Customs, Excise and Gold Tribunal - Delhi
Collector Of Customs vs Sundaram Fasteners Ltd. on 29 March, 1996
Equivalent citations: 1996(86)ELT49(TRI-DEL)
ORDER
U.L. Bhat, J. (President)
1. Respondent imported a Charmilles D440 ISOCUT Electrical Discharge Machine with attachments, declaring value of 3,10,732.02 Swiss Francs (Rs. 15,01,300/-). Supply was from Switzerland. The consignment was in four cases. Bills of Entry dated 18-10-1984 was filed through clearing agents. The Port Trust authorities noted that one case was broken and another case was damaged and repacked on aboard. Respondent applied to the Assistant Collector of Customs (Docks) for examination prior to assesment and for survey and the same was ordered. Customs Officers, including a machinery expert examined the packages in the presence of an independent machine surveyor and technical representative. Details of damages were recorded on the Bill of Entry, but the value of the machine was not appraised. However, the goods were cleared on payment of duty of Rs. 12,26,589.45 on full value, without abetement. Thereafter, the respondent's insurer arranged survey in its factory by Steamer Agents and Insurance Company who fixed the value of damaged goods at Rs. 4,00,000/-. Respondent thereupon filed claim for refund of proportionate duty under Section 22 of Customs Act, 1962 (for short, the Act). The Assistant Collector rejected the claim on the ground that the respondent had not taken any steps to fix the value of the damaged goods at the time of examination by the proper officer under Section 22(3) of the Act. Respondent challenged the order before the Collector (Appeals) who allowed the appeal and directed reassessment on the basis of the value fixed by the surveyors and to grant consequential relief to the respondent. This order is now being challenged by the Department. We have heard both sides.
2. It is contended on behalf of the appellant that there was nothing in the customs examination report nor in the importer's application to indicate that any internal damage was suspected, that the respondent had not arranged to have the case thorough examined for any possible internal damage, that the transport after clearance was not under customs supervision and Customs Officers were not informed about the proposed survey being conducted in the factory and hence Customs Officers could not be and were not present on the occasion. It is also contended that, in any event, the contents of the survey report are untenable and unacceptable. These contentions are rebutted on behalf of the respondent according to whom, this was a case where the customs officers failed in the proper discharge of their duty to get the value of damaged goods assessed properly and hence the result of survey arranged by the respondent after clearance has to be accepted. It is contended that in such circumstances, the report prepared as a result of survey conducted even in the absence of Customs Officers has to be accepted.
3. The question for consideration is whether these reports can be accepted and if so, whether rebate to the extent claimed, should be granted? Section 22 of the Act deals with abatement of duty, inter alia, on damaged goods. Clause (a) of Sub-section (1) is attracted in the present case since the damage undisputedly took place before or during the unloading of the imported goods in India. There can be no doubt that the Customs Officer concerned would have to be satisfied on this count. According to Sub-section (1) of Section 22, on such satisfaction, such goods shall be chargeable to duty in accordance with the provisions of Sub-section (2), that is, proportionately. Sub-section (3) states that the value of damaged goods may be ascertained, at the option of the owner, either by the proper officer or by sale of the goods by the proper officer and the gross sale proceeds being deemed to be the value of the damaged goods. No rules have been framed in regard to matters covered by Section 22.
4. In Kasturi & Sons Ltd v. Collector of Customs, Madras -1985 (22) E.L.T. 161 (Tribunal), the importer requested the Customs authority to note the damages and that was done but customs duty was collected on the full value of the goods. Application for refund on abatement was rejected on the ground that examination report was not clear, that no survey had been conducted and the procedure laid down in Section 22 of the Act had not been followed. The Tribunal reversed the decision holding as follows :-
" ... all that Section 22 of the Customs Act requires an importer to do is to show to the satisfaction of the Assistant Collector that the goods had been damaged. There is no other procedure laid down in section which is required to be followed by the importer ...
Again, we notice from the section that there is no such requirement laid down therein that importer must specifically ask for abatement in value. When an importer makes a report of damage to his goods to the customs, the obvious purpose of such a note is to claim duty assessment on the reduced value of the damaged goods. Once an importer makes such a report, which the appellants in this case had done, Sub-section (1) of Section 22 requires that the damaged goods "shall" be chargeable to duty in accordance with the provisions of Sub-section (2). The Section leaves no option to the customs except to assess the damaged goods on the basis of the reduced value arrived at according to Sub-sections (2) and (3). We hold that once the appellants had informed the Customs that their goods had suffered damage, it was incumbent on the Department to assess the value as per the provisions of Sub-section (3) of Section 22 and charge duty on such assessed value. If the procedure devised by the Department in this behalf required any survey to be conducted or the examination report to be recorded in some detail, it was the duty of the Department to have those things done. The appellants cannot be blamed for inaction on the part of the Department".
5. In Collector of Customs, Ahmedabad v. Sharma Metal Rolling Mills, 1989 (20) ECR 343 (Tribunal), imported goods were cleared on payment of full duty under protest regarding rates thereof. Short landing was suspected by the importer who requested Steamer Agents for survey. Surveyors carried out draft survey of the ship and also a volumetric survey; weighment was also done at a private weigh bridge outside customs area. On the basis of draft report, importer asked for abatement of duty. The claim was rejected on the ground that the customs authorities were not associated with weighments and survey report could not therefore be relied on. The Appellate Collector reversed the decision. The Department approached the Tribunal. The Tribunal held that the record relating to draft of the ship before and after discharge was a contemporaneous record as required under Section 149 of the Act and -
"though therefore the Customs Officers were not associated with the draft survey, the survey report cannot be discarded merely on those grounds ... . The absence of weighment facilities at Bhavnagar Port is accepted. There is therefore, no alternative to determine the quantity of scrap actually discharged except the survey report."
The Tribunal declined to interfere with the order of Collector (Appeals).
6. Admittedly the owner, that is, the respondent, exercised the option under Section 22(3) by requesting the Assistant Collector to conduct examination and survey. It was, therefore, incumbent on the officer to assess demages and assess the value of damaged goods. He had noted some damages. The surveyor's report was also available. If the officer felt any difficulty in assessing the value of damaged goods, he could have so informed the respondent so that the respondent could either arrange for proper valuation in the presence of Customs Officers or suggest sale as contemplated in Section 22(3) in which case the sale price would be deemed to be the value of damaged goods. The officer did not so inform the respondent. The respondent waited for a few days and in the absence of any word from the Assistant Collector, decided to clear the goods so that the goods could be removed to the factory where survey could be arranged . In the facts and circumstances of the case, the respondent had no other course to adopt. The respondent followed this course, but in doing so, committed a mistake in not giving notice to the Assistant Collector of the proposed survey so as to enable the officer either to be present himself or depute a technical representative to be present at the time of the examination and survey. In the light of the failure of the Assistant Collector to perform his proper statutory duty, the mere failure of the respondent to give advance notice to the Assistant Collector of the survey after clearance cannot result in the survey report being regarded as ineffective or devoid of value. The result cannot be to brush the reports aside at the instance of the Department which has been in default.
7. The survey after clearance was conducted at the instance of their Insurer. It was not suggested before the Collector (Appeals) or in the memorandum of appeal before the Tribunal that the reports were collusive or manipulated. It has to be noticed that ordinarily there may be conflict of interest between the Insurer and the insured and it would be in the interest of the Insurer to minimise the damage though an honest Insurer may not do so. In these special circumstances, it would be the duty of the adjudicating authority to examine the reports for their reliability and to accept the same to the extent they are found to be reliable and acceptable.
8. The survey conducted by Customs Officers on 9-11-1984 showed the following :-
2 cases were damaged.
Case No. 4 - contained generator - No damage was noticed.
Case No. 1 - contained one Charmilles D440 ISOCUT.
Electrical Discharge Machine, complete with standard equipment. Side planks of the case were found broken.
Damages noticed were :-
(1) Dielectric tank was dented and pressed in.
(2) The plastic transparent sheet on the work head tank was broken.
(3) Hydraulic Motor guard was dented and come out from its original position.
(4) The work light head come away from its position.
(5) The 2 thermo static switches were crushed.
(6) The co-ordinate table and servo-head also appeared to have undergone damage due to the impact and distortion.
(7) The Hydraulic tank was found punctured and oil was leaking.
9. The report dated 12-11-1984 of Standard Surveyors Private Ltd. on the basis of survey conducted on 9-11-1984 shows that the Electrical Discharge Machine had the following damages :-
1. Dielectric Tank dented and/or pressed in.
2. Co-ordinate Table and Servo-head dislocated.
3. Persplex Sheet on the work head Tank - broken.
4. Hydraulic Tank punctured and oil leaking.
5. Hydraulic Power pack motor guard dented/or loose.
6. Work light loose from the servo-head.
The Surveyors stated that the machine could not be examined in detail for want of facilities in the Port premises and that they have instructed the clearing agents to despatch the case to the ultimate destination after repacking the machine securely where a detailed examination can be conducted, if necessary. This survey was conducted at the request of the Insurer.
10. After the goods were cleared and removed to the respondent's factory, the surveyors conducted detailed examination on 26-12-1984 and submitted interim report dated 10-1-1985. The survey was conducted without informing the customs officers and in their absence. The interim report indicates that case 1/4 contained the Charmilles D440 Machine with seven main components. Case 2/4 contained Dielectric Reservoir System complete with filters and pumps and cases 3/4 and 4/4 contained Charmilles generators with adaptive CNC controls two cabinets. The following were noted :-
Goods in packages In sound condition.
2/4, 3/4 and 4/4
Goods in package -(1)Co-ordinate work table found jammed in both axis
1/4. indicating possible bending of both the screws due
to impact when the machine fell on its side.
Protective bellows along with sheet metal sliding
damaged.
(2)Work tank body badly pressed. The work lamp was
broken from the hold.
(3)Isocut motor damaged. The non-metalic body
broken at the holding portion. Bekelite portion
of cords broken.
(4) The cover of the backslide motor pressed on the
fan.
(5) DRO scale on transverse slide out of line. (Due
to space restriction exact damage could not
be observed).
(6) Engineer of Indian agents of the manufacturer
suspected internal damage to Isocut work head
and Electro hydraulic servo mechanism. He
suspected that the precision cast iron elements
of machine would have developed defects and
deformation. The Indian agents of the
manufacturer are not equipped to carryout any
work on the backslide, Isocut or Quill. For
testing the machine, as an integral unit, the
entire unit has to be sent back to the
manufacturer.
The Surveyor further stated as follows :-
"In sophisticated machine tools which are primarily made for high accuracy and high efficiency the problem of total rejection is not uncommon as the insured wants to have the designed performance and high accuracy for which they have paid. It is neither possible nor practical to get the machine repaired by any one other than the suppliers or their agents and specially so in case of a new machine.
In all CNC machines the high cost is due to a high degree of accuracy that is guaranteed. The high cost is also due to development cost and quick obsolescence. The price increases in geometric progression with the increase of accuracy. These machines are meant to last a life time with routine maintenance.
From visual inspection it appears that the work tank body required replacement. Co-ordinate tables high precision screws to be changed as also the damaged Isocut motor and after changing the parts to check up for alignment and accuracy. Whether Isocut and quill is damaged or not, we cannot say unless the machine is tried out as there is no external damage to those main components. Whether backslide is free to move requires to be checked up. This can be checked up after connecting the drive motor".
The surveyors desired to call for the manufacturer's representative for a more authentic opinion after inspection.
11. The surveyors submitted final report dated 24-4-1985 after joint inspection with the Service Engineer of the manufacturer in the presence of representative of manufacturer's Indian agents. The inspection report stated as follows :-
"The machine was dropped on the left hand side. The impact has affected the vital parts of the machine such as (1) The co-ordinate Table, (2) The work Tank (3) The Isocut System and (4) The work - Head. The impact is so severe that the machine cannot be repaired locally. Even in the event the machine has to go to Charmilles, it is not guaranteed that the repairs can be undertaken by Charmilles at their works in Geneva, in view of the extensive damage found on the machine as it is. Even if the repairs is attempted, we cannot guarantee the original accuracies because of the deformations in the Table, Work Head assemblies, Isocut Unit, etc. If it is insisted to repair the machine the possible cost will exceed more than the cost of a new machine.
As regards the Isopulse 80 Generator, though it has not suffered transit damage, it cannot be interfaced with any other machine as the Generator is tailor-made for the above D440 machine only".
(Emphasis supplied) The report further stated that the machine has to be treated on a constructive total loss basis. After considerable efforts it is stated, the insured agreed to retain the machine for Rs. 4,00,000/- against the landed cost of machine Ex-Madras port including Customs duty which worked out to be Rs. 27,27,889/- i.e. 14.66% of the landed cost. It was difficult to locate a buyer for a damaged sophisticated machine.
12. The Indian agents of the Manufacaturer certified that machine can neither be commissioned nor repaired locally. Even to assess whether the machine can be rectified or has to be abandoned, the complete equipment has to be returned to the manufacturer at Geneva who alone can do the job with their engineers and facilities.
13. Visual examination by Customs Officers revealed damage to the Electrical Discharge Machine in case No. 1/1. The surveyor visually examined the contents of case No. 1/1 before clearance agent noticed indications of serious damage. They could not examine the machine in detail for want of facilities in the Port premises. They instructed the clearing agents to despatch the case to importer's factory where detailed examination could be conducted. Detailed examination conducted soon thereafter confirmed indication of very serious damage to the contents of case No. 1/1. This has seen in the report dated 10-1-1985. Even at that stage the extent of internal damage could not be asssessed as no facilities were available in India to do so. Repair work could be attended, if at all, only by the manufacturer. It was further stated that the testing the unit as an integrated machine, the entire unit would have to be sent back to the manufacturers. The machine has been designed for high accuracy and high efficiency. Internal damage to Isocut work head and electro-hydraulic servo machine [sic] could be seen or assessed only by the manufacturers. The importer took the stand that because of serious damage to the Electrical Discharge Machine, the entire consignment had to be treated a total loss as accuracy of one micron could not be guaranteed if repairs were to be effected at the manufacturer's works at Geneva. It was stated that this was a last model of the series and the entire unit has to be replaced. The opinion of the manufacturer's agents is found in their letter dated 10-12-1984. The letter indicated that the impact on the machine was so severe that the precesion cast iron elements of the machine must have [sic] the overall alignment, geometry and built-in accuracy of machine and the impact of the work tank would have carried on the Isocut Assembly as well which would affect its performance . The letter further stated that the machine cannot be repaired locally or commissioned. The manufacturer's engineer who conducted examination reported that the damage to the vital parts were such that repairs at the manufacturer's works at Geneva could not be assured and even such repairs could not guarantee original accuracies and cost of repair would be more than the cost of a new machine. He also reported that the Generator (which was in another package) cannot be interfaced with any other machine. The insurer therefore, proceeded on the basis of a constructive total loss basis. The insurer persuaded the Importer to retain the machine for Rs. 4 lakhs against the landed cost of the machine ex-Madras Port including customs duty which worked out to Rs, 27,27,.889/- to which was to be added service engineer's fees and expenses of inspection. As we have indicated earlier, there is no suggestion at any stage of manipulation or collusion in the survey reports. The Department, at no stage, attempted to marshal technical opinion or material to challenge the contents of the surveyor's reports or the engineer's opinion.
14. Having carefully considered the contents of the various reports and other material available, we are satisfied that the surveyor's report dated 24.4.1985 could be accepted as true and reasonable. Hence, there is no ground to interfere with the order of the Collector (Appeals). The appeal is dismissed.