By TIOL News Service

NEW DELHI, SEPT 04, 2015: During the period 13.01.1996 to 15.03.1998, crude oil was imported by the appellant by way 144 voyages of vessels, and 71 consignments out of the said 144 voyages were said to have escaped payment of full customs duty. As a result the total duty thus short paid for the 71 consignments out of the 144 voyages worked out to Rs.6,59,49,685/- (Basic Duty Rs.6,16,88,210/- and Special Customs Duty Rs.42,61,475/-) on the total differential assessable value of Rs.23,71,30,242/- for the period from 13.1.96 to 15.3.98. These figures were arrived at as revenue in its show cause notice dated 7th January, 2000 stated that the quantity of crude oil mentioned in the various bills of lading should be the basis for payment of duty, and not the quantity actually received into the shore tanks in India. This was stated on the basis that since duty was now levied on an ad valorem basis and not on a specific rate, the duty should be paid on the bill of lading quantity based on the ullage obtained when the goods were loaded on the vessel in the country of export. On 14th April, 2000, the appellant submitted its reply to the show cause notice and stated that it makes no difference as to whether the basis for customs duty is at a specific rate or is ad valorem, inasmuch as under the various judgments of the Tribunal upheld by the Supreme Court, the quantity of goods at the time of import alone is to be looked at.

On 24th July, 2002, the Commissioner of Customs passed a detailed order in which he held that since the basis of customs duty had changed into an ad valorem regime, "transaction value" would necessarily mean the value at which the goods were to be purchased from the foreign supplier. According to the Commissioner, full payment for the goods has to be made by the importer only on the basis of the quantity mentioned in the bill of lading. This being the case, therefore the "transaction value" of the said goods would only be as per the payment made of the amounts stated in the bill of lading and not the quantity received ultimately in the shore tanks at ports in India.

On appeal, the Tribunal accepted the Commissioner's reasoning and the matter is in appeal before the Supreme Court.

The Supreme Court noted,

It is clear that the levy of customs duty under Section 12 is only on goods imported into India. Goods are said to be imported into India when they are brought into India from a place outside India. Unless such goods are brought into India, the act of importation which triggers the levy does not take place. If the goods are pilferred after they are unloaded or lost or destroyed at any time before clearance for home consumption or deposit in a warehouse, the importer is not liable to pay the duty leviable on such goods. This is for the reason that the import of goods does not take place until they become part of the land mass of India and until the act of importation is complete which under Sections 13 and 23 happens only after an order for clearance for home consumption is made and/or an order permitting the deposit of goods in a warehouse is made. Under Section 23(2) the owner of the imported goods may also at any time before such orders have been made relinquish his title to the goods and shall not be liable to pay any duty thereon. In short, he may abandon the said goods even after they have physically landed at any port in India but before any of the aforesaid orders have been made. This again is for the good reason that the act of importation is only complete when goods are in the hands of the importer after they have been cleared either for home consumption or for deposit in a warehouse. Further, as per Section 47 of the Customs Act, the importer has to pay import duty only on goods that are entered for home consumption. Obviously, the quantity of goods imported will be the quantity of goods at the time they are entered for home consumption.

Even under Section 14 of the Customs Act, when goods are to be valued for the purpose of assessment, such valuation is only when the goods are ordinarily sold or offered for sale for delivery at the time and place of importation in the course of international trade. It is thus seen that under the Customs Act, the levy of import duty cannot take place until goods are imported, that is, brought into India. Obviously, therefore, it is the quantity of goods brought into India alone that attracts the levy of import duty.

The Customs Valuation Rules which defines "transaction value" also speaks of the price that is actually paid or payable only for "imported goods". Unless goods are imported, that is, "brought into India" no such price is actually paid or payable. Further, under Rule 4 of the Customs Valuation Rules, such transaction value must be adjusted in accordance with the provisions of Rule 9.

The Supreme Court held that each one of the reasons given by the Tribunal is incorrect in law.

1. It lost sight of the fact that a levy in the context of import duty can only be on imported goods, that is, on goods brought into India from a place outside of India. Till that is done, there is no charge to tax.

2. The taxable event in the case of imported goods, is "import". The taxable event in the case of a purchase tax is the purchase of goods. The quantity of goods stated in a bill of lading would perhaps reflect the quantity of goods in the purchase transaction between the parties, but would not reflect the quantity of goods at the time and place of importation. A bill of lading quantity therefore could only be validly looked at in the case of a purchase tax but not in the case of an import duty.

3. Sections 13 and 23 of the Customs Act have been wholly lost sight of. Where goods which are imported are lost, pilfered or destroyed, no import duty is leviable thereon until they are out of customs and come into the hands of the importer. It is clear therefore that it is only at this stage that the quantity of the goods imported is to be looked at for the purposes of valuation.

4. The basis of the judgment of the Tribunal is on a complete misreading of Section 14 of the Customs Act. First and foremost, the said Section is a section which affords the measure for the levy of customs duty which is to be found in Section 12 of the said Act. Even when the measure talks of value of imported goods, it does so at the time and place of importation, which again is lost sight of by the Tribunal.

5. "transaction value" which occurs in the Customs Valuation Rules has to be read under Rules 4 and 9 as reflecting the statutory position, namely, that valuation of imported goods is only at the time and place of importation.

6. The Tribunal's reasoning that somehow when customs duty is ad valorem the basis for arriving at the quantity of goods imported changes, is wholly unsustainable. Whether customs duty is at a specific rate or is ad valorem makes not the least difference to the statutory scheme. Customs duty whether at a specific rate or ad valorem is not leviable on goods that are pilfered, lost or destroyed until a bill of entry for home consumption is made or an order to warehouse the goods is made. This is for the reason that the import is not complete until what has been stated above has happened.

Held: the quantity of crude oil actually received into a shore tank in a port in India should be the basis for payment of customs duty.

Tribunal's order is set aside and appeals allowed.

(See 2015-TIOL-199-SC-CUS)