Includibilty of ship demurrage charges in the assessable value- the saga continues – the finale?
TIOL-DDT 284 - 17 01 2006 reported,
The Government had lost more than a thousand Crores of rupees because the Board which issues circulars and forgets them, forgot to withdraw a circular in spite of a favourable order from Tribunal. Remember the IOCL case? Board had vide letter issued in F.No.467/01/2002-Cus.V, dated 20th October 2004, conveyed that in light of the decision of the Board to file review petition before the Supreme Court of India, in the case of M/s.Indian Oil Corporation all importations prior to 02.03.2001 may be kept provisional. The Government’s review petition was dismissed by the Supreme Court on 2.3.2005 for an inordinate unexplained delay of 255 days in filing the petition. It took the Board more than 10 months to come up with a circular that Supreme Court decision has to be followed till 2.3.2001. What a respect for the highest judicial forum! What happens after 2.3.2001? Board is not sure. It will come up with clarification soon. Why not now?
Board has now come out with the clarification.
A little history may not be out of place.
The Genesis: It all started in the salubrious beaches of Goa where the Customs Commissioners met in April 1991. Based on the conference recommendations, the Board in F. No. 467/21/89-Cus.V, dated 14-8-1991 clarified that it has been decided that ‘demurrage’ and ‘despatch’ money may not form a part of assessable value.
The Litigation :
Stage 1: A hasty adjudication: The Board circular notwithstanding, somebody decided that demurrage was required to be included and a major PSU importer like IOCL was targeted for issue of a Show Cause Notice. A Show Cause Notice was issued on 14-3-2000 and was received by IOCL on 15-3-2000 and an order was passed on 30-3-2000 holding that demurrage was includible in the assessable value and confirming a demand of Rs. 975,98,31,199.00 with a mandatory penalty of an equal amount. Fortunately no penalty was imposed on the officers of IOCL. Maybe the fastest adjudication proceedings ever done in the department! An order involving nearly Rs 2000/- crores and the entire adjudication from issue of Show Cause Notice to final order took all of 15 days!
Stage 2: The Appeal :IOCL being a PSU, could not rush to Tribunal without permission from the Committee on Disputes. Though the Committee did not give permission immediately, it noted in the minutes that 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. The Tribunal in a rare gesture decided to go ahead with the case without actual sanction from the COD based on the minutes. The larger bench of the Tribunal with the President Justice Sreedhran giving the verdict held that “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.”
Stage 3: The Finale: Obviously the department was aggrieved and took the matter to its logical end – the Supreme Court. The Apex Court in without going into the merits of the case dismissed the Revenue appeal with costs based on the Board circular.
Stage 4: The Damage Control exercise before the finale: While the appeal was in the Supreme Court, the Board issued a circular withdrawing the 1991 circular by Circular No. 14/2001-Cus, dated 2-3-2001. Even while withdrawing the circular, the Board was not categorical, that demurrage was includible. The circular explained that “The decision of the Board was based on the then prevailing practice and a general perception of the Conference of Collectors held in April, 1991 about the nature of demurrage charges and despatch money, without specifically examining the implications of Rule 9 of the Customs Valuation Rules or the GATT Valuation Rules.It was never the intention of the Board to “exempt” ship demurrage charges from customs duty. In the circumstances, it is considered advisable to clarify that nothing contained in the earlier letter should be construed as authorising the exclusion of any ship demurrage charges paid which are required to be included in the assessable value of goods under Section 14 of the Customs Act, 1962 inter alia by virtue of Rule 9(2) of the Customs (Valuation) Rules, 1988. The earlier letter dated 14-8-1991 referred in para 1 supra shall stand withdrawn.”
Stage 5: Sorry no finale : Back to where it started- GOA. Welcome back to the exotic Goa where it all started. The Goa Commissioner issued a Standing order on the issue - STANDING ORDER NO. 18/2004-CUSTOMS - Dated 07.06.2004, by which he ordered that after 2.3.2001 the demurrage charges are to be included.
Stage 6: Board wakes up – but not fully: Nearly two years after the Goa Commissioner’s instructions, Board wakes up and accepts the fact, but does not give a decision. In CIRCULAR NO. , Dated: January 12, 2006, Board clarified that in respect of the period after 02.03.2001, the matter is under consideration and clarification shall be issued in due course.
Stage 7: Due course has arrived: The due course is over and after nine months, Board now clarifies that assessments in respect of the importation on or after 02.03.2001 should be finalised by including the ship demurrage charges in the assessable value of the imported goods.
Curtains down! – after a 15 year controversy - all started because of a Board circular. It is not only good administration but also good economics – not to issue clarifications!
Please see our story - SHIP DETENTION CHARGES - STILL IN DEEP WATERS!
CIRCULAR NO. , Dated: September 26, 2006