2023 (7) TMI 217 - AT - Customs

Imported chemical valuation dispute resolved: 1.66% quantity excess deemed within tolerance limits, transaction value controls duty assessment

The CESTAT Ahmedabad allowed the appeal regarding valuation of imported Methyl Iso Butyl Ketone where quantity unloaded exceeded invoice and Bill of ... Valuation of imported goods - Methyl Iso Butyl Ketone - excess of 1.66% in the quantity unloaded as compared to the Invoice and Bill of Lading quantity - HELD THAT:- The Lower Authorities have relied upon the public notice F. No. S/20-022/2010, which does not indicate the basis on which percentage has been fixed in such general terms for all commodities. The decisions have been correctly relied upon by the Learned Advocate in M/S. WELSPUN CORP. LIMITED VERSUS COMMISSIONER OF CUSTOMS, MUNDRA [2018 (12) TMI 173 - CESTAT AHMEDABAD] and are applicable in the present case. The tolerance limit of upto 3 or even 5 % has been approved in the above decisions and therefore percentage of 1.66 is within the limit of indicated tolerance limit of case law. Again the public notice does not bring out commodity wise tolerance limits citing any technical literature for the same and therefore the same cannot be preferred over the criteria indicated by the CBEC in circulars cited above. It, therefore, follows that for Bulk Cargo at the relevant time, not the weight but value paid was the criteria of duty and the transaction value or invoice price and not the quantity, in any case, was to be the basis of assessment. Demand do not sustain - Appeal allowed. The core legal questions considered in this judgment revolve around the determination of the correct basis for customs duty assessment on imported bulk liquid cargo, specifically when there is a marginal excess in quantity received compared to the invoiced and Bill of Lading quantity. The issues include:1. Whether customs duty can be levied on the marginal excess quantity (1.66%) of bulk liquid cargo received beyond the quantity declared in the invoice and Bill of Lading, especially when the price paid corresponds only to the invoiced quantity.2. The applicability and interpretation of the tolerance limits prescribed under the Kandla Custom House Public Notice No. 17/2010, which allows a 1% deviation in weight without adjudication.3. The relevance and precedence of Board Circulars and Supreme Court judgments regarding the basis of customs duty assessment for bulk liquid cargo imports, particularly the role of transaction value versus quantity in cases where duty is leviable on an ad valorem basis.4. Whether the marginal excess quantity is liable to confiscation and penalty under the Customs Act, 1962, given the absence of mala fide intent by the importer.Issue 1: Levy of Customs Duty on Marginal Excess Quantity of Bulk Liquid CargoThe legal framework involves Section 14 of the Customs Act, 1962, which defines the transaction value as the price actually paid or payable for imported goods. The case facts show that the appellant entered into a contract for 500 metric tons (+/- 5%) of Methyl Iso Butyl Ketone at a specified price per metric ton. The foreign supplier invoiced and the appellant paid for 499.826 metric tons, as per the Bill of Lading quantity. Upon discharge at the Port of Kandla, the quantity received was 8.320 metric tons (1.66%) in excess of the invoiced quantity.The lower authorities imposed customs duty on the excess quantity and held it liable for confiscation and penalties, relying on the Public Notice allowing only 1% tolerance. However, the appellant argued that the transaction value remains unchanged, as no additional payment was made for the excess quantity, and thus duty should not be levied on the excess quantity.The Court examined the transaction value concept under Section 14 and noted that the price paid corresponds to the invoiced quantity, not the excess. Therefore, the transaction value remains the same despite the marginal excess quantity.Issue 2: Applicability of Public Notice No. 17/2010 and Tolerance LimitsThe Public Notice No. 17/2010 prescribes a 1% tolerance limit for weight deviation in all cargo except marble slabs, beyond which adjudication and duty loading with penalties are mandated. The lower authorities applied this 1% limit to the present case.The appellant relied on precedents from the Tribunal which permitted higher tolerance limits (up to 3% or even 5%) for bulk liquid cargo, citing decisions where such deviations were condoned without penalty. The Public Notice, however, does not provide commodity-specific tolerance limits or technical justification for the 1% figure.The Court found that the Public Notice's general 1% limit lacks a technical basis and is overridden by the more specific and authoritative guidelines issued by the Central Board of Excise and Customs (CBEC) and judicial decisions. Therefore, the 1.66% excess falls within the accepted tolerance limits recognized in case law for bulk liquid cargo.Issue 3: Relevance of Board Circulars and Supreme Court Judgments on Customs Duty Assessment BasisTwo key Board Circulars were considered: Circular No. 6/2006-Cus dated 12.01.2006 and Circular No. 34/2016-Cus dated 26.07.2016, the latter rescinding earlier circulars in light of the Supreme Court judgment in Mangalore Refinery and Petrochemicals Ltd. The Supreme Court held that for bulk liquid cargo, the shore tank receipt quantity should be the basis for customs duty levy irrespective of whether the duty is specific or ad valorem.However, the Board Circulars clarify that when customs duty is leviable on an ad valorem basis (i.e., based on transaction value), the invoice price paid by the importer is the relevant basis for assessment, not the quantity determined by shore tank measurement. Quantity becomes relevant only when duty is leviable at a specific rate.The Court emphasized that the lower authorities ignored these circulars and the Supreme Court's guidance, incorrectly relying solely on the Public Notice. The correct legal position is that for ad valorem duty, the transaction value (invoice price) governs assessment, and since no additional price was paid for the excess quantity, no additional duty is payable.Issue 4: Liability for Confiscation and Penalty in Absence of Mala FidesThe lower authorities imposed confiscation and penalties under Section 111(m) of the Customs Act, 1962, despite acknowledging the absence of mala fide intent by the appellant. The Court noted that penal actions require a culpable state of mind or violation of statutory provisions with intent.Given that the excess quantity was marginal, within recognized tolerance limits, and no extra payment was made, the Court found no justification for confiscation or penalties. The absence of mala fides further negated the basis for punitive measures.Conclusions and Application of Law to FactsThe Court applied the principles established by the Supreme Court and CBEC circulars to the facts, concluding that the transaction value remains the basis for customs duty assessment on bulk liquid cargo when duty is ad valorem. The marginal excess quantity of 1.66% is within the tolerance limits recognized by case law and does not attract additional duty, confiscation, or penalties.The Public Notice prescribing a 1% tolerance limit was held to be subordinate to the Board's circulars and judicial precedents, lacking technical justification and thus not determinative in this context.The Court allowed the appeal, setting aside the orders of the lower authorities imposing extra duty, confiscation, and penalties.Significant Holdings'For Bulk Liquid Cargo at the relevant time, not the weight but value paid was the criteria of duty and the transaction value or invoice price and not the quantity, in any case, was to be the basis of assessment.''The tolerance limit of upto 3 or even 5 % has been approved in the above decisions and therefore percentage of 1.66 is within the limit of indicated tolerance limit of case law.''The Public Notice does not bring out commodity wise tolerance limits citing any technical literature for the same and therefore the same cannot be preferred over the criteria indicated by the CBEC in circulars cited above.''The order of Lower Authority is not in consonance with board's circulars as well as the cited case laws.''In case of all bulk liquid cargo imports, whether for home consumption or for warehousing, the shore tank receipt quantity i.e., dip measurement on shore into which such cargo is pumped from the tanker, should be taken as the basis for levy of Customs Duty irrespective of whether Customs Duty is leviable at a specific rate or ad valorem basis (including cases where tariff value is fixed under Section 14(2) of the Customs Act, 1962).' (from Board Circular No. 34/2016-Cus.)