2025 (11) TMI 879 - HC - Customs

Authority must decide CFS exemption application under March 19, 2021 Circular within eight weeks and suspend recovery charges

Phonex Logistics Pvt. Ltd. Versus Union of India & Ors.

HC directed respondents to decide applicant's exemption request under the 19 Mar 2021 Circular within eight weeks. The applicant, a Container Freight ... Constitutional validity of Regulation 5(2) and 6(1)(o) of Handling of Cargo in Customs Area Regulations, 2009 - refund of amount paid by the petitioner on account of cost recovery charges, by claiming an exemption from payment of cost recovery charges - HELD THAT:- It is found that the petitioner is a Container Freight Station (CFS) and is engaged in facilitating imports to and exports from India of containerized cargo. It is the petitioner’s case that the petitioner was appointed custodian under Section 45 of the said Act and was providing cargo handling service. As the respondent no. 1 had deployed customs staff at its CFS for assessment, levy and collection of taxes, in terms of Regulation 5(2) of the said Regulation, the petitioner is required to undertake and bear the cost of customs officers posted at the customs area on cost recovery basis. Similarly in terms of Regulation 6(1)(o) of the said Regulation, the petitioner as customs cargo service provider is required to pay cost of customs officer posted on cost recovery basis unless exempted by an order. It is found that although, the petitioner had applied for exemption under the Circular of 2005, such application was later given a goby, and a fresh application was filed by the petitioner under the 2021 Circular by its letter dated 19th March, 2021. In response to a query from Court, has been candid enough in submitting that application dated 19th March, 2021 was later rectified and the rectified application was ultimately filed on 25th May, 2021. The application has been pending since then, though the petitioner has from time to time made payments of the cost recovery charges and lastly for the period from 1st October, 2022 to 31st December, 2022 as would corroborate from the letter dated 27th March, 2023 appearing at page 2024 of the writ petition. At this stage without going into any such issue, noting that the Regulation 6(1)(o) of the said Regulation makes a provision for grant of exemption and provides that the petitioner shall be liable to make payment of cost recovery charges unless exempted and since the Circular dated 19th March, 2021 has been issued providing for conditions which would entitle a facility to seek exemption and the petitioner having made such application, the respondents must decide on the petitioner’s application for exemption as expeditiously as possible, preferably within a period of eight weeks from the date of communication of this order. Since, the petitioner prima facie has been able to demonstrate that the petitioner is entitled to maintain an application for exemption under the Circular dated 19th March, 2021, the respondents shall not demand any further cost recovery charge from the petitioner till a decision on the application for waiver is taken. If the petitioner is found eligible, the respondents shall consider and allow such eligibility from the date when the application was finally made free from all defects. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether Regulation 5(2) and Regulation 6(1)(o) of the Handling of Cargo in Customs Area Regulations, 2009, insofar as they require customs cargo service providers to bear cost-recovery charges for customs officers posted in customs areas, are susceptible to challenge as ultra vires the Customs Act, 1962-not pressed for final adjudication by the petitioner and therefore not decided on merits. 2. Whether an entity which has applied for exemption from cost-recovery charges under the Central Board of Excise and Customs (CBEC) Circular dated 19 January 2021 (the 2021 Circular) is entitled to (a) stay from further demand/collection of cost-recovery charges pending decision on its exemption application, and (b) retrospective grant of exemption from the date of the finally valid application; and what is the duty of the respondents in respect of determination of such applications within a reasonable time. 3. Whether an earlier application made under the CBEC Circular dated 12 September 2005 (the 2005 Circular) can be maintained once a fresh application has been made under the 2021 Circular and whether the 2021 Circular operates retrospectively so as to revive or validate the earlier application. ISSUE-WISE DETAILED ANALYSIS Issue 1: Vires challenge to Regulations 5(2) and 6(1)(o) Legal framework: Regulations 5(2) and 6(1)(o) of the Handling of Cargo in Customs Area Regulations, 2009 impose a condition on Customs Cargo Service Providers (CCSPs)/Container Freight Stations (CFSs) to undertake and bear the cost of customs officers posted in customs areas on a cost-recovery basis, subject to exemption by an order of the Ministry of Finance. Precedent Treatment: The petitioner initially challenged the vires of these Regulations but expressly withdrew insistence on that relief during proceedings; the Court therefore did not determine the constitutional or statutory vires of the Regulations. Interpretation and reasoning: The Court noted the petitioner's concession abandoning the vires challenge and accordingly refrained from adjudicating constitutionality or statutory compatibility issues. The Regulations, on their face, provide for mandatory payment unless exempted by the Ministry of Finance. Ratio vs. Obiter: This is procedural/decisional (obiter in respect of substantive vires question) - the Court's approach on this issue is not a ratio deciding the validity of the Regulations, but a statement that the challenge was not pressed and therefore not decided. Conclusion: The question of whether Regulations 5(2) and 6(1)(o) are ultra vires the Customs Act, 1962 remains undecided; the Court did not rule on their vires because the petitioner withdrew that branch of relief. Issue 2: Effect of filing an application under the 2021 Circular-stay of demands, duty to decide expeditiously, and retrospective effect if eligibility is established Legal framework: The 2021 Circular sets out eligibility criteria and procedures for grant of exemption from cost-recovery charges to customs cargo service providers; Regulations 5(2) and 6(1)(o) expressly condition liability to pay cost-recovery charges 'unless specifically exempted by an order of the Government of India in the Ministry of Finance.' Precedent Treatment: The Court referenced decisions of other High Courts considering scope of eligibility and effect of applications under the 2021 Circular but did not treat those authorities as mandating retrospective effect in the abstract; rather, the Court emphasized procedural fairness and the requirement of decision-making. Interpretation and reasoning: The Court reasoned that where the Regulations contemplate exemption by the Ministry and where the 2021 Circular prescribes a process and eligibility criteria, an applicant who has made an application under the 2021 Circular is entitled to have that application decided by the competent authorities. Because the petitioner had made an application (after rectification) and had pending representations, and because the 2021 Circular governs eligibility, the respondents are under an obligation to decide the exemption application expeditiously. The Court further held that, in light of the pendency of a valid application, respondents should not demand further cost-recovery charges until the application is decided. If eligibility is found, the respondents should give effect to such eligibility from the date when the application was finally made free from defects. Ratio vs. Obiter: Ratio - The Court's directions constitute binding holdings in the case: (a) a pending and finally valid application under the 2021 Circular requires expeditious decision; (b) further demand/collection of cost-recovery charges should be stayed pending that decision; and (c) if found eligible, exemption should be applied from the date of the finally valid application. Obiter - observations about comparative case law and the non-retrospective application of Circulars in general are ancillary and not the central holding on adjudicative duties. Conclusions: The respondents must decide the petitioner's exemption application under the 2021 Circular within eight weeks from communication of the order. Pending that decision, no further cost-recovery charges shall be demanded from the applicant. If the applicant is found eligible, the exemption shall be effective from the date on which the application was finally made free from defects. Issue 3: Effect of prior application under the 2005 Circular and retrospective operation of the 2021 Circular Legal framework: The 2005 Circular contains earlier guidelines for exemption; the 2021 Circular introduced a new regime with eligibility criteria and procedures. Administrative circulars generally do not operate retrospectively unless so provided by law. Precedent Treatment: The Court cited judgments of other High Courts addressing the effect of applications and eligibility under the 2021 Circular but did not treat those authorities as compelling retention of an earlier application once a new application under the updated circular is filed. Interpretation and reasoning: The Court observed that the 2021 Circular constitutes a new set of guidelines and that it is difficult to accept that an application made under the 2005 Circular could be maintained once an application has been filed under the 2021 Circular; a Circular cannot be given retrospective effect unless the law provides for it. The petitioner's rectified application under the 2021 Circular was the operative application for adjudication of exemption under the new regime. Ratio vs. Obiter: Obiter - the Court's remarks emphasise general administrative law principles (no retrospective operation of circulars without legal basis) and note that eligibility under the 2021 Circular should be considered from the date of the finally valid application; the Court did not lay down an absolute bar against any vestigial effects of prior applications in all circumstances. Conclusions: An application under the 2005 Circular does not preserve entitlement once a fresh application is filed under the 2021 Circular; the 2021 Circular governs grant of exemption prospectively, and eligibility (if established) should be recognized from the date the application under the 2021 Circular was finally made free of defects. Ancillary procedural holdings Legal framework and reasoning: Where administrative applications for exemption under prescribed circulars are pending and the applicant has been diligent (including rectification of applications), courts can direct prompt administrative disposition and limited interim relief to avoid irreparable demands. Conclusions: The Court directed an eight-week timeline for decision and stayed further demands during pendency; no costs were awarded. These directions are binding on the respondents in the present proceeding and flow from the Court's supervisory jurisdiction to ensure procedural fairness and effective judicial relief.