2004 (2) TMI 66 - SC - Customs

Appeals dismissed: demurrage charges cannot be included in assessable value of imported goods under CBEC circular

COMMISSIONER OF CUSTOMS, CALCUTTA Versus INDIAN OIL CORPORATION LTD.

The SC dismissed appeals challenging the inclusion of demurrage charges in assessable value of imported goods. The Court held that CBEC circulars issued ... Binding nature of CBEC circulars on the Revenue - Scope of Section 151A of the Customs Act - Inclusion of demurrage charges in the assessable value of imported goods - Whether the respondent had wilfully mis-declared the value of the goods while making entries under Section 46 of the Customs Act, 1962 by deliberately suppressing that the demurrage charges had been paid to the ship owners under the charter party agreements? Per : Ruma Pal, J - HELD THAT:- As we have noted the provisions of Section 151A are in pari materia with the provisions of S. 119 of the Income Tax Act, 1961 and Section 37B of the Central Excise Act. Parliament introduced Section 151A by an amendment to the Customs Act, 1962 in 1995 but with effect from 27th December, 1985, when this Court had already construed identical language in the manner indicated. It may be assumed that Parliament had legislatively approved the construction by using the exact words so construed again in the Customs Act. There is, therefore, no reason why the principles enunciated by this Court under the two earlier Acts should not also be determinative of the construction put on the later in respect of a materially similar statutory provision. This was also not argued by the appellant. The decision in Panchmahal Steel [1996 (12) TMI 221 - CEGAT, NEW DELHI] does not allow an adjudicating officer to act in violation of the Circular issued under Section 151A. Incidentally the decision in Panchmahal (supra) was an ex-parte one in the sense that the importer was not represented when the matter was argued. Its failure to prefer an appeal could not in the circumstances mean that the issue had become final as far as all other importers are concerned. Moreover, there was no reference to the Circular nor any reason for coming to the conclusion that demurrage was includible in the value of the imported goods. We may mention here that the stand of the appellant that this Court had taken the view that demurrage was includible in Garden Silks [1999 (9) TMI 88 - SUPREME COURT], both in the adjudication order and before the Tribunal appears to have been abandoned, in our opinion rightly, in the written notes of submission. Apart from the decision of the Constitution Bench in Dhiren Chemicals [2002 (2) TMI 115 - SC ORDER], Garden Silks (supra) was a decision on landing charges. It did not construe the 1988 Rules. The circular on the other hand was issued on a re-examination of the issue in the light of the GATT Valuation principles as incorporated in the 1988 Rules. In this view it is not necessary for us to determine the further issue whether in the absence of Board circulars, demurrage would still be includible in the assessable value of the imported goods. For the purposes of these appeals, it is sufficient to hold, as we do, that demurrage was wrongly included by the adjudicating officer in the assessable value contrary to the directive of the CBEC at a time when the circular had not been withdrawn. Thus, the appeals are dismissed with costs. Per : P. Venkatarama Reddi, J.- HELD THAT:- As far as the present case is concerned, there is no direct decision of the Supreme Court which has taken a view different from what was expressed in the Circular of 1991. As clarified by my learned sister, the decision of this Court in Garden Silks case has no direct bearing on the issue involved in this case. It did not construe the 1988 Rules. Hence, the doubts expressed by me in regard to the correctness of the principle laid down in Dhiren Chemicals Industries case need not necessarily be resolved in the instant case. Still, the observation in Dhiren Chemicals Industries was sought to be pressed into service to counter the contention of the appellant that a cloud has been cast on the Circular in the wake of the Tribunal's order in Panchmahal Steel case and therefore the Circular had been eclipsed. Whether the Tribunal's order stands on the same footing as the decision of this Court, insofar as its impact on the Circular is concerned is one aspect which will have to be considered in an appropriate case. Here, that issue need not be probed further. I agree with my learned sister that the order of the Tribunal being an ex parte one, it does not take precedence over the binding circular under Section 151A and I may add that the Tribunal's decision is not so categorical and clear as to strike at the root of the Circular in its application to the facts of the present case. Hence, there is no need for further discussion on this point. The dicta/observations in some of the decisions need to be reconciled or explained. The need to redefine succinctly the extent and parameters of the binding character of the circulars of Central Board of Direct Taxes or Central Excise looms large. It is desirable that a Constitution Bench hands down an authoritative pronouncement on the subject. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court were:Whether demurrage charges paid under charter party agreements form part of the assessable value of imported goods under Section 14 of the Customs Act, 1962, and the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988;The binding nature and effect of the Central Board of Excise and Customs (CBEC) circular dated 14th August 1991, which excluded demurrage charges from assessable value, on the Revenue and adjudicating authorities under Section 151A of the Customs Act;The interplay between statutory provisions, Board circulars, and judicial precedents, particularly the extent to which circulars issued under Section 151A are binding on the Revenue and whether they can override or be overridden by judicial decisions;The applicability and interpretation of the principle of promissory estoppel in the context of the Revenue's departure from the circular's instructions;The legal effect of prior Tribunal decisions, including the Panchmahal Steel Ltd. case, on the assessability of demurrage charges and their impact on the binding nature of the 1991 circular;Whether the Revenue was justified in issuing a show cause notice and confirming demand including demurrage charges contrary to the Board's circular;The constitutional and statutory hierarchy between circulars issued by the Board and binding Supreme Court decisions, including the scope and limits of Section 151A of the Customs Act in this regard.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Inclusion of Demurrage Charges in Assessable Value of Imported GoodsThe legal framework involves Section 14 of the Customs Act, 1962, which mandates that the assessable value of imported goods be based on the price at which such or like goods are ordinarily sold for export to India. The Customs Valuation Rules, 1988, particularly Rule 9(2)(a), incorporate international GATT valuation principles and require inclusion of actual freight costs in assessable value.The appellant Revenue contended that demurrage charges constitute part of the cost of freight and thus must be included in the assessable value. They relied on precedents such as M/s. Eicher Tractors Ltd., and international decisions including a U.S. case (U.S. v. Atlantic Refining Co.) and a European Court decision, which treated demurrage as extended freight costs.The respondent argued that demurrage is an extraordinary payment, not an incident of ordinary sale, and thus excluded under Section 14 and the 1988 Rules. They relied on the CBEC circular of 1991 and judicial decisions distinguishing demurrage from ordinary freight costs.The Court noted that the 1991 circular explicitly excluded demurrage from assessable value, describing it as a penalty or reward under charter contracts, not part of freight or price paid for goods. The Tribunal had earlier accepted this view in the present case, and the appellant's reliance on the Panchmahal Steel Ltd. decision was scrutinized, noting that it was an ex parte order without reference to the circular and thus not binding on others.Applying the law to facts, the Court held that demurrage charges were wrongly included in the assessable value contrary to the circular, and that the circular's exclusion of demurrage was binding on the Revenue and adjudicating authorities during its operative period.Issue 2: Binding Nature of the CBEC Circular under Section 151A of the Customs ActSection 151A empowers the Central Board of Excise and Customs to issue orders, instructions, and directions to customs officers for uniformity in classification and levy of duty, which officers and persons executing the Act must observe and follow.The Court examined analogous provisions under the Income Tax Act (Section 119) and Central Excise Act (Section 37B), with a well-established line of precedent holding that circulars issued under these provisions are binding on the Revenue and must be followed by adjudicating authorities.The Court emphasized that while circulars are not binding on courts or assessees, the Revenue cannot take a stand contrary to a binding circular. Show cause notices and demands issued contrary to such circulars are invalid ab initio, and the Revenue cannot file appeals opposing the circular's instructions.The appellant's argument that the respondent did not act on the circular and thus promissory estoppel did not apply was rejected. The binding nature of the circular arises from statutory mandate and the need for uniformity, not from estoppel principles.The Court concluded that the 1991 circular excluding demurrage from assessable value was binding on the Revenue and the adjudicating authorities during the relevant period and that the demand including demurrage was unsustainable.Issue 3: Interaction Between Board Circulars and Supreme Court DecisionsThe Court considered the appellant's contention that the circular had been withdrawn in 2001 and that certain Supreme Court decisions, including Garden Silk Ltd., supported inclusion of demurrage charges.The Court clarified that Garden Silk Ltd. dealt with landing charges and did not construe the 1988 Rules or the issue of demurrage. The circular was issued after re-examining the issue in light of GATT principles and remained binding until withdrawn.A separate concurring opinion expressed reservations about the binding nature of circulars even after Supreme Court decisions contrary to them, highlighting the constitutional mandate under Article 141 that laws declared by the Supreme Court are binding on all courts and authorities.This opinion questioned whether Section 151A should require adherence to circulars that conflict with binding Supreme Court rulings, suggesting that constitutional mandates should prevail over statutory circulars. It noted the absence of authoritative reasoning in conflicting precedents and called for a Constitution Bench to clarify the law.Issue 4: Effect of Prior Tribunal Decisions and the Panchmahal Steel Ltd. CaseThe appellant relied on the Panchmahal Steel Ltd. decision of the Tribunal, which held demurrage charges includible in assessable value. The Court observed that this was an ex parte decision without representation of the importer and did not reference the 1991 circular. Therefore, it did not override the binding circular under Section 151A.The Court held that the Tribunal's order did not create binding precedent on the issue and could not be used to justify ignoring the Board's instructions.Issue 5: Procedural and Natural Justice ConcernsThe respondent contended that the show cause notice was issued and demand confirmed with undue haste, closed mind, and violation of natural justice. The Court did not extensively delve into these procedural objections, focusing primarily on the substantive legal issue of valuation and the binding effect of the circular.3. SIGNIFICANT HOLDINGSThe Court held:'Although a circular is not binding on a Court or an assessee, it is not open to the Revenue to raise the contention that is contrary to a binding circular by the Board. When a circular remains in operation, the Revenue is bound by it and cannot be allowed to plead that it is not valid nor that it is contrary to the terms of the statute.''A show cause notice and demand contrary to existing circulars of the Board are ab initio bad.''It is not open to the Revenue to advance an argument or file an appeal contrary to the circulars.''The circular in no uncertain terms excludes demurrage from the assessable value. In the light of the judicial principles enunciated earlier, it was not open to the appellant to either issue the show cause notice or contend otherwise.'Core principles established include:Demurrage charges are not part of the assessable value of imported goods under Section 14 of the Customs Act and the 1988 Valuation Rules, as per the CBEC circular dated 14th August 1991;The CBEC circulars issued under Section 151A are binding on the Revenue and must be followed by adjudicating authorities to ensure uniformity in levy of customs duty;The Revenue cannot raise demands or file appeals contrary to such binding circulars while they remain in force;Where a circular conflicts with a Supreme Court decision, there is judicial uncertainty, but the constitutional mandate under Article 141 suggests that Supreme Court decisions should prevail, a point flagged for future authoritative resolution;Prior Tribunal decisions that are ex parte and do not consider binding circulars do not override the circular's binding effect.Final determinations on each issue were that the inclusion of demurrage charges in the assessable value was improper; the show cause notice and demand based on such inclusion were invalid; the CBEC circular was binding and precluded the Revenue's contrary stance; and the appeals by the Revenue were dismissed with costs.