2025 (10) TMI 983 - HC - Customs

Public custodian's GST notice requiring extra GST over auction bid quashed as conflicting with Circular No.50/2005 and CGST law

HC held the public notice issued by the custodian requiring GST over and above the auction bid value was without jurisdiction and quashed it. The court ... GST on the goods sold through auction under Section 48 of Customs Act, 1962 - Auction of uncleared or unclaimed cargo - GST on the bid value is being demanded from the H1 bidder by the Custodians over and above the bid value - Public Notice issued by the 1st respondent, dated 12.02.2021 suffers from lack of jurisdiction or not - HELD THAT:- The Public Notice issued by the 1st respondent refers to Para 3(viii) of the Circular No.50/2005. In terms of the said Para, the bidding should be on the cum-duty price and the duty shall be back calculated from the sale price. The duty that has been referred therein is the customs duty on import. The very same Para also states that local taxes like Sales Tax etc., will however have to be charged/recovered extra from the buyer. In view of the same, the Public Notice of the 1st respondent runs contrary to the Circular. When cargo is auctioned under Section 48 of the Act, the manual Bill of Entry is filed by CFS who is the custodian - The IGST is paid on the import and it is a levy under Section 3(7) of the Customs Tariff Act read with Section 5 of the IGST Act. Whereas, the GST on the sale through auction is a levy under Section 9 of the CGST Act and these two transactions are separate and independent. When the goods are sold in auction, the title in the goods gets transferred to the auction purchaser and hence, the goods will not retain the character as imported goods in the hands of the auction purchaser. The auction purchaser therefore cannot be treated as an importer. A combined reading of Sections 3, 7(1), 9(1) and 15 of the CGST Act, 2017, clearly shows that the 1st respondent is not the competent authority to issue the Public Notice touching upon the collection of GST. In fact, in cases where the cargo is auctioned by the Customs Department, GST is payable by the highest bidder and the Cargo is handed over to the highest bidder only after proof of payment of GST on the bid price by the bidder. If that is so, it is not known as to why the same GST should not be insisted for payment when the auction is conducted by the CFS. The impugned Public Notice issued by the 1st respondent dated 12.02.2021, is clearly contrary to Sections 3, 7(1) and 9(1) of the CGST Act, 2017 and Sections 157, 158 and 159 of the Customs Act, 1962 and it is wholly without jurisdiction or authority and hence, this Court has no hesitation to quash the same and accordingly, the same is hereby quashed. Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Public Notice issued by the customs authority directing custodians/Container Freight Stations (CFS) not to collect GST on auctioned uncleared/unclaimed import cargo (auction conducted under Section 48 of the Customs Act) is ultravires or without jurisdiction. 2. Whether the sale of uncleared/unclaimed imported goods by auction conducted by a CFS/custodian attracts GST as a supply under the CGST Act, notwithstanding payment of customs duty and IGST at the time of filing the manual Bill of Entry under the Uncleared Goods (Bill of Entry) Regulations, 1972. 3. Whether the bid amount in an auctioned uncleared cargo (held to be 'cum-duty') having a component of IGST results in double taxation if GST is additionally levied on the auction sale; and whether the impugned Public Notice correctly applied Board Circular Para 3(viii) of the 2005 Circular. 4. Whether the custodian/CFS, in performing auction and related activities, renders a service liable to GST and whether such liability can be displaced by a Public Notice issued by the customs authority. 5. Whether customs authorities have power under the Customs Act scheme (including Sections 152 and 157 and departmental power to issue Public Notices) to issue directions that affect levy/collection under the CGST statute. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Jurisdiction of customs authority to direct non-collection of GST on auctioned goods Legal framework: The Customs Act empowers the Board and customs authorities to make Regulations (Sections 152, 157) and issue departmental clarifications or Public Notices limited to the customs domain. The CGST Act prescribes levy and collection of GST (Sections 3, 7(1), 9(1), 15) and confers the competence to impose GST obligations under the GST statutory scheme. Precedent Treatment: No binding precedent was cited or applied by the Court from prior authorities to expand customs power to regulate GST collection; the Court relied on statutory interpretation of the Acts and regulations on record. Interpretation and reasoning: The Court distinguished the domain of customs powers from the domain of GST levy. Public Notices may clarify customs procedures but cannot be used to direct actions affecting obligations under a separate enactment (the CGST Act). The impugned notice sought to prevent custodians from collecting/remitting GST, a direction beyond customs regulatory competence and inconsistent with the separate statutory levy under the CGST Act. Ratio vs. Obiter: Ratio - A customs authority cannot, by Public Notice, issue directions that displace or nullify levy/collection obligations prescribed by the CGST Act; such a Public Notice is beyond the customs authority's jurisdiction. Obiter - Observations on the general limits of departmental Public Notices as confined to customs procedures. Conclusion: The Public Notice directing custodians not to collect GST is without jurisdiction and is liable to be quashed. Issue 2 - Characterisation of auction sale as supply liable to GST despite prior payment of IGST on import Legal framework: Import IGST is a levy connected with import under the Customs Tariff/IGST provisions (Section 3(7) of Customs Tariff Act read with IGST Act provisions). Supply of goods by a supplier to a recipient is governed by Section 7(1) and levy under Section 9(1) of the CGST Act; value determination is governed by Section 15. Precedent Treatment: No precedent was applied to alter the statutory distinction between import IGST and GST on domestic supplies; the Court analysed statutory text and scheme. Interpretation and reasoning: The Court held the two transactions are separate and independent: (a) payment of IGST at import relates to the import transaction; (b) auction sale by the CFS/custodian to the highest bidder is a distinct supply under Section 7(1). On transfer of title by auction, goods cease to be 'imported goods' in the hands of the auction purchaser; the purchaser is not an importer. Thus, auction sale attracts GST under the CGST Act, and customs payment of IGST on import does not automatically discharge GST liability on the later sale. Ratio vs. Obiter: Ratio - Auction sale by the custodian is a supply distinct from import and falls within CGST levy; IGST paid on import and GST on auction are separate statutory incidents. Obiter - Practical note that when the Customs Department itself auctions cargo, GST payment by the highest bidder is insisted as prerequisite; parity suggests similar treatment when CFS conducts the auction. Conclusion: The auction sale is assessable under the CGST Act; payment of IGST at import does not by itself negate GST liability on the subsequent auction sale. Issue 3 - Allegation of double taxation and interpretation of Board Circular Para 3(viii) / cum-duty bidding Legal framework: Circular Para 3(viii) (2005) states bidding should be on cum-duty price and duty shall be back-calculated from sale price, but also notes that local taxes (e.g., Sales Tax) must be charged/recovered extra from buyer. Section 150(2)(c) of the Customs Act governs appropriation of sale proceeds for duty payment. Uncleared Goods (Bill of Entry) Regulations, 1972 prescribe filing of a Bill of Entry by custodian in name of bidder. Precedent Treatment: The Court interpreted the Board Circular and Regulations in context; no decision was followed or overruled. Interpretation and reasoning: The Court observed that Para 3(viii) contemplates cum-duty bidding with duty back-calculated, and separately contemplates recovery of local taxes from buyer. The Public Notice's categorical prohibition on collecting GST conflicted with the Circular's indication that local taxes are extra and with the statutory and regulatory scheme that contemplates separate assessments/collections. As IGST forms part of the duty component paid when filing the Bill of Entry by the custodian, that fact alone does not negate the subsequent GST liability on a distinct supply; thus treating bid value as cum-duty does not constitutionally or statutorily eliminate GST on the auction sale. Ratio vs. Obiter: Ratio - The Circular does not support a blanket bar on collection of GST by custodians and cannot be read to oust statutory GST obligations; the Public Notice runs contrary to the Circular and statutory scheme. Obiter - Explanation that appropriation of bid amount under Section 150 does not confer ongoing customs jurisdiction after duty is discharged. Conclusion: The contention that imposition of GST on auctioned goods necessarily amounts to double taxation is rejected as a matter of statutory separation of transactions; the Public Notice misapplied the Circular and is inconsistent with the statutory scheme. Issue 4 - Liability of CFS/custodian for GST on services rendered in relation to custody/auction Legal framework: CFS activities (receipt, storage, delivery) fall within defined customs cargo service provider functions under Regulations and are services for GST purposes unless specifically exempted. GST liability arises on supply of services under CGST provisions; input tax credit and incidence rules apply. Precedent Treatment: No authoritative precedent was invoked; Court applied statutory classification. Interpretation and reasoning: The Court recognised that CFS/custodian performs taxable services (as customs cargo service provider) for which GST is payable, and that such services have not been shown to be exempt. If custodians do not collect GST from the auction purchaser, custodians remain liable to discharge service tax/GST on their own account, whereas purchasers can claim input tax credit when they pay GST on the auctioned supply. This reinforces that collection/levy of GST arising from auction transactions falls within GST statute, not customs power to proscribe collection. Ratio vs. Obiter: Ratio - Custodians render taxable services and are liable for GST; a departmental customs Public Notice cannot negate such liability. Obiter - Practical consequence on input tax credit availability for auction purchasers versus custodians absorbing tax if collection is prohibited. Conclusion: CFS/custodians are liable to GST for services rendered, and auction-related GST consequences cannot be displaced by a customs Public Notice. Issue 5 - Scope and limits of departmental Public Notices under the Customs Act Legal framework: The Act authorises framing of Regulations (Sections 152, 157) and allows departmental communications to clarify customs procedures. Such powers are confined to matters within the Customs Act and cannot be used to regulate matters under distinct enactments (e.g., CGST Act). Precedent Treatment: No judicial precedent expanded the scope of Public Notices to affect other statutes; Court relied on statutory textual limits. Interpretation and reasoning: The Court held that departmental Public Notices can clarify customs procedures but cannot encroach upon the statutory field of another independent taxing statute. The impugned Public Notice attempted to prevent custodians from collecting GST and thereby impinged on CGST levy and collection provisions; this exceeded departmental competence and was thus void. Ratio vs. Obiter: Ratio - Public Notices issued under customs authority must remain within the ambit of the Customs Act and cannot lawfully direct parties regarding obligations under the CGST Act. Obiter - Clarification that customs Regulations and Notices cannot be used as instruments to override or nullify separate statutory tax liabilities. Conclusion: The impugned Public Notice exceeded jurisdictional limits imposed by the statutory scheme and is ultra vires; consequential departmental communications premised on the Notice are also quashed. Final Disposition (Court's Conclusion) The Court quashed the impugned Public Notice and the consequential letter issued by the customs office as being contrary to the CGST Act and beyond the powers conferred under the Customs Act; it held that auction sales by custodians/CFS are distinct supplies liable to GST and that custodians render taxable services for which GST is payable. All writ petitions challenging the Notices were allowed.