Tata Steel Ltd. & another Vs Union of India & others (Orissa High Court)
Observing that the provisions in the Customs Act were silent about demurrage, the High Court held that it is beyond the legislative powers to include demurrage charges in the rules for Customs valuation. Supreme Court judgements in Wipro ltd, Essar Steel Ltd. and Mangalore Refinery and Petrochemicals Ltd. were relied on.
It is well-settled principle of the statute that while interpreting a statute, one has to go by the scope and object of the principal Act. Under the principal Act, while amending it on 10th October, 2007, proviso has included the costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the Rules. The demurrage has not been included as a part of cost envisaged by the legislation. Further, it is a kind of penalty. Therefore, it could not have been envisaged by the legislation to be included in the definition of Section 14 of the Act. However, in view of the clarifications by way of judgments of the Hon’ble Supreme Court, more particularly in the cases of Wipro Ltd. (supra), Essar Steel Ltd. (supra) and Mangalore Refinery & Petrochemicals Ltd. (supra), it is made clear that demurrage cannot be included for the purpose of valuation under the Customs Act, 1962. In that view of the matter, we are of the considered opinion that the contentions raised by the petitioner that the relevant provisions in the Principal Act is silent about the ‘demurrage’; thus, it was beyond the the legislative power to include it in the Rules is accepted and thus the explanation to Sub Rule-(2) of Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 is held to be bad and hence declared ultra vires the Constitution/ provision of Section 14 of the Customs Act, 1962, and hence the same is struck down.
FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT
By way of this writ petition, the petitioners have approached the Court challenging the “Explanation” to Sub-rule (2) of Rule 10 of the Customs Valuation (Determination of Price Imported Goods) Rules, 2007 and prayed to declare it to be ultra vires the provisions of Section 14 of the Customs Act 1962 (for short, ‘the Act’).
2. Fact of the case is that the petitioner herein being a Company registered under Companies Act, 1956, imports certain machineries and other items to be used for manufacture of iron and steel products at its plants at Jamshedpur in Jharkhand. The Petitioner imports raw materials in bulk quantities by chartered vessels through the Paradeep Port located in the district of Jagatsinghpur, Odisha and Haldia Port in West Bengal. Such import into the country is assessed to Duty of Customs under Section 14 of the Act.
3. In exercise of powers conferred under Section 156 of the Act read with Section 14 thereof, the Government of India, Ministry of Finance-opposite party No.1, promulgated the Customs Valuation (Determination of Value of Imported Goods) Rules, 1988 (for short, “Rules, 988”), which was notified vide Notification No.51/1988-Cus (N.T.) dated 18.07.1988.
3.1 While Section 14 of the Act and the Rules, 1988 were in force, the Ministry of Finance-opposite party No.1, clarified vide its Circular F.No.467/21/89-Cus.V dated 14.8.1991 (Annexure-1) that post-dispatch money would not constitute elements of value since element for the carriage. ‘Demurrage’ and ‘dispatch’ money being in the nature of penalties or rewards by virtue of a contracted charterer agreement between the carrier and charterer and this in no way could be conceived as being part of the freight or for that matter part of the price actually paid or payable for the goods. Hence, ‘demurrage’ and ‘dispatch money’ may not form a part of freight or for that matter part of the price paid or payable for the goods and assessable under Section 14 of the Customs Act, 1962.
3.2 While the issue regarding inclusion of ‘demurrage’ and ‘dispatch’ money as a part of assessable value under Section 14 of the Act was being agitated in different forums and was pending resolution by the Hon’ble Supreme Court, the Ministry of Finance, Opposite party No.1, vide its Circular No.14/2001-Cus dated 02.03.2001 (Annexure-2), withdrawn the Circular dated 14.08.199 1, under Annexure-1 and clarified that by virtue of Rule 9(2) of the Rules, 1988, ship demurrage charges paid are required to be included in the assessable value of goods under Section 14 of the Act. The aforesaid clarification is not in consonance with the provisions of Section 14 of the Act and Rule 9 of the Rules, 1988 and the same was evidently issued in an arbitrary attempt of the Ministry of Finance, Opposite party No.1 to change its view and illegally directed for inclusion of demurrage charges in the cost of transportation to form part of the assessable value.
4. The issue regarding inclusion of demurrage charges to the assessable value of imported goods was decided by the Larger Bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) (for short, ‘the Tribunal’) in the case of Indian Oil Corporation Limited vrs. Commissioner of Customs, Calcutta, reported in 2000 (122) ELT. 615 (Tri-LB) by holding that if demurrage charges would form a part of the assessable value, the goods covered by the same contract would be assessed to duty at different assessable values and such a situation is not envisaged in the provisions of Section 14 of the Act. The Union of India, Opposite Party No.1 challenged the aforesaid decision of the Tribunal in appeal before the Hon’ble Supreme Court and the appeal was dismissed as reported in 2004 (165) ELT 257 (SC) and the decision of the Tribunal, as above, was upheld.
4.1 A review petition filed by the Union of India-Opposite party No.1 against the said decision of the Hon’ble Supreme Court, which was also dismissed both on the grounds of limitation as well as on merits, as reported in (2005) ELT A 119 (SC). Consequent upon dismissal of aforesaid review petition, the Ministry of Finance issued Circular No.5/ 2006-Cus. dated 12.01.2006 clarifying therein that demurrage charges are not included as a part of assessable value under Section 14 of the Customs Act, 1962, for imports prior to 02.03.200 1, i.e., the date of issue of circular vide Annexure-2.
4.2 Subsequently, Ministry of Finance-Opposite party No.1, vide Circular No. 26/2006-Cus., dated 26.09.2006 (Annexure-4) clarified that pending assessments after 02.03.200 1 should be finalized by including ship demurrage charges in the assessable value of the imported goods.
5. Under Section 14 of the Act, as was in force till 09.10.2007, duty of customs was chargeable on the ‘deemed price’ of the imported goods. As against above provision in the Act, the Rules, 1988 as was in force during the above period, provided that the value of the imported goods for assessment to duty shall be “transaction value”. In order to overcome the practical difficulties faced due to inherent contradiction between ‘deemed price’ in Section 14 of the Act and ‘transaction value’ as referred to in the Rules, 1988, Section 14 of the Act was amended by the Finance Act, 2007, with effect from 10.10.2007. Simultaneously, with effect from the same date, i.e., 10.10.2007, the Ministry of Finance, Government of India, Opposite party No.1 rescinded the Rules, 1988 and formulated in its place a new Valuation Rules, 2007.
5.1 Even though the Rules, 1988 was substituted, Rule 9 of the said Rules, 1988 and Rule 10 of the new Valuation Rules, 2007 which deals with the inclusion of “Cost and Services” to the assessable value of imported goods remained mutates-mutandis the same, except for explanation added to sub-Rules (2) of Rule 10 of the Valuation Rules, 2007, wherein it was provided that demurrage charges shall be included in the cost of transport, so as to form a part of assessable value of imported goods.
5.2 Section 14 of the Act, 1962, as amended by the Finance Act, 2007 with effect from 10.10.2007 provided that the transaction value in the case of imported goods shall inter alia include ‘cost of transportation to the place of importation’ without any reference to the inclusion of demurrage charges as sought to be included by way of incorporation of the Explanation to sub-Rule (2) of Rule 10 of the Valuation Rules, 2007.
5.3 It will be evident from the provisions of Section 14 of the Act, 1962 that, either prior to or after amendment thereof, with effect from 10.10.2007, the said Section 14 does not authorize inclusion of demurrage charges to the value of imported goods for assessment to duty of customs either directly or by implication.
6. The petitioner imports its raw materials in bulk quantities by chartered vessels through the Paradeep Port from various overseas vendors/suppliers. For such imports, the petitioner places bulk orders for quantities like 5 lakh MTs which is supplied by the Overseas Supplier in smaller lots according to the capacity of the chartered vessels under separate invoices for such smaller lots. Upon arrival of each vessel at the port of importation, the petitioner files bills of entry and other relevant documents for clearance of the imported goods through Customs. Such bills of entries filed by the petitioner are ‘provisionally assessed’ by the Deputy Commissioner of Customs, Paradeep Port-Opposite party No.3 for want of ship demurrage details at the time of clearance of the imported goods through Customs and directs the petitioner to submit the ship demurrage details for final assessment of the bills of entries.
6.1 In compliance of such directions of Opposite Party No.3, the Petitioner confirms with the overseas supplier/charterer about the ship demurrage charges, as applicable to the respective vessels and thereafter submit such details to the Deputy Commissioner of Customs, Paradeep Port-Opposite Party No.3, who then finalizes the provisional assessment of the respective bills of entries by including ship demurrage charges to the transaction values of the respective consignment for computation of duties of customs payable thereon, but without granting any benefit/concession in valuation of the consignment in respect of which the Petitioner- Company earns ‘dispatch money’ as reward/incentives.
7. Under the above circumstances, such goods imported by the petitioner under one purchase order, delivered by the suppliers through a number of vessels over a period of time, got assessed to duties of customs computed on different assessable values purely on account of inclusion of demurrage charges which varies from vessel to vessel contingent upon detention of the vessels either in the port of importation or on the high seas for various reasons such as congestion, non-availability of berth, poor discharge rate, delay in unloading the goods etc., which are beyond the control of the petitioner.
7.1 Hence, this leads to discriminatory assessment of same goods imported by the petitioner under the same purchase order. Indeed, the Larger Bench of the Tribunal in its decision rendered in the case of Indian Oil Corporation Limited (supra) held that demurrage charges are not includible in the assessable value precisely for the aforesaid discriminatory effect thereof.
8. For finalization of the provisional assessment of the bills of entries, the Deputy Commissioner of Customs, Paradeep Port- Opposite Party No.3 has now directed the petitioner to pay the differential duty which has been arrived at by including ship demurrage charges to the transaction values of the respective consignments. The aforesaid demands vide Annexure-12 series have been raised on the petitioner in only those cases where the petitioner incurred ship demurrage charges.
8.1 But in case, where the petitioner does not pay any ship demurrage charges and instead, earns ‘Dispatch Money’ as an incentive/reward for having completed unloading of cargo at Paradeep Port within a shorter period of time. Such ‘Dispatch Money’ is never excluded by the Deputy Commissioner of Customs, Paradeep Port-Opposite Party No.3, from the cost of transport for computing the assessable value of the imported goods. Thus, the goods imported by the petitioner are invariably assessed to duties of customs by including the demurrage charges whenever incurred by the petitioner, but no benefit whatsoever is allowed to the petitioner-Company in respect of those cases, where the petitioner earned dispatch money as a reward/incentive.
9. Learned counsel for the petitioner produced a comparative table of Section 14 of the Customs Act, 1962 before and after its amendment, which is reproduced below for ready reference.
Section 14 of the Customs Act, 1962
