Customs duty on abandoned vessel upheld, while assessable value was fixed by auction price on an as is where is basis.
An abandoned ocean-going vessel may lose its exempt character and be chargeable to customs duty when it becomes a derelict ship sold for breaking up, because customs law applies to imported goods and the relevant exemption ceases once the vessel is no longer retained as an ocean-going vessel. For valuation, where the vessel is sold on an 'as is where is' basis and the auction reflects the market value for scrap in the special facts, the assessable value may properly be taken from the highest auction bid plus landing charges rather than a lower surveyor's estimate.
Issues: (i) whether the abandoned and subsequently salvaged vessel was liable to customs duty, and (ii) whether the assessable value had to be fixed at the auction price or at the lower surveyor's valuation.
Issue (i): whether the abandoned and subsequently salvaged vessel was liable to customs duty.
Analysis: The charging provision applied to all imported goods, including goods belonging to Government. A vessel is "goods" for customs purposes, and an ocean-going vessel is exempt only so long as it retains that character. The vessel had been abandoned and, on the facts, had become a derelict ship for breaking up. The exemption notification for ocean-going vessels contained a proviso that if such a vessel is subsequently broken up, it is chargeable to duty as if imported for breaking up. Section 21 also brought derelict goods within the customs net unless shown to be duty-free. The contention that no duty was payable because the ship had been sold by the Sheriff or had once been an ocean-going vessel was rejected.
Conclusion: The vessel was liable to customs duty; this issue was decided against the assessee.
Issue (ii): whether the assessable value had to be fixed at the auction price or at the lower surveyor's valuation.
Analysis: The ship was sold on an "as is where is" basis, with the bidder taking it in the condition in which it stood. The record showed that substantial pilferage and damage had already occurred before the auction, but the auction reserve price and the highest bid of Rs. 50 lakhs reflected the market judgment of persons dealing in ships for breaking up. The tribunal found that the surveyor's valuation was too low and that a normal ship-to-scrap comparison could not be used to displace the auction price in the peculiar facts of the case. The auction price, with landing charges, better represented the fair assessable value under the customs valuation principles.
Conclusion: The assessable value was to be based on the highest auction bid of Rs. 50 lakhs plus usual landing charges; this issue was decided in favour of the assessee.
Final Conclusion: The appeal succeeded only to the extent of substituting the auction price as the assessable value, while the duty liability was maintained.
Ratio Decidendi: Where an ocean-going vessel is abandoned and ultimately sold for breaking up, it may lose its exempt character and be chargeable to customs duty as derelict goods or as a vessel subsequently broken up; for valuation, the fair assessable value in the special facts may be the actual auction price on an "as is where is" basis rather than an abstract scrap valuation.
TaxTMI 
AI Drafter ✕
TaxTMI 
