The Hindu Business Line : Finer points in a ship's final journey

There's many a slip `twixt the cup and the lip. Looks like ships too aren't immune to such slips. Between their journey for breaking, and the final process of disintegration, as one saw in the case of Clemenceau. You may remember how it was the apex court that had to intervene last week and ensure that the ill-fated French ship didn't sail along to Alang.

This month, the Supreme Court had to decide a peculiar case, Udayani Ship Breakers Ltd vs Commissioner of Customs and Central Excise, Rajkot. The story begins in 1997, when Priya Blue Industries P Ltd of Plot No. V-1, Sosiya, imported vessel `MV Vloo Arun' for the purpose of breaking. "The vessel weighing 40,017 LDT had been purchased for $68,49,839 i.e., @ $167 per Long Ton," informs the text of the judgment dated February 8. LDT is `Light Displacement Tonnage,' explains Glossary of Shipping Terms on www.skaugen.com.

On June 4, Priya took physical delivery of the ship. On June 24, it sought time for filing the Bill of Entry. Priya got a letter of credit, and the amount was remitted by Vysya Bank Ltd, Mumbai, to the foreign seller on August 12, 1997.

Priya sought and was granted permission by the Customs Department for beaching the vessel `at the designated plot'. In Othello, one hears Cassio saying, "O, behold, the riches of the ship is come on shore! Ye men of Cyprus, let her have your knees." At ship-breaking sites too, ships that come on shore are respected for the riches that they yield when torn apart.

Resuming the Priya story, one sees a turn. On June 9, 1997, the vessel started drifting. Reminding one, perhaps of these lines from Pericles, Prince of Tyre: "The grisly north disgorges such a tempest forth, that, as a duck for life that dives, so up and down the poor ship drives." The text of the judgment informs, "On account of heavy current and storm the vessel got dragged towards Plot No. V-5 Sosiya and got grounded there." Udayani was the owner of the plot.

On September 10, 1997, Priya entered into a memorandum of understanding with Udyani "for sale of the ship for Rs 12,01,00,000." An agreement to sell was executed the next day, and the sale happened on December 26, 1999.

On September 12, 1997, Udayani presented a Bill of Entry before the Superintendent of Customs, Alang, declaring the price as Rs 12,01,00,000. The Department was of the view that the declared price was `abnormally low'.

Accordingly, the Assessing Authority's assessment order dated December 23, 1997, held that the value declared by Udayani was not the price in the course of international trade. So, the value of the vessel was appraised at the price at which it had been purchased by the importer in the course of international trade.

Aggrieved by the order, Udayani approached the Commissioner of Customs (Appeals). His order in February 1999 held that Udayani was entitled to the benefit under Section 22 of the Customs Act "as the warehoused goods had been damaged after unloading but before their examination under Section 17 on account of accident not due to any wilful act, negligence or default of the importer." It was also held that the appellant had purchased the vessel on high seas basis during the course of international trade.

The Department went to the tribunal, which noted that the transfer by execution of bill of sale between Udayani and Priya was dated December 26, 1997, after the arrival of the vessel in India in June 1997. Therefore, it was held that Udayani could not claim that it was a sale on high seas basis as indicated in the agreement of sale dated September 11, 1997. "The entire action seems to be to evade the duty payable at proper value," said the tribunal, and held the order passed by the Commissioner of Customs (Appeals) to be wrong in law.

Justices Ashok Bhan and P. K. Balasubramanyan of the apex court heard the case and noted that the act of `import' was over as soon as the letter of credit was opened by Priya in favour of the foreign seller and the sum of Rs 24,78,27,175 (equivalent to $68,49,839) remitted to the foreign seller on August 12, 1997. Therefore, the transaction between Priya and Udayani in terms of the MoU dated September 10, 1997, could not be described as the transaction of purchase and sale during the course of international trade, said the court. "

Any sale of goods after the act of `import' within the meaning of the Act is over, can only be described as a sale in the course of domestic trade and not a sale in the course of international trade."

The court ruled that the reduction in the price to Rs 12,01,00,000 was not during the course of international trade but domestic trade. Accordingly, the reduced price, could not become the basis for valuation under Sub-section (1) of Section 14 of the Act, said the court.

"The Tribunal was right in observing that from the conduct of the parties it cannot be ruled out that the action seemed to be to evade the duty payable at the proper value," observed the court.

Tailpiece

"I think he's prejudiced against the Budget."

"Why do you say so?"

"He keeps saying, `Badjet'."

Detaxification@TheHindu.co.in

D. Murali

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