,832.604 MT Iron Ore Pallets from Hazira/Bahrain/Hazira for the period 17-5-1991 to 1-7-1991: Rs. 50,71,543/- (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the time and place of importation or exportation, as the case may be in the course of international trade where the seller and buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer for sale. 34. From the above definition it is clear that for the purpose of arriving at the value of goods under sec. 14 what is relevant is value at which the goods are ordinarily offered for sale for delivery at the time and place of importation. This clearly means that the value would include the cost of delivering the goods upto the place of importation. The Valuation Rule 9(1) states that in determining the transaction value, there shall be added to the price actually paid or payable of the imported goods -.... Rule 9(2) says that the value of the imported goods shall be the value of such goods for delivery at the time and place of importation and shall include the cost of transport of the imported goods to the place of importation. These rules therefore clearly bring out that if the value declared does not include the cost of transport then it has to be included and this should be the actual cost of transportation. Even for a moment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Similar was the decision in the case of Lima Leitao and Co. Ltd. 1968 (70) ITR 518 and therefore the rates laid down in this decision is also not applicable in the present case. .......................... 37. The other point raised by the advocate for the noticees is regarding limitation. In this case I may state that though on the Bill of Lading it was declared that the freight was as per charter party agreement, the noticees have in some cases declared the C F price even though no such price was agreed to as the supplier was never in a position to deliver the goods at the place of importation on his own and this has never been an intention from the very beginning. In some cases they have got some certificates issued by M/s. ESL and still in some cases they declared 20% of the FOB value as freight by indicating that the freight was not ascertainable. Thus though the mode of transport remained the same, i.e. by chartering the ship on time charter basis, the freight was declared to the department in three different ways with the sole intention to evade duty. The department has in good faith accepted the declaration made by them and it is only when it came to their light that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Shashi N. Rui Chairman Managing Director, M/s. Essar Gujarat Ltd. M/s. Essar Shipping Ltd., Rs. 25,00,000/- (Rupees Twenty Five Lakh Only) (4) Shri Ravi N. Rui Managing Director, M/s. Essar Gujarat Ltd. Director M/s. Essar Shipping Ltd., Rs. 25,00,000/- (Rupees Twenty Five Lakh Only) (5) Shri Anil Agarwal, General Manager, M/s. Essar Gujarat Ltd. Rs. 15,00,000/- (Rupees Fifteen Lakh Only) (6) Shri Brij Prakash Goyal, Sr. Vice President, M/s, Essar Shipping Ltd., Rs. 15,00,000/- (Rupees Fifteen Lakh Only) (7) Shri M.K. Srinivasan, Advisor (Raw Material) M/s. Essar Gujarat Ltd. Rs. 15,00,000/- (Rupees Fifteen Lakh Only) (3) Shri R. Srinivasan, Manager (Finance), M/s. Essar Gujarat Ltd. Rs. 15,00,000/- (Rupees Fifteen Lakh Only) (9) Capt. R. Jagannathan, Manager (Finance), M/s. Essar Shipping Ltd. Rs. 15,00,000/- (Rupees Fifteen Lakh Only) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id Rules. The total payments made by EGL to ESL exceeds the cost of transport under Rule 9(2)(a) because the actual time taken by vessel in carrying imported goods from the place of exportation to the place of importation was much less than the number of days for which vessels were under time charter hire and although the company was liable to pay for the hire thereof (regardless of the actual use of the vessel), the same were not used to carry the imported goods. (In para 35 of the impugned order the Commissioner accepts that EGL paid to ESL amounts higher than what ESL paid under charter party agreements). For the purposes of Rule 9(2)(a), the expenses attributable to the carriage of goods from the place of exportation to the place of importation alone would constitute cost of transport of the imported goods to the place of importation. 8. On a true and correct construction Rule 9(2)(a) does not permit inclusion and/or addition of amounts unrelated to the expenses incurred for the carriage of the goods from the place of exportation to the place of importation. The element of freight added at the rate of 20% on notional basis in the case of first two vessels and the freight dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 518 the Hon'ble Bombay High Court held that when payment is made to an owner or charterer on account of carriage of goods shipped that payment is to be regarded not as freight for the purposes of a contract of affreightment but hire paid to the owners of the ship for the use and hire of the ships at certain rates and not on account of carriage of goods and therefore was not freight. In the present case the show cause notice and order proceed on the basis that ESL entered into time charter agreement on behalf of EGL and that EGL reimbursed ESL the amounts paid by ESL under the charter party agreement to the owners of the vessel and that in respect of the vessel Nand Nidhi, EGL entered into a charter parry agreement with ESL who was the owner of this vessel. 10.2 The decision of the Hon'ble Supreme Court in the case of Union of India v. Gosalia Shipping Pvt. Ltd. - 1978 Vol. 111 ITR 307 also sets out the difference between the freight and payment for the use and hire of ship under time charter agreement. The Apex Court held as under: In order that it may be said that the amount was payable on account of the carriage of goods, it would be necessary to show that one is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l assessments were made by the proper officer by accepting freight certificates issued by ESL, the correctness of which have not been disproved by the department. On the contrary freight amounts indicated in the certificates were much more than the cost of the hire of the ships for the number of days of voyages plus the bunker costs. Calculations shows that for the vessel Nand Nidhi as against the freight of Rs. 17,13,473/- shown in the freight certificate the actual cost of transportation based on the data contained in the show cause notice works out to Rs. 12,35,147/- only. Similarly as against the freight of Rs. 20,33,982/- shown in the freight certificate for Prabhu Parvati actual cost of transport works out only Rs. 11,00,878.50/-. On the facts and circumstances of the case we are satisfied that actual freight was not determinable. Therefore the element of freight added @ 20% on notional basis in the case of the first two vessels and the freight declared in the case of other four vessels which has been actually paid, alone can be added to the assessable value. The Revenue has not lead any contrary evidence to establish that the freight certificates issued by ESL, on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and that the invoices were manipulated from M/s. ESL and imaginary invoices were raised for the purpose of customs. We are, however, of the view that once the company disclosed that freight was payable as per charter party agreement and the proper officer accepted the freight as declared in the bill of entry M/s. EGL cannot be held to be guilty of any suppression or wilful mis-declaration. The proper officer could have and should have made an enquiry with EGL or ESL about the freight payment under the charter party after he was made aware of the existence of the charter party agreement. The three letters relied upon by the department to justify the invocation of the extended period on limitation, namely, letters dated 5-8-1991, 9-9-1991 and 4-8-1992 to the Superintendent of Customs rule out the applicability of the proviso to Section 28(1) of the Act under which the duty demand has been confirmed. First of all these letters have been written in the context of Jag Ravi which is the last vessel while freight declared in respect of the first five vessels was accepted on noticing the existence of the charter party agreement. Secondly, whatever be the stand taken by the company in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s what is addable is the normal cost of transport . 21. The Tribunal's judgment reported in [1997 (93) E.L.T. 194 - Collector of Customs, Bombay v. Swadeshi Polytex Ltd.,] covers such a situation. The importer in this case had declared normal freight at the time of filing of the bill of entry. The actual freight paid by them was higher because the ship importing the goods had run around and the extra charges, which the carrier had to bear, had been passed on to them and recovered from the importers by the transporter. The Customs had sought to add the extra quantum to the assessable value. The Tribunal did not uphold such loading of the prices. 22. In another case [Collector of Customs v. STC 1998 (100) E.L.T. 11] the Supreme Court were dealing with the situation where the State Trading Corporation of India Ltd., which ordinarily used to import particular goods by sea had to import such goods by air due to very urgent demand for the goods. The Customs sought to add air freight to the assessable value. The Tribunal did not approve of such addition. This judgment of the Tribunal was upheld by the Supreme Court in the following words: The question which the Tribunal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved as under :- On behalf of the Revenue it was contended that Rule 9(2) of the Rules requires addition of cost of transport of the imported goods to the place of importation. So, the cost paid or payable by the importer to bring the goods upto the Customs barrier must form part of the value. That cost should necessarily take within it demurrage as well. Therefore, according to counsel, the Garden Silk Mills Ltd case is authority for the proposition that the entire cost incurred for bringing the imported goods up to the Customs barrier should form the assessable value. We find it difficult to agree with this argument. First of all the Apex Court was not concerned with the demurrage paid or payable by the importer on account of the delayed clearance of the goods from the ship. Demurrage becomes payable only on extraordinary situations. The provisions contained in the Rules were not adverted to by the Apex Court in the said decision. Their lordships have categorically held that the price at which the imported goods are ordinarily sold should be the basis for valuation under Section 14(1) of the Act. Ordinarily demurrage is not payable. Only in extraordinary circumstances wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29. The practice in the Customs over decades in the case of importation of passenger cars was that the freight addable was not from the place of actual importation but was that as calculated from the port nearest to the origin of the goods. Thus, where a Mercedes car was imported from Colombo, the addition to the assessable value is of freight calculated from a port in Germany. 30. Para 52 of the Customs Appraising Manual Volume-I compiled by the Calcutta Custom House read as under : - Motor cars and other motor vehicles (1) Basis of valuation of motor cars. Motor cars whether new or old are assessable to duty on the basis of their list prices prevailing in the country of their manufacture. However, trade discount and depreciation on the value are deducted from the list price; but freight from the country of manufacture and insurance charges are added. The landing charges are also added to this to arrive at the final assessable value. (C.B.R C.Lr. F. No. 3/27/62-Cus.VI of 7-1-64 24-1-64 Boards letter F. No. 3/16/68-Cus. VI, dated 6-7-68) . 31. This extraordinary measure was adopted to ensure uniformity of pricing of imported cars irrespective of their port of loadi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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