2023 (6) TMI 1200 - AT - Customs

Tribunal emphasizes contract price over Light Displacement Tonnage for duty assessment

Hussain Sheth Ispat Versus Commissioner of Customs, Jamnagar (Prev.)

The Tribunal allowed the appeal, setting aside the impugned order and directing the appeal to be allowed. The decision emphasized that the assessable ... Finalization of provisional assessment (at higher side) - Valuation - import of old and used ships/vessels for breaking purpose - existence of allegation or evidence of extra consideration having been paid to the seller over and above the declared value or not - HELD THAT:- It can be seen from clause 1 of the MOA dated 28.7.2011, that parties have agreed a lump sum purchase price of USD 5,815,747; there is no reference to LDT made for arriving at the purchase price by the parties to the agreement, in other words purchase price agreed between the parties is not in proportion to the LDT. Further, it is not the case of revenue that any consideration over and above the agreed purchase price has been paid by the importer to the foreign seller. Revenue has sought to assess higher duty only on the basis of commercial invoice submitted vide letter dated 4.7.2011 wherein details of additional LDT of 401.323 MT is mentioned. There is otherwise no corroboration whether LDT mentioned in the MOA and survey report is inclusive of 401.323 MT or otherwise. It is observed that parties have agreed upon a lump sum price of USD 5,815,747 for the ship as a whole and absent any allegation or evidence of extra consideration having been made by the importer over and above the said price, transaction value as declared by the importer has to be accepted. Lower authorities clearly erred in loading the assessable value entirely based on the LDT when the LDT is irrelevant for assessment of duty. The said issue is already decided by this Tribunal in the decision of JRD. INDUSTRIES VERSUS COMMISSIONER OF CUSTOMS, JAMNAGAR [2010 (8) TMI 437 - CESTAT, AHMEDABAD], where it has been held that LDT gained importance for the period prior to 2003 and was required to be correctly arrived at, as duty was ad valorem + Rs 1400/- per Light Displacement Tonnage. In the present case the duty is not relatable to LDT. The memo of agreement arrived at between the two parties also does not refer to any fact showing that the price of the ship is proportionate to LDT of the said ship. The impugned order cannot be sustained and appeal of the appellant is required to be allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the transaction value declared for an imported vessel sold for a lump-sum price can be rejected and enhanced by reference to a higher Light Displacement Tonnage (LDT) appearing in subsequent documents, absent any allegation or evidence of extra consideration flowing to the seller. 2. Whether LDT is a relevant criterion for determination of assessable value where the contract price is a lump-sum for the whole vessel and not expressed as price per unit LDT. 3. Whether the assessing authority may invoke Rule 12 and/or Rule 9 of the Customs Valuation Rules to determine value in proportion to LDT in the absence of proof of undeclared consideration or transaction-value irregularity. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of rejecting transaction value and enhancing assessable value based on higher LDT where no extra consideration is alleged or proved Legal framework: Section 14(1) of the Customs Act requires acceptance of transaction value where the conditions for its application are satisfied; valuation rules (including Rule 12 and Rule 9 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007) govern rejection/determination of value where transaction value is unacceptable or needs adjustment. Precedent treatment: The Tribunal has earlier held that where the contract price is lump-sum and there is no evidence of extra payment or benefit, LDT is irrelevant for valuation and transaction value must be accepted. That precedent was relied upon by the Court and followed. Interpretation and reasoning: The Court observed that the parties agreed a lump-sum purchase price for the vessel and there was no allegation or evidence of any additional consideration paid by the importer to the foreign seller. The department's attempt to increase assessable value solely because a later document (commercial invoice) disclosed a higher LDT lacks foundation unless it demonstrates extra consideration or invalidates the transaction value. Absent such proof, the statutory mandate to accept transaction value prevails. Ratio vs. Obiter: Ratio - where transaction value is a lump-sum and no extra consideration is shown, the transaction value should not be rejected merely because LDT is found higher in subsequent documents. Obiter - procedural observations about the particular documents submitted in the file (e.g., that there was no corroboration whether MOA included the extra LDT) are ancillary. Conclusion: The assessing authority erred in rejecting the declared transaction value and loading assessable value based solely on higher LDT when no extra consideration was proved; the transaction value must be accepted under section 14(1). Issue 2: Relevance of LDT to valuation when purchase price is lump-sum and not expressed per LDT Legal framework: Valuation must follow the statutory scheme; where price is agreed as a lump-sum for the whole good, unit measures (such as LDT) are relevant only if the price itself is expressed or intended to be determined on a per-unit basis or if valuation provisions tie duty to such units. Precedent treatment: Prior Tribunal authority (decided in similar factual and legal matrix) established that LDT becomes material only where the price is based on per LDT or where duty calculation specifically depends on LDT; that precedent was applied by the Court. Interpretation and reasoning: The Court noted MOA contained a lump-sum price with no reference to LDT as the basis for price calculation. Since the assessable duty in the relevant period was not tied to LDT (and there was no evidence the parties priced the vessel by LDT), reliance on LDT to enhance value is misplaced. The authorities below treated LDT as determinative despite its irrelevance to the agreed consideration, thereby misconstruing the valuation framework. Ratio vs. Obiter: Ratio - LDT is irrelevant to determine assessable value when the sale price is lump-sum and not related to LDT. Obiter - historical note that LDT gained importance only in periods/tariffs where duty components were explicitly related to LDT. Conclusion: LDT cannot be used to adjust the transaction value where the contract price is not proportionate to LDT; the assessing authority's reliance on LDT for valuation was incorrect. Issue 3: Applicability of Rule 12 and Rule 9 of the Valuation Rules to determine value in proportion to LDT absent evidence of transaction-value irregularity Legal framework: Rule 12 allows rejection of declared transaction value in certain circumstances (e.g., where there is reason to believe declared value does not reflect actual transaction), and Rule 9 permits determination of value using alternative methods where necessary. Precedent treatment: The Court adhered to prior jurisdictional guidance that conversion from transaction value to a Rule 9 determination is permissible only when conditions for rejecting transaction value are met (such as evidence of undisclosed consideration); absent such conditions, invoking these rules merely because of differing LDT is impermissible. Interpretation and reasoning: The revenue invoked Rule 12 and proceeded to determine value under Rule 9 by increasing value based on additional LDT disclosed in a later commercial invoice. The Court found no basis for reasonable belief that the declared transaction value was incorrect, given cheque/LC payments and absence of evidence of flow-back or extra payments. Therefore, neither Rule 12 nor Rule 9 could legitimately be used to enhance value on the sole basis of a higher LDT figure. Ratio vs. Obiter: Ratio - Rules 12 and 9 cannot be used to override an otherwise acceptable transaction value without evidence or reasonable belief of irregularity; applying these rules solely on the basis of a discrepancy in LDT is improper. Obiter - specific factual comment on the form of payment (cheque/LC) as corroborative support for acceptance of declared value. Conclusion: The assessing authority's invocation of Rule 12 and determination under Rule 9 to increase value proportionately with higher LDT was unjustified in absence of grounds to reject the transaction value; the enhanced assessment cannot be sustained. Cross-reference Issues 1-3 are interlinked: acceptance of transaction value (Issue 1) and irrelevance of LDT where price is lump-sum (Issue 2) together negate the basis for invoking Rule 12/Rule 9 (Issue 3). The Court followed existing Tribunal precedent on these connected points and set aside the enhanced assessment accordingly.