Customs, Excise and Gold Tribunal - Tamil Nadu
Cc vs Seven Seas Petroleum Pvt. Ltd. And Mgm ... on 1 March, 2005
Equivalent citations: 2005(191)ELT1181(TRI-CHENNAI)
ORDER Jeet Ram Kait, Member (T)
1. All these eight appeals filed by the Revenue arise about of two different Orders-in-Appeal No. M. Cus. 1066 to 1070/96 dated 28.6.96 passed by the Commissioner of Customs and Central Excise (Appeals), Madras and Order-in-Appeal No. C.Cus.267/98 dated 31.3.98 passed by the Commissioner of Customs (Appeals), Chennai by which Commissioner (Appeals) has held that demurrage, wharfage and stock loss charged by the IOC shall not be included in the assessable value and both the Commissioner (Appeals) set aside the orders of the original authority.
2. This is the second round of litigation before the Tribunal so far as Appeal No. C/518/98 is concerned, as the matter was once remanded back to the Commissioner (Appeals) by the Tribunal. The Tribunal while remanding the matter had inter alia observed that before coming to any conclusion, the contract entered into by the party will have to be looked into besides the modalities of the transaction. Since the issue to be decided in all these eight appeals and the facts and law involved are also same, these are taken up together for disposal according to law.
3. The brief facts of the case are that the importers had imported Kerosone Oil and filed Bill of Entry. The goods were purchased from Indian Oil Corporation on high seas sale basis. The goods were assessed provisionally and were released on the basis of provisional invoice issued by Indian Oil Corporation. The importers produced final invoice for the consignment which included among other charges, demurrage charge, Wharfage and Stock loss charge. In the assessable value the department took into consideration the value of the above charges also for the purpose of assessment. The importers contended that demurrage charges, wharfage charges and stock loss should not be added for the purpose of arriving at the assessable value inasmuch as these do not form part of the assessable value under Section 14 of the Customs Act.
4. In these cases, as noted above, the issue was before the two different Commissioners (Appeals), and both the Commissioners (Appeals) decided the issue holding that demurrage, wharfage and stock loss charges are not includible in the assessable value. The Revenue challenges the order impugned inter alia on the following grounds:
(a) In terms of Rule 4 of the CVR1988, the value of imported goods shall be the price actually paid or payable for the goods when sold for export. Further in terms of interpretative Note to Rule 4 of the CVR 1988 the price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods.
(b) The value components paid under heading 'ocean loss' bank charges, demurrage, wharfage do not apply to the importer directly and these are only some components for escalation of price towards the payment to be received by M/s. IOC, the seller and all those charges were pre-determined.
(c) The contract ensured delivery of the goods in full contracted quantity to the importer by the seller i.e. IOC and the importer never suffered any loss arising out of ocean loss or demurrage. The importers have also agreed to pay the contractual price to the IOC.
(d) Though the goods were sold on high seas sale basis the importers were allowed possession of the goods only on Ex-wharfage basis and as such wharfage at fixed rate form part of the value paid for delivery at the place of importation.
(e) In terms of the Clause 5.1 of the sale agreement the above charges are not post-importation charges since total payment by the importer to the IOC was not at all influenced due to variation in these charges.
5. Shri A Jayachandran, learned Counsel for the Revenue reiterated the grounds of appeal and sought for allowing the appeal. He submitted that in short, demurrage charges, wharfage charges and stock loss charges are also includible in the assessable value inasmuch as all these charges were pre-determined at the time of sale of the goods at high seas in terms of the contract entered into by both the parties.
6. None appeared for Respondents Seven Seas Petroleum Pvt. Ltd. inspite of Notice. Shri P.R. Raman, learned Counsel appearing for the importers-respondents submitted that the different Commissisoners (Appeals) have passed reasoned orders and he sought for upholding the same. He has also invited our attention to the judgment of the Larger Bench of the Tribunal in the case of Indian Oil Corporation Ltd. v. CC, Calcutta wherein it was held that demurrage charges incurred by oil companies is not to be included in the assessable value of crude petroleum and other petroleum products since demurrage is not payable ordinarily.
7. We have carefully considered the rival submissions and gone through the case records and also perused the case law cited by the learned Counsel for the respondents MGM International. We note that in all these cases the issue that arising for consideration is whether demurrage, wharfage and on-shore stock loss can be included for arriving at the assessable value of the goods. We find that in the case of respondents MGM International, the lower appellate authority has set out the terms of the contract between the seller and the buyer (i.e. IOC and the importers respondents) in the finding portion of his order. In terms of the contract, the final price shall consist of among other items, demurrage @ Rs. 100 per MT. The contract also sets out a condition that the importer shall pay for the stock loss at 0.5% of final CIF and the wharfage. We also observe that the lower appellate authority has noted that the importer's liability to pay for the goods arises as soon as the goods are loaded at the load port. We are not able to countenance this conclusion of the learned lower appellate authority because, in the present case the sale of the goods took place in high seas in the course of international trade i.e. before the entry of the goods within the territorial waters of India. The terms of the contract between the IOC and the second importer i.e. the respondents herein have been entered into at high seas. According to the terms of the contract, the respondents herein have agreed to meet the expenses such as demurrage, wharfage and stock loss etc. at the time of agreement itself which took place at the high seas. Therefore, these expenses cannot be held to be post-importation expenses and on the other hand these were pre-determined as these expenses have been met or agreed to be met by the appellants at the high seas, before the entry of the goods to the territorial waters of the country. We note that in terms of Rule 4 of the CVR, the transaction value of the goods shall be the price actually paid for sale of the goods and in terms of interpretative notes to Rule 4 of the CVR, the price paid or payable shall be total payment made or to be made by the buyer. The appellants have relied upon the judgment of the Larger Bench of the Tribunal in the case of Indian Oil Corporation Ltd. v. CC, Calcutta wherein it was held that demurrage charges incurred by oil companies are not includible in the assessable value. The Larger Bench has held in the cited judgment that the scheme of the Act shows that the Customs authorities will have to determine the value of the imported goods for the purpose of imposing Customs duty and the value or cost of the imported article at the time of importation at the time when it reaches the Customs barrier is to be assessed by the customs authorities and in making this assessment the Customs authorities must keep in mind the price at which such goods or like goods are ordinarily sold or offered for sale. It was also held therein that imported goods are ordinarily sold in situations where demurrage is not paid or becomes payable. The Bench further held that situation where demurrage is paid or becomes payable is not an ordinary situation. It was also held therein that costs incurred on such extraordinary situations cannot be taken into consideration for arriving at the assessable of the goods as demurrage is an expenditure which arises in extra-ordinary situations. In our opinion the cited judgment is distinguishable from the facts of the present case because that was a case where the importer i.e. Indian Oil Corporation imported goods viz. crude oil etc. from foreign country and there was no sale at high seas and the vessel entered the territorial waters of India and had to wait at the port for discharge of the cargo for various reasons such as detention of the vessel etc. and in such a situation, the demurrage and wharfage etc. became post-importation charges and those situations cannot be termed as an ordinary situation but an extra-ordinary situation and it was in those extra-ordinary situation, it was held that the demurrage cannot form part of the assessable value.
8. In the present case, the price at which the goods were offered for sale at high seas also included demurrage charge and other charges paid/agreed to be paid by the importers and those charges were pre-determined and was not due to any extra-ordinary situation like the one discussed in the cited judgment inasmuch as the appellants on their own agreed to bear those expenses at the time of purchase of the goods itself during the course of the international trade and conditions to that effect have been set out in the contract. Therefore, we are of the considered opinion that the demurrage, wharfage and stock loss have to be included for arriving at the assessable value when the importers have purchased the goods on high seas sale basis. Since the above items of expense became part of cost, freight and insurance (CIF) value, the import duty has to be charged on the CIF value, which included demurrage, wharfage and stock loss. We therefore, hold that the lower appellate authorities were wrong in allowing the appeals of the importers and we set aside the orders impugned and allow the Revenue appeals.
Archana Wadhwa , Member (J)
9. I have gone through the order proposed by my learned brother Shri Jeet Ram Kait, Hon'ble Member (Technical). However, I respectfully differ with the same and accordingly record a separate order.
10. The issue involved in the present appeal relates to inclusion of demurrage, wharfage and shore stock loss in the assessable value of the petroleum products imported by the appellant. It is seen that the matter was earlier remanded by the Tribunal to Commissioner (Appeals) with directions to look into the terms and conditions of the agreement between M/s. IOC and the respondents, who are high-sea purchaser of the goods in question. While remanding the matter the Tribunal observed that under the provisions of Rule 9(2) of the Valuation Rules, only certain charges relating to certain specified services alone are allowed to added. Under Rule 9(3) it has been stated that the additons to the price actually paid or payable shall be made under this rule on the basis of objective and quantifiable data. Thereafter, under Rule 9(4) there is a refrain namely, 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 this rule. The Tribunal observed that the refrain in Rule 9(4) is very significant and due regard has to be given to it while seeking additions to the price actually paid. Inasmuch as there was no disussion in the order of Commissioner (Appeals), the Tibunal set aside the same and remanded the matter with directions to consider the relevant evidences and the documents including the contracts entered into by the respondents with M/s. IOC.
11. While passing the impugned order in de novo proceedings Commissioner (Appeals ) has considered the terms and conditions of the contract between M/s. IOC and and the respondents. As per the said contract the final price of the goods will consist of ocean loss, demurrage and bank charges. It was one of the clauses of the contract that the said loss cannot be quantified with certainty and the parties have determined this elements on certain basis. Similarly wharfage and incidental were to be as actuals.
12. The Commissioner (Appeals) has observed as under:
The Hon'ble Tribunal while remanding the case has pointed out that according to Rule 9(4), no addition shall be made to the price except as provided under Rule 9. Second process to Rule 9(2) states that loading, unloading and handling charges shall be one per cent of the CIF value. There is no option to the department or to the importer to prefer actuals to the statutorily fixed 1%. I.O.C. has charged the appellants for demurrage and wharfage at certain rates specified in the contract. This is because I.O.C. was in phyiscal possession of the goods in their shore tanks along with their own stock. In other words, I.O.C. was acting as bailee till delivery of the goods to the appellants. This situation has resulted in I.O.C. charging the appellants for certain costs and services incurred or rendered by them even after the sale had taken place on the high seas. As already stated, under the Rules, a percentage has been prescribed for loading, unloading and handling charges. As such inclusion of these charges on actual basis in the assessable value in terms of contract between the I.O.C. and the appellants is legally untenable. Demurrage charges whether relating to the vessel or clearance of cargo from Port do not form part of value of goods as these do not come under the purview of freight element.
The shore tank loss charges are, in any case, post import costs incurred by theI.O.C. and defrayed by the appellant. Rule 9(4) prohibits inclusion of any other cost/charge other than freight and insurance and 1 % of CIF value towards handling, loading and unloding charges. The entire confusion has arisen because the high seas seller,I.O.C. in this case, acted as post sale bailee also. Bailee's charges have been got confused with seller's charges.
In view of the above, I agree with the appellants that the demurrage, wharfage and stock loss charged by theI.O.C. shall not be included in the assesseble value.
13. I find that the Larger Bench of the Tribunal in the case of M/s. Indian Oil Corpn. Ltd. has held that demurrage charges incurred by the oil companies is not includible in the assessable value of the petroleum products. While holding so the Larger Bench has taken note of the Ministry's Circular F.No. 467/21/89-CUS (V) dt. 14.8.91 laying down that such demurrage charges 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 and as such demurrage and despatch money are not to form part of the assessable value. The Larger Bench also took note of an earlier three Member judgment of the Tribunal in the case of Deepak Fertilisers & Petrochemical Corporation. Ltd. v. CC holding that wharfage and demurrage are not landing charges and are not to form part of the assessable value. The subsequent decision of the two Member in the case of Panchmahal Steel Ltd. distinguishing the decision, in the case of Deepak Fertilisers on the ground that these charges were not paid to the port authorities, but were for detention of vessel and pre-landing stage charges and hence includible in assessable value, was held to be not a correct decision by the Larger Bench. The larger Bench has observed that demurrage charge is an expense which arises in extraordinary situation and is not contemplation of the legislature when it enacted the sections or the rules. Such charge, in fact is paid for account of the delay in discharging the goods from the vessel or from removing the same out of the port area. As per the provisions of Rule 9(4), no addition shall be made to the price actually paid or payable in determining the value of the ported goods except for as provided for in the rules. The demurrage, wharfage charges and definitely the charges which are required to be paid for detention of the vessel at the port beyond the normal period. As such whether the same are to be paid by I.O.C. or are to be recovered from the respondents, who are high-sea purchaser, will not make any difference in the legal position of the same being not addable in the assessable value of the goods. As rightly observed by Commissioner (Appeals) that M/s. IOC acted as post-sale bailee for the purposes of clearance of the goods from the customs on behalf of the respondents and such bailee's charges are not to be confused with seller's charges. As such I am of the view that the issue has been rightly decided by the Commissioner (Appeals) and there is no merit in the Revenue's appeal and the same are accordingly rejected.
DIFFERENCE OF OPINION Whether the appeals filed by the Revenue are required to be allowed as held by the Member(Technical) or the same merit rejection as held by Member (Judicial).
Appeals No. C/518/1998/Md, C/1456-1458/1998 & C/917-920/1998/Md P.G. Chacko
14. The issue before me is whether demurrage, wharfage and stock loss charges paid by the assessees (respondents) to M/s Indian Oil Corporation Ltd. (for short, IOCL) in respect of the Superior Kerosene Oil (for short, SKO) purchased by the former from the latter under "Ex-High Seas" Sale Agreements and imported into India and cleared at Customs under the subject Bill of Entry were includible in the assessable of the SKO so cleared. Ld. JDR Shri A. Jayachandran has submitted that the above charges paid by the respondents were covered by Clause (e) of Rule 9(1) of the Customs Valuation Rules, 1988 and hence liable to be included in the assessable value of the goods. It has been pointed out in this connection that the above charges were paid in terms of the High Seas sale contract entered into between M/s IOCL and each of the respondents. Ld. DR has contextually referred to the provisions of the relevant agreements. On the other hand, Shri P.R. Raman, Ld. Counsel for M/s MGM International Export (one of the respondents) has contended that the payments referred to under Clause (e) of Rule 9(1) are those made to the foreign supplier by M/s IOCL under the sale contract between them and not those made to the latter by the respondents under the High Seas Sale contract. This plea has been contested by Ld. DR submitting that the two contracts are independent of each other and that only the terms of the ex-High Seas Sale of goods are relevant to its valuation for Customs duty assessment. In this connection, he has relied on the Supreme Court's decision in Hyderabad Industries Ltd. v. UOI , wherein purchases by MMTC (Canalising Agency) from foreign seller and subsequent sale (ex-High Seas) by it to Indian buyer were held to be independent of each other and service charges paid to MMTC by Indian buyer (importer) @ 3.5% of C&F value of import was held to be includible in the assessable value of the imported goods. Ld. Advocate has, then, argued that, as the above charges were incurred "when the ownership over the goods was yet to pass from IOCL to the respondents", they were not to be included in the assessable value of the goods. He has, further, adopted the reasoning of the learned Member (Judicial) to exclude the above charges from assessable value.
The other respondent viz. M/s. Seven Seas Petroleum Pvt. Ltd. were not represented before me. However, their "Written Argument" is on record and the same has been perused. It is argued that as loading, unloading and handling charges (together called landing charges) associated with delivery of the imported goods at the place of importation were added to the CIF value at a fixed percentage (1%) in terms of Rule 9(2), there is no scope for adding actual delivery charges incurred by way of demurrage. Wharfage charges and stock losses were irrelevant to the time of delivery of the goods at the port of importation. Therefore, it is argued, demurrage, wharfage and stock losses had no relevant to the assessable value of the goods in terms of Section 14 of the Customs Act. According to M/s Seven Seas Petroleum Pvt. Ltd., in any case, demurrage charges were not to be treated as part of the assessable value as per the Board's Circular F.No. 467/21/89-Cus. V dated 14.8.1991 and the Supreme Court's decision in the case of Commissioner of Customs, Calcutta v. Indian Oil Corporation Ltd. . Ld. JDR, in his rejoinder, has submitted that the Board's Circular cited by Ld. Counsel is not applicable to the facts of this case inasmuch as, in the case examined by the Board, demurrage charges were paid in terms of a Charter Agreement between the carrier and the charterer, whereas, in the instant case, such charges were paid by the importer (High Seas buyer) directly to the Ex-High Seas supplier viz. M/s IOCL (High Seas seller). It has also been pointed out that, in the case of M/s Indian Oil Corporation Ltd. considered by the Supreme Court, demurrage charges had been paid by the importer to the ship owners and, therefore, the ratio of the Apex Court's decision is not applicable to the present case. Ld. DR has argued that the Valuation Rules did not distinguish between goods imported by High Seas buyer and those imported by a person directly from a foreign supplier. The price actually received by the High Seas seller from the High Seas purchaser (importer) should be the assessable value of the goods. No part of such price is liable to be excluded from the assessable value when it was payable under the High Seas sale contract.
15. After examining the submissions, I find that, under Clause (e) of Rule 9(1) of the Valuation, "all other payments actually made or to be made as a condition of sale of the imported goods by the buyer to the seller" were liable to be added to the price actually paid or payable for the said goods. Ex-High Seas sale of goods is not a new species of international trade and the same was in vogue when the Customs Valuation Rules were made. The Rules, however, did not treat imports under ex-High Seas sale contract differently from imports made otherwise. It can, therefore, be safely said that the Valuation Rules treated an ex-High Seas seller as foreign supplier and his buyer in India as importer of the goods. Such a sale of goods is deemed to take place beyond the Indian territorial waters. Therefore, as rightly submitted by Ld. DR, only the terms of the High Seas Sale contract are relevant to the valuation of the goods for Customs purpose. Ld. DR is eminently supported by the Apex Court's judgment in Hyderabad Industries (Supra) and the Tribunal's Larger Bench decision in Eternit Everest Ltd. v. C.C. Bombay cited by him. It is indisputable in the present case that the "High Seas" sale agreements between M/s IOCL and the respondents had provided for payment, by the buyer to the seller of demurrage, wharfage and stock loss charges. Clause 5.2(g) of the agreement between M/s IOCL and M/s MGM International Export for the relevant period provided for payment of actual demurrage by the buyer to the seller. Clause 10.1.3 provided for recovery, by the seller from the buyer, stock loss (in receiving import cargo and handling the goods at terminal) at the rate of 0.15% on final CIF price. Clause 10.1.4 of the agreement stipulated that wharfage and other incidental charges would be recovered at actuals from the buyer. Similar condition existed in the "High Seas" sale agreement between M/s IOCL and M/s Seven Seas Petroleum Pvt. Ltd. Admittedly, demurrage, wharfage and stock loss, which formed a part of the final price shown in the final invoice issued by M/s IOCL,were actually paid by the buyer and these payments were in terms of the sale contract. Rule 9(1)(e) required these elements to be included in the assessable value of the imported goods.
16. The respondents have relied on the Board's Circular dated 14.8.1991 to argue that demurrage charges were not to be included in the assessable value of the subject goods. It appears from this Circular that what was examined by the Board was a case where demurrage charges were paid by the charterer to the carrier under a contract entered in between them. There is nothing to indicate that the importer paid any demurrage charges to the overseas supplier of the goods in the case examined by the Board. It was in such circumstances that the Board took the view that demurrage was not to be treated as part of the price actually paid or payable for the goods. The instant case is factually different inasmuch as demurrage charges were payable directly by the importer to IOCL in terms of the sale agreement between them and were actually so paid. Therefore, nothing contained in the Board's Circular could be relied on by the respondents. In the case , the Apex Court was considering an appeal filed by the Department against the Tribunal's Larger Bench decision . Dismissing the appeal, their Lordships held that it was not open to Customs authorities to include demurrage payable on account of delay in discharging goods from a vessel, in the assessable value of the goods, contrary to the Board's Circular dated 14.8.1991. The facts of the case considered by the Apex Court were similar to that examined by CBEC. I have already distinguished the facts of the instant case from those of the case examined by the Board. It would follow that the decision of the Apex Court is not applicable to the instant case. It may, contextually, be noted here that the above Circular has been withdrawn.
17. Ld. advocate has submitted that the above charges were incurred when his client was yet to become owner of the goods and hence the charges were not includible in assessable value. Ownership is not the relevant factor for Customs Valuation and duty assessment purposes as is discernible from the definition of "importer" under Section 2 of the Customs Act. This apart, it is noticeable in this case that the advocate's claim that ownership of SKO was still with M/s IOCL when the charges were incurred is contradictory to his own argument that M/s IOCL were holding possession of the goods at the material time as a bailee only. An owner in possession of his goods cannot be a bailee of the goods vide Chapter IX of the Contract Act. Counsel's argument is therefore rejected.
18. For the reasons already recorded, I have to fall in line with the view taken by Ld. Technical Member in this case. Accordingly it is held that demurrage, wharfage and stock loss charges paid by the respondents to M/s IOCL (as reflected in the "final invoices" issued by the latter) in terms of the relevant High Seas sale agreements are liable to be included in the assessable value of SKO in terms of Rule 9(1)(e) of the Customs Valuation Rules, 1988. the Revenue's appeals are allowed. Registry is directed to take appropriate steps for pronouncement of the majority decision.
ORDER In the light of the majority decision, the appeals are allowed.