Customs, Excise and Gold Tribunal - Delhi
Indian Oil Corporation Ltd. vs Commissioner Of Cus. on 6 November, 2000
Equivalent citations: 2000(122)ELT615(TRI-DEL)
ORDER
K. Sreedharan, J. (President)
1. Issues raised in all these appeals are identical. It is whether the ship's demurrage charges which were actually incurred by oil companies were includible in the assessable value of petroleum crude oil and other petroleum products like motor spirit, high speed diesel, superior kerosene oil, furnace oil and aviation turbine fuel. Another issue as to whether the oil companies and their senior officials were guilty of suppression of payment of ship's demurrage charges with intent to evade duty and consequently liable to penalty under Section 114A or Section 112(a) of the Customs Act 1962 (hereinafter referred to as the Act) also rises for consideration.
2. As stated earlier, all the appellants are Public Sector Undertakings. Aggrieved by the order of adjudication passed by the departmental authority, appeals have been filed before this Tribunal. The appellants thereupon approached Committee of Secretaries for clearance, in terms of the decision rendered by the Supreme Court in Oil and Natural Gas Commission v. Collector of Central Excise - 1992 (61) E.L.T. 3 (S.C.) as clarified by the decision reported in 1994 (70) E.L.T. 45 (S.C.). Committee on Disputes, which met on 17-8-2000, permitted Indian Oil Corporation Ltd. to pursue the appeal before this Tribunal stating:
"The Committee, having regard to the facts that the dispute involved mixed questions of law and fact and the amount involved was substantial, permitted Indian Oil Corporation Ltd. to pursue the appeal in CEGAT."
According to the minutes of the Committee, the issue regarding the includibility of the cost of demurrage charges and the related bank charges in determining the transaction value under Section 14 of the Act involved mixed questions of law and fact and so the matter has to be dealt with by the Tribunal and that the Committee cannot resolve the said issue. In this view, even though the Committee is ceased of the application seeking approval for pursuing the matter before the Tribunal, we consider it not necessary to await the actual grant of the permission, because the Committee will not resolve the dispute involved in these cases by themselves. So, without delaying the matters awaiting the grant of permission by the Committee of Secretaries on Disputes, we proceed to dispose of all the appeals wherein the same issue as in the appeal where the Committee accorded permission arises.
3. In this order, we refer to the factual position that arises in appeal C/249/2000-A filed by Indian Oil Corporation Ltd. The Committee on Disputes has accorded sanction for the prosecution of this appeal before this Tribunal. In this appeal, appellant filed stay application No. C/1234/2000-A praying for stay of operation of the order passed by the adjudicating authority. The appellant prayed for waiver of pre-deposit of the amount of duty claimed in the impugned order as a pre-condition for entertaining the appeal as well. When that petition came up for orders, we heard Shri Anil Divan, Senior Advocate representing the appellant and Shri M. Chandersekharan, Senior Advocate representing the Revenue. Learned Counsel appearing on either side wanted the entire matter to be heard and the appeals disposed of finally. So, as agreed to by learned Counsel appearing on either side, we heard them at length. We are disposing of all the appeals by this order as stated herein below.
4. Appeal No. C/249/2000-A arises out of order-in-original No. 27/2000-Commr. dated 30-3-2000. The adjudication proceedings, which culminated in the said order, were initiated by notice issued under Section 124 read with Section 28(1) of the Act. That notice required the noticees to explain why demurrage charges which had to be paid on account of the detention of the vessel at the port beyond the period permitted should not be added to the assessable value. These charges, according to the notice, are pre-landing stage charges and are to form part of the assessable value. The noticees were to submit their written objection to the notice within fourteen days of receipt of the notice. Notice was despatched on 14-3-2000 and the noticees received the same on 15-3-2000. The said notice fixed 22-3-2000 as date for personal hearing. On that day, representative of Indian Oil Corporation Ltd. appeared before the Commissioner and prayed for time for filing written objection. That request was rejected and the impugned was passed on 30-3-2000. By that order, the Commissioner came to the conclusion that demurrage charges and banking charges (paid on remittance of said demurrage charges) are includible in the assessable value of the goods imported. In this view, he confirmed the demand of Rs. 975,98,31,199.00 under Section 28(2) of the Act. Mandatory penalty of an identical sum was also imposed on Indian Oil Corporation Ltd. under Section 114A of the Act.
5. The period with which show cause notice dated 8-3-2000 and the final order was concerned was from January, 1995 to 30th June, 2000.
6. Government of India, Ministry of Finance (Department of Revenue) issued Customs Circular F. No. 467/21/89-Cus. V dated 14-8-1991. The said circular issued by the Central Board of Excise and Customs was in relation to demurrage charges and despatch money. According to this circular, these moneys are in the nature of penalties or rewards by virtue of a contracted charterer agreement between the carrier and the charterer and it can in no way be conceived as part of the freight or for that matter part of the price actually paid or payable for the goods. Accordingly, the circular declared that demurrage and despatch money are not to form part of the assessable value.
7. Learned Counsel representing the appellant, Indian Oil Corporation Ltd., vehemently relied on this circular to contend that the show cause notice issued by the Commissioner was void ab initio on the ground of that being contrary to the circular: In support of this contention learned Counsel relied on the decision of the Supreme Court in the case of Paper Products Ltd. v. Commissioner of Central Excise reported in (1999) 7 SCC 84]. In that decision, the effect of circular issued by the Central Board of Excise and Customs was considered by their Lordships and it was held that show cause notice even cannot be issued in violation of the terms contained in circular. Their Lordships observed :
"The impugned show cause notices and consequent demand being ab initio bad inasmuch as the same was contrary to the existing circulars of the Board, the same cannot be sustained."
In the instant case the circular of the Board in unmistakable terms stated that the demurrage and despatch money are not to form part of the assessable value. Consequently it was contended that the Commissioner was clearly in error in initiating the proceedings, which culminated in the impugned order.
8. In the decision British Machinery Supplies Co. v. Union of India and Ors. (1996) 9 SCC 663] the binding nature of the circulars issued by the Central Board of Excise and Customs was dealt with. Their Lordships took the view that they are binding on the department and it would be inept to suggest that the department can adopt a different stand when mutating the importer with duty. Their Lordships went on to state that unless there is a judicial pronouncement on the matter, the department are bound by the same and the departmental authorities cannot take any action contrary to the circular. In Ranadey Micronutnrients v. Collector of Central Excise (1996) 10 SCC 387] same issue was again considered by the Supreme Court. After holding that the circular, while in operation, binds the Revenue and the department cannot be allowed to plead that it is not valid. Their Lordships went on to observe :
"The whole objective of such circulars is to adopt a uniform practice and to inform the trade as to how a particular product will be treated for the purposes of excise duty. It does not lie in the mouth of the Revenue to repudiate a circular issued by the Board on the basis that it is inconsistent with a statutory provision. Consistency and discipline are of far greater importance than the winning or losing of court proceedings."
Later in Collector of Central Excise, Patna v. Usha Martin Industries [1997 (94) E.L.T. 460 (S.C.) - (1997) 7 SCC 47], the apex Court, after referring to the previous decisions, observed:
"Through a catena of decisions this Court has pronounced that the Revenue cannot be permitted to take a stand contrary to the instructions issued by the Board. It is a different matter that an assessee can contest the validity or legality of a departmental instruction. But that right cannot be conceded to the department, more so when others have acted according to such instructions.... Of course the appellate authority is also not bound by the interpretation given by the Board but the assessing officer cannot take a view contrary to the Board's interpretation."
In view of these authoritative pronouncements of the Apex Court, learned Counsel representing the appellant submitted that the Commissioner, while issuing the show cause notice acted without jurisdiction, inasmuch as he ignored the circular issued by the Central Board of Excise and Customs (CBEC). Since even the issuance of the show cause notice was without jurisdiction, according to the appellants, the orders impugned in these appeals have no existence in the eye of law and they are only to be struck down.
9. Learned Counsel representing the Revenue countered the above contentions of the appellants by advancing an argument that the Supreme Court in Garden Silk Mills Ltd. v. Union of India reported in 1999 (113) E.L.T. 358 (S.C.) stated the law as to how assessable value under Section 14 of the Act has to be computed. While computing the assessable value in terms, of Section 14(1) of the Act, if demurrage is also to form part of that value, then the circular issued by the Board which excludes demurrage from being included in the assessable value must be taken to be contrary to the law laid down by the Supreme Court. Consequently, the circular has no legal existence. In support of this argument, learned Senior Advocate referred to the decision of the apex Court in Hindustan Aeronautics Ltd. v. Commissioner of Income Tax. Bangalore 2000 (119) E.L.T. 513 (S.C.). In that case their Lordships find much force in the contention that the circulars or instructions given by the Board are no doubt binding in law on the Authorities under the Act but when the Supreme Court or the High Court has declared the law on the question arising for consideration, it will not be open to a Court to direct that a circular should be given effect to and not the view expressed in a decision of the Supreme Court or the High Court. Therefore, the learned Counsel proceeds to state that the notice issued by the Commissioner and the final order passed by him are legally valid, as they are in consonance with the law stated by the Apex Court in Garden Silk Mills Ltd. case. In the light of this contention advanced on behalf of the Revenue, we have to see whether the decision in Garden Silk Mills Ltd. case supports the Revenue's stand that demurrage also should form part of the assessable value.
10. Section 14(1) of the Act requires determination of the value of the imported goods for the purpose of levying Customs duty. The said Section enacts a deeming provision as to how the value is to be computed. As stated by their Lordships in Garden Silk Mills Ltd. case. Section 14(l)(a) contains the following principles of valuation:
(a) the price is a deemed price;
(b) at which such or like goods are ordinarily sold or offered for sale;
(c) for delivery at the time and the place of importation or exportation;
(d) in the course of international trade;
(e) where the seller and the buyer have no interest in the business of each other;
(f) the price is the sole consideration for the sale or offer for sale.
According to the learned Senior counsel representing the Revenue, on the above analysis, their Lordships came to the conclusion that the entire costs paid or payable by the buyer till the time when the goods cross the Customs barrier should constitute the assessable value. Demurrage is an amount payable by the buyer for getting the imported goods out of the Customs barrier. So, the circular of the Board must be treated as contrary to the law laid down by the Supreme Court.
11. The issue dealt with by their Lordships in Garden Silk Mills Ltd. case was whether the Customs authorities can add or include landing charges in arriving at the value of the goods while assessing Customs duty payable in respect of the imported goods. Their Lordships were not concerned with the demurrage payable on account of the delay in discharging the goods from the vessel or from removing the same out of the port's area. It is further noticed that their Lordships in Garden Silk Mills Ltd. case were not concerned with the amendment brought out to the Act in 1988 and the framing of the Rules and the impact of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (hereinafter referred to as the Rules) in finding out the value of the goods. This aspect has been made clear by their Lordships by observing:
"Post 1988, therefore the value of the imported goods has to be determined in accordance with the Rules which, according to the respondents, are based on the GATT Valuation Code (also called Article VII of the General Agreement on Tariff and Trade) which was adopted in 1979. With these Rules, however, we are not concerned in the present ease because all the goods were imported prior to the incorporation of Sub-section 1A of Section 14 of the Act."
12. Scheme of the Act shows that Customs authorities will have to determine the value of the imported goods for the purpose of imposing Customs duty. In determining the deemed price as per Section 14(1), the element of port charges, which have to be borne by the importer in addition to the CIF value, must necessarily form a part. So, the value or cost of the imported Article at the time of importation, i.e. at the time when it reaches the Customs barrier is to be assessed by the authorities. In making this assessment, the Customs authorities must keep in mind the price at which such or like goods are ordinarily sold or offered for sale. Imported goods are ordinarily sold in situations where demurrage is not paid or becomes payable. Situation where demurrage is paid or becomes payable is not an ordinary situation. Costs incurred on such extraordinary situations cannot be taken into consideration for fixing the value of the imported goods for the purpose of levying Customs duty.
13. On behalf of the Revenue it was contended that Rule 9(2)(a) of the Rules requires addition of cost of transport of the imported goods to the place of importation. So, the cost paid or payable by the importer to bring the goods up to the Customs barrier must form part of the value. That cost should necessarily take within it demurrage as well. Therefore, according to counsel, the Garden Silk Mills Ltd. case is authority for the proposition mat the entire cost incurred for bringing the imported goods up to the Customs barrier should form the assessable value. We find it difficult to agree with this argument. First of all the apex Court was not concerned with the demurrage paid or payable by the importer on account of the delayed clearance of the goods from the ship. Demurrage becomes payable only on extraordinary situations. The provisions contained in the Rules were not adverted to by the Apex Court in the said decision. Their Lordships have categorically held that the price at which the imported goods are ordinarily sold should be the basis for valuation under Section 14(1) of the Act. Ordinarily demurrage is not payable. Only in extraordinary circumstances where delay in discharging the goods from the ship occurs, demurrage becomes payable. Such extraordinary circumstances are not falling within the purview of Section 14(1) of the Act. This aspect can be illustrated by the following example :-
In a situation where Indian Oil Corporation Ltd. enters into a contract for purchase of crude oil from a foreign country, the quantity is such that it could not be shipped in one vessel. They are loaded in two vessels. They reach a port in India, say Mumbai. One vessel is anchored in a particular berth, say berth A and the second vessel at berth B. The vessel anchored at berth A could discharge the oil within the stipulated period fixed in the charterer party, while that at berth B could not discharge the oil on account of certain mechanical defects or labour problem. That ship had to be delayed by three or four days. As a result, demurrage became payable in respect of that vessel. If that demurrage is also to form part of the assessable value of the goods discharged from that vessel, the duty on that quantity will be greater. Consequence will be a part of the goods covered by the same contract is assessed at a lesser value and the remaining at a higher value. Such a situation is not one envisaged by the provisions of the Act or the Rules. Only the price at which the goods are ordinarily sold can be reckoned by the Customs authorities for finding out the value under the Act. Demurrage being an extraordinary situation cannot become part of the value of the goods.
14. A two Member Bench of this Tribunal in Panchmahal Steel Ltd. v. Collector of Customs - 1998 (101) E.L.T. 399 (Tribunal) took the view that demurrage charges, which are paid on account of detention of vessel are pre-landing charges and, therefore, would be part of assessable value. This decision was rendered without the assistance of a counsel to argue for the appellant assessee and without noticing the effect of Govt. circular dated 14-8-1991. Further, that Bench distinguished earlier decision rendered by a Bench of three Members of this tribunal in Deepak Fertilizers and Petrochemicals Corporation Ltd. v. Collector of Customs - 1989 (41) E.L.T. 550 (T). The three- Member Bench decided that wharfage and demurrage are not landing charges and are not to form part of the assessable value. That decision was distinguished by the two Member Bench holding that wharfage and demurrage in the case were not paid to the port authorities. They were charges for detention of vessel and so are pre-landing stage charges. Consequently, it was taken that those charges would form part of assessable value. We do not find our way to agree with this distinction sought to he made by the Bench in Panchmahal Steel Ltd. case. Demurrage is paid on account of the delay in clearing the goods from the vessel. That cannot form part of the value of the goods. Further, since the two-Member Bench which decided the Panchmahal Steel Ltd. case was not apprised of the existence of the circular issued by the Board, the said decision cannot be said to be one correctly decided.
15. Rule 4 of the Rules states that the transaction value of imported goods shall be the price actually paid or payable for the goods adjusted in accordance with the provisions contained in Rule 9. Clauses (1) to (3) of Rule 9 provide for various items of cost that can be included to the price actually paid or payable in finding out the assessable value. All these additions must be to find out the price of the goods in ordinary circumstances. Expenditure incurred by parties in extraordinary situations cannot go in to enhance the assessable value. Demurrage is an expenditure which arises in extraordinary situations. Such an expenditure is not in the contemplation of the legislature when it enacted the Sections or the Rules. Further, Rule 9(4) mandates that no addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in the Rules. This Clause prevents the authorities under the Customs Act, 1962 from loading the ordinary price by including extraordinary expenses like demurrage that may arise on account of unexpected situations for fixing the assessable value.
16. In view of what has been stated above, we are clear in our mind that the Commissioner, while passing the impugned orders, went wrong in adding the actual amount of demurrage paid on account of the delay in discharge of the goods from the vessel to find out the assessable value. Consequently, the duty liabilities imposed on the companies are set aside. When the duty demand is vacated, appellants are not liable for any penalty either.
17. The result is appeals are allowed. Orders impugned in these appeals are set aside with consequential reliefs, if any, to the appellants.