Full Judgment
The offer found favour with the group, and was actively pursued. A decision was also taken to import the machine into India for use by the appellant before us. As a result of further negotiations that took place between the parties, the price was agreed to be $ 13.875 million.
The plant in due course was imported, and arrived in India in 1997. It was provisionally assessed to duty, for the reason that the importer had claimed the benefit of project import, the formalities relating to which require consideration of details of utilisation of the goods for the purpose for which they were imported.
2. The department was of the view that the assessable value of the plant should be $ 30 million, this being the price at which a mill of the kind imported would cost in 1987, when the plant under consideration was imported. Notice was accordingly issued proposing value of the plant at this price.
3. It was the importer's contention before the Collector that the declared value was the one based on negotiation and found suitable by the chartered engineer, who inspected the plant before the shipment. He further pointed that there was no evidence of remittance over and above this price. The Collector did not accept either this contention, or the value proposed in the notice. He said that the correct assessable value of the plant would be the price at which such or like goods were ordinarily sold or offered for sale. This would be the price of $ 16 million at which the plant was initially offered, in the ordinary course of business. He declined to accept the declared price of $ 13.875 million on the ground that the subsequent reduction in price was not "in the course of bona fide negotiation but rather result of exploiting the situation of distress sale while the goods were lying unused for a period of 10 years." 4. This conclusion is being challenged both by the department and the importer. By an application filed under Section 129D of the Act, the department contends that the price of a mill of like kind quality and capacity, if new would be $ 30 million, and this therefore should be the assessable value. The appellant contends that the price at which the goods were finally offered and sold of $ 13.875 million should be the correct value.
5. We are not able to accept the contention in the department's appeal.
We do not think that it is proper to equate a mill, which has been lying unused for ten years, with a mill, newly built in accordance with the precise requirements of the buyer. The department relies upon the fact that the mill has not been used at all, and that there has been no great technological improvement in this field from the date of its manufacture till this sale to India, as a result of which the mill would have been rendered obsolete, leading to a reduction in its value.
These factors are no doubt true. At the same time, it is a matter of indisputable common knowledge that any commodity loses in value if it has been lying unused for years after it was made, even if it has not been rendered obsolete by advancements in technology. No one, for example, would buy a car that has been lying unused in the dealer's showroom or with a buyer with at the same price as that of a newly manufactured car of the same model. In such a situation, anyone would prefer to buy a new model. In other words, there is loss of value caused due to disuse. At the same time, the question that arises is whether the fact of the plant lying unused for ten years justifies the reduction in price of 55%. On the one hand, it is true that material cost and cost of labour would have gone increased in the interim between the fabrication of the plant and its sale to the appellant. The technology embodied in this plant had not altered, and except for the long storage, it was as good as new. On the other hand, this machine, to its seller, was a liability, in his hands, it represented capital invested in its fabrication, lying idle and yielding no return. Its manufacturer therefore would have been happy to get rid of it at, or about, a price equivalent to its cost of fabrication. This is no doubt what the Collector means then he says that the cost of making this plant would have been $ 15 million. The nature of the article also has to be considered. Such plants, as the department itself says, are almost invariably fabricated on specific order, in accordance with the buyer's specifications. The fact that this plant would not be in accordance with the precise requirements of the appellant, unlike a plant that was tailor-made to suit its needs, would also have influenced its price.
6. Considering these factors in this admittedly unusual situation, we think that there is insufficient material to say that the price proposed in the department's appeal should be accepted. The fact that the chartered engineer who examined the plant found the declared price to be reasonable is also a fact in the importer's favour.
7. Upon this reasoning it is difficult to accept the Collector's enhancement value to $, 16 million. We are unable to accept his view that the negotiation which resulted in the reduction of the price to $ 13.875 million were not bona fide, "but result of exploiting the situation of distress sale as the goods were lying unused for period of more than ten years." The result of any commercial negotiation depends upon the bargaining strength of the parties. That is the essence of a commercial negotiationindeed, any negotiation. Acceptance of this view of the Collector would amount to saying that any price arrived at by negotiation is a result of exploitation of weakness of one party by the other party and therefore not acceptable. It is true that $ 16 million was the initial offer. But that is not the offer that was accepted, which crystallised in a sale. It is that latter price which we consider acceptable.
8. We now turn to the second aspect of the appeals. The plant came into India packed in 328 used marine containers. The department asked the importer for the value of these containers, which he said was Rs. 74,15,672/-. The separate figure was necessary as the containers would not qualify for assessment under heading 98.02 under which the other goods would qualify as project import, but would have to be assessed as containers. The importer deducted the value declared by him of the containers from the value of the machinery; he declared it to be the rupee equivalent of US $ 13.875 million less the value of the containers. In his order, the Collector comes to the conclusion the price for the plant does not include the excess of containers. He finds this cost to be Rs. 30.63 lakhs based upon the price per container of the various types of containers that were used and directs that this should be added to the value of the plant. He says, "The duty now determined on the containers were much less than the duty which has already been paid on the containers. The excess duty paid on the containers may be adjusted against the duty which is now payable on the machine on the basis of their value as determined in this proceedings." Both sides appeal this conclusion. The department contends that the value of the containers should be Rs. 7.15 lakhs approx. as declared by the importer, in addition to the price of the plant. The importer contends that there is no basis for adding the price; of containers to the price already declared.
9. In our view, it is the importer who is correct for the following reasons. Article 7 of the agreement of sale provided that the goods shall be packed in seaworthy packing condition. Article 3 provided that the price of the plant was inclusive of the cost of packing. In the application for import licence made prior to import, the appellants had informed the licensing authority that the plant would be supplied in old and used containers at no extra cost. The container would be so old that they could not be re-exported. Hence it was requested that import licence should include old and used containers. The licence, which was used for the import of the plant, accordingly contained the condition that machinery would be imported in old and used container, subject to the condition that these containers would not be disposed of. This correspondence indicates two things; firstly, it was the intention of the importer not to pay additionally for these containers, secondly that they were so old and used to such an extent that they could not be used as marine containers. This second factor supports the view that they were thrown in by the supplier at no additional cost. There is not the slightest material to show that any remittance over and above US $ 13.875 million has been made; in other words there is no additional payment for the containers. The Collector himself agrees that this is the case. The cost of the containers was thus included in the contracted price.