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TMI Blog2022 (6) TMI 928X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon ownership, and appendant privileges, vessel/aircraft may have to be imported as goods requiring compliance with attendant customs procedures. That, however, does not derogate from its functionality as conveyance which is the purpose of, and defines, its very existence as vessel/aircraft - It is, therefore, of utmost essence that assessing authorities tread that tightrope with extreme caution lest the universally acknowledged freedom of the seas and freedom of the skies be compromised at the altar of revenue harvest beyond the intent of law. Valuation of goods - HELD THAT:- The declared price may be discarded in favour of the actual transaction value , subject to availability of evidence of direct or indirect flow of additional consideration to the seller, for conformity with the concept enshrined in section 14 of Customs Act, 1962 without recourse to any provision other than rule 3 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Any other substitution of declared value as transaction value must conform to one of the situations envisaged in rule 4 to rule 9, taken sequentially, for validation of assessment for determination of duty of customs aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividuals in the misdeclaration of stores and bunkers is not evident in the impugned order - penalties set aside. With this limited remit of decision on classification in remand proceedings, the four appeals are disposed off. X X X X Extracts X X X X X X X X Extracts X X X X ..... the fleet of the importing company, indicated transfer of 50 cu. m. of 'high speed diesel' on 3rd August 2017. These were relied upon for recovery of differential duty on stores and bunkers and documents, evincing payment of US$ 92,107 for consumables, of US$ 42,000 for brokerage charged by Ajit Arote of M/s Om Sai, of US$ 6803.77 and US$ 846.63 to M/s Inchape, a ship agency, and of US$ 3000 out of US$ 6050 due to M/s DNV-GL Surveys recovered in follow-up search at the premises of the importer, were relied upon for enhancement of assessable value of the vessel. The 'memorandum of agreement', also recovered during search, evidencing delivery of the vessel at Cape Town, South Africa was allegedly suppressed to exclude insurance and freight from place of delivery from the value declared for assessment. Other documents were relied upon to allege that the ship was not 'supply vessel' as claimed but 'support vessel' warranting assessment at rate of duty corresponding to tariff item 8905 9090 of First Schedule to Customs Tariff Act, 1975 and for appraisal of the value by chartered engineer. 4. Though the dispute comprised three elements - addition of value of stores and bunkers not decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancement of value to US $ 5,000,000 (₹ 40,58,64,821) was not in conformity with the scheme of valuation contained in section 14 of Customs Act, 1962 and Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. According to him, the mandate of 'transaction value' is uniformly intended to apply notwithstanding procurement directly from manufacturer, through a trading entity or, as in the present case, from an existing user and contends that, in the absence of any valid ground for doubting the bona fides of the transaction itself, customs authorities are bound to adopt the declared value for assessment. Reliance was placed on the decision of the of Hon'ble Supreme Court in Tolin Rubbers Pvt Ltd v. Commissioner of Customs, Cochin [2003(11) TMI 90-SUPREME COURT], in Motor Industries Co Ltd v.Commissioner of Customs [2009 (244) ELT 4 (SC)], in Eicher Tractors Ltd v. Commissioner of Customs, Mumbai [2000 (11) TMI 139-SUPREME COURT] and in Commissioner of Customs, Mumbai v. Bureau Veritas [2005 (181) ELT 3 (SC)] besides relying upon the instruction of Central Board of Excise & Customs in circular no. 25/2015-Cus dated 15th October 2015 and, particularly, on '8. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unreliable as he was nominated by customs authorities and that the original value adopted by him, before adjusting for present value, was not based on any documentary ascertainment but an estimate of his own. Furthermore, he urged us to discard the report as cross-examination of the surveyor, which would have controverted its foundational integrity, had been denied. 9. It was further argued that, though the sale transaction did occur at Cape Town, the vessel was delivered at Mumbai and that the contracted value incorporated the expense involved owing to which the addition of freight and insurance should be set aside. Contending that 'brokerage' and 'other expenses' nor any part thereof was payable, either directly or indirectly, to the seller, the addition was, he argued, not in consonance with rule 10 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. 10. Learned Authorized Representative pointed out that it was abundantly clear that the charges for transportation of the vessel from Cape Town to Mumbai had not been paid for by the seller and that the other charges incurred by the appellant must, necessarily, be included in the assessable value to confo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for certain statutory requirements attended upon ownership, and appendant privileges, vessel/aircraft may have to be imported as 'goods' requiring compliance with attendant customs procedures. That, however, does not derogate from its functionality as 'conveyance' which is the purpose of, and defines, its very existence as vessel/aircraft. Except for the one purpose of obliterating its existence as 'conveyance', and most often by 'breaking', import of vessels is generally for reverting to use as 'conveyance' for transportation of goods and persons. Such transformation, being momentary, converts vessel/aircraft into 'goods' within the window for compliance with statutory requirements before reverting to its natural character of 'conveyance' for carriage of persons and goods upon clearance for home consumption in accordance with section 47 of Customs Act, 1962 - even if, paradoxically, it may be 'foreign going vessel' immediately thereafter. It is, therefore, of utmost essence that assessing authorities tread that tightrope with extreme caution lest the universally acknowledged freedom of the seas and freedom of the skies be compromised at the altar of revenue harvest beyond the inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of valuation is intended for general application to 'goods', and not to 'conveyances' that, for a time and for the purpose, are statutorily transformed into 'goods', the parameters of section 14 of Customs Act, 1962 remain, indiscriminatingly, applicable. It is only in application of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, and, more particularly, in the minutiae for fastening of full extent of transaction value that the parody is played out. Just as no vehicle may venture into public space without some form of registration, no vessel may put out to sea save with some territorial mooring of its existence with right to bear the national flag after import; every vessel arriving at the shores of India for import is 'used' and, therefore, may not find fitment within the orthodoxy of purchase from manufacturer which, for assessing officers ingrained in the traditions of 'real value' in Sea Customs Act, 1878, suffices for embarking upon the last of the options for valuation available under the Rules. Nevertheless, there is no reason, except from contrary evidence, to deny acknowledgement of the 'declared value' of the vessel as the 'gold standard' of ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in rule 10 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 for evaluation of the enhancement upheld in the impugned order. 19. The appellant had furnished bill of sale for US $ 21,000,000 purporting to be the 'transaction value' for assessment of the vessel. The Chartered Engineer appointed by the appellant had estimated value approximating that declaration which, apparently, was not acceptable to customs authorities, who designated yet another Chartered Engineer to undertake survey afresh, and preferred to accept the value of ₹ 40,58,64,821 estimated by him over the equivalent, ₹ 13,82,89,200, in the bill of sale. The justification offered in the impugned order is the admission of several flaws in the survey undertaken by Shri Harish Bhatia. Notwithstanding the inadequacies, customs authorities were in breach of the instructions pertaining to estimation by Chartered Engineer contained in circular no. 25/2015-Cus dated 15th October 2015 of Central Board of Excise & Customs. The admitted facts also bear out investigative overreach in the recording the statement of a professional and in relying upon the 'admission' therein of deficiency in sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nspection' charges save in circumstances of incorporation as a condition of sale between buyer and seller. There is no evidence of such and, indeed, no examination of such in the impugned order. 21. As we have premised supra, import of a vessel arriving under its own steam does not lend itself to the processing that awaits normal import of 'goods'; such vessels are 'conveyances' saddled with obligations prescribed in chapter VI of Customs Act, 1962. Additionally, to comply with registration requirements that go hand- in-hand with ownership, the vessel ceases to be 'conveyance' for a time and is, statutorily, deemed to be 'goods' for subjecting to assessment under section 17 of Customs Act, 1962. The inclusion of 'freight' and 'insurance' in the assessable value under the authority of rule 10(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 stems from the requirement in section 14 of Customs Act, 1962 for 'transaction value' to be the price at the place of import and which, in commercial parlance, is designated as 'CIF' in transactions. These payments are made for transportation from the place of shipment and, being paid either to the seller or, on adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary to their main function' corresponding to tariff item 8905 9090 in the First Schedule to Customs Tariff Act, 1975 within which the adjudicating authority has placed the impugned vessel. We are not inclined to accept inordinate reliance on the certification of different authorities for, if that were the intent of the Convention and/or the supreme legislature, there would have been no hesitation in referring to the institutional arrangements for registration and classing. In the scheme of the headings and sub- headings, no scope is offered for determination based on end-use. The classification will have to be sustained on the descriptions corresponding to the two rival items and, acknowledging the exercise of preference between the two to be preceded by discharge of the burden imposed upon assessing authorities by the decisions of the Hon'ble Supreme Court in Hindustan Ferodo Ltd v. Collector of Central Excise, Bombay [1997 (89) ELT 16 (SC)] and in HPL Chemicals Limited v. Commissioner of Central Excise, Chandigarh (2006 (197) ELT 324 (SC)], as more appropriate. 23. It is seen from the record of proceedings in the impugned order that the appellant had also claimed re-classificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te dt. 02.10.2013 issued by the American Bureau of Survey (ABS) and its survey status report (print date 23.01.2017) have also given the description and class of the vessel "Pacific Amethyst" (Now known as "Sagar Fortune") as "*AI, Fire Fighting Vessel Class 1, Offshore Support Vessel, Circle E, AMS, *DPS-2". The DNV-GL vide their inspection report certificate No. 20817008 dated 26.04.2017 for the Vessel Pacific Amethyst (now known as 'Sagar Fortune3) have mentioned the Class of the subject vessel as "ABS *AI, Fire Fighting Vessel Class 1, Offshore Support Vessel, Circle E, AMS, *DPS-2". It is therefore evident that the vessel "Sagar Fortune" is an Offshore support vessel having additional features like firefighting capability of Class 1 and DPS-2 (or DP-2). These two features which are found to be available in the subject offshore support vessel are generally not found on offshore support vessels and this vessel has been built with these feature with specific purpose. This vessel is equipped, since its manufacture, with advanced firefighting capabilities of class 1, with the help of which it is capable of dousing fires on other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome subsidiary to two main functions of this vessel namely Agni 1 and DP-2, i.e. Fire Fighting and Dynamic Positioning System. He is an expert in surveying vessels and classifying them as per shipping parlance and as such is technically qualified to determine the class notation which he has agreed remains the same as that given by ABS i.e. American Bureau of Shipping. In that sense the opinion of Capt. Shri Bijoy Kumar Sharma regarding classification under the Customs Tariff can definitely be considered an expert's opinion. It can be seen from the Chapter heading 8905 of Customs Tariff that it covers those vessels the function of navigability of which are subsidiary to their main function. According to Rule 3 of the same Principles of general rules of interpretation - the heading which provides the most specific description shall be preferred to headings providing a more general description. In the instant case it is seen that, the term Offshore Support Vessel is generic term as evidenced by the statements of experts, whereas the ABS class notation "ABS, *A1, Fire Fighting Vessel Class 1, Offshore Support Vessel, Circle E *AMS. *DPS-2" which has remained unchanged (la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the chapter heading 89.06 and the explanatory notes thereto that the subject vessel cannot, by any stretch of imagination, be classified under that heading. On the other hand 1 find, from the evidence on record and the discussions above, that the subject vessel is a firefighting vessel of class I having very advance dynamic positioning system in the form of DPS-2. The subject vessel is capable of playing multiple roles by remaining alongside other vessels or rigs for a very long period. These capabilities, which were inbuilt in the vessel and have increased it's cost and value exponentially. Thus has clearly made its navigation subsidiary to these specialised roles. Futher, the importers in their written submission have also admitted that the vessel is not classifiable under the chapter heading 89.01 and that it is instead classifiable under 89.06. Therefore, it is evident that they knew from the beginning that the subject vessel is not classifiable under 89,01 and they have deliberately misclassified the same for the purpose of evasion of duty and that the vessel is correctly classifiable under 89.05. This attempt at alternate classification is nothing but an afterthought t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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