TaxTMI 
TaxTMI 
2003 (6) TMI 78
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....ance with the directions of the hirer, Oil & Natural Gas Commission, and did not initially enter either Indian territorial waters or any areas of the exclusive economic zone designated under the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976 to which the provisions of the Customs Act, 1962 (hereafter the Act) have been made applicable. In April, 2000, the rig was required by the hirer to enter one of such designated areas. On the belief that such entry would constitute import under the Act, Pride Foramer filed a bill of entry in May 2000 for the rig, declaring the c.i.f. value of the rig to be Rs. 783,439,838. The bill of entry was accompanied by an invoice showing details of the value of fixed and loose equipment, spares and consumables on the rig for a total c.i.f. value of U.S. $ 17,682,690. The invoice was issued by the project office in Mumbai of Pride Foramer, and signed by Jean Paul Rabier, its manager in India. The rig was permitted to be cleared on payment of duty at the declared value. 2. Subsequent investigation by the department led it to conclude that the value of the price was underdeclared and that the true value of....
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....at have subsequently been spent on the rig. 4. The contentions of the counsel for Pride Foramer, the importer, are as follows. The rules provide that the transaction value is not to be rejected solely on the ground of relationship and unless it is shown that the relationship between the parties has influenced the price, transaction value has to be accepted even when the party to the sale and purchase are related. Oil rigs are not traded frequently, the number of oil rigs available at a given time is limited. The majority of the oil rigs are owned by companies such as the appellant who lease them out for oil exploration. The number of owners of such rigs is limited. Such leases require the deployment of a rig with its crew onboard. Oil well drilling is a specialised task requiring considerable skill and experience and this is why companies undertaking oil exploration or exploitation venture do not themselves engage upon drilling but hire the rigs with their crew who are competent to do so. In addition, number of owners of rigs are limited, addition to the existing fleet of rigs also takes time and involves expenses. The rigs are hired out by their owners on the basis of the daily r....
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....ely by changes in oil price and draws upon material relied upon by the appellant in order to demonstrate this point. He also defends the applicability of the extended period of limitation, on the ground that the importer had failed to disclose that the purchase was from a related person and defends the Commissioner's order imposing penalty on Bureau Veritas. Written submissions were filed at the conclusion of the hearing. 7. As we have noted the rig was purchased by the appellant to bring to the waters of India in order to fulfil its contract that it had entered into, two months earlier, with the Oil & Natural Gas Commission. Both sides are agreed that this price is the transaction value. Both sides are also agreed that the seller of the rig and its purchaser were related. What is therefore to be determined is whether the transaction value is to be accepted and if not by what method the value for assessment of the rig has to be determined. 8. Rule 4(2) of the Valuation Rules, 1988 provides that the transaction value of goods shall be accepted, except in cases specified in the proviso under that sub-rule. Clause (d) of the proviso under that sub-rule provides that where a buye....
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....g Value of Jack-Ups and Semis 1992-99 in US$ M Dec. 1992 Dec. 1994 Dec. 1995 Dec. 1996 Dec. 1997 Dec. 1998 Mar. 1999 Jack-Ups built after 1980 300 feet indcant N. Sea 25 30 30 45-50 80-90 55 40 300 feet indcant inter-national 18 25 25 45 70 45 35-40 250 feet ind cantilever 12-15 20 20 30 50 30 16-18 200 feet met slot 1 8-9 8-9 16-18 25 13 10 200 feet mat cantilever 6 14 14 22 30 18 14-15 150 feet in cantilever 3 10 10 22 29 15 10-12 Semi Submersibles Aker H-3 North Sea 5 8 25 75 90 50 40 3rd gen North Sea 40 35 70 120 150 100 90 4th generation 90 60 110 160-180 180-200 180-190 160-180 The values shown are levels at which we believe there is a reasonable chance of a unit selling. They are based on our outlook with potential buyers and sellers, oil companies, shipyards, financial institutions etc. There is no guarantee that a particular rig will fetch precisely the amount shown. 12. The figures in this table are illuminating for two reasons. Firstly they establish that values of rigs ....
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.... they are figures appraised by an equity research company. However, these figures bear out the contention that rig prices do fluctuate violently and registered a steep fall between 1997 and 1999. 15. The reasons for fluctuations in the prices of rigs are attributed to fluctuations in the prices of oil. The material that has been produced before us, consisting of the extracts from the publications all indicate that there was a sharp drop in the prices of oil, from 1997 leading to the lowest prices in the Century in 1999. The importer has furnished a chart showing the monthly average prices of Brent crude oil. Brent crude is the name by which the crude oil produced in the North Sea is referred to and is the oil that is traded, and prices quoted in newspapers and financial publications. The figures show the high and the low of Brent crude for the last day of each month from January, 1997 onwards and also the monthly average. The average for January, 1997 is US $ 23.45 per barrel (rounded off to the second decimal point). They dropped to US $ 17.45 in April and, hovering around this price for 7 or 8 months, dropped to US $ 15.11 in January, 1998. This downward trend continued in this ....
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....id for its hire by the oil company who hires it. These charges are computed on a daily basis, referred to in the industry as dayrate. At the time of increasing demand for drilling, the dayrates increase and when there is no demand, the dayrates fall. In other words, correlation between the price of a rig and the price of oil can be established through the dayrates. Rigs do not often change hands, sometimes stay with the owners as long as 20 to 25 years. 17. The Bassoe Offshore Monthly has published, in the issue of March, 2000, two graphs for the period from the first quarter of 1993 to the last quarter of 1998 of the dayrates of jackups and oil prices. It is seen that these two graphs more or less follow each other, with minor variations. The figures in Bassoe Offshore Oil Review of May, 1999 also indicates a sharp fall in worldwide dayrates between May, 1997 and May, 1999. The figures for May, 1999 have significantly fallen compared to two years earlier. The fall varies from area to area, being more pronounced for some than others. Thus, the value for jackups 350 feet long in the US (Gulf of Mexico) has fallen from a range of US $ 60,000 - 85,000 in May, 1997 to US $ 17,000 - 31....
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....odity. Goods having value in use need not command the price whereas the goods having value in exchange commands the price. In economic sense, the term value refers to the value in exchange. A commodity which has high value in exchange may not have value in use. Therefore, in the absence of any real transaction, the valuation reflected in the published journals are more than that of the "utility value" rather than of exchange value during an independent transaction between a willing buyer and a willing seller." 19. The Departmental Representative reiterates these arguments. He emphasizes that there was not a single sale of jackup rigs during the last 5 years, when the oil prices were low. He contends that the production planning of oil fields is a long term planning, which includes survey of the hydrocarbon resources, exploration and exploitation. Demand for oil always remains positive whereas supply is manipulated by vested interests. Fluctuations in oil prices are created and not natural. Since almost all the rigs are deployed on long term contract, there is hardly any rig available to meet additional demand. Therefore the rig owners quote substantially high dayrates. 20. It is ....
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....tment of motor vehicles published by the Technical Committee on Customs Valuation of the World Customs Organisation validates reference to prices of used motor vehicles in determining their valuation. Reference must also be made in this regard to the affidavit of Gavin M.J. Strachan, Vice President - Research and Publisher of ODS-Petrodata Ltd., Edinburgh. In this affidavit, Strachan says that he is the founder and explains that he has been Director of Bassoe Offshore Consultants, which, in August 2002, merged with ODS-Petrodata, which is the largest consultancy in the World, dealing in offshore drilling market. He has cited his qualifications. Apart from working from 1974 to 1992 in the Oil Drilling Industry, he co-founded and edited the London Financial Times Newsletters, Financial Times, World Rig Forecast and Financial Times World Rig Facts. He has, in addition to arbitrating cases in Edinburgh, Scotland, written reports and appeared as an expert witness for trials in the United Kingdom and now in the United States, in matters relating to value of rigs and has also prepared reports for Court use as an expert in matters relating to oil rigs in the United States, United Kingdom, ....
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....18 million. It was contended before the Commissioner that this establishes the correctness of the transaction value. The Commissioner has declined to consider this. While we would be hesitant to determine value baser exclusively upon the insured value of any goods, we are of the opinion that in facts of this case, the fact that the value for insurance was little over 110% of the purchase price supports the appellant's case. Offshore rigs often operate in areas subject to such dangerous conditions as storms and cyclones. If the true value of the rigs were $ 35 million, the appellant in insuring it for $ 18 million, would have stood to lose $ 17 million (or about Rs. 73 crores) in the event of its total loss. It is difficult to believe that it would do so in order to save duty of about Rs. 29 crores. The decision of the Tribunal in Mirah Decor v. CCE - 1988 (35) E.L.T. 357 (at 360) takes note of the commercial practice of marine insurance being done at 110% of the value of the goods. 22. The Commissioner has also said that the fact that the ONGC, in the contract that was signed, undertook to reimburse to the appellant duty on rig assessed on the value of $ 18 million, gave it a ....
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....action involved, namely one in which the goods were sold for export to the country of importation. Consequently, provide that the conditions prescribed in Article I are fulfilled, the transaction value of imported goods should be accepted irrespective of the time at which the sale contract has been concluded and hence, irrespective of any market fluctuations after the date when the contract was concluded." The sale price of US $ 17 million therefore will constitute FOB value. The cif value, after addition of towing charges from Singapore of $ 500,000, and addition of 1.125% of $ 17,500,000 will come to $ 17696875 against the declared value of $ 17682690.50. 25. The Department's appeal relates to value additions made to the rigs prior to its contract with the ONGC in January, 1999. It is contended that the appellant, in its communication to the ONGC, pending acceptance of its appeal, stated that it had spent US $ 10 million on upgradation of the ships, which sum has not been taken into account by the Commissioner. The Commissioner has not added this sum, on the ground that it has not been substantiated, and added costs spent towards the rigs, which were substantiated by documen....