2019 (10) TMI 226 - HC - Customs

Customs Valuation Rule: Demurrage charges not part of assessable value.

Tata Steel Ltd. and Ors. Versus Union of India and Ors.

The court held that the 'Explanation' to Sub-rule (2) of Rule 10 of the Customs Valuation Rules, 2007, including demurrage charges in the assessable value ... Valuation - inclusion of 'demurrage' and 'dispatch' money as a part of assessable value.- whether part of freight or not - Validity of 'Explanation' to Sub-rule (2) of Rule 10 of the Customs Valuation (Determination of Price Imported Goods) Rules, 2007 - vires of of Section 14 of the Customs Act, 1962 HELD THAT:- It is well-settled principle of the statute that while interpreting a statute, one has to go by the scope and object of the principal Act. Under the principal Act, while amending it on 10th October, 2007, proviso has included the costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the Rules. The demurrage has not been included as a part of cost envisaged by the legislation. Further, it is a kind of penalty. Therefore, it could not have been envisaged by the legislation to be included in the definition of Section 14 of the Act. In view of the clarifications by way of judgments of the Hon'ble Supreme Court, more particularly in the cases of WIPRO LTD. VERSUS ASSISTANT COLLECTOR OF CUSTOMS & OTHERS [2015 (4) TMI 643 - SUPREME COURT], it is made clear that demurrage cannot be included for the purpose of valuation under the Customs Act, 1962. Thus, the contentions raised by the petitioner that the relevant provisions in the Principal Act is silent about the demurrage; thus, it was beyond the legislative power to include it in the Rules is accepted and thus the explanation to Sub-Rule (2) of Rule 10 of the Customs Valuation (Determination of Value of Imported Goods)Rules, 2007 is held to be bad and hence declared ultra vires the Constitution/provision of Section 14 of the Customs Act, 1962, and hence the same is struck down. Issues Involved:1. Constitutionality of the 'Explanation' to Sub-rule (2) of Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.2. Inclusion of demurrage charges in the assessable value of imported goods under Section 14 of the Customs Act, 1962.3. Consistency of the Rules with the principal Act.Detailed Analysis:1. Constitutionality of the 'Explanation' to Sub-rule (2) of Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007:The petitioners challenged the 'Explanation' to Sub-rule (2) of Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, arguing that it is ultra vires the provisions of Section 14 of the Customs Act, 1962. The court noted that Section 14 of the Act, both before and after its amendment, did not authorize the inclusion of demurrage charges in the value of imported goods for the assessment of customs duty. The court observed that the demurrage charges are in the nature of penalties and are not part of the freight or the price actually paid or payable for the goods. Therefore, the inclusion of demurrage charges in the assessable value by way of the explanation to Sub-rule (2) of Rule 10 was beyond the legislative intent and scope of Section 14 of the Act.2. Inclusion of Demurrage Charges in the Assessable Value of Imported Goods under Section 14 of the Customs Act, 1962:The court examined the historical context and judicial precedents regarding the inclusion of demurrage charges in the assessable value. It referred to the decision of the Larger Bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) in the case of Indian Oil Corporation Limited v. Commissioner of Customs, Calcutta, which held that demurrage charges should not form part of the assessable value as it would lead to discriminatory assessments. This decision was upheld by the Supreme Court. The court also considered subsequent circulars and clarifications issued by the Ministry of Finance, which initially excluded and later included demurrage charges in the assessable value. However, the court emphasized that the principal Act did not envisage the inclusion of demurrage charges, and judicial precedents consistently held that such charges should not be included.3. Consistency of the Rules with the Principal Act:The court analyzed the amendments to Section 14 of the Customs Act, 1962, and the corresponding changes in the Customs Valuation Rules. It noted that while the amended Section 14 included costs and services such as commissions, brokerage, and transportation costs, it did not explicitly include demurrage charges. The court referred to the Supreme Court's decisions in cases like Rasiklal Kantilal & Co. v. Board of Trustees of Port of Bombay, where it was held that demurrage charges are not part of the value of goods for customs duty purposes. The court also cited the principle that subsidiary legislation (rules) must be consistent with the principal Act and cannot expand or constrict its scope. Therefore, the court held that the explanation to Sub-rule (2) of Rule 10 of the Customs Valuation Rules, 2007, was inconsistent with the principal Act and declared it ultra vires.Conclusion:The court concluded that the 'Explanation' to Sub-rule (2) of Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, which included demurrage charges in the assessable value of imported goods, was beyond the scope of Section 14 of the Customs Act, 1962. It declared the explanation ultra vires and struck it down. The court emphasized that demurrage charges, being in the nature of penalties, cannot be included in the assessable value for customs duty purposes, as consistently held by judicial precedents and in line with the legislative intent of the principal Act.