2013 (10) TMI 246 - AT - Customs

Ship demurrage charges excluded from customs duty assessment value. Tribunal decision based on Customs Valuation Rules.

The Tribunal held that ship demurrage charges should not be included in the assessable value of imported goods for customs duty assessment between ... Inclusion of ship demurrage charges in assessable value - transaction value and adjustments under Customs Valuation Rules - application of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 - application of Customs Valuation Rules, 2007 and its Explanation to Rule 10(2) - precedent effect of Ispat Industries Ltd. and Hindustan Lever Ltd. on valuationInclusion of ship demurrage charges in assessable value - application of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 - transaction value and adjustments under Customs Valuation Rules - Ship demurrage charges are not includible in the assessable value for customs duty for imports effected during 02.03.01 to 26.09.06. - HELD THAT: - The Bench examined Rule 9(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 and found that the rule, read holistically, does not mandate inclusion of demurrage charges paid by importers to shipping lines. The Court applied the Apex Court's reasoning in Ispat Industries Ltd., which held that where contracts are CIF or FOB and freight is already part of the price or otherwise ascertainable, an additional addition for transport under Rule 9(2)(a) is impermissible. The Bench also relied on the reasoning of the High Court of Kolkata in Hindustan Lever Ltd., which treated demurrage as an eventuality unconnected with importation proper and not includible in value for assessment. On this basis the Tribunal decisions in Shine Petroleum Pvt. Ltd. and MGM International Exports Ltd., which excluded ship demurrage from assessable value for the period in question, were held correct and not to be disturbed. [Paras 8, 11, 13, 14]For the period 02.03.01 to 26.09.06, ship demurrage charges cannot be included in the assessable value for customs duty, even where assessments were provisional.Application of Customs Valuation Rules, 2007 and its Explanation to Rule 10(2) - inclusion of ship demurrage, lighterage and barge charges - From the date the Customs Valuation Rules, 2007 came into force, ship demurrage charges, lighterage and barge charges are to be included in the cost of transport for determination of assessable value. - HELD THAT: - The Bench noted that the Customs Valuation Rules, 2007 reproduce the earlier scheme and expressly add an Explanation to Rule 10(2) stating that the cost of transport includes ship demurrage charges on chartered vessels, lighterage or barge charges. No material was placed on record to show retrospective application. Consequently, once the 2007 Rules came into force, those charges fall within the cost of transport and must be included in assessable value. [Paras 9, 10, 12]With effect from the commencement of the Customs Valuation Rules, 2007, ship demurrage, lighterage and barge charges are includible in the assessable value as part of transport cost.Final Conclusion: The referral is disposed by holding that ship demurrage charges are not includible in assessable value for the period 02.03.01 to 26.09.06 (upholding the Tribunal decisions cited), but are includible thereafter from the date the Customs Valuation Rules, 2007 came into force; papers are returned to the original Bench for further orders. Issues Involved:1. Inclusion of demurrage charges in the assessable value of imported goods.2. Applicability of Customs Valuation Rules, 1988 and 2007.3. Interpretation of Section 14 of the Customs Act, 1962.4. Impact of Board's Circulars on the inclusion of demurrage charges.5. Judicial precedents on the inclusion of demurrage charges.Detailed Analysis:1. Inclusion of Demurrage Charges in the Assessable Value of Imported Goods:The core issue revolves around whether demurrage charges should be included in the assessable value of imported goods. The Tribunal examined various circulars and judicial precedents to determine if demurrage charges, which are incurred due to delays in unloading, should be part of the assessable value.2. Applicability of Customs Valuation Rules, 1988 and 2007:The Tribunal scrutinized the provisions of Rule 9 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, and Rule 10 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2007. It was noted that Rule 9 did not explicitly include demurrage charges, whereas Rule 10 of the 2007 Rules specifically included ship demurrage charges, lighterage, or barge charges in the cost of transport of the imported goods.3. Interpretation of Section 14 of the Customs Act, 1962:Section 14 of the Customs Act, 1962, which governs the determination of the value of imported goods, was pivotal in this case. The Tribunal emphasized that the value should include the cost of transport, loading, unloading, and handling charges, but the explicit inclusion of demurrage charges was not stipulated in the 1988 Rules.4. Impact of Board's Circulars on the Inclusion of Demurrage Charges:The Tribunal considered multiple circulars issued by the Board, particularly Circular No. 14/2001-Cus. dated 02.03.2001 and Circular No. 26/2006-Cus. dated 26.09.06. It was argued that the Board's circular from 2006 indicated that demurrage charges should be included in the assessable value. However, the Tribunal found that the 1988 Rules did not provide for such inclusion, and the 2007 Rules, which did, could not be applied retrospectively.5. Judicial Precedents on the Inclusion of Demurrage Charges:The Tribunal relied on the Supreme Court's decision in the case of Ispat Industries Ltd. and the High Court of Kolkata's decision in Hindustan Lever Ltd. In Ispat Industries Ltd., the Supreme Court held that additional transport charges under Rule 9(2)(a) of the 1988 Rules were impermissible if the contracts were CIF or FOB. Similarly, in Hindustan Lever Ltd., the High Court ruled that demurrage charges could not be included in the value of goods for customs duty assessment as they were not related to the importation process but were consequential to unloading delays.Conclusion:The Tribunal concluded that for the period from 02.03.01 to 26.09.06, ship demurrage charges could not be included in the assessable value of imported goods for the discharge of customs duty, even if the assessments were provisional. This conclusion was based on the interpretation of the Customs Valuation Rules, judicial precedents, and the specific provisions of the Customs Act, 1962. The Tribunal upheld the decisions in Shine Petroleum Pvt. Ltd. and MGM International Exports Ltd., finding them correctly decided and not requiring reconsideration. The matter was returned to the original Bench for further orders.