2025 (6) TMI 612 - AT - Customs

Assessments of imported Petroleum Crude Oil consignments - quantity to be assessed shall be as per the Ship Ullage Quantity at the port of discharge as referred to in the surveyor report or as per the bill of lading quantity? - delay in finalizing the provisional assessment. Assessments of imported Petroleum Crude Oil consignments - quantity to be assessed shall be as per the Ship Ullage Quantity at the port of discharge as referred to in the surveyor report or as per the bill of lading quantity? - HELD THAT - The matter has been covered vide final order No. 12380/2023 dated 21.10.2023 wherein this Tribunal relying upon the decision of Hon ble Supreme Court in the case of Mangalore Refinery and Petrochemicals Ltd. vs CCE 2015 (9) TMI 245 - SUPREME COURT had upheld the decision of Commissioner (Appeals). While dismissing appeals of the present appellant it held that assessment has to be done at ship ullage surveyor report at the port of discharge and had dismissed the appeal filed by the appellants. There is no reason to depart from the earlier decision of this Tribunal which is in favour of Revenue. Thus as per this decision as far as merits is concerned even for the impugned period the issue will be decided on the basis that it is the ullage quantity at the discharge port and not the bill of lading quantity that will be the decisive factor. Whether there was delay in finalizing the provisional assessment as has been stated by the appellant? - HELD THAT - Regulation 5 of the said Regulation stipulates a time of 2 months from the date of test reports. There is a force in the arguments of delay advanced by the learned advocate. The learned Adjudicating authority has relied upon the decision of Shakti Beverages which is not beyond the High Court s decision in Bihar Foundry 2024 (3) TMI 371 - JHARKHAND HIGH COURT and the fact that the Customs (Finalization of Provisional Assessment) Regulations 2018 have come into existence on the date when assessments were finalized. Also that the decision of the Hon ble High Court in the matter of Bihar Foundry was not looked into in details by the learned adjudicating authority. Further it is found that the question of delay is always a question of fact and has to be looked into from the prism of as to whether any delay was attributed to the party also or was exclusively on the part of the department. In the later case the appellants cannot be allowed to take the benefit of delay which is attributed to them. However while there are prima facie delay has taken place but it is not forth coming whether it was exclusively due to inaction of the department or was contributed to some extent or the other by the party also. This question of fact needs redetermination. Conclusion - i) The assessments finalized after 16 years raise serious concerns of unreasonable delay and prejudice requiring remand for fresh factual determination of delay attribution and prejudice. ii) The assessment of bulk liquid cargo quantity must be based on actual quantity received (shore tank quantity) and not merely on ship s ullage quantity; marginal variations within tolerance limits do not attract additional duty. iii) The principle of constructive res judicata does not bar fresh proceedings on provisional assessment issues distinct from those adjudicated earlier on demurrage charges. Matter remanded back to the adjudicating authority to look into the matter afresh with all its factual matrix to arrive at the question of delay and to whom it was attributable - Appeals are partly allowed as conditional remand.

Summary

The core legal questions considered by the Tribunal in this matter are:

1. Whether the provisional assessments of imported Petroleum Crude Oil consignments, made in 2006-2007, could be validly finalized after an unreasonable delay of approximately 16 years, or whether such delay vitiates the final assessments on grounds of limitation and prejudice to the importer.

2. Whether the assessable quantity for customs duty on bulk liquid cargo (Petroleum Crude Oil) should be determined based on the Ship's Ullage Quantity at the port of discharge as per the surveyor's report, or on the Bill of Lading quantity.

3. Whether the principle of constructive res judicata bars re-adjudication of issues already decided in respect of 13 Bills of Entry concerning inclusion of ship demurrage charges in assessable value.

4. The applicability and interpretation of relevant Circulars and judicial precedents, including the impact of the Customs (Finalization of Provisional Assessment) Regulations, 2018, on the time limits for finalization of provisional assessments.

Issue-wise Detailed Analysis:

1. Delay in Finalization of Provisional Assessments:

Legal Framework and Precedents: The Customs Act, 1962 does not prescribe a specific limitation period for finalization of provisional assessments under Section 18. However, the CBIC Manual of Instructions (Para 3.1, Chapter 7) prescribes a reasonable period of six months for finalizing such assessments. The Hon'ble High Court in Bihar Foundry & Castings Ltd v UOI held that finalization beyond 6 to 9 years is barred by limitation and vitiated by unreasonable delay. The Supreme Court decisions in Raghuvar (India) Ltd. and Pratibha Syntex Ltd. affirm that where no statutory period is prescribed, a reasonable period must be applied.

Court's Reasoning: The appellant contended that since test reports and requisite documents were submitted in 2006-2007, finalization after 16 years is barred by limitation and prejudicial, violating principles of natural justice. The appellant relied on the recent High Court decision in Bihar Foundry & Castings Ltd, which was not considered by the adjudicating authority. The department relied on the Larger Bench decision in Shakti Beverages Ltd, which held that absence of prejudice or violation of natural justice negates annulment for delay.

Key Evidence and Findings: The Tribunal noted that the delay in finalization was prima facie excessive. However, it was not clear whether the delay was attributable solely to the department or partly to the appellant. The appellant argued prejudice due to loss of documentary evidence over time. The department clarified that 13 Bills of Entry had been separately adjudicated in 2018 on demurrage charges, unrelated to the quantity and chemical analysis issues.

Application of Law to Facts: The Tribunal observed the binding nature of the High Court decision regarding limitation and the existence of the 2018 Regulations prescribing a two-month finalization period post receipt of test reports and documents. It noted that the adjudicating authority had not adequately considered these aspects. However, since attribution of delay was a factual issue, the Tribunal remanded the matter to the original authority for fresh determination, allowing parties to submit evidence on delay and prejudice.

Treatment of Competing Arguments: The Tribunal acknowledged the appellant's reliance on recent High Court authority and the department's reliance on prior Tribunal Larger Bench rulings. It reconciled these by emphasizing the factual nature of delay and prejudice, requiring fresh examination.

Conclusion: The Tribunal held that the delay issue requires re-examination with full factual matrix and allowed conditional remand for this limited purpose.

2. Basis of Quantity for Assessment: Ship's Ullage Quantity vs. Bill of Lading Quantity

Legal Framework and Precedents: The Supreme Court in Mangalore Refinery & Petrochemicals Ltd v CCE (2015) held that duty must be assessed on the quantity actually unloaded and received in India, not on the ship's ullage quantity measured prior to discharge. The Tribunal in CC v Hindustan Petroleum Corporation Ltd (2000) held similarly that ship ullage quantity does not represent actual import quantity. The department relied on this Supreme Court decision and Circular No. 34/2016-Cus, which allows assessment based on ship's ullage quantity only where bulk liquid cargo is cleared directly without pumping into shore tanks. Circular No. 96/2002-Cus also clarified that shore tank receipt quantity is the basis for levy of customs duty.

Court's Interpretation and Reasoning: The appellant argued that assessment should be based on Bill of Lading quantity, which reflects the contractual quantity imported, and that marginal excess in ship ullage quantity (0.005% to 0.86%) should be ignored as within tolerance limits. The department contended that assessment on ship ullage quantity was justified and supported by the Supreme Court decision and Circulars.

Key Evidence and Findings: The Tribunal noted that the appellant's imports took place prior to Circular No. 34/2016, so that Circular's retrospective application was impermissible per Supreme Court precedent (Suchitra Components Ltd). The Tribunal also observed that the Supreme Court decision does not mandate assessment on ship ullage quantity in all cases but emphasizes actual quantity received. The Tribunal referred to its own recent decisions (Asian Solvochem P. Ltd, Welspun Corp Ltd, Payal Polypast P. Ltd) holding that marginal variations in quantity for bulk liquid cargo within 3-5% tolerance are acceptable without additional duty liability.

Application of Law to Facts: The Tribunal found that the marginal excess in ship ullage quantity over Bill of Lading quantity was minimal and within acceptable tolerance limits. It emphasized that duty cannot be demanded on higher value unless the price paid to the supplier is proportionately increased. Since the transaction value remained unchanged, no additional duty was justified on marginal excess quantity.

Treatment of Competing Arguments: The Tribunal rejected the appellant's contention that Circular No. 34/2016 was the first instruction on ship ullage quantity, noting earlier Circular No. 96/2002 and Supreme Court precedents. It also rejected the department's reliance on Circular No. 34/2016 for retrospective application. The Tribunal distinguished the Supreme Court decision in Mangalore Refinery as not supporting assessment strictly on ship ullage quantity in all cases.

Conclusion: The Tribunal upheld the principle that assessment should be based on actual quantity received (shore tank quantity), not merely ship ullage quantity, and that marginal excess quantities within tolerance limits do not attract additional duty.

3. Constructive Res Judicata Regarding Demurrage Charges:

Legal Framework and Precedents: The principle of constructive res judicata bars re-litigation of issues already decided in prior adjudication. The Tribunal cited decisions such as R.M. Bhat v CCE, Steel Authority of India Ltd, Orient Arts & Crafts v CC, Solitaire Machine Tools Ltd v CCE, and CCE v Siddharth Tubes Ltd, which hold that a Show Cause Notice must cover all grounds and multiple proceedings on the same issue are barred.

Court's Interpretation and Reasoning: The appellant argued that 13 Bills of Entry, which had been adjudicated in 2018 with respect to demurrage charges, could not be subjected to fresh proceedings for finalization of provisional assessment on the same grounds. The department clarified that the 2018 orders only addressed demurrage charges and the current proceedings relate to quantity and valuation issues.

Application of Law to Facts: The Tribunal accepted the department's distinction between the two sets of proceedings, holding that the 2018 adjudication on demurrage charges does not bar fresh adjudication on provisional assessment relating to quantity and valuation.

Conclusion: The principle of constructive res judicata does not apply to bar the present proceedings, as the issues are legally distinct.

4. Applicability of Customs (Finalization of Provisional Assessment) Regulations, 2018:

Legal Framework: Regulation 5 of these Regulations mandates finalization of provisional assessments within two months from receipt of test reports and submission of documents.

Court's Interpretation and Reasoning: The appellant contended that since test reports and documents were submitted in 2006-2007, finalization should have occurred within two months after the Regulations came into force. The department's adjudicating authority did not consider this adequately.

Conclusion: The Tribunal found force in the appellant's argument and directed re-examination of this aspect on remand, considering the Regulations and the timing of finalization.

Significant Holdings:

"It is settled law that where no limitation period is prescribed, a reasonable period of limitation applies... as per Para 3.1 of Chapter 7 of CBIC Manual of Instruction, reasonable period for finalization of provisional assessment is 6 months and that the said CBIC Instruction is binding on the department."

"The quantity as per Ship Ullage Measurement is irrelevant as it does not represent the actual quantity unloaded in India. The quantity pumped in the shore tanks which represents the quantity imported into India, alone can be assessed to duty."

"The taxable event occurs only in respect of the quantity discharged from the vessel."

"Merely because the Ship's Ullage report quantity is marginally higher than the Bill of Lading quantity, it cannot be said that this higher quantity was imported unless it is shown that the quantity actually received in the Shore tank was the same as the ullage quantity."

"A Circular which is adverse to the importer cannot apply retrospectively."

"Where despite the marginal excess of quantity, the transaction value remains unchanged and there is no extra payment for the marginal excess to the supplier, there can be no demand for duty over and above that which is payable on the transaction value."

"The question of delay is always a question of fact and has to be looked into from the prism of as to whether any delay was attributed to the party also or was exclusively on the part of the department."

"The matter is remitted to the original authority to decide this limited question along with what quantifiable variation in weight as is permitted as per authoritative norms."

Final Determinations:

- The assessments finalized after 16 years raise serious concerns of unreasonable delay and prejudice, requiring remand for fresh factual determination of delay attribution and prejudice.

- On merits, assessment of bulk liquid cargo quantity must be based on actual quantity received (shore tank quantity) and not merely on ship's ullage quantity; marginal variations within tolerance limits do not attract additional duty.

- The principle of constructive res judicata does not bar fresh proceedings on provisional assessment issues distinct from those adjudicated earlier on demurrage charges.

- The Customs (Finalization of Provisional Assessment) Regulations, 2018, prescribing a two-month limit, apply and must be considered on remand.

- The Tribunal adheres to prior authoritative decisions and Circulars supporting these principles and declines to apply Circular No. 34/2016 retrospectively to imports made in 2006-2007.