2013 (10) TMI 246 - AT - Customs

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

COMMISSIONER OF CUSTOMS Versus M/s GRASIM INDUSTRIES LTD

The Tribunal held that ship demurrage charges should not be included in the assessable value of imported goods for customs duty assessment between ... Valuation of goods - inclusion of Demurrage charges in the value - Held that:- Value of the goods for the purpose of assessment of Customs Duty has been defined under Section 14(1) of the Customs Act, 1962. According to Section 14(1) of the Customs Act value of the goods means price at which such goods are ordinarily sold or offered for sale for delivery at the time and place of importation or exportation. When the goods are offered for sale at the place of importation it includes freight charges and as such the freight is included in the value of the said goods. Demurrage is an eventuality which causes not due to importation or exportation of the goods. The goods are imported as and when it arrives at the port. Unloading of such consignment is an event consequential to making of effective delivery. If there is any delay at the time of unloading for any reason the consignee will have to pay demurrage charges to the port authority in view of the fact that the berth is unnecessary blocked because of delay in unloading. This is an eventuality which has nothing to do with regard to importation of the goods for the purpose of assessment of customs duty. Customs duty is charged on the basis of the value described in the bill of lading. If there is any under-invoicing made, the authority is entitled to take appropriate assessment to find the actual value. In no stretch of imagination the demurrage can be included in the value of the goods for the purpose of assessment of customs duty under Section 14(1) of the Customs Act, 1962 or any other provision of the said Act - Following decision of HINDUSTAN LEVER LIMITED Versus UNION OF INDIA [2002 (2) TMI 111 - HIGH COURT AT CALCUTTA] - Decided against revenue. 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.