UNION OF INDIA & ORS. versus M/S. ASSOCIATED CONTAINER TERMINAL LTD. on 14 February 2020

Conclusion

1. The order dated 28[th] November, 2007 passed by the High Courtof Delhi is the subject matter of challenge in the present appeal. Videthe aforesaid order, the writ petition filed by the respondent was allowedand the demand raised by the appellants vide letters dated 17[th] February,2005 and 19[th] April, 2005 were found to be without authority of law and,thus, the appellant was directed to refund a sum of Rs.27,47,146/- togetherwith interest @12% per annum.

2. One M/s. Kushang Apparel Ltd. had imported CTV kits andfiled six Bills of Entries, all dated 9[th] February, 2001. Such goods werepermitted by the Custom Department to be kept in warehouse for oneyear in terms of Section 59 of the Customs Act, 1962[1] at ICD, Faridabad.The Bond period expired on 28[th] February, 2002 but the importer did notclear the imported goods and also did not pay the rent for the warehouse.The warehouse issued notices for the recovery of its dues failing whichit will be constrained to sell the imported goods by public auction/tendersale. With the approval of custom authorities, the imported goods wereput for sale through auction under Section 63(2) of the Act with a valuationof imported goods at Rs.1,52,04,176/-. However, the goods could not besuccessfully sold. The valuation was reduced for the second auctionheld on 4[th] September, 2002 to Rs.1,36,83,759/- and further reduced inthe third auction held on 7[th] May, 2003 to Rs.54,44,650/-. The highest bidof Rs. 35 lakhs alone was received. The auction was not confirmed.

1 for short, ‘Act’

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A3. Thereafter, tender sale was resorted to dispose of the goods inthe warehouse. The valuation of the imported goods in the warehousewas fixed at Rs.33 lakhs for which tenders were invited upto 3[rd]December, 2003. Later, the valuation was reduced to Rs.30 lakhs in thesecond tender sale up to 31[st] August, 2004. In this sale process, theBhighest bid received was of Rs.41,44,555/-. The Assistant Commissionerpassed an order on 12[th] October, 2004 that the goods will not be clearedon ex-bond Bill of Entry as it is not a case of clearance under Section 68of the Act but on realization of charges under Section 72 of the Act interms of the judgment of this Court in Kesoram Rayon v. Collector of Customs, Calcutta[2]. The sale proceeds will be appropriated as perCSection 105 of the Act.

4. Subsequently, on 2[nd] February, 2005, the Assistant Commissionerof Customs permitted the auctioned goods to be released to auctionpurchaser on furnishing of bank guarantee in the sum of Rs.27,47,146/-after paying a sum of Rs.2,05,329/- as expenses of sale and payment ofDRs.11,92,080/- as duty. The respondent deposited the amount of dutyand also furnished the bank guarantee. Subsequently, on 4[th] March, 2005,the respondent was called upon to deposit remaining amount ofRs.27,47,146/- immediately failing which the bank guarantee was intendedto be invoked. Subsequently, on 19[th] April, 2005, the AdditionalCommissioner informed the respondent that Chief Commissioner of theECentral Excise is of the view that the matter stands settled with theBoard’s clarification of 17[th] February, 2005 and the outstanding arrearsof custom duty is required to be recovered. The bank guarantee wassought to be invoked which led the respondent to invoke the writjurisdiction of the Delhi High Court.F

5. The High Court allowed the writ petition with the followingfindings:

“16. It appears that on the facts of the present case the occasionto invoke Section 72 (1)(d) would arise only if the goods in respectof which a bond has been executed has not been cleared forGhome consumption. In such event, the owner of the goods can beasked to pay the entire duty. This obviously does not apply to thewarehouse-keeper like the petitioner and no demand of paymentfor customs duty can be made against the petitioner.

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20. We therefore hold that the Petitioner was justified in recoveringthe warehousing charges due to it from the auction sale proceedsin terms of Section 63 (2) of the Act. The balance amount depositedwith the Government Treasury can be adjusted by the customsdepartment towards part payment of customs duty as computedby it.”

6. The argument of the learned counsel for the Revenue is thatthe distribution of sale proceeds has to be in accordance with Section150 of the Act as there is a specific provision concerning custom dutycharges which will have precedence over recovery of warehouse chargesunder 150(2)(e) of the Act.

7. Before this Court, learned counsel for the appellants relied uponthe judgment of this Court in Kesoram. This Court considered Section15(1)(d) of the Act that if the goods which are not removed from awarehouse within the permissible period (in terms of Section 61) aretreated as goods improperly removed from the warehouse. Such improperremoval takes place when the goods remain in the warehouse beyondthe permitted period or its permitted extension. The importer of the goodsmay be called upon to pay customs duty at the rate applicable on thedate of their deemed removal from the warehouse. This Court held asunder:

“13. Goods which are not removed from a warehouse within thepermissible period are treated as goods improperly removed fromthe warehouse. Such improper removal takes place when the goodsremain in the warehouse beyond the permitted period or itspermitted extension. The importer of the goods may be calledupon to pay customs duty on them and, necessarily, it would bepayable at the rate applicable on the date of their deemed removalfrom the warehouse, that is, the date on which the permitted periodor its permitted extension came to an end.

14. Section 15(1)(b) applies to the case of goods cleared underSection 68 from a warehouse upon presentation of a bill of entryfor home consumption; payment of duty, interest, penalty, rentand other charges; and an order for home clearance. The provisionsof Section 68 and, consequently, of Section 15(1)(b) apply onlywhen goods have been cleared from the warehouse within thepermitted period or its permitted extension and not when, by reasonof their remaining in the warehouse beyond the permitted period A

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or its permitted extension, the goods have been deemed to havebeen improperly removed from the warehouse under Section 72.

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17. The consequence of non-removal of warehoused goods withinthe permitted period or the permitted extension is, by virtue of theterms of Section 72, certain. The date on which it comes to end isthe date relevant for determining the rate of duty. When the dutyis in fact demanded is not relevant. The alternative submission onbehalf of the appellants must, therefore, also be rejected.”

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8. On the basis of the said judgment, it is contended that the dutypayable on the goods imported has to be assessed on the date of deemedremoval of goods from the warehouse for home consumption i.e. on theexpiry of one year of the warehouse period i.e. 28[th] February, 2002.Therefore, the custom duty leviable as on that day is to be recoveredDfrom the sale proceeds and in terms of Section 150(2) of the Act, thecustom duty has to be paid in preference to the warehouse charges.Some of the relevant provisions of the Act read as under:

“Section 63 . Payment of rent and warehouse charges. - (1)The owner of any warehoused goods shall pay to the warehouse-Ekeeper rent and warehouse charges at the rates fixed under anylaw for the time being in force or where no rates are so fixed, atsuch rates as may be fixed by the Principal Commissioner ofCustoms or Commissioner of Customs.

(2) If any rent or warehouse charges are not paid within ten daysFfrom the date when they became due, the warehouse -keepermay, after notice to the owner of the warehoused goods and withthe permission of the proper officer cause to be sold (any transferof the warehoused goods notwithstanding) such sufficient portionof the goods as the warehouse-keeper may select.

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Section 71. Goods not to be taken out of warehouse exceptas provided by this Act. - No warehoused goods shall be takenout of a warehouse except on clearance for home consumption or export or for removal to another warehouse, or as otherwiseprovided by this Act.

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Section 150. Procedure for sale of goods and application ofsale proceeds. - (1) Where any goods not being confiscatedgoods are to be sold under any provisions of this Act, they shall,after notice to the owner thereof, be sold by public auction or bytender or with the consent of the owner in any other manner.

(2) The proceeds of any such sale shall be applied –

(a) firstly to the payment of the expenses of the sale, (b) next to the payment of the freight and other charges, if any,payable in respect of the goods sold, to the carrier, if notice ofsuch charges has been given to the person having custody of thegoods,

(c) next to the payment of the duty, if any, on the goods sold, (d) next to the payment of the charges in respect of the goodssold due to the person having the custody of the goods, (e) next to the payment of any amount due from the owner of thegoods to the Central Government under the provisions of this Actor any other law relating to customs, and the balance, if any, shallbe paid to the owner of the goods.”

9. Learned counsel for the respondent refers to Chapter 21 ofCentral Board of Excise and Customs Manual relating to disposal ofunclaimed/uncleared cargo. The relevant clauses from the Manual readas under:

“7. Once the goods are sold, the Customs duty on the goods iscalculated. For calculation of Customs duty, the sale proceedsfrom the sale of unclaimed/uncleared goods is taken as cum-dutyprice (value + duty) and customs duty is calculated workingbackwards on the price realised.

Apportionment of sale proceeds of goods:

8. On the unclaimed/uncleared goods, liabilities towards customsduty as well as carrier’s charges and storage charges arise, which A

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Aare to be recovered from the sale proceeds. In addition, salesexpenses incurred on sale of such goods are to be recovered. Inmost of the cases, the sale proceeds of such goods may not besufficient to meet liabilities of all the agencies. In such cases,question arises as to which liability is to be met first. To take careof such a situation, provisions have been made in section 150(2)Bof the Customs Act. The sale proceeds of any such sale ofunclaimed/uncleared goods is to be applied in following manners:

(a) first, to the payment of the expenses of the sale, (b) next to the payment of the freight and other charges, if any,Cpayable in respect of the goods sold, to the carrier, if notice ofsuch charges has been given to the custodians,

(c) next to the payment of the duty, if any, on the goods sold, (d) next to the payment of the charges in respect of the goodssold due to the person having the custody of the goods, D

(e) next to the payment of any amount due from the owner of thegoods to the Central Government under the provisions of this Actor any other law relating to Customs.

After making above-said payments, if any balance remains, thatis to be paid to the owner of the goods.”E

10. Reference is made to another Circular dated 28[th] November,2001 issued by the Central Board of Excise and Customs. The Circularreads as under:

“A reference was received from the Container Corporation ofFIndia (CONCOR) stating that there is a divergence of practice inCustom Houses with regard to apportionment of sale proceedsfrom disposal/sale of unclaimed/uncleared goods under section150 of the Customs Act, 1962. It was reported that some CustomHouses determine the Customs duty payable on auctioned goodsafter deducting the sales expenses from the sale proceeds of theGgoods whereas other Custom Houses are determining duty on thebasis of sale proceeds without allowing any deduction.

2. The matter has been examined. It is clarified that –

(a) the Customs duty shall be determined by backward calculationconsidering the sale proceeds of unclaimed/uncleared goods as H

the cum-duty price. For calculation of duty, total sale proceedswithout allowing any deduction towards sales expenses or anyother charge is to be taken as cum duty price.

(b) After determination of the Customs duty, sale proceeds ofunclaimed/uncleared goods is to be appropriated in the manner asprovided in section 150(2) of the Customs Act, 1962.

3. These instructions may be brought to the notice of all concernedby way of issuance of suitable Public Notice/Standing Order.

4. Difficulties, if any, in implementation of these instruction, maybe brought to the notice of the Board. Kindly acknowledge receiptof this Circular.”

11. The issue required to be examined in the present appeal iswhether the calculation of the custom duty would be assessed as on thedate of the deemed removal of goods from the warehouse in terms ofSection 61 as interpreted by this Court in Kesoram or on the date of salefor the reason that the importer has failed to seek clearance of the goodsimported.

12. As per the appellants, the right to recover customs duty issuperior to the right to recover warehouse charges in terms of Section150 of the Act and that sale was conducted under Section 72 and notunder Section 63 of the Act. If the contention of the Revenue is to beaccepted, the custom duty will be much more than the price received intender sale. However, if the date of calculation of custom duty is treatedto be the date of sale, the demand of sum of Rs.27,47,146/- would beuntenable.

13. The appellants have referred to a communication dated 16[th]April, 2004 wherein the respondent was called upon to clear the goodsafter the expiry of extended period failing which payment of full amountof duty will be payable together with all rent, penalties, interest and othercharges.

14. Kesoram is a case where the importer claimed levy of customduty which remained in bonded warehouse beyond the permitted periodclaiming that the duty as is applicable on the date the goods were soughtto be removed for home consumption, will be chargeable. This Courtfound that the goods can be kept in a warehouse in terms of the periodspecified under Section 61 of the Act and, therefore, Section 68 and A

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ASection 15(1)(b) apply only when the goods were cleared from thewarehouse within the permitted period or with permitted extension andnot beyond the permitted period or permitted extension.

15. The present case is not a case of levy of custom duty on theimporter. The importer has not sought the release of goods within theBpermitted period of warehouse. Therefore, the judgment in Kesoramwill not be applicable in respect of the goods to be auctioned on accountof failure to seek the release of imported goods by the importer thoughafter the permission from the proper officer.

16. Section 63 of the Act compels the owner of the warehousedCgoods to pay rent and warehouse charges at the rates fixed under anylaw for the time being in force or at such rates as may be fixed by theCommissioner of Customs. If the rent or warehouse charges are notpaid, the warehouse-keeper is competent to sell the goods or suchsufficient portion of the goods as the warehouse-keeper may select afterpermission from the proper officer. Section 63, thus, is to ensure that theDwarehouse-keeper recovers the rent or warehouse charges from theimporter.

17. Section 150 deals with the distribution of sale proceeds if thegoods other than the confiscated goods are sold under any provision ofthe Act. The Central Board of Excise & Customs had issued a clarificationEon 28[th] November, 2001 keeping in view divergence of practice withregard to apportionment of sale proceeds from disposal/sale of unclaimed/uncleared goods under Section 150 of the Act. It was communicatedthat the custom duty shall be determined by backward calculationconsidering the sale proceeds of unclaimed/uncleared goods as the cum-Fduty price. For calculation of duty, total sale proceeds without allowingany deduction towards sales expenses or any other charge is to be takenas cum-duty price.

18. In view of the Circular issued by the Central Board of Excise& Customs, the custom duty is to be calculated on the sale price and notGon the duty as is payable on the date of deemed expiration of permittedperiod of warehouse. Such Circular of the Board is binding on theRevenue. Therefore, the custom duty has to be paid on the basis of saleproceeds realised from the sale of the goods kept in a warehouse andnot on the basis of the custom duty payable at the time of filing the Bill ofEntry or on the date of expiry of permitted period of warehouse.H

UNION OF INDIA & ORS. v. M/S. ASSOCIATED CONTAINERTERMINAL LTD. [HEMANT GUPTA, J.]

19. Consequently, the present appeal is disposed of with directionsto ascertain the customs duty keeping in mind the dispensation indicatedin the enabling provisions of the Customs Act, 1962 and Chapter 21 ofCentral Board of Excise and Customs Manual read with circular dated20[th] November, 2011 and adjust the same as per the priority specified inSection 150(2) of the stated Act. Further, if the bank guarantee in thesum of Rs. 27,47,146/- (Rupees twenty seven lakhs forty seven thousandone hundred forty six only) has already been invoked by the appellants,the said amount shall be made over to the respondent in terms of thedirections given by the High Court within three months from today aftermaking due adjustments of the proceeds of sale as indicated hitherto.

20. The appeal is disposed of in the above terms with no order asto costs.

Devika Gujral

Appeal disposed of.

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