2024 (7) TMI 1703 - AT - Customs

Container Freight Station not liable for cost recovery charges under Regulation 5(2) of the 2009 Regulations; appeal allowed

Central Warehousing Corporation Versus Commissioner of Customs, Ahmedabad Hon’ble Mr. Ramesh Nair, Member (Judicial) And Hon’ble Mr. C.L. Mahar, Member (Technical)

CESTAT, Ahmedabad AT held that a Container Freight Station is not liable to have cost recovery charges confirmed by the Commissioner because there is no ... Liability of appellant, Container Freight Station to pay cost recovery charges in terms of Regulation 5(2) of the Handling of Cargo in Customs Areas Regulations, 2009 - HELD THAT:- The issue is no longer res-integra as this Tribunal, following the Hon’ble Telangana High Court in the case of GMR Hyderabad International Airport Limited [2014 (2) TMI 702 - ANDHRA PRADESH HIGH COURT] wherein the decision of Hon’ble Delhi High Court in the case of Allied ICD Services Limited vs. UOI [2018 (8) TMI 1610 - DELHI HIGH COURT] as well as Bombay High Court decision in the case of Mumbai International Airport Pvt. Limited vs. UOI [2014 (10) TMI 508 - BOMBAY HIGH COURT] has been distinguished. This Tribunal order in the case of Diamond and Gem Development vs. Commissioner of Customs, Ahmedabad [2024 (7) TMI 937 - CESTAT AHMEDABAD] held that 'Though there is condition for payment of cost recovery charges by the custodian. However, there is no statutory mechanism to recover the cost recovery charges by the Commissioner. Therefore, in absence of any power to recover the cost recovery charges the Ld. Principal Commission in the present impugned order confirming the cost recovery charges is without jurisdiction and without authority of law.' In view of the above decision in the case of Diamond and Gem Development, the issue is no longer res-integra. Accordingly, following the judgments, the impugned order is not sustainable, accordingly, the same is set-aside and the appeal is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a Customs Cargo Service Provider/Custodian is liable to pay cost recovery charges under Regulation 5(2) and Regulation 6(1)(o) of the Handling of Cargo in Customs Areas Regulations, 2009 ('HCCAR 2009'). 2. Whether HCCAR 2009 (in particular Regulation 5(2) and Regulation 6(1)(o)) furnishes a statutory machinery or authority to the Commissioner to recover outstanding cost recovery charges (rates and manner of recovery) absent express specification by the Ministry of Finance. 3. Whether the levy of cost recovery charges under HCCAR 2009 is ultra vires the Customs Act, 1962 (notably Sections 141 and 157) because no express power is conferred to impose such levy by subordinate legislation. 4. Whether cost recovery charges can be imposed where no separate/custom officers are actually posted for a specific custodian's facility and whether payment of alternative charges (e.g., MOT/merchant overtime charges) precludes recovery under HCCAR 2009. 5. Whether penalty under the Regulations can be sustained for alleged non-payment of cost recovery charges when recovery itself is without jurisdiction. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Liability under Regulations 5(2) and 6(1)(o) Legal framework: Regulation 5(2) requires an applicant to undertake to bear the cost of Customs officers posted at such customs area on a cost recovery basis 'and shall make payments at such rates and in the manner prescribed,' unless exempted by Ministry of Finance. Regulation 6(1)(o) records a corresponding responsibility. Precedent treatment: Multiple decisions of this Tribunal and certain High Courts (including the Telangana High Court) have held that the mere obligation in HCCAR 2009 does not confer a statutory mechanism for recovery; other decisions (noted from other benches/high courts) have allowed recovery. The Tribunal here follows precedents holding non-recoverability where procedural/rate specification is absent. Interpretation and reasoning: The Court reads Regulations 5(2) and 6(1)(o) conjunctively and concludes they impose a contractual/undertaking obligation on custodians but expressly condition payments on rates and manner to be prescribed by the Government/Ministry of Finance. Absent prescription, the Regulations do not create an operative machinery enabling the Commissioner to quantify or effect recovery. Ratio vs. Obiter: Ratio - obligation to bear cost is conditional on rates/manner being prescribed; absent such prescription, no authority exists to recover charges. Obiter - remarks on policy distinctions between one-time fees and recurring cost-recovery obligations. Conclusion: Liability to pay under Regulations 5(2) and 6(1)(o) is not actionable/enforceable by the Commissioner in absence of rates and manner specified by the Ministry of Finance; hence recovery ordered without such prescription is without jurisdiction. Issue 2 - Absence of statutory mechanism for recovery; requirement of specific prescription by Ministry of Finance Legal framework: Delegated legislation (Section 157) may empower the Board to make regulations consistent with the Act, but taxing/fee-levying powers by subordinate legislation require clear, specific authority; Regulations themselves must indicate a recovery mechanism or the executive must prescribe rates/manner as the Regulation contemplates. Precedent treatment: Tribunal and multiple Division Benches have relied on higher-court pronouncements that fiscal impositions by subordinate legislation require express authority and that taxation/fees cannot be imposed by implication through unclear delegated powers. Interpretation and reasoning: The Court applies established principles for construction of fiscal statutes - taxing provisions require clear words; ambiguous provisions favor the taxpayer. Because Regulation 6(1)(o) refers to rates/manner to be specified by the Government and there is no evidence of such specification, no statutory machinery exists to recover unpaid cost recovery charges; regulation 12 (procedure for suspension/revocation) does not itself provide for monetary recovery. Ratio vs. Obiter: Ratio - absence of prescribed rates/manner renders Regulations incapable of supporting recovery; Obiter - discussion on distinction between tax and fee and necessity of earmarking/quid pro quo for fees. Conclusion: Recovery cannot be effected in absence of prescription by the Ministry of Finance; administrative action purporting to recover charges under HCCAR 2009 is ultra vires the Regulations' own structure. Issue 3 - Ultra vires challenge to HCCAR 2009 under Sections 141 and 157 of the Customs Act Legal framework: Section 141(1)/(2) subjects goods/conveyances to control by customs officers and permits regulations as to the manner goods are handled; Section 157 empowers the Board to make regulations consistent with the Act and lists specific matters that may be regulated. Delegated power to levy taxes/fees must be expressly conferred or be within narrow implied limits. Precedent treatment: The Telangana High Court (and certain other authorities cited) held that HCCAR 2009 to the extent it purports to impose cost recovery charges is ultra vires because Section 157 does not specifically authorize imposition of such charges; other High Court decisions (on which Revenue relies) are treated as distinguishable. Interpretation and reasoning: The Tribunal follows the reasoning that neither Section 141 nor Section 157 specifically authorises the framing, by regulation, of a levy recovering salaries/allowances of Government officers from custodians; imposition of an administrative charge tantamount to a tax or fee needs specific statutory backing and cannot be read into general regulatory powers by implication. Ratio vs. Obiter: Ratio - Regulations purporting to impose cost recovery charges are ultra vires the Customs Act to the extent they seek to impose such charges without specific statutory authority; Obiter - detailed constitutional observations on Article 265 and budgetary allocation principles. Conclusion: HCCAR 2009 cannot validly authorise recovery of salaries/allowances of Customs officers from custodians in the absence of express statutory empowerment; the levy is ultra vires. Issue 4 - Recoverability where no separate officers are posted; interplay with prior payment of MOT charges Legal framework: Regulation text contemplates payment for Customs officers posted 'at such customs area.' Case law establishes that cost recovery is contingent upon actual posting of officers for a custodian's premises. Precedent treatment: Tribunal decisions (e.g., Goodearth) held that where no separate officers are posted, Regulations 5(2)/6(1)(o) are inapplicable and appellants who paid MOT charges as accepted by Customs are not liable for cost recovery charges subsequently demanded. Interpretation and reasoning: The Tribunal notes that where the department itself permitted payment of MOT charges because no separate staff had been posted, the Regulatory obligation to bear costs of officers posted cannot be invoked. The retrospective regularisation clause of Regulation 4 is limited to appointment regularisation and does not validate retrospective recovery where no separate officers were ever posted. Ratio vs. Obiter: Ratio - cost recovery charges are not recoverable in respect of a custodian's premises when no separate Customs officers were posted; Obiter - reference to Article 14 concerns where disparate charging practices occur. Conclusion: No recovery may be sustained where there is no evidence of separate posting of officers; prior accepted payment of MOT charges is relevant and may preclude subsequent cost-recovery demands. Issue 5 - Validity of penalty for non-payment of cost recovery charges Legal framework: Regulation 12(8) permits penalty for contravention of the Regulations; but contravention presupposes an actionable obligation under the Regulations. Precedent treatment: Tribunal and benches held that if recovery itself cannot be sustained under HCCAR 2009, any penalty premised on non-payment of such recovery cannot stand. Interpretation and reasoning: Because the primary demand for cost recovery is held unsustainable (see Issues 1-4), an imposition of penalty for non-payment of that demand constitutes enforcement of a non-existent obligation and therefore cannot be sustained. Ratio vs. Obiter: Ratio - penalty predicated on non-payment of cost recovery charges which cannot lawfully be recovered is invalid; Obiter - none material beyond inferential implication. Conclusion: Penalty imposed for alleged failure to pay cost recovery charges is not sustainable where the underlying recovery is without jurisdiction. Overall Conclusions and Cross-References 1. The Tribunal concludes (following the reasoning summarized above and prior Tribunal/High Court decisions) that a custodian/CCSP cannot be compelled to pay cost recovery charges under HCCAR 2009 in the absence of rates and manner being prescribed by the Ministry of Finance (see Issues 1-2). 2. Regulations that attempt to effectuate such recovery without express statutory or prescribed executive machinery are ultra vires the Customs Act and constitutionally infirm to that extent (see Issue 3). 3. Where no separate customs officers were posted for a particular custodian's facility, the obligation to bear cost of posted officers does not arise; payments accepted as MOT or similar by the department are relevant (see Issue 4). 4. Consequential imposition of penalties based on non-payment of such unsustainable demands is likewise unsupportable (see Issue 5).