2023 (10) TMI 447 - HC - Customs

Petitioners Granted Waiver of Cost Recovery Charges for 2017-2019; Refund Ordered for Post-07/01/2019 Collections

The court concluded that the petitioners met the necessary benchmarks for a waiver of cost recovery charges as per the 2005 circular for the years 2017-18 ... Seeking waiver (exemption) of cost recovery basis - whether the CFS has achieved the bench marking for waiver of cost recovery charges - CFS has operated for two consecutive years from the date of sanction order for creation of posts - conditions as mentioned in instructions issued by GOI on 12.09.2005, fulfilled or not. Case of appellant is that waiver of recovery of charges could not be restricted on the ground that the proposal for exemption from payment of cost can be considered after the CFS has operated for two consecutive years from the date of sanction order for creation of posts which sanction order was dated 18.03.2020. HELD THAT:- The petitioners on 12.05.2008 made an application for establishment of a service unit at Mundra. By a notification dated 19.08.2011, in exercise of powers under Rule 11(11) of the Rules, the entire area of the CFS of the petitioner company was designated as Landing Place for unloading of imported cargo and loading of export goods meant for both SEZ and DTA. By a notification no. 2/2016-17, the office of the Principal Commissioner of Customs appointed the petitioner company as a Custodian of such cargo in accordance with the notification dated 19.08.2011 on certain conditions. Reading the aforesaid condition would indicate that the posting of custom officials at the CFS of the petitioner company, the petitioners had to bear costs of the custom officials posted at the station of the petitioners. This was on a cost recovery basis and the payments were at such rates and the manners specified by the Government of India. Reading of the notification dated 12.09.2005 would indicate that it deals with waiver of payment of cost recovery charges in respect of CFS. Reading the communication would indicate that the authorities considered regularization of those cost recovery posts at ICDs/CFS which have been in operation for two consecutive years with following performance benchmarks for the past two years. In case of the petitioners , admittedly, for the two yeas i.e. 2017-18 & 2018-19 the benchmark beyond 1200 for handling containers and as far as the number of bills of entry and shipping bills has been complied with. In the impugned communication, it is the case of the respondents that since the sanction of such posts was with effect from 18.03.2020 the waiver can be considered only after two years from such date and on fulfilling the additional conditions as per the circular dated 12.09.2005. Perusal of the records in the petition would indicate that when the sanction was accorded to the petitioner company for operating as a Designated Landing Site in accordance with the notification dated 19.08.2011 on 11.05.2016, on 17.07.2014 the office of the Commissioner of Customs, Kandla on the subject of creation of posts on cost recovery basis had observed that the office was in the process of granting approval as custodian to the petitioner company under Section 45 of the Act. As per para 2(b) of Circular No. 34/2003 dated 24.04.2003, it was mandatory to take prior approval for posting of officers and staff on cost recovery basis in the ICD/CFS. The creation of the requisite number of posts should precede the notification and therefore an approval was sought for. It is undisputed that the petitioners have qualified for waiver of cost recovery charges on completion of two years when in the years 2017-18 and 2018-19 they have achieved the benchmark as stipulated in the circular of 12.09.2005 and therefore the sanction of a post was a matter of internal arrangements between the departments which had no bearing on the cost recovery and/or waiver of such charges. The denial of waiver on the ground that such costs cannot be waived as the posts had not been sanctioned at the relevant point of time certainly is arbitrary and therefore cannot be sustained. The petitioners are entitled to waiver of cost recovery charges in light of circular dated 12.09.2005 with effect from 01.07.2019. Costs recovered towards posting of custom officials at the petitioners’ CFS post 01.07.2019 be refunded to the petitioners - Petition allowed. Issues Involved:1. Quashing and setting aside certain letters denying the benefit of exemption.2. Eligibility for waiver from payment of cost recovery charges.3. Legality of recovery of cost recovery charges by the respondent authorities.Summary:Issue 1: Quashing and Setting Aside LettersThe petitioners sought to quash and set aside letters dated 21.08.2020, 25.08.2020, and 31.08.2020, which denied them the benefit of exemption from cost recovery charges. They also challenged a letter dated 12.11.2020 calling for payment of establishment charges on a cost recovery basis.Issue 2: Eligibility for Waiver from Payment of Cost Recovery ChargesThe petitioner company, located in a Special Economic Zone (SEZ), was granted a Letter of Approval (LOA) for operating a Container Freight Station (CFS). They applied for appointment as a Custodian under Section 45 of the Customs Act, and were appointed as such on 11.05.2016. The petitioners were obligated to bear the cost of customs officials posted at their facility on a cost recovery basis, resulting in payments amounting to Rs. 2,53,29,702/-. The Government of India issued instructions on 12.09.2005, providing exemption from cost recovery charges if certain benchmarks were met. The petitioners claimed they met these benchmarks for the years 2017-18 and 2018-19 and thus were entitled to a waiver from 01.07.2019. However, their application for waiver was denied on the ground that the posts were sanctioned only from 18.03.2020.Issue 3: Legality of Recovery of Cost Recovery ChargesThe petitioners argued that the recovery of cost recovery charges was without authority of law since they had fulfilled the necessary benchmarks. They relied on a decision by the Punjab & Haryana High Court, which supported their stance. The respondents contended that the creation of posts on a cost recovery basis was essential before the issuance of notification and that the posts were sanctioned only from 18.03.2020, making the petitioners ineligible for exemption prior to that date.Judgment:The court found that the petitioners had indeed fulfilled the benchmarks for waiver as per the circular dated 12.09.2005 for the years 2017-18 and 2018-19. The sanction of posts was deemed an internal arrangement and had no bearing on the waiver of cost recovery charges. The court held that the denial of waiver based on the sanction date of posts was arbitrary and unsustainable. Consequently, the petitioners were entitled to a waiver of cost recovery charges from 01.07.2019, and any costs recovered post this date were to be refunded. The petition was allowed, and the rule was made absolute.