Customs, Excise and Gold Tribunal - Mumbai
Essar Steels Limited vs Commissioner Of Customs on 27 March, 2003
Equivalent citations: 2003(156)ELT42(TRI-MUMBAI)
ORDER Jyoti Balasundaram, Member (J). 1. M/s. Essar Gujarat Ltd., (hereinafter referred to as EGL), which is a company engaged in the manufacture of sponge iron and hot rolled steel products at its plant in Hazira, set up its Hazira plant in 1989-1990 with a capacity to manufacture approximately eight lakh metric tonnes of hot briquette iron (sponge iron) per annum. The principal raw materials for this product are iron ore and iron ore pellets. The appellant company imported DR (direct reduction) grade iron ore pellets due to nonavailability of pellets of the desired quality in India. Since Hazira was not a regular port, no standard freight rates were available, therefore EGL approached its sister concern M/s. Essar Shipping Ltd. (hereinafter referred to as ESL) 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, Bahrain 8. JagRavi 12-6-1991 29,832.604 GIIC, Bahrain 9. Jag Ravi 1-9-1991 33,593.010 GIIC, Bahrain 2. In respect of two vessels, i.e., M.V. Maersk Santosa and M.V. Sagay Stove, which shipped goods from Brazil to Hazira, EGL declared the FOB value of the same, and added freight at the rate of 20% in terms of Rule 9(2) of the Customs Valuation (Determination of Price of Import Goods) Rules, 1988, and all the Bills of Entry filed were duly assessed finally. For shipments made on M.V. Nand Nidhi and Prabhu Parvati used to ship iron ore pellets from Bahrain to Hazira, EGL declared the freight based on freight certificates dated 30-1-1990 and 28-2-1990 issued by ESL. For shipments made from Bahrain on M.V. Jag Rashmi, EGL declared C&F price based on invoice of the foreign supplier. The sixth vessel M.V. Jag Ravi, used to ship pellets from Bahrain, undertook three voyages in respect of the 1st voyage, EGL declared C&F price as in the case of Jag Rashmi, based on foreign supplier's invoice, and in respect of the second and third voyages, EGL declared the freight based on freight invoices issued by ESL. 3. Sometime in June, 1994 DRI officers started investigations into alleged under-declaration/mis-declaration of freight by EGL, seized documents and also recorded statements of Shri Anil Agarwal, DY. G.M. of EGL and Shri B.P. Goyal its Senior Vice-President. Show cause notice dated 17-2-1995/6-3-1995 alleging that all payments made by EGL to ESL for which ESL had raised invoices/bills as detailed below, were required to be added as "freight" to the assessable value of imported pellets for the purpose of determination of duty liability, was issued, proposing recovery of Rs. 5,94,83,675/- under the proviso to Section 28(1) of the Customs Act, 1962, being the Customs duty leviable on the element of freight paid/payable by EGL to ESL, proposing confiscation of goods under Section 111(d), (1), (m) of the Act on account of shortfall in the availability of valid licence for debit purposes and for mis-declaration of value, and proposing penal action against EGL and others under Section 112 of the Act. Details of the actual amount charged by ESL to. EGL Shipment serial No. Amount 1. (a) Iron Ore from Brazil to India - Cargo quantity loaded as per Bill of Lading No. 62 on time charter vessel Maersk Santosa @ Rs. 3367-PMT Rs. 2,09,72,448/- (b) Being 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. Prabhu Parvati - Being Freight charges for 39,882 MT of Iron Ore from Bahrain to Hazira as per Bill of Lading No. 2 dated 12-1-1990 @ Rs. 183/- PMT Rs. 72,98,406/- (b) Being supervision charges at Rs. 507- PMT for transportation of 39,82 MT of Iron Ore Pallets from Bahrain to Hazira Rs. 19,94,100/- 5. (a) M.V. Jag Rashmi Voy-2 Being transportation of 40,784.675 MT quantity - Iron Ore Pallets from OOP Hazira/Bahrain/DOP Hazira for the period from 2-12-1990 at 22.36 hours to 29-12-1990 at 11.00 hours Rs. 62,41,080/- (b) Being supervision charges at Rs. 1707- PMT for 40,784.675 MT Iron Ore Pallets from 2-12-1990 to 29-12-1990 from OOP Hazira7Bahrain/DOP Hazira Rs. 69,33,395/- 6. (a) M.V. Jag Rashmi Voy-3 Being - transportation of 40,307.035 MT Bill of Lading quantity Iron Ore Pallets from OOP Hazira from 29-12-1990 at 11.00 hours to 5-2-1991 at 00.42. Rs. 79,07,576/- (b) Being additional freight @ Rs. 170/- PMT for the period 29-12-1990 to 5-2-1991. Rs. 68,52,196/- 7. (a) M.V. Jag Ravi - Being transportation charges of 35,965.32 MT of Iron Ore Pallets FROM Meena Saqur - Bahrain - Hazira from 3-4-1991 at 07.00 hours to 17-5-1991 at 18.30 hours. Rs. 82,00,093/- (b) Being additional freight @ Rs. 170/- PMT for transportation of 35,965.02 MT Iron Ore Pallets from Meena Saqur - Bahrain - Hazira for the period 3-4-1991 to 17-5-1991. Rs. 61,14,104/- 8. (a) M.V. Jag Ravi Voy-5 Being transportation of Iron Ore Pallets 29,832.604 MT from Hazira/Bahrain/Hazira for the period 17-5-1991 at 018.30 hours to 1-7-1991 at 05.50 hours. Rs. 86,36,539/- (b) Being additional freight @ Rs. 170/-PMT for transportation of 29,832.604 MT Iron Ore Pallets from Hazira/Bahrain/Hazira for the period 17-5-1991 to 1-7-1991: Rs. 50,71,543/- (c) Sailed Bahrain on 12-6-1991 - Being transportation charges for 29,832.604 MT of Iron Ore Pallets from Bahrain to Hazira at US$ 4.735 (= Rs. 100/-). Rs. 18,90,133.33 (d) Invoice No. 91/8, dated 1-6-1991 (which appears to be erroneously written) being freight charges for carrying bulk cargo by mini bulk carrier from Bhavnagar to Hazira from M.V. Jag Ravi - Quantity 29,832.604 MT. Rs. 90.00 PMT Rs. 26,84,934.00 9. (a) M.V. Jag Ravi Voy-5 - Being transportation for 39,593.01 MT of Iron Ore Pallets from Bahrain to Bhavnagar - Completed loading on 1-9-1991 at 14.55 hours. Rs. 1,22,61,449/- (b) Sailed Bahrain on 1-9-1991 - 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. 907- 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(1) states that "for the purpose of Customs Tariff Act, 1975 or any other law for the time being in force whereunder a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be the price at which such or like goods are ordinarily sold or offered for sale, for delivery at the time and place of importation or exportation, as the case may be in the course of international trade where the seller and buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer for sale. 34. From the above definition it is clear that for the purpose of arriving at the value of goods under sec. 14 what is relevant is value at which the goods are ordinarily offered for sale for delivery at the time and place of importation. This clearly means that the value would include the cost of delivering the goods upto the place of importation. The Valuation Rule 9(1) states that in determining the transaction value, there shall be added to the price actually paid or payable of the imported goods -.... Rule 9(2) says that the value of the imported goods shall be the value of such goods for delivery at the time and place of importation and shall include the cost of transport of the imported goods to the place of importation. These rules therefore clearly bring out that if the value declared does not include the cost of transport then it has to be included and this should be the actual cost of transportation. Even for a moment if it is presumed that the cost of transportation should be the normal freight between the place of importation and exportation as Section 14(1) talks about price at which the goods are ordinarily sold, even then for a place like Hazira where at the time of importation there was no regular shipping service and the only means of transport was by chartering the ship for delivery of the cargo, 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 even if in some cases the consignment does not constitute a full ship load. In such circumstances when there is no alternative means of delivering the cargo the actual cost of delivering the cargo by chartering the vessel etc. is to be taken as the cost of transportation. 35. Shri Nankani referred to the Supreme Court decision in the 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 vessels but overall charges for carriage of the goods from the place of exportation to the place of importation, It is these charges and not the charges paid to the charterer which are being proposed to be subjected to customs duty in the SCN and therefore the Supreme Court decision cited by the noticee is clearly distinguishable. Similar was the decision in the case of Lima Leitao and Co. Ltd. 1968 (70) ITR 518 and therefore the rates laid down in this decision is also not applicable in the present case. .......................... 37. The other point raised by the advocate for the noticees is regarding limitation. In this case I may state that though on the Bill of Lading it was declared that the freight was as per charter party agreement, the noticees have in some cases declared the C&F price even though no such price was agreed to as the supplier was never in a position to deliver the goods at the place of importation on his own and this has never been an intention from the very beginning. In some cases they have got some certificates issued by M/s. ESL and still in some cases they declared 20% of the FOB value as freight by indicating that the freight was not ascertainable. Thus though the mode of transport remained the same, i.e. by chartering the ship on time charter basis, the freight was declared to the department in three different ways with the sole intention to evade duty. The department has in good faith accepted the declaration made by them and it is only when it came to their light that M/s. ESL were raising regular invoices on M/s. EGL for the cost of transportation which were duly paid by M/s. EGL and that in some cases the prices were wrongly declared as C&F even though there was no such prevailing C&F price that investigations were made and duly short paid was as demanded in the SCN. Merely declaring on Bill of Entry that the freight was as per charter party agreement does not absolve M/s. EGL of the charge of misdeclaration when they kept on switching their mode of payment to the customs even though the manner of transport remained one and the same. The invoices were manipulated from M/s. ESL to show different charges under different heads and an absolute imaginary invoice was raised for the purpose of customs. The noticees tried to take a plea that they were not in the know of the customs requirement regarding the nature of charges which 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 1 therefore ho)d 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, 1962 on the following : (1) M/s. Essar Gujarat Ltd., Bombay Rs. 50,00,000/- (Ru-pees Fifty Lakhs only) (2) M/s. Essar Shipping Ltd., Bombay Rs. 30,00,000/- (Ru-pees Thirty Lakh Only) (3) Shri Shashi N. Rui Chairman & Managing Director, M/s. Essar Gujarat Ltd. & M/s. Essar Shipping Ltd., Rs. 25,00,000/- (Ru-pees Twenty Five Lakh Only) (4) Shri Ravi N. Rui Managing Director, M/s. Essar Gujarat Ltd. & Director M/s. Essar Shipping Ltd., Rs. 25,00,000/- (Ru-pees Twenty Five Lakh Only) (5) Shri Anil Agarwal, General Manager, M/s. Essar Gujarat Ltd. Rs. 15,00,000/- (Ru-pees Fifteen Lakh Only) (6) Shri Brij Prakash Goyal, Sr. Vice President, M/s, Essar Shipping Ltd., Rs. 15,00,000/- (Rupees Fifteen Lakh Only) (7) Shri M.K. Srinivasan, Advisor (Raw Material) M/s. Essar Gujarat Ltd. Rs. 15,00,000/- (Rupees Fifteen Lakh Only) (3) Shri R. Srinivasan, Manager (Finance), M/s. Essar Gujarat Ltd. Rs. 15,00,000/- (Rupees Fifteen Lakh Only) (9) Capt. R. Jagannathan, Manager (Finance), M/s. Essar Shipping Ltd. Rs. 15,00,000/- (Rupees Fifteen Lakh Only) (10) Capt. B. Chakrapani, I/C Bulk Carrier Division, M/s. Essar Shipping Ltd. Rs. 5,00,000/- (Rupees five Lakh Only)" 5. Hence these appeals. 6. We have heard both sides and carefully considered the rival submissions. 7. Rule 4 of the Customs Valuation Rules, 1988 provides for determination of the assessable value based on the transaction value. Sub-rule (1) of Rule (4) of the said Rules provides that the transaction value shall be adjusted in accordance with Rule 9 of the said Rules. Sub-rule (2) of Rule 9 and in particular/ Clause (a) thereof reads as under : "(2) For the purposes of Sub-section (1) and Sub-section (1A) of Section 14 of the Customs Act, 1962 (52 of 1962) and these rules, the value of the imported goods shall be the value of such goods, for delivery at the time and place of importation and shall include - (a) the cost of transport of the imported goods to the place of importation. (b) ........... (c) .............." The 'cost of transport of the imported goods to the place of importation' means the cost incurred for the voyage from the place of exportation of the goods to the place of importation. This means that the expenses limited to the carriage of the imported goods starting from the loading thereof at the port of exportation to the unloading thereof 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 carrying imported goods from the place of exportation to the place of importation was much less than the number of days for which vessels were under time charter hire and although the company was liable to pay for the hire thereof (regardless of the actual use of the vessel), the same were not used to carry the imported goods. (In para 35 of the impugned order the Commissioner accepts that EGL paid to ESL amounts higher than what ESL paid under charter party agreements). For the purposes of Rule 9(2)(a), the expenses attributable to the carriage of goods from the place of exportation to the place of importation alone would constitute cost of transport of the imported goods to the place of importation. 8. On a true and correct construction Rule 9(2)(a) does not permit inclusion and/or addition of amounts unrelated to the expenses incurred for the carriage of the goods from the place of exportation to the place of importation. The element of freight added at the rate of 20% on notional basis in the case of first two vessels and the freight declared in the case of other four vessels has not been shown in the show cause notice to be incorrect. There is no allegation in the show cause notice to the effect that the freight as assessed or declared in the Bills of Entry does not represent the expenses incurred in the carriage of the goods from the place of exportation to the place of importation. Therefore, freight assessed or declared in the Bills of Entry is the correct cost of transport of the imported goods to the place of importation. 9. The allegations in the show cause notice and findings in the Commissioner's order equate the reimbursement of the amounts by the company to ESL for hire of the vessels on time charter basis on account of the company to "freight". However, we agree with the learned Counsels for the appellants that all charges paid on account of time charter party cannot be equated to freight. When the vessel is taken under a time charter party, the payment is for the hire and use of the vessel as a whole and such charges are referred to as "hire charges" and not as "freight". Freight in the ordinary mercantile sense is the reward payable to the carrier for the carriage and removal of the goods. (See Scrutton on Charter Parties & Bills of Lading at page 331). In para 34 of the impugned order the Commissioner has held 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 goods shipped that payment is to be regarded not as freight for the purposes of a contract of afreightment but hire paid to the owners of the ship for the use and hire of the ships at certain rates and not on account of carriage of goods and therefore was not freight. In the present case the show cause notice and order proceed on the basis that ESL entered into time charter agreement on behalf of EGL and that EGL reimbursed ESL the amounts paid by ESL under the charter party agreement to the owners of the vessel and that in respect of the vessel Nand Nidhi, EGL entered into a charter parry agreement with ESL who was the owner of this vessel. 10.2 The decision of the Hon'ble Supreme Court in the case of Union of India v. Gosalia Shipping Pvt. Ltd. - 1978 Vol. 111 ITR 307 also sets out the difference between the freight and payment for the use and hire of ship under time charter agreement. The Apex Court held as under: "In order that it may be said that the amount was payable on account of the carriage of goods, it would be necessary to show that one is the consideration for the other, that is to say, that the payment which the charterers had agreed to make to the owners of the ship was in consideration of the carriage of goods. If the charterers are liable to pay the amount irrespective of whether they carry the goods or not, it would be difficult to say that the amount was payable on account of the carriage of goods. Under the terms of the charter party, the owners of the ship received the amount as charges for the use and hire of the ship. The character of the payment cannot change according to the use to which the characters put the ship or according as to whether the ship is loaded with goods in a port in India. What is payable as hire charges for the use of the ship cannot transform itself into an amount payable on account of the carriage of goods, by reason of the circumstance that the ship was loaded with goods in India." 10.3. Shri Mondal sought to distinguish the above judgment of the Supreme Court by stating that in the present case M/s. ESL did not carry their own goods on the vessels hired by them but carried goods of EGL and earned freight on account of carriage of goods. This distinction does not advance the case of the Revenue as there is no dispute that EGL paid freight as per freight certificates issued by ESL and added that 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 of which have not been disproved by the department. On the contrary freight amounts indicated in the certificates were much more than the cost of the hire of the ships for the number of days of voyages plus the bunker costs. Calculations shows that for the vessel Nand Nidhi as against the freight of Rs. 17,13,473/- shown in the freight certificate the actual cost of transportation based on the data contained in the show cause notice works out to Rs. 12,35,147/- only. Similarly as against the freight of Rs. 20,33,982/- shown in the freight certificate for Prabhu Parvati actual cost of transport works out only Rs. 11,00,878.50. On the facts and circumstances of the case we are satisfied that actual freight was not determinable. Therefore the element of freight added @ 20% on notional basis in the case of the first two vessels and the freight declared in the case of other four vessels which has been actually paid, alone can be added to the assessable value. The Revenue has not lead any contrary evidence to establish that the freight certificates issued by ESL, on the basis of which EGL paid freight and included it in the assessable value of goods imported by them, were incorrect. Since the burden cast upon the department to establish the incorrectness of the certificates has not been discharged by it, the duty demand confirmed by the Commissioner cannot be sustained in the absence of sufficient evidence. 13. With regard to the C&F contracts in terms of which three consignments were imported by Jag Ravi and Jag Rashmi, we find that the show cause notice itself acknowledges that an amount of US $ 3 PMT represented freight element in the C&F price of the goods. Page 322 in the appeal (internal page 40 of the show cause notice) contains reference to three purchase orders being issued by the foreign supplier for the same transaction where the C&F price for the two years was shown as US $ 47.50 PMT. In the third order issued on the same date the FOB price of the goods was shown as US $ 44/- PMT. The same order also refers to LC amount being amended by amount of US $ 3 PMT for converting the bill of lading from "freight paid" to "freight payable". This being so, there was no warrant or justification for the Commissioner to make any addition on account of freight in respect of the three C&F shipments, particularly in the absence of any material on 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 raised for the purpose of customs. We are, however, of the view that once the company disclosed that freight was payable as per charter party agreement and the proper officer accepted the freight as declared in the bill of entry M/s. EGL cannot be held to be guilty of any suppression or wilful mis-declaration. The proper officer could have and should have made an enquiry with EGL or ESL about the freight payment under the charter party after he was made aware of the existence of the charter party agreement. The three letters relied upon by the department to justify the invocation of the extended period on limitation, namely, letters dated 5-8-1991, 9-9-1991 and 4-8-1992 to the Superintendent of Customs rule out the applicability of the proviso to Section 28(1) of the Act under which the duty demand has been confirmed. First of all these letters have been written in the context of Jag Ravi which is the last vessel while freight declared in respect of the first five vessels was accepted on noticing the existence of the charter party agreement. Secondly, whatever be the stand taken by the company in these letters, the proper officer having accepted the freight declared even after disclosure by EGL regarding the charter party agreements, the extended period of limitation cannot be attracted in the present case. In the light of the above discussion we hold that the demand is time barred. 15. In view of our findings on merits and on limitation we set aside the duty demand. As the charge of mis-declaration of value falls to the ground, penalties imposed upon the companies and various officers under Section 112 for the contravention of provisions of Section 111(m) are required to be set aside. We order accordingly. 16. In the result we set aside the impugned order and allow the appeals. J.H. Joglekar, Member (T)
17. The valuation of goods chargeable to Customs duty ad valorem is governed by the provisions of Section 14 of the Customs Act, 1962. Such value is deemed to be the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation. Rule 9(2) of the Customs Valuation Rules, 1988, provided for inclusion in such value of the cost of transport of the imported goods to the place of such importation. The only issue for consideration in this appeal is that of interpretation of the phrase "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 judgment reported in [1997 (93) E.L.T. 194 - Collector of Customs, Bombay v. Swadeshi Polytex Ltd.,] covers such a situation. The importer in this case had declared "normal" freight at the time of filing of the bill of entry. The actual freight paid by them was higher because the ship importing the goods had run around and the extra charges, which the carrier had to bear, had been passed on to them and recovered from the importers by the transporter. The Customs had sought to add the extra quantum to the assessable value. The Tribunal did not uphold such loading of the prices.
22. In another case [Collector of Customs v. STC 1998 (100) E.L.T. 11] the Supreme Court were dealing with the situation where the State Trading Corporation of India Ltd., which ordinarily used to import particular goods by sea had to import such goods by air due to very urgent demand for the goods. The Customs sought to add air freight to the assessable value. The Tribunal did not approve of such addition. This judgment of the Tribunal was upheld by the Supreme Court in the following words:
"The question which the Tribunal was called upon to consider was whether in the case of goods imported by air, the air freight was required to be included for the assessment of customs duty under Section 14 of the Customs Act, 1962 or whether sea freight alone could be added. The Tribunal noticed that it was not disputed that goods in question were regularly imported by sea. It was only by way of exception and that too on account of the urgent demand of tetracycline in the country that the consignment in question was air-lifted instead of transporting by sea as was originally agreed upon because of the urgent requirement of the said medicine in India. The Tribunal having noticed that it was in the special circumstance that the goods which were originally planned to be brought by sea had to be air lifted it proceeded on the premise that ordinarily such goods were brought by sea and the value thereof had to be determined at the price at which such or like goods were ordinarily sold or offered for sale. The Tribunal, therefore, concluded that they were ordinarily sold or offered for sale after including the sea freight and not air freight and on that finding of fact it came to the conclusion that the value of the goods had to be determined by adding sea freight and not air freight thereto. 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 contended that Rule 9(2) of the Rules requires addition of cost of transport of the imported goods to the place of importation. So, the cost paid or payable by the importer to bring the goods upto the Customs barrier must form part of the value. That cost should necessarily take within it demurrage as well. Therefore, according to counsel, the Garden Silk Mills Ltd case is authority for the proposition that the entire cost incurred for bringing the imported goods up to the Customs barrier should form the assessable value. We find it difficult to agree with this argument. First of all the Apex Court was not concerned with the demurrage paid or payable by the importer on account of the delayed clearance of the goods from the ship. Demurrage becomes payable only on extraordinary situations. The provisions contained in the Rules were not adverted to by the Apex Court in the said decision. Their lordships have categorically held that the price at which the imported goods are ordinarily sold should be the basis for valuation under Section 14(1) of the Act. Ordinarily demurrage is not payable. Only in extraordinary circumstances where delay in discharging the goods from the ship occurs, demurrage becomes payable. Such extraordinary circumstances are not falling within the purview of Section 14(1) of the Act.
A two Member Bench of this Tribunal in Panchmahal Steel Ltd. v. Collector of Customs - 1998 (101) E.L.T. 399 (Tribunal) look the view that demurrage charges, which are paid on account of detention of vessel are pre-landing charges and, therefore, would be part of assessable value. This decision was rendered without the assistance of a counsel to argue for the appellant assessee and without noticing the effect of Govt. circular dated 14-8-1991. Further, that Bench distinguished earlier decision rendered by a Bench of three Members of this Tribunal in Deepak Fertilizers and Petrochemicals Corporation Ltd. v. Collector of Customs - 1989 (41) E.L.T. 550 (T). The three Member Bench decided that wharfage and demurrage are not landing charges and are not to form part of the assessable value. That decision was distinguished by the two Member Bench holding that wharfage and demurrage in the case were not paid to the port authorities. They were charges for detention of vessel and so are pre-landing stage charges. Consequently, it was taken that those charges would form part 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 importation of passenger cars was that the freight addable was not from the place of actual importation but was that as calculated from the port nearest to the origin of the goods. Thus, where a Mercedes car was imported from Colombo, the addition to the assessable value is of freight calculated from a port in Germany.
30. Para 52 of the Customs Appraising Manual Volume-I compiled by the Calcutta Custom House read as under : -
"Motor cars and other motor vehicles (1) Basis of valuation of motor cars. Motor cars whether new or old are assessable to duty on the basis of their list prices prevailing in the country of their manufacture. However, trade discount and depreciation on the value are deducted from the list price; but freight from the country of manufacture and insurance charges are added. The landing charges are also added to this to arrive at the final assessable value. (C.B.R & C.Lr. F. No. 3/27/62-Cus.VI of 7-1-64 & 24-1-64 & Boards letter F. No. 3/16/68-Cus. VI, dated 6-7-68)".
31. This extraordinary measure was adopted to ensure uniformity of pricing of imported cars irrespective of their port of loading.
32. As we have observed above, the cost of transport in terms of Rule 9(2) must be interpreted as the normal cost. A glance at the figures given in para 3 in the order of Member (J) would show the abnormality of the charges presumed to be on account of cost of transport.
33. With these observations, I concur with the findings of the Member (Judicial) in allowing the appeals.