Customs Dept cannot Reject Price in MoA: CESTAT sets aside the Provisional Assessment for Clearance of Imported Vessel [Read Order]

The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the customs department cannot reject the price in the Memorandum of Association (MoA) and set aside the provisional Assessment on clearance of imported vessel.

Ghasiram Gokulchand and Ghasiram Gokalchand Ship Breaking Yard, the appellant challenged the finalization of provisional assessment under section 18(1) of the Customs Act, 1962. The appellant stated that the vessel M.V. Montevideo arrived at the Alang Shipyard on 07.11.2012.  An MoA dated 05.11.2012 was entered between M/s Ace Exim Private Limited (seller) and M/s Alang Auto & General Engineering Company Private Limited (Buyer) for the purchase of vessel at USD 17,28,000/- and LDT declared in the said MoA was 4999.20 MT.

During the boarding of the vessel, the surveyor M/s Pinnacle Marine Services reported that the LDT of the vessel was 4999.20 MT.  Another survey was conducted by Murlidhar Shenvi Insurance Surveyors and their report dated 18.11.2012 ascertained the weight of cement concrete as 507 MT.

On 22.11.2012 the appellant entered an MoA with Ace Exim Private Limited (seller) for the purchase of said vessel for demolition / breaking up @ US $ 15,90,930/-.  The said MoA determined the LDT of the vessel as 4999.20 less 507 MT cement concrete and net LDT of 4485.20.  

The Appellant sought clearance of the goods at USD 15,90,930/- appearing in the MoA dated 22.11.2012 between Ace Exim Private Limited and the appellant.  The Revenue assessed the goods based on the MoA dated 05.11.2012 entered between Ace Exim Private Limited and the earlier buyer namely Alang Auto and General Engineering Company Private Limited of USD 17,28,000/-. 

The provisional assessment was finalized at a transaction value of USD 17,28,000/- mentioned in the MoA dated 05.11.2012 rejecting the value declared by the appellant of USD 15,90,930/- agreed on the MoA between the appellant and the Ace Exim Private Limited vide MoA dated 22.11.2012.  The appeal filed by the appellant before Commissioner (Appeals) was rejected. 

According to Section 14(1) of the Act, assessment of customs duty under the Customs Tariff Act 1975 is to be made on the value of the goods imported. Unless the value of the goods is fixed under subsection (2) of Section 14, the value must be determined under subsection (1) of the said Section.

The value, as per Section 14(1), as it stood before its amendment with effect from 10th October 2007, 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 during international trade.

It was evident that actual payment of the price in terms of the addendum cannot be ignored while determining the value of the vessel under Section 14 of the Act. As per Section 3 of the Sale of Goods Act, of 1930, the provisions of the Indian Contract Act, 1872 would apply to such transactions.

Section 62 of the Contract Act provides that if the parties to the contract agree to substitute a new contract or to rescind or alter it, the original contract need not be performed. This means that if the parties have agreed to a different price than the one which was stipulated in the original contract, the buyer cannot be compelled to pay the price originally stipulated after the parties have mutually agreed to substitute a reduced price by altering the original contract. The price originally fixed in the MOA was not inflexible and it could be varied by mutual agreement of the parties to the contract.

It was viewed that all the reductions in prices have been made in writing and signed by both the parties to the original contract and there is no doubt expressed against the genuineness of such addendums nor is there any material on record based on which the validity of the addendums can be doubted. In some cases, the purchase price was reduced because differences and discrepancies were noticed in the vessel which was described in the MOA.

A two-member bench comprising of Mr Raju, (Technical) and Mr Somesh Arora, (Judicial) observed that the Revenue cannot reject the price mentioned in the MoA dated 22.11.2012 since it is not incorrect or fabricated and there was a variation in the specification of the goods imported. The CESTAT set aside the impugned order and allowed the appeal.  

To Read the full text of the Order CLICK HERE

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