Customs valuation for ship-breaking: bunker duty and freight were includible, but sales tax and sump oil were excluded.

Customs valuation in ship-breaking transactions turns on the vessel's status and the nature of the charges sought to be added. Bunker taken on board a foreign-going vessel was held dutiable once the vessel ceased to be foreign going, because duty-free entitlement ended at that point. Sump oil, treated as residual waste, was not liable to duty. Freight and insurance incurred up to the point of clearance for breaking were includible in assessable value, as they formed part of the import-related cost. Sales tax was excluded from assessable value because domestic levies are not part of the price of imported goods under the Customs Valuation Rules.

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Issues: (i) whether customs duty was leviable on bunker taken on board the vessel, (ii) whether sump oil was liable to duty, (iii) whether freight and insurance up to Alang were includible in the assessable value, and (iv) whether sales tax could be included in the assessable value for customs duty.

Issue (i): whether customs duty was leviable on bunker taken on board the vessel.

Analysis: The vessel remained foreign going until it reached the breaking yard and the record did not establish that the bunker at Porbunder was duty paid. A foreign going vessel is entitled to duty-free bunker until it ceases to be foreign going, and duty can be levied when that status ends.

Conclusion: Duty on bunker was correctly levied and the assessee failed on this issue.

Issue (ii): whether sump oil was liable to duty.

Analysis: Sump oil was treated as dirty residual oil or sweeping accumulation and not as oil capable of being assessed in the manner proposed by revenue.

Conclusion: The demand on sump oil was not sustainable and was set aside in favour of the assessee.

Issue (iii): whether freight and insurance up to Alang were includible in the assessable value.

Analysis: The relevant factor was not the place of sale but the point at which the vessel ceased to be foreign going and was cleared for breaking. Freight and insurance incurred up to that point formed part of the assessable value.

Conclusion: Inclusion of freight and insurance was upheld and the assessee failed on this issue.

Issue (iv): whether sales tax could be included in the assessable value for customs duty.

Analysis: Under Rule 9 of the Customs Valuation Rules, 1988, additions are confined to amounts paid or payable for the imported goods. Domestic levies such as sales tax do not form part of the price of imported goods and cannot be added to the assessable value.

Conclusion: Inclusion of sales tax was illegal and the related duty demand was set aside in favour of the assessee.

Final Conclusion: The appeal succeeded only to the extent of the demands relating to sump oil and sales tax, while the demands relating to bunker duty and freight and insurance were sustained.

Ratio Decidendi: Domestic taxes not forming part of the price of imported goods cannot be added to assessable value under customs valuation, whereas bunker duty and freight or insurance may be levied or included when the vessel ceases to be foreign going.

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