2004 (2) TMI 66 - SC - Customs

Binding nature of CBEC circulars on the Revenue - Scope of Section 151A of the Customs Act - Inclusion of demurrage charges in the assessable value of imported goods - Whether the respondent had wilfully mis-declared the value of the goods while making entries under Section 46 of the Customs Act 1962 by deliberately suppressing that the demurrage charges had been paid to the ship owners under the charter party agreements? Per Ruma Pal J - HELD THAT - As we have noted the provisions of Section 151A are in pari materia with the provisions of S. 119 of the Income Tax Act 1961 and Section 37B of the Central Excise Act. Parliament introduced Section 151A by an amendment to the Customs Act 1962 in 1995 but with effect from 27th December 1985 when this Court had already construed identical language in the manner indicated. It may be assumed that Parliament had legislatively approved the construction by using the exact words so construed again in the Customs Act. There is therefore no reason why the principles enunciated by this Court under the two earlier Acts should not also be determinative of the construction put on the later in respect of a materially similar statutory provision. This was also not argued by the appellant. The decision in Panchmahal Steel 1996 (12) TMI 221 - CEGAT NEW DELHI does not allow an adjudicating officer to act in violation of the Circular issued under Section 151A. Incidentally the decision in Panchmahal (supra) was an ex-parte one in the sense that the importer was not represented when the matter was argued. Its failure to prefer an appeal could not in the circumstances mean that the issue had become final as far as all other importers are concerned. Moreover there was no reference to the Circular nor any reason for coming to the conclusion that demurrage was includible in the value of the imported goods. We may mention here that the stand of the appellant that this Court had taken the view that demurrage was includible in Garden Silks 1999 (9) TMI 88 - SUPREME COURT both in the adjudication order and before the Tribunal appears to have been abandoned in our opinion rightly in the written notes of submission. Apart from the decision of the Constitution Bench in Dhiren Chemicals 2002 (2) TMI 115 - SC ORDER Garden Silks (supra) was a decision on landing charges. It did not construe the 1988 Rules. The circular on the other hand was issued on a re-examination of the issue in the light of the GATT Valuation principles as incorporated in the 1988 Rules. In this view it is not necessary for us to determine the further issue whether in the absence of Board circulars demurrage would still be includible in the assessable value of the imported goods. For the purposes of these appeals it is sufficient to hold as we do that demurrage was wrongly included by the adjudicating officer in the assessable value contrary to the directive of the CBEC at a time when the circular had not been withdrawn. Thus the appeals are dismissed with costs. Per P. Venkatarama Reddi J.- HELD THAT - As far as the present case is concerned there is no direct decision of the Supreme Court which has taken a view different from what was expressed in the Circular of 1991. As clarified by my learned sister the decision of this Court in Garden Silks case has no direct bearing on the issue involved in this case. It did not construe the 1988 Rules. Hence the doubts expressed by me in regard to the correctness of the principle laid down in Dhiren Chemicals Industries case need not necessarily be resolved in the instant case. Still the observation in Dhiren Chemicals Industries was sought to be pressed into service to counter the contention of the appellant that a cloud has been cast on the Circular in the wake of the Tribunal s order in Panchmahal Steel case and therefore the Circular had been eclipsed. Whether the Tribunal s order stands on the same footing as the decision of this Court insofar as its impact on the Circular is concerned is one aspect which will have to be considered in an appropriate case. Here that issue need not be probed further. I agree with my learned sister that the order of the Tribunal being an ex parte one it does not take precedence over the binding circular under Section 151A and I may add that the Tribunal s decision is not so categorical and clear as to strike at the root of the Circular in its application to the facts of the present case. Hence there is no need for further discussion on this point. The dicta/observations in some of the decisions need to be reconciled or explained. The need to redefine succinctly the extent and parameters of the binding character of the circulars of Central Board of Direct Taxes or Central Excise looms large. It is desirable that a Constitution Bench hands down an authoritative pronouncement on the subject.

Summary

Issues Involved:
1. Inclusion of demurrage charges in the assessable value of imported goods.
2. Binding nature of CBEC circulars on the Revenue.
3. Adherence to principles of natural justice.
4. Applicability of judicial precedents and statutory provisions.

Issue-wise Detailed Analysis:

1. Inclusion of Demurrage Charges in the Assessable Value of Imported Goods:
The core issue was whether demurrage charges should be included in the assessable value of imported goods under Section 14 of the Customs Act, 1962. The Commissioner of Customs alleged that the respondent mis-declared the value by excluding demurrage charges, which were paid to ship owners under charter party agreements. The Customs Excise and Gold (Control) Appellate Tribunal (CEGAT) ruled that demurrage charges should not be included, citing a CBEC circular from 1991 that explicitly excluded such charges from the assessable value. The Tribunal also referenced the decision in Garden Silk Ltd. v. Union of India, which did not support the inclusion of demurrage charges in the value of goods for customs duty purposes.

2. Binding Nature of CBEC Circulars on the Revenue:
The judgment extensively discussed the binding nature of CBEC circulars on the Revenue. The Supreme Court affirmed that circulars issued under Section 151A of the Customs Act are binding on the Revenue. The Court cited several precedents, including Collector of Central Excise, Vadodara v. Dhiren Chemical Industries, which upheld that the Revenue cannot take a stance contrary to an existing circular. The Court reiterated that a show cause notice and demand contrary to existing circulars are ab initio bad and not permissible.

3. Adherence to Principles of Natural Justice:
The respondent argued that the Commissioner acted with undue haste and a closed mind, violating principles of natural justice. The respondent was not given adequate time to respond to the show cause notice, and the demand was confirmed without proper consideration. The Supreme Court acknowledged these procedural lapses, reinforcing that administrative actions must adhere to principles of natural justice.

4. Applicability of Judicial Precedents and Statutory Provisions:
The appellant relied on various judicial precedents and statutory provisions to argue for the inclusion of demurrage charges. However, the Supreme Court clarified that the CBEC circular, which was issued after re-examining the issue in light of GATT Valuation principles, was decisive. The Court also noted that the decision in Garden Silk Mills Ltd. did not address the specific issue of demurrage charges. Additionally, the Court highlighted that the Tribunal's decision in Panchmahal Steel Ltd. was an ex-parte decision and did not consider the CBEC circular, thus lacking authority to override the circular.

Separate Judgment by P. Venkatarama Reddi, J.:
Justice P. Venkatarama Reddi concurred with the dismissal of the appeal based on the binding nature of the CBEC circular. However, he expressed doubts about the correctness of the principle laid down in the Dhiren Chemicals Industries cases, questioning whether circulars should still hold the field even after the highest Court has settled the law on the subject. He emphasized the need for a Constitution Bench to provide a clear and authoritative pronouncement on the binding nature of circulars vis-`a-vis judicial decisions.

Conclusion:
The Supreme Court dismissed the appeals, holding that demurrage charges were wrongly included in the assessable value of imported goods contrary to the CBEC circular. The judgment reinforced the binding nature of CBEC circulars on the Revenue and underscored the importance of adhering to principles of natural justice and statutory provisions.