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Damage to goods auctioned by customs raises problem for Revenue Board

ISLAMABAD (July 10 2003) : As auction rules are silent on the issue, Central Board of Revenue (CBR) is ascertaining the exact admissibility of depreciation on auctioned goods (cloth export samples) damaged between bidding and delivery dates, to check violation of rules by business community.

The issue came to the limelight when customs officials, on their own, granted 25 percent discount to a bidder on auction of samples of cloth, which was later withdrawn, reason being non-admissibility of concession as per auction rules.

Tax collectors contested that there was no provision in the auction rules pertaining to depreciation/discount on damaged/deteriorated goods, whereas a bidder contested that he was entitled to discount, under the said rules, as goods delivered to him had deteriorated/damaged due to heavy rain.

Now, the collectorate of customs Faisalabad has approached CBR for a clarification on the issue.

Custom House, Faisalabad, has informed CBR that auction of export samples cloth, weighing 26470 kg, was held among other items on February 6, 2003. For this purpose, the reserve price @ Rs 68.37 per kg was determined, amounting to Rs 1,809,886 for the whole lot.

Highest bid of Rs 35 per kg was offered by an individual.

The highest bid, although being 48.81 percent less than the reserve price, was accepted by the concerned collector on Feb 15, 2003, as per Auction Rules.

The said bidder at the time of auction deposited Rs 200,000 as earnest money. Subsequently, at the time of delivery of the goods on Feb 25, 2003, the bidder pointed out that the goods had been damaged owing to heavy rains in between the date of bidding and actual delivery and thus considerable deterioration in physical condition and value of the goods had occurred.

Upon his persistent request and keeping in view the factual condition of the goods, 25 percent discount in weight was allowed by the concerned deputy collector as approved by the then Collector.

The party requested for refund of earnest money of Rs 200,000.

The issue was re-examined and it was observed that there was no legal provision of depreciation/discount in the Auction Rules, as the goods were subjected to auction on 'As is Where is' basis.

The party was informed accordingly, since the delivered goods were 21400 kg (without any discount) valuing Rs 749,000 @ 35 per kg, the party deposited Rs 561750 and thus Rs 187,250 outstanding is adjustable against the earnest money Rs 200,000 deposited by the bidder.

Taking into account these facts, the party's request for refund of earnest money was regretted by the concerned authorities.

On the other hand, the individual continued to insist on refund of earnest money as goods had deteriorated/damaged due to heavy rains in the intervening period between the bidding and delivery.

An issue has, therefore, arisen to ascertain admissibility of depreciation in cases where the condition of goods auctioned deteriorates or is damaged in between the period of bidding and actual delivery as Auction Rules are silent on this specific issue.

According to the bidder, he is entitled to the refund on deteriorated/damaged goods. On the contrary, the collectorate is of the view that the goods were put to auction on 'as is, where is' basis and there is no provision for refund on damaged/deteriorated goods and the then Collector subsequently withdrew his decision being not consistent with the provision of law.

The bidder contradicts the collectorate's stand, stating that the auctioned goods no longer remained in “as is” position between the period of bidding and actual delivery and re-iterates his demand for giving depreciation in value due to physical deterioration.

The issue has been referred to the Central Board of Revenue to solicit the Board's guidance/advice in the subject matter for appropriate course of action in this regard.

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