2018 (8) TMI 1610 - HC - Customs

Customs Officers' Cost Recovery Charges Upheld as Justified Fees

The court upheld the legality and constitutionality of cost recovery charges for customs officers at the petitioners' facilities, deeming them justified ... Levy and collection of cost recovery charges from Custom Officers/petitooners - prayers are predicated primarily on the plea that custom officers are permanent employees of the Union of India and duties performed by the custom officials at the ICDs/CFSs/ACCs/EPZs being sovereign functions, no charge could be recovered by the Union of India from the petitioners. Held that:- Petitioners as a pre-condition for becoming custodians of the respective ICDs/CFSs/ACCs/EPZs had willingly undertaken to bear the costs of the Customs staff posted at the ICDs/CFSs/ACCs/EPZs. Thus, the payment of cost recovery charges has sanction and authority of law to back the levy and imposition. Further, the cost recovery charges so levied are against expenses incurred by the government for rendering the services at the ICDs/CFSs/ACCs/EPZs - from provisions of the Act and the documents on record, it is established that cost recovery charges are in the nature of “fee” for services rendered by the customs officers at the concerned ICDs/CFSs/ACCs/EPZs. Whether the government can levy the cost recovery charges at the rate of 1.85 times the salary of the customs officers? - Held that:- The actual cost cannot be restricted and confined to salary paid. There are hidden and other expenses involved. It would be unfair and wrong to compute cost by merely adding the wage or salary actually paid to the custom staff deployed. This is not the actual cost incurred and the cost to the government. The cost factor was worked out on the basis of principles under the General Financial Rules. This assertion and contention of the respondents remains undisputed and unchallenged. In view of the Rules 112 and 113 of the General Financial Rules, recoveries of expenditure of the services rendered to both the government and non-government parties are to be classified as receipts and the entire cost shall be recovered from the public or private body so that the net cost to the government is nil. If the revision in cost due to implementation of the 6th Pay Commission was not carried out, then the government would had suffered a net loss and would have tantamounted and resulted in profiting of the private sector at the expense of the government. Cost recovery @ 185% of the total salary of staff actually posted at ICDs/CFSs/ACCs/EPZs of the petitioners was being done as per the Board's instructions issued under F. No.434/12/92/-CUS dated 05.06.1992, Circular Nos.128/95-CUS dated 14.12.1995, 133/95-CUS dated 22.12.1995, 52/97 dated 17.10.1997 and 80/98-CUS dated 20.10.1998. Customs officers may perform statutory or sovereign functions, however, the sovereign is not liable to provide service and permit setting up ICDs/CFSs/ACCs/EPZs. Additional posts are created/sanctioned for the ICDs/CFSs/ACCs/EPZ for which the developer undertakes to bear the cost of the staff posted. The payment is in the nature of fee for the services rendered - They are therefore bound to bear the cost of the customs staff, posted for the ICDs/CFSs/ACCs/EPZs. The payment of cost recovery charges by the custodian of ICDs/CFSs/ACCs/EPZs has the statutory force of law and is within the jurisdiction of the respondents. No case is made out for the grant of the reliefs as prayed for in the writ petitions - petition dismissed. Issues Involved:1. Legality of levy and collection of cost recovery charges for customs officers at ICDs/CFSs/ACCs/EPZs.2. Refund of charges collected since inception.3. Quashing of demands for recovery of custom staff costs.4. Constitutional validity of Guideline No. 10 of Circular No. 128/95-Cus and Regulation 5(2) of Handling of Cargo in Customs Areas Regulations, 2009.5. Reasonableness and arbitrariness of the fee and recovery rate of 1.85 times the salary of customs officers.6. Policy to appoint and post custom officers on a non-cost recovery basis.Detailed Analysis:1. Legality of Levy and Collection of Cost Recovery Charges:The petitioners challenged the levy and collection of cost recovery charges for customs officers posted at their ICDs/CFSs/ACCs/EPZs, arguing that customs officers are permanent employees performing sovereign functions and should not impose charges on them. They contended that such charges are unconstitutional under Articles 14 and 265. However, the court held that the cost recovery charges are a 'fee' for services rendered by the customs officers, not a 'tax.' The fee is justified because it is related to the services provided by the customs officers at these facilities, which are operated by the petitioners for commercial gain. The court emphasized that the fee has a quid pro quo, meaning the charges are in exchange for specific services provided by the customs officers.2. Refund of Charges Collected Since Inception:The petitioners sought a refund of all charges collected from them since the inception of the cost recovery scheme. The court did not grant this relief, as it found that the charges were legally justified and backed by statutory provisions. The petitioners had willingly undertaken to bear these costs as a pre-condition for being appointed as custodians under Section 45 of the Customs Act.3. Quashing of Demands for Recovery of Custom Staff Costs:The petitioners also sought to quash the demands issued for the recovery of custom staff costs at the rate of 1.85 times the salary of the customs officers. The court upheld the validity of these demands, stating that the actual cost to the government includes hidden and other expenses beyond the salary paid. The rate of 1.85 times the salary was calculated based on principles under the General Financial Rules and was deemed reasonable and necessary to cover the government's expenses.4. Constitutional Validity of Guideline No. 10 of Circular No. 128/95-Cus and Regulation 5(2) of Handling of Cargo in Customs Areas Regulations, 2009:The petitioners challenged the constitutional validity of Guideline No. 10 of Circular No. 128/95-Cus and Regulation 5(2) of the Handling of Cargo in Customs Areas Regulations, 2009, arguing that they were ultra vires to Articles 14 and 265 of the Constitution. The court found that these provisions were valid and within the jurisdiction of the respondents. The guidelines and regulations were issued under the authority of the Customs Act and were necessary to ensure the proper functioning and cost recovery for services provided at the ICDs/CFSs/ACCs/EPZs.5. Reasonableness and Arbitrariness of the Fee and Recovery Rate of 1.85 Times the Salary:The petitioners argued that the fee of 1.85 times the salary of customs officers was unreasonable and arbitrary. The court disagreed, stating that the fee was calculated based on established financial principles and was necessary to cover the full cost of the services provided, including hidden expenses and additional costs incurred due to salary revisions from the implementation of the Sixth and Seventh Pay Commissions. The court cited previous judgments that supported the reasonableness of such charges.6. Policy to Appoint and Post Custom Officers on a Non-Cost Recovery Basis:The petitioners sought a direction for the Union of India to frame a policy to appoint and post custom officers at their facilities on a non-cost recovery basis. The court did not grant this relief, as it found that the current system of cost recovery was legally justified and necessary to cover the government's expenses in providing these services. The petitioners had willingly agreed to bear these costs as part of their appointment as custodians.Conclusion:The court dismissed all the writ petitions, upholding the legality and constitutionality of the cost recovery charges for customs officers posted at the petitioners' facilities. The charges were deemed to be a justified 'fee' for services rendered, with a clear quid pro quo, and were necessary to cover the government's expenses. The court found no basis for the petitioners' claims for refunds, quashing of demands, or changes in policy.