2025 (10) TMI 741 - AT - Customs

Assessment of cost recovery charges remanded for reconsideration pending SLP; interest under s.28AA held inapplicable

CESTAT remanded assessment of cost recovery charges (CRC) for reconsideration in view of divergent HC decisions and pending SLP before SC, directing the ... Recovery of cost recovery charges under Section 142 of the Customs Act, 1962 - levy of interest u/s 28AA of Customs Act, 1962 - levy of penalties u/s 117 of the Customs Act, 1962 - admissibility of exemption under Circular No.02/2021 - period April 2020 to September 2023 - HELD THAT:- The very same provisions of the HCCAR, 2009 has been considered by the Bombay high Court, Delhi High Court, Rajasthan High Court and Telangana High Court. In the judgments of the Bombay High Court, Delhi High Court and Rajasthan High Court the provisions of the said Regulation has been held to be valid whereas the Telangana High Court has declared the same as ultra vires. SLP filed against the order of the Bombay High Court, has been dismissed by the Hon’ble Supreme Court being withdrawn by the petitioner, keeping the question of law open. Against the division bench judgement of the Telangana High Court, SLP has been filed before the honourable apex court and the SLP is pending as on date. In the case of Mumbai International Airport Private Ltd. [2014 (10) TMI 508 - BOMBAY HIGH COURT] the Division Bench of the Bombay High Court held that 'Cost recovery charges are not being recovered from the importer/exporter. It is because the Petitioners under a specific document sought the approval firstly, to set up a Perishable Cargo Terminal and for exports. That was granted and in that terminal, services of the Customs staff had to be provided so as to enable the goods exported being cleared therefrom.' More or less a similar issue was raised before the Hon’ble Delhi High Court in the case of Allied ICD Services Ltd. [2018 (8) TMI 1610 - DELHI HIGH COURT], wherein Writ Petitions filed for seeking directions to declare levy and collection of CRC and posting of Customs officers and staff at the Inland Container Depots (ICDs), Container Freight Stations (CFSs), Air Cargo Complexes (ACCs) / Export Processing Zones (EPZs), wholly illegal, unlawful, null and void. The Hon’ble Telangana High Court after considering the Judgments of the Hon’ble Bombay High Court and Delhi High Court declared the provisions of Regulation 2009 as Ultra Vires under which the Cost Recovery Charges has been confirmed by the Commissioner in the impugned Orders. It is opined that even though SLP has been filed by the Revenue against the said judgment of Hon’ble Telangana High Court, in absence of stay of the said Order from the Apex Court and also in absence of contrary judgment of the jurisdictional High Court on the question of vires of the said provision, it is binding on all concerned as on date. In these circumstances, it is prudent to remand the issue to the adjudicating authority to decide the same after taking note of the outcome of the SLP pending before the Hon’ble Apex Court. Levy of interest under Section 28AA of the Customs Act, 1962 on the outstanding CRC - HELD THAT:- There are merit in the argument of the learned advocate for the appellant that it is not leviable - Interest under Section 28AA would be attracted only when the amount required to be paid is ‘duty’ which has not been levied, short-levied or short paid under Section 28 of the Customs Act, 1962, whereas in the present case, the CRC has been held to be not duty; hence, Section 28AA cannot be pressed into service for recovery of interest. So, the Order of the learned Commissioner for recovery of interest under Section 28AA of the Customs Act, 1962 on the outstanding CRC cannot be sustained. Exemption from payment of CRC - HELD THAT:- On going through the letter, it indicates that exemption from payment of CRC is granted in terms of the conditions mentioned in Board’s Circular No.02/2021-Customs dated 19.01.2021 duly recommended by the jurisdictional Chief Commissioner / Commissioner. Since the Ld. Commissioner has denied the exemption observing that no such recommendation was ever forwarded by the jurisdictional Chief Commissioner / Commissioner, it is necessary to ascertain the facts in this regard. Thus, The Commissioner is directed to obtain necessary clarification from the DGHRD on the same and decide the issue of exemption accordingly. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether Cost Recovery Charges (CRC) claimed under Regulation 5(2) of the Handling of Cargo in Customs Areas Regulations, 2009 (HCCAR 2009) for the period April 2020 to September 2023 are recoverable from the airport operator and enforceable by recovery under Section 142 of the Customs Act, 1962. 2. Whether interest on outstanding CRC can be levied under Section 28AA of the Customs Act, 1962. 3. Whether the airport operator is entitled to exemption/waiver from payment of CRC under Board Circular No. 02/2021-Customs (and related DGHRD communications), and whether the adjudicating authority must re-examine such exemption requests. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Recoverability of CRC under Regulation 5(2) HCCAR 2009 and enforcement under Section 142 Legal framework: Regulation 5(2) HCCAR 2009 obliges a Customs Cargo Service Provider (CCSP) to 'undertake to bear the cost of the Customs officers posted, at such customs area, on cost recovery basis... unless specifically exempted.' Section 141(2) and Section 157 of the Customs Act empower regulation of receipt/storage/handling of imported/export goods and confer a general power to make regulations to carry out the purposes of the Act. Section 45 prescribes custody obligations of custodians in a customs area. Section 142 provides modes for recovery of sums payable under the Act. Precedent treatment: Several High Courts and Tribunals have considered the vires and application of Regulation 5(2): Division Bench of Bombay High Court, Delhi High Court and Rajasthan High Court have upheld the Regulations and treated CRC as recoverable and in the nature of a fee for services rendered (or reimbursement of additional costs). A Division Bench of the Telangana High Court (on appeal in GMR matter) held the 2009 Regulations ultra vires and treated the levy as akin to a tax, not authorized by the Act; SLP against that Telangana decision is pending before the Supreme Court. Lower CESTAT benches have followed both lines depending on jurisdiction. Interpretation and reasoning: The Tribunal notes the conflicting authorities. It recognizes the reasoning in Bombay/Delhi/Rajasthan judgments that: (a) appointment as custodian and undertakings executed create enforceable obligations; (b) Sections 45, 141(2) and 157 provide a framework permitting regulations to prescribe conditions for custodians, including bearing costs of additional customs staff; (c) CRC is properly characterized as a regulatory fee/recovery of cost incurred for services rendered by customs officers at commercially run facilities, not as a tax. Conversely, the Telangana Bench concluded that no express statutory authorization exists to recover salaries via regulation and classified the levy as a tax, thus ultra vires; the Tribunal finds that decision to be a binding precedent in absence of a stay or contrary binding High Court ruling in the same jurisdiction. Ratio vs. Obiter: The core ratio in the upheld authorities is that Regulations framed under Sections 141(2) and 157 are intra vires and that CRC constitutes recoverable cost/fee where custodians have accepted the conditions and derive commercial benefit. The Telangana decision's ratio (that the Regulations are ultra vires because no statutory sanction exists to levy salaries by regulation) is of decisive effect in the relevant territorial/precedential context but is subject to pending SLP before the Supreme Court. Conclusion: Given the conflicting High Court decisions and the pendency of SLP against the Telangana order, the Tribunal declined to pronounce finally on vires and recoverability. Instead, it remanded the question to the adjudicating authority to decide the recoverability issue after taking into account the outcome of the pending SLP in the Supreme Court (or further clarifications), noting that the Telangana decision is binding in absence of a stay and that the matter raises substantial conflicting precedents requiring resolution at the apex level. Issue 2 - Levy of interest under Section 28AA on outstanding CRC Legal framework: Section 28AA prescribes interest on delayed payment of 'duty' payable in accordance with Section 28, calculated from the month succeeding the month in which duty ought to have been paid. Section 28AA applies only where the obligation is a duty as defined under Section 28. Precedent treatment: Authorities distinguish between duties (attracting Section 28AA) and recoveries that are fees or cost reimbursements (which are not 'duty' for purposes of Section 28AA). Decisions referenced by parties support the proposition that Section 28AA cannot be used to levy interest on non-duty recoveries. Interpretation and reasoning: The Tribunal reasoned that CRC, if not characterized as duty, does not fall within Section 28AA. Since Section 28AA is explicitly linked to duty under Section 28, it cannot be pressed into service to charge interest on amounts whose legal character is CRC (fee/cost recovery) rather than duty. Consequently, interest levied under Section 28AA on CRC cannot be sustained. Ratio vs. Obiter: Ratio - Section 28AA is inapplicable where the underlying amount is not a duty; concluding that interest under Section 28AA on CRC is unsustainable is a binding holding of the Tribunal in these appeals. This conclusion is independent of the vires question of Regulation 5(2). Conclusion: The levy of interest under Section 28AA on outstanding CRC was set aside; the adjudicating authority's confirmation of interest under Section 28AA cannot be sustained. Issue 3 - Claim for exemption under Circular No. 02/2021 and DGHRD letter dated 18.08.2021 Legal framework: Board Circular No. 02/2021 prescribes norms and a procedural route for grant of exemption/waiver of CRC upon meeting prescribed performance benchmarks and with requisite recommendations by jurisdictional authorities. DGHRD communications may implement or operate exemptions in terms of Board directions and require formal recommendation/approval channels. Precedent treatment: Administrative circulars and DGHRD decisions have been held to be procedural and not to have retrospective effect unless so specified; courts have examined compliance with prescribed processes for exemption. The Tribunal noted precedents holding that circulars do not apply retroactively where explicitly or implicitly limited. Interpretation and reasoning: The Tribunal examined the record and observed that the Commissioner rejected the exemption claim on the ground that no recommendation from the jurisdictional Chief Commissioner/Commissioner had been forwarded to DGHRD. The DGHRD letter of 18.08.2021 referenced exemption 'in terms of conditions mentioned in Board's Circular No.02/2021' and indicated a recommendation-dependent grant. The Tribunal held that factual clarification is necessary to ascertain whether the procedural preconditions for exemption (including recommendations) were complied with and whether the DGHRD letter effectively granted exemption for the periods in question. Ratio vs. Obiter: Ratio - entitlement to exemption under Circular No. 02/2021 depends on compliance with its conditions and proper recommendation/processing; an adjudicating authority must verify administrative steps and DGHRD communications before denying exemption. This is an operative direction remanding fact-specific inquiry. Obiter - broader commentary on merit of performance benchmarks or retrospective effect is ancillary. Conclusion: The Tribunal directed the Commissioner to obtain necessary clarification from DGHRD and re-examine the exemption claim in light of the DGHRD letter and the procedural requirements of Circular No. 02/2021; the matter was remanded for fresh adjudication on exemption consistent with the Directorate's clarification. Cross-references and final disposition 1. The Tribunal declined to decide the larger vires controversy in view of conflicting High Court precedents (Bombay/Delhi/Rajasthan vs. Telangana) and the pendency of SLP before the Supreme Court; the issue of recoverability under Regulation 5(2) was remitted to the adjudicating authority to be reconsidered after taking note of the outcome of the pending appellate proceedings or further authoritative pronouncement. 2. The Tribunal held as a matter of law that Section 28AA cannot be applied to levy interest on CRC where CRC is not a 'duty' under Section 28 and set aside interest charged under Section 28AA. 3. The Tribunal required the adjudicating authority to verify DGHRD/Board communications and the requisite recommendation process under Circular No. 02/2021 and to decide the exemption claim afresh on that factual and legal basis.