2020 (12) TMI 40 - HC - Customs

Court Upholds Tribunal Decision on Customs Act Interpretation

COMMISSIONER OF CUSTOMS Versus KONKAN STORAGE SYSTEMS KOCHI P. LTD.

The court ruled in favor of the respondent on all substantial questions of law, upholding the Tribunal's decision. It affirmed that the warehouse keeper ... Adjustment / Appropriation of sale proceeds from sale of stored goods in auction sale - Priority of claim - interest on customs duty - precedence over the claims of the warehouse keeper - quantification of customs duty - cum duty method - CBEC Circular No. 71/2001, dated November 28, 2001 - Whether the warehouse keeper is the custodian of goods under Chapter IX of the Customs Act, 1962? - HELD THAT:- Section 73A(1), when it says that all warehoused goods shall remain in the custody of the person who has been granted a licence under section 57 or 58 or section 58A until they are cleared for home consumption, clearly speaks about the period of custody. The said section, even though it was inserted only on May 14, 2016, clarifies the position that the warehouse keeper has custody of the goods which are warehoused - Decided in favour of the respondent and against the appellant. Whether the proceeds of auction sale conducted as ordered by the District Court under section 72 are to be appropriated as provided in section 150 of the Customs Act? - HELD THAT:- The section clearly provides for sale by public auction or by tender or with the consent of the owner in any other manner, of any goods not being confiscated goods and that too under any provision of the Act. section 72 deals with sale of goods which are warehoused. As such, sale of goods by invoking section 72 comes within the ambit of section 150 since it is not a sale of confiscated goods. Confiscation of goods and its consequences are dealt with in Chapter XIV of the Act - answered against the appellant and in favour of the respondent. Whether the quantification of customs duty is to be made by following cum-duty method? - HELD THAT:- As clearly stated by the Department itself, there can be no further doubt regarding the manner in which the customs duty has to be arrived at in case of sale of uncleared goods. In the case on hand, admittedly, the customs duty has not been arrived by following the cum-duty method. The finding of the Tribunal on the above question cannot be faulted in any manner - answered against the appellant and in favour of the respondent. Whether interest on customs duty can have precedence over the claims of the warehouse keeper? - HELD THAT:- The order of precedence contained in section 150(2) does not leave any room for doubt. Since the amount is received as a result of a public sale, the first priority is given as per section 150(2)(a) to the expenses for sale. The second priority is given, as per section 150(2)(b) to the expenses that were incurred prior to the goods coming into the custody of the warehouse keeper, i. e., freight, etc. The third priority is to the State for its claim towards customs duty as can be seen from section 150(2)(c). The fourth priority is for the dues to the warehouse keeper in the form of rent and charges as is seen from section 150(2)(d). What is most relevant is section 150(2)(e), which says that after the claim under sub-section (2)(d), the next priority is for the payment of any amount due from the owner of the goods to the Central Government under the provisions of this Act or any other law relating to customs. Any claim other than customs duty, which comes under sub-section (2)(c), under the Act, can be settled only after the claim under section 150(2)(d) is settled - the claim for interest can come only under section 150(2)(e). Even without the aid of the above clarification, section 150 can be understood only to mean that interest on customs duty cannot have precedence over the charges and rent due to the warehouse keeper. The clarification dated May 22, 1990 can be treated as a contemporaneous exposition - thus, interest on customs duty does not have precedence over the warehousing charges and rent - answered against the appellant and in favour of the respondent. Appeal dismissed. Issues Involved:1. Custody of warehoused goods under Chapter IX of the Customs Act, 1962.2. Appropriation of proceeds from auction sale under section 72 as per section 150 of the Customs Act.3. Method of quantification of customs duty using cum-duty method.4. Precedence of interest on customs duty over the claims of the warehouse keeper.Detailed Analysis:Custody of Warehoused Goods:The court examined whether the warehouse keeper is the custodian of goods under Chapter IX of the Customs Act, 1962. The court interpreted sections 62 and 63, concluding that the warehouse keeper, who has the right to receive rent and sell goods for unpaid dues, is indeed the custodian of the warehoused goods. This conclusion was further supported by the introduction of section 73A by the Finance Act, 2016, which explicitly states that warehoused goods remain in the custody of the warehouse keeper until cleared for home consumption or other purposes. Therefore, the court ruled in favor of the respondent, affirming that the warehouse keeper is the custodian of the goods.Appropriation of Auction Sale Proceeds:The court addressed whether the proceeds from an auction sale under section 72 should be appropriated as provided in section 150 of the Customs Act. Section 150(1) specifies that non-confiscated goods sold under any provision of the Act must be sold by public auction or other methods with the owner's consent. Since section 72 deals with the sale of warehoused goods, the court concluded that such sales fall within the ambit of section 150. Thus, the court ruled that the proceeds from auction sales should be appropriated according to section 150, favoring the respondent.Quantification of Customs Duty:The court considered whether customs duty should be quantified using the cum-duty method. Referring to the Supreme Court's decision in Union of India v. Associated Container Terminal Ltd., the court emphasized that customs duty should be calculated by working backwards from the sale proceeds, treating the sale price as cum-duty price (value + duty). This approach is further supported by the CBEC manual and circular dated November 28, 2001. The court found that the customs duty in this case was not calculated using the cum-duty method, thus validating the Tribunal's finding and ruling in favor of the respondent.Precedence of Interest on Customs Duty:The court examined whether interest on customs duty takes precedence over the claims of the warehouse keeper. Section 150(2) outlines the order of precedence for applying sale proceeds, prioritizing expenses of sale, freight and other charges, customs duty, and then charges due to the warehouse keeper. The section does not mention interest on customs duty. The court referred to a CBEC clarification dated May 22, 1990, which states that interest on customs duty cannot take precedence over warehouse rent and charges. The court concluded that interest on customs duty falls under section 150(2)(e), which is subordinate to the warehouse keeper's claims under section 150(2)(d). Thus, the court ruled that interest on customs duty does not have precedence over warehousing charges and rent, favoring the respondent.Conclusion:The appeal was dismissed, and the court upheld the Tribunal's decision, ruling in favor of the respondent on all substantial questions of law. The court emphasized the statutory interpretation and the principle of contemporanea expositio in reaching its conclusions.