TaxTMI 
TaxTMI 
2003 (3) TMI 781
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....) to arrange for shipment of iron ore pellets and as per ESL's advice, EGL agreed to import iron ore pellets in vessels hired on charter basis. It was understood between EGL and ESL that EGL would enter into a charter party agreement with ship owners and that EGL would reimburse all expenses including hire charges to ESL as well as pay ESL the agreed amount for organising and co-ordinating the shipments. Accordingly ESL entered into time charter agreement for five out of the six vessels which form the subject matter of the present dispute, while the sixth vessel, M.V. Nand Nidhi which belonged to ESL was directly hired by EGL on time charter basis. The goods were imported in six vessels in a total of nine voyages as detailed below : S. No. Name of the Vessel Bill of Lading Date Quantity (inMTs) Shipper 1. Maersk Santosa 2-9-1989 62,418.000 CVRD, Brazil 2. Sagay Stove 27-1-1990 62,006.000 CVRD, Brazil 3. Nand Nidhi 1-1-1990 33,597.514 GIIC, Bahrain 4. Prabhu Parvati 12-1-1990 39,882.000 GIIC, Bahrain 5. Jag Rashmi 8-12-1990 40,784.675 GIIC, Bahrain 6. Jag Rashmi 4-1-1991 40,307.035 GIIC, Bahrain 7. Jag Ravi 27-4-1991 35,965.320 GIIC, Bahra....
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....eing supervision charges at Rs. 50/- PMT for transportation of 62,418 MT of Iron Ore Pallets from Brazil-Vizag (should be Hazira) -Maersk Santosa Rs. 31,20,900/- (c) Iron Ore from Brazil to India Cargo quantity rate as per Bill of Lading 62,418 MT on time charter vessel Maersk Santosa @ US $ 11 PMT (Rs. 17perUS $) Rs. 1,16,72,166/- 2. (a) Being the freight charges for 62,006 MT Iron Ore from Brazil to Hazira as per Bill of Lading No. 1 dated 27-1-1990 per M.V. Sagay Stove @ Rs. 342/- PMT Rs. 2,12,06,052/- (b) Being supervision charges at Rs. 50/- PMT for transportation of 62,006 MT of Iron Ore Pallets from Brazil/Bahrain/Hazira M.V. Sagay Stove Rs. 31,00,300/- (c) Iron Ore from Brazil to India Cargo quantity load as per Bill of Lading 62,006 MT on time charter vessel M.V. Sagay Stove @ US $ 11 PMT (Rs. 17 per US $) Rs. 1,16,29,225/- Provisional Invoice 3. (a) M.V. Nand Nidhi 29-11-1990 to 18-1-1990 Cost of transportation from Bahrain to Hazira - Quantity load 33,597.514 MT @ Rs. 1167/- Rs. 38,97,312/- (b) Being supervision charges at Rs. 50/- PMT for transportation of Iron Ore Pallets -33,597.514 MT from Bahrain to Hazira Rs. 16,79,876/- 4. (a) M.V. Prab....
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....1991 - Being transportation charges for 33,593.01 MT of Iron Ore Pallets from Bahrain to Hazira. Rs. 26,19,338/- (c) Invoice for transportation from Bhavnagar to Hazira by many bulk carriers, from mother vessel M.V. Jag Ravi, sailed from Bahrain on 1-9-1991 to Hazira was not available, however, based on viii(a) above, the rate should be Rs. 90/- PMT. Accordingly the charges worked out for 33,593 MT Rs. 30,23,370/- 4. By order dated 30-2-1999 the Commissioner of Customs confirmed the duty demand raised on EGL in the notice and imposed penalties on EGL, ESL and officers thereof, holding as under : "33. I have carefully gone through the records of the case, submissions made by M/s. EGL from time to time both oral as well as written. I find that the basic issue in this case to be decided is as to what constitutes cost of transportation and whether M/s. EGL has misdeclared the cost of transportation with a view to evade customs duty and thereby they are liable to pay the differential duty and have rendered themselves to penalty u/s 112 of the Customs Act, 1962. For this purpose it will be pertinent to refer to the provisions of Customs Act, relating to valuation. Section 14(....
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....e case of U.O.I. v. Gosalia Shipping Pvt. Ltd. wherein a distinction was drawn between the carriage of goods and hire of ship. In this case the payment received by the time charterers for use and hire of ship were sought to be taxed under Income-tax Act as a receipt towards carriage of goods. The Supreme Court held that since the agreement was for the hire and use of the ship and not for the carriage of the goods the same cannot be subjected to income-tax. This decision is not relevant because the facts of the present case differ. Here what is sought to be taxed is the cost of transportation of the goods incurred by M/s. EGL. M/s. EGL have asked their shipping company M/s. ESL to arrange for the delivery of the goods by chartering the vessels etc. Shri Nankani has confirmed that there was no written agreement between M/s. ESL and M/s. EGL regarding chartering of the vessel. Further in this case the chartering was done by M/S. ESL and not by M/S. EGL. It is further found that M/s. EGL has to pay to the charterer as is clear from the chart submitted by Shri Nankani himself. Therefore, it has to be presumed that the agreement between M/s. EGL and M/s. ESL was not a mere chartering of ....
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....ich will constitute the cost of transportation but for this they never came to the department for seeking any clarification but instead resorted to manipulating the documents. 38. Shri Nankani has referred to the two letters written by Superintendent, Customs dt. 25-6-90 and 27-7-92 to show that the department was in the knowledge of the payments made by them to M/s. ESL. However, I find that the letter dt. 25-6-90 has asked for clarification regarding the actual insurance charges paid and has not referred to the freight at all. The second letter dt. 27-7-92 has been issued after the assessments have been made final and was part of investigations asking for certain documents which has ultimately resulted in the issue of the present SCN. In view of this it cannot be said that the department was in the know the things and I therefore hold that the duty as demanded in the SCN is rightly due from them and is not time barred. .............................. 40. In view of above, I pass the following order, - ORDER (i) I hereby confirm the demand Rs. 5,94,83,673/- u/s 28 of the Customs Act, 1962 which should be paid forthwith. (ii) I impose a penalty u/s 112 of the Customs act,....
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....reof at the port of importation alone are covered by Rule 9(2)(a) and consequently only these expenses can be added to the transaction value. The expression "of the imported goods" appearing in Clause (a) of Sub-rule (2) of Rule 9 clearly indicate that the cost of transport must be directly related to the imported goods. The so-called "freight ascertained" as alleged in the show cause notice, does not represent the cost of transport of the imported goods to the place of importation. The "freight ascertained" in the show cause notice represents the adjustments/reimbursements made by the company to ESL for hire of the vessels on time charter basis on account of the company. This is an admitted position in the notice as seen from pages 3 and 65. It is therefore clear that "freight ascertained" in Annexure 'D' to the show cause notice on the basis of which the Commissioner has confirmed the demand for differential duty, is much more than the cost of transport envisaged by Rule 9(2)(a) of the said Rules. The total payments made by EGL to ESL exceeds the cost of transport under Rule 9(2)(a) because the actual time taken by vessel in carryin....
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....that the cost incurred in chartering the vessel for the purpose of delivery of the cargo has to be taken as the normal cost of transportation when there were no alternative means of delivering the cargo to Hazira. He thus seeks to equate the reimbursement of the amounts by EGL to ESL for hire of the vessels on time charter basis on behalf of EGL, to freight, which is contrary to law. Further, in the face of the admitted position that ESL entered into charter party agreements on behalf of EGL the presumption of the Commissioner in para 35 of the impugned order that the agreements between EGL and ESL was not a mere chartering of the vessels but overall charges for carriage of the goods from the place of export to the place of import is incorrect, particularly when it is accepted by the Commissioner that EGL paid to ESL amounts in excess of what ESL paid to the charterer. 10.1 Case law cited by the learned Counsel for the appellants is directly applicable to the facts of the present case. In the case of Lima Leitao and Co. Ltd. v. Union of India - 1968 Vol. 70 ITR 518 the Hon'ble Bombay High Court held that when payment is made to an owner or charterer on account of carriage of g....
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.... element of freight to the assessable value of the imported goods. 11. In the course of hearing it was contended by the learned representative of the Revenue that the description shown in the invoices shows that the payments had been made by EGL to ESL towards transportation of the imported goods. This submission runs contrary to the allegation in the show cause notice and the result of DRI investigations as it is an admitted position in the notice that payment made by EGL to ESL were for adjustment/reimbursement of expenses incurred by ESL from time to time for hire of vessels on time charter basis on account of EGL. Therefore the so called "freight ascertained" is nothing but the totality of the charges/amounts paid by EGL to ESL which incurred the charges in respect of vessels hired on time charter basis, and the freight ascertained is not the cost of transport of goods from the place of exportation to the place of importation and therefore it cannot be added to the transaction value in terms of Rule 9(2)(a) of the Customs Valuation Rules. 12. Further, final assessments were made by the proper officer by accepting freight certificates issued by ESL, the correctness o....
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.... record that the freight was otherwise. In the light of the foregoing discussion, we set aside the duty demand. 14. We now deal with the plea that the demand is barred by limitation. It is a matter of record that along with each Bill of Entry M/s. EGL also filed Bill of Lading bearing the endorsement "freight payable as per charter party agreement". Assessments which were initially provisional were finalised without any objections by accepting the freight declared in the Bills of Entry with the full knowledge that the freight was payable as per charter party agreement. The Commissioner, however, holds that at the same time EGL submitted invoices which showed price declared on C&F basis even though no such price was agreed to and that this amounted to mis-declaration with the intention to evade duty. He has held that some declaration on the bill of entry that freight was as per charter party agreement does not absolve M/s. EGL of the charge of mis-declaration, that they kept on changing their mode of payment to the Customs authorities even though the method of transport remained the same, and that the invoices were manipulated from M/s. ESL and imaginary invoices were rai....
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....quot;cost of transport". 18. Section 14 of the Act speaks of the forces of demand and supply operating in the free market. In such a situation the prices for the same goods and the similar goods would also tend to move in a narrow spectrum. The cost of transport of goods is made an element of the value of the goods. Since the transportation rules also stand determined by market forces, the C&F prices of the same or similar goods would remain in a narrow bandwidth. In other words, there would be a very few cases where the values quoted are exceedingly high or low when compared to the mean prices. 19. This thought is acknowledged in the proviso to the said Rule 9 (2), which fixes a cap of 20% on the free on board value of the goods as the cost of the transport. This figure has been arrived at on an examination of the phenomenon of the cost of transport being roughly 1/5th of the cost of the goods free on board. 20. It should be emphasized that what is addable to the value is the cost of the transport of the imported goods and not the actual cost incurred by the carrier. In other words what is addable is the "normal cost of transport". 21. The Tribunal's judgmen....
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....In the circumstances we do not see any reason to interfere with the finding of fact on the basis of which the ultimate conclusion was reached. Hence, we dismiss this appeal with no order as to costs." 23. In the case of Bombay Dyeing & Manufacturing Co. v. Collector of Customs [1993 (63) E.L.T. 557], the Tribunal had held that where some goods were ordinarily imported by sea, the sea freight had to be added to the assessable in arriving at CIF value, even when the goods were imported by air at a much higher rate. In doing so, the Tribunal followed the earlier order of the Tribunal in the case of Orwo Films v. Collector of Customs [1991 (56) E.L.T. 805]. 24. The principle of "normalcy" has to be followed when making additions to the assessable value. In their judgment in the case of IOC v. CC, Calcutta [2000 (122) E.L.T. 615] the Larger Bench has held that demurrage charges were not normally incurred as a matter of routine and where they had been incurred because of extraordinary circumstances such charges were not addable to the assessable value. 25. In paras 12 and 13 of the judgment, the Tribunal observed as under :- "On behalf of the Revenue it was conte....
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.... of assessable value. We do not find our way to agree with this distinction sought to be made by the Bench in Panchmahal Steel Ltd. case. Demurrage is paid on account of the delay in clearing the goods from the vessel. That cannot form part of the value of the goods. Further, since the two Member Bench which decided the Panchmahal Steel Ltd. case was not appraised of the existence of the circular issued by the Board, the said decision cannot be said to be one correctly decided." 26. The ratio of this judgment was followed by the Tribunal in their later order in the case of Exim India Oil Co. v. CC, Calcutta [2001 (131) E.L.T. 207 (T) = 2001 (42) RLT 181]. 27. The law stated requires that extraordinary circumstances be disregarded. Thus where the carrier may transport some goods, entirely free of cost, the Customs may be justified in adding a notional rate of 20% of the value of the goods FOB; towards freight element. 28. The converse would also hold true and that is where the cost of transport is at a quantum abnormally high when juxtaposed with the value of the goods, that quantum of freight cannot be added. 29. The practice in the Customs over decades in the case of impo....