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2003 (6) TMI 78 - AT - CustomsValuation (Customs) - Determination of the transaction value of the rig - extended period of limitation -Imposition of penalties - whether this is a price that should be applied for the importation of the rig a year after the purchase, in April, 2000 - HELD THAT - We have held that the rig was sold in March, 1999 for export to India. Therefore, any subsequent changes in market price will not affect this transaction price. The Explanatory Note 1.1 of the Technical Committee on Customs Valuation of the World Customs Organization is worth referring to. This committee has been established consequent upon the agreement between member countries for the implementation of Article 7, the basis for the concept of transaction, of the GATT (General Agreement on Tariff and Trade), 1994. The Committee consists of representatives of all the member countries. The Explanatory Notes would therefore reflect the consensus of the member countries as to the scope of the articles relating to transaction value, and would therefore offer valuable guidance in construing the scope and meaning of the Valuation Rules. The Explanatory Note 1.1 provides that under Article I of the Agreement on Customs Valuation corresponding to Rule 4 of the Valuation Rules, the basis for establishing customs value is the actual price made in the sale giving rise to the importation, the time at which the transaction took place being immaterial. The basis for value, the sale price in 1997, was, as we have seen, among the highest in the recent past, and therefore, is arbitrary. If at all the Commissioner was of the view that depreciation was the only method of valuing the rig, he ought to have done so on the basis of the price of the rig when it was built, of 15 million, and applying the rates of depreciation specified in the Board's circular to this cost, and the additions to this cost of amounts subsequently incurred on account of repair etc. This is in fact precisely what he has done in valuing the rig Griffin Alexander II imported by Aban Loyd Chiles Off Shore Ltd. which formed the subject matter of appeal C/716/02 before us. It is significant to note that the department did not challenge in that appeal the method of valuation that the Commissioner has adopted, and the departmental representative stoutly defended it. It is therefore difficult to resist the conclusion that the Commissioner, in this matter, has adopted as the base, a different value, only because it was far higher, and would lead to a larger assessable value than if the price at the time of construction had been adopted. It would thus follow that, even if the transaction value were not acceptable, the method of valuation applied by the Commissioner cannot be accepted. The Commissioner has imposed a penalty on Bureau Veritas on the ground that it was careless in making the reports of valuation that it furnished of the rig, since it has not taken into account the fact of earlier sale of the rig in 1997 at a higher price and did not consider the relationship between the parties. The contention of its counsel that lack of care, even if established, cannot justify imposition of penalty under Section 112, has to be accepted. The penalty has been imposed under Clause (b) of Section 112, on the ground that Bureau Veritas vetted this declaration of the value by the importer. The lack of care that the Commissioner assigns on his part fall short of the requirement of abetment, implying a conscious awareness of the act or omission of an abettor, that is required for penalty to be imposed under this clause. It would also follow from our earlier discussions on the appeal of the importer that the price of a rig depends upon the industry plays of number of factors. In view of the background, it is difficult to imagine that Bureau Veritas would have changed its value if the importer had brought to its notice the fact of the earlier sale. It must also be noted that sales of rigs are not a secret matter. They are regularly reported in the publications of Bassoe Jeferies, no doubt others. We, therefore, do not find grounds for imposition of penalty. The appeals are disposed of accordingly.
Issues Involved:
1. Determination of the transaction value of the oil rig under Customs Valuation Rules. 2. Influence of the relationship between the buyer and seller on the transaction value. 3. Applicability of depreciation and market fluctuations in determining the rig's value. 4. Legitimacy of penalties imposed on the importer and Bureau Veritas. 5. Applicability of the extended period of limitation under Section 28 of the Customs Act. Issue-wise Detailed Analysis: 1. Determination of the Transaction Value of the Oil Rig: The core issue revolved around the transaction value of the oil rig as per Rule 4 of the Customs Valuation Rules, 1988. The appellant, Pride Foramer, declared the value of the rig at $17 million, which was the purchase price from Pride Global Limited in March 1999. The Commissioner rejected this value, citing the relationship between the buyer and seller and discrepancies in the valuation reports. The Commissioner instead valued the rig at Rs. 1451,893,375 ($32.78 million) and demanded differential duty. The Tribunal, however, accepted the appellant's contention that the transaction value should be the price paid in March 1999, considering the significant market fluctuations and the specialized nature of oil rigs. 2. Influence of the Relationship Between Buyer and Seller: The Commissioner declined to accept the transaction value on the grounds that Pride Foramer and Pride Global Ltd. were related parties. Rule 4(3) of the Valuation Rules stipulates that the transaction value should be accepted if the relationship did not influence the price. The Tribunal examined the circumstances of the sale and concluded that the relationship did not influence the price. The Tribunal found substantial evidence, including market reports and insurance values, supporting the transaction value of $17 million. 3. Applicability of Depreciation and Market Fluctuations: The Tribunal acknowledged the volatility in the prices of oil rigs, heavily influenced by fluctuations in oil prices. The Tribunal referred to various industry publications and expert affidavits indicating that rig prices fell significantly between 1997 and 1999. The Tribunal criticized the Commissioner for arbitrarily using the 1997 purchase price of $35.35 million as a base for depreciation without considering market conditions. The Tribunal emphasized that the transaction value of $17 million in March 1999 should be accepted, reflecting the market conditions at that time. 4. Legitimacy of Penalties Imposed on the Importer and Bureau Veritas: The Commissioner imposed penalties on the importer, Jean Paul Rabier, and Bureau Veritas for allegedly misdeclaring the rig's value. The Tribunal found that the penalties were unjustified. It noted that the valuation by Bureau Veritas was conducted impartially and that mere carelessness in valuation did not meet the criteria for penalty under Section 112 of the Customs Act. The Tribunal also found no evidence of abetment or conscious awareness of any wrongdoing by Bureau Veritas. 5. Applicability of the Extended Period of Limitation: The Commissioner invoked the extended period of limitation under Section 28 of the Customs Act, citing non-disclosure of the relationship between the buyer and seller. The Tribunal, however, did not find sufficient grounds to justify the extended period. It noted that the transaction value was adequately supported by market data and industry practices, negating the need for an extended limitation period. Conclusion: The Tribunal concluded that the transaction value of $17 million should be accepted for the rig, dismissing the Commissioner's enhanced valuation. It also found the penalties on the importer and Bureau Veritas unjustified and set them aside. The Tribunal's decision was based on a thorough examination of market conditions, industry practices, and the specific circumstances of the sale, ensuring a fair and accurate valuation under the Customs Valuation Rules.
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