2024 (11) TMI 1479 - AT - Customs

Demurrage charges excluded from assessable value for customs duty calculation under Rule 10 Custom Valuation Rules 2002

CESTAT Kolkata held that demurrage charges cannot be included in the assessable value for calculating customs duty. The tribunal followed the precedent ... Calculation of customs duty - inclusion of charges of demurrage to the value so as to arrive at the assessable value for payment of Custom Duty - HELD THAT:- The issue is squarely covered by the decision of the Hon’ble Orissa High Court in the case of CC Ahmedabad vs Reliance Industries Ltd [2023 (10) TMI 963 - CESTAT AHMEDABAD] where it was held that 'From the above order, it is settled that the demurrage charges cannot be included in the transaction value of imported goods. We further find that as per the order in original, the entire case of the Revenme is that as per the explanation added to Rule 10 of Custom Valuation Rules, 2002, the cost of transportation of imported goods should be included in the transaction value.' The impugned order is set aside - appeal allowed. ISSUES: Whether demurrage charges can be included in the assessable value of imported goods for the purpose of Customs Duty under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.Whether the Explanation to Sub-Rule (2) of Rule 10 of the Customs Valuation Rules, 2007, which includes ship demurrage charges as part of cost of transportation for valuation, is ultra vires the Customs Act, 1962. RULINGS / HOLDINGS: The Court held that demurrage charges cannot be included in the transaction value of imported goods for Customs Duty valuation, as demurrage is a kind of penalty and is not envisaged by the legislation to be included under Section 14 of the Customs Act, 1962.The Explanation to Sub-Rule (2) of Rule 10 of the Customs Valuation Rules, 2007, which includes demurrage charges in the cost of transportation, is declared 'bad and hence declared ultra vires the Constitution/provision of Section 14 of the Customs Act, 1962,' and is accordingly struck down. RATIONALE: The Court applied the principle that statutory interpretation must be guided by the scope and object of the principal Act, noting that the principal Act includes costs such as commissions, brokerage, transportation, insurance, loading, unloading, and handling charges, but excludes penalties like demurrage.The Court relied on precedent from the Hon'ble Supreme Court decisions in Wipro Ltd., Essar Steel Ltd., and Mangalore Refinery & Petrochemicals Ltd., which clarified that demurrage cannot be included for valuation under the Customs Act, 1962.The Court followed the binding authority of the Hon'ble Orissa High Court and the coordinate Bench of the Tribunal Ahmedabad, which both held that the Explanation to Rule 10 including demurrage charges was ultra vires the Customs Act, 1962.This judgment reflects adherence to judicial discipline by following binding precedents and clarifies the limits of legislative power in rule-making under the Customs Act.