By TIOL News Service

AHMEDABAD, DEC 15, 2017: THE petitioners have challenged an order passed by the Chief Commissioner of Customs, Gujarat Zone, in which he has granted exemption to the petitioners from payment of cost recovery charges which would be effective from the date of the order and not from the date of the application of the petitioners for such purpose i.e. 12.04.2013. 

The petitioners are engaged in the activity of providing Customs Cargo Service at Mundra Port. Government of India is required to deploy custom staff at the said port for assessment, levy and collection of taxes.

The petitioners do not dispute their liability to pay to the Government of India the charges for deployment of such staff which is referred to as "cost recovery charges".

It is however, also not in dispute that the Government of India issued a circular dated 10.04.2013 granting exemption to the cargo service providers from payment of cost recovery charges, subject to fulfillment of conditions laid down therein.

As per the circular, a committee of the Chief Commissioners was constituted for identifying the performance benchmarks that would make a particular facility eligible for grant of exemption for the customs staff posted at various privately managed ports. Based on the report of such committee, the Central Board of Excise and Customs with the approval of the competent authority laid down the norms for granting such exemption which were embodied in the said circular.

The petitioners applied to the Commissioner of Customs, Kandla, under letter dated 12.04.2013 for grant of exemption from payment of cost recovery charges in terms of the said circular dated 10.04.2013.

The petitioners have produced an interdepartmental communication dated 22.04.2013 in which the Assistant Commissioner of Customs has recorded that the application of the petitioners for waiver of the charges has been verified with the data available and it is found in order. On 30.04.2013, the Commissioner of Customs, Kandla, wrote to the Director General of Human Resources Development, forwarding the documents of the cargo handled by the petitioners and further stating that the petitioners are eligible for consideration for grant of exemption from payment of cost recovery charges in terms of circular dated 10.04.2013. 

The exemption as applied for by the petitioners did not come-forth immediately. In the meantime, it appears that the petitioners had not paid the recurring cargo handling charges.

The Commissioner of Customs, Mundra, therefore, issued a show cause notice dated 16.03.2015 calling upon the petitioners as to why the cost recovery charges of Rs.11,14,86,640/- which have remained unpaid post March, 2013, should not be recovered with penalty and other consequences. Another similar SCN dated 18.11.2015 came to be issued seeking further cost recovery charges of Rs.4,64,74,327/-.

Thereupon, the petitioners cleared all these charges. 

On 15.12.2015 , the Chief Commissioner conveyed to the petitioners that it has been decided to exempt the cost recovery charges for the sanctioned strength of the staff. This was however prospective and subject to fulfillment of conditions as laid down.

The petitioners have objected to the condition under which the exemption from payment of cost recovery charges has been made prospective.

It is submitted that the petitioners had without any delay, applied for the exemption on 12.04.2013 itself and no further details or documents were called for from the petitioners by the department;that whatever delay that took place in processing and granting the application for exemption, could be attributed only to the respondents; that once the competent authority was of the opinion that the petitioners satisfied necessary requirements for grant of exemption, such exemption must relate back to the date of application.

The counsel for the respondent department opposed the petition and relied upon the following decisions in support viz. Mumbai International Airport Private Ltd. =  2014-TIOL-1819-HC-MUM-CUS, Thiru Rani Logistics Pvt. Ltd. =  2016-TIOL-1671-HC-MAD-CUS .

After considering the submissions, the High Court adverted to the Circular dated 10.04.2013 and observed -

++ Para 5 of the circular is of utmost important. Clause (a) of para 5 provides that volume/value and number of documents in case of seaports must be met in each of the preceding two financial years. Clause (b) of para 5 provides that exemption from gross recovery charges would be prospective. Clause (c) of para 5 imposes an additional condition that no cost of recovery charges shall be outstanding. 

++ The impact of the said circular, therefore, would be that with respect to ports which have handled a minimum volume/value of imports and exports and also the minimum number of shipping bills in last two preceding years, the port operators would be exempt from payment of cost recovery charges for the set up specified in the said circular. The exemption would only be prospective and that no cost recovery charges of the past should be outstanding .

++ Two things emerge from para 6 of the circular. One is that the Commissioner would undertake a review of the existing facilities and would send proposal for grant of exemption to the extent of eligible facilities which would have a direct bearing on the cargo i.e. value and volume of the import/export and number of shipping bills handled by the seaport which would be done within 60 days from the date of the circular. Similar exercise would be undertaken in April of each year. 

++ It is not in dispute that in case of the petitioners, the necessary requirements of minimum handling of cargo and shipping bills were satisfied for the sanctioned staff deployed at the port. It is not even the case of the department that looking to the value/volume and number of shipping bills through seaport in last two preceding years, a certain staffing pattern was not justified and that therefore either partially or totally the exemption from payment of cargo handling charges was not justified. This is precisely why the department itself granted to the petitioners the exemption from payment of such charges under the order dated 15.12.2015. If this be so, only question is, did the authorities make a mistake in making such exemption prospective i.e. effective from the date of the order and leaving the earlier period from the date of the application till the date of the order uncovered. 

++ Clause (b) of para 5 does provide that such exemption from cost recovery charges would be prospective and clause (c) provides that no cost recovery charges should be outstanding. These two clauses are pressed in service by the department for denying exemption to the petitioners from the date of application.

++ When clause (b) of para 5 of the circular provides that the exemption from cost recovery charges would be prospective, in our opinion, it never aims to make such exemption available only from the date of order and not from the period anterior to the date of the order.

++ Firstly, upon issuance of the circular, the Commissioner in terms of para 6 would undertake an exercise to review the facilities and the cargo handling data of a particular seaport and make a recommendation within 60 days. Any such report of the Commissioner would have to be processed minutely by the concerned departments and this would take a reasonable time. The circular never intended that during all this while even if a particular entity is entitled to exemption, such exemption would be denied for the period during which the authorities i.e. the Commissioner and the concerned department take time to process the data and come to a definite conclusion.

++ Further, para 6 itself provides that similar exercise would be undertaken in April of every year. Even otherwise, no such exercise can be undertaken prior to month of April since it is the cargo handling over the last two years a sea port for the purpose of clause (2) of immediately preceding year which would decide its eligibility for grant of exemption. The data for such period would be available only after 31st March of a particular year.

++ The question of grant or non-grant of exemption from payment of cargo handling charges would relate to the beginning of the financial year and can be examined only after the end of the previous financial year. No intention appears from the circular that year after year every port would lose the exemption from the period during which such exercise is undertaken and completed. The purpose of mentioning that the exemption shall be prospective was to ensure that no entity can claim such exemption for a period prior to the date of the circular or for a period prior to the application for such period i.e. the period under review for exemption. 

++ The reference to no cost recovery charges shall be outstanding also has a bearing on this aspect of the matter. If, on one hand, the Government of India expects that the custodian should pay up the charges and not be in arrears of such charges, when the application for exemption is being processed, the contention that such exemption even if later on granted, would only be prospective, would be incongruent.

++ On one hand, the custodian would have to, pending finalization of the application for exemption, go on depositing the recurring charges with the Government of India, failing which, he would be stated to be breaching condition contained in clause (c) of para 5 of the circular, and on the other hand when such application is granted, the custodian would be told that no refund can be granted for such charges already deposited since the exemption is always prospective.

++ Grant of exemption from the date of the application, if the application is in order and no delay can be attributed to the petitioners in either making the application or supplying necessary information to the department, cannot be stated to be retrospective operation of the order of exemption. 

++ In a given case, it may happen that the application is ultimately rejected for valid reasons. It is possible to argue that in such circumstances, the Government of India, cannot be left uncovered for the period during which such application was made and was pending with the authorities.

++ It is perhaps, therefore, correct on the part of the Government of India to insist that pending such application for exemption, the petitioners should have gone on depositing the recurring cost recovery charges.

++ One way of looking at condition contained in clause (c) of para 5 is that at the time of making of the application, no past charges should be pending. If the stand of the Government of India was and a stand which may even be plausible, that awaiting outcome for application of exemption, the custodian should continue to deposit such amount with the Government, it should have specified the stand with the petitioners.

The petition was allowed.

Order:

+ The condition of grant of exemption under impugned order dated 15.12.2015 of the exemption being available from the date of the order is struck down.

+ Such exemption for payment of cost recovery charges would be available from the date of the application i.e. 12.04.2013 .

Refund:

+ The petitioners having already deposited with the respondents, under their insistence such charges, the same shall be refunded to the petitioners by 15.04.2018 .

+ If so done by the time permitted, the same shall not carry any interest liability, failing which, the amount shall be paid with simple interest at the rate of 7.5% per annum from the date of deposit till actual payment. 

The Petition was disposed of.

(See 2017-TIOL-2582-HC-AHM-CUS)