By TIOL News Service

AHMEDABAD, SEPT 19, 2013: THE issue referred [See2009-TIOL-969-CESTAT-AHM ] to the Larger Bench in this case is:

"When the circular issued by the Board vide 14/2001-Cus. dated 02.03.2001 communicated the decision that demurrage charges are includible in the assessable value, whether demurrage charges can be excluded from assessable value for imports subsequent to 02.03.2001 even where assessments were made provisional on the ground that final decision was taken by the Board only on 26.09.06 when Tribunal has taken a view that legally such demurrage charges are includible"

The importer submitted that the referral Bench has not considered the amendment to the Customs Act and the Valuation Rules. Inasmuch as it was highlighted that provisions of Rule 9 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 did not contemplate for inclusion of demurrage charges charged by the liners for discharge of customs duty and it was only subsequently when the provisions of Customs Valuation (Determination of Price of Imported Goods) Rules, 2007 came into statute, the said Rule 9 had become Rule 10 and an explanation was added to Rule 10(ii) wherein there were specific provisions for including the said demurrage charges, lighterage or barge charges.

It was further submitted that on the question of inclusion of cost of barge charges, in the case of  Ispat Industries Ltd. - (2006-TIOL-127-SC-CUS)  it is held as being not includable; that the Tribunal in the case of  Shine Petroleum Ltd. - (2007-TIOL-2300-CESTAT-BANG)   and MGM International Exports Ltd.   (2008-TIOL-2572-CESTAT-BANG)  had also held that there cannot be inclusion of the demurrage charges charged by shipping companies in the assessable value of the goods imported ; that High Court of Kolkata in the case of Hindustan Lever Ltd. - 2002 (142) ELT 33 (Kol.)   is specifically on the point referred to Larger Bench.

The Revenue representative submitted that the Board's Circular No.26/2006-Cus. dated 26.09.06 is very clear and which would indicate that the pending assessments prior to 2001 were governed by the provisions, which do not contemplate for inclusion of demurrage charges, while from 02.03.2001 till September 2006, the provisions of Section 14 read with Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 would indicate that cost of transportation of the goods should be included. It is his submission that the ship demurrage charges are nothing but freight charges and the amount is paid by the importer is for the goods; that as per the provisions of Customs Valuation (Determination of Price of Imported Goods) Rules, all the charges that are incurred for the delivery of goods at place of importation needs to be included and provisional assessments pending during the period 02.03.01 to 26.09.06 has to be finalised accordingly.

The Bench after considering the submissions made, extracted the contents of rule 9(2) of the Valuation Rules, 1988 and observed –

“8. On plain reading of the above said rule, we find that the said rules contemplate for inclusion of cost of transport of the goods imported. CBEC circular dated 26.09.06 indicates that the demurrage charges are required to be included in the assessable value under Section 14 of the Customs Act, 1962 by virtue of Rule 9(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. On holistic reading relevant portion of the rule as reproduced above, we find that the said rule does not indicate about inclusion, of any demurrage charges paid by the importers to the shipping lines.

9. We also note that the said issue of inclusion or non-inclusion of ship demurrage charges lighterage or barge charges was specifically brought into the provisions of Customs Valuation Rules which replaced the earlier rules of 1988. The Customs Valuation Rules, 2007 and more specifically Rule 10 is parimateria to the provisions of Rule 9 of Customs Valuation (Determination of Price of Imported Goods) Rules, 1988….

10. It can be seen from the above reproduced provisions of Rule 10 (2) of the Customs Valuation Rules, 2007, the said rules are parimateria to the earlier provisions and it is seen that it includes an explanation which specifically talks about inclusion of ship demurrage charges lighterage or barge charges in the cost of transport of the imported goods. Both sides could not lay on record, any material to hold these provisions were applicable retrospectively.”

Adverting to the apex Court decision in Ispat Industries Ltd. and the Calcutta High Court decision in Hindustan Lever Ltd., the Bench concluded –

“12. In our considered view, the above ratio laid down by the Apex Court could be the guiding factor in deciding the issue in reference as, the facts of this case may not be exactly the same as was being decided by the Apex Court in the case of Ispat Industries Ltd. The ratio of the Apex Court specifically lays down that if the contracts entered either CIF or FOB contracts and such type of contracts will always include the freight paid to seller, further addition to the transport charges under Rule 9 (2)(a) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 was clearly impermissible. It is also to be noted that subsequent to the judgment of the Apex Court, the legislature has brought in new Customs Valuation Rules, 2007 which provides for inclusion of cost of ship demurrage charges, lighterage and barge charges, in the value of transportation. In the light of the clear provisions, from the date when provisions of Customs Valuation Rules, 2007 came into picture, in our view, the ship demurrage charges needs to be included in the assessable value for discharge of customs duty. Prior to that date, in our view, the ship demurrage charges could not have been included in the assessable value of the goods imported.”

Holding that the aforesaid decisions squarely apply to issue referred to the Larger Bench and that the decision of the Tribunal in the case of Shine Petroleum Pvt. Ltd. and MGM International Exports Ltd. have correctly considered the issue, the Bench held that for the period from 02.03.01 to 26.09.06, the ship demurrage charges cannot be included for the discharge of customs duty on the imported goods even if the assessments are made provisionally.

In fine, the Larger Bench held that the conclusion reached by the Tribunal in the case of Shine Petroleum Pvt. Ltd . and MGM International Exports Ltd. are correct and do not require any reconsideration. And so, the papers were returned to the original Bench for further orders.

In passing : Netizens may please also visit our earlier stories on this issue (THE B(L)INDING EFFECT OF BOARD CIRCUL ARS ON REVENUE!   and   SHIP DETENTION CHARGES - STILL IN DEEP WATERS! ) .  

(See 2013-TIOL-1387-CESTAT-AHM-LB)