INNOVATION IS THE KEY TO SUCCESS; LAWYERING IS NO EXCEPTION

[Jayaprakash Gopinathan]

All rules, no matter how sacred, had a purely functional value, and had to yield to Reality which alone was Law Supreme-says the Master. Functional value of a rule, for authenticity, has to be approved by competent Court of Law. When faced with a new problem, not only lawyers, but everyone else (anthropologists agree!) likes to ask first, how did we deal with this issue the last time it arose i.e. any precedents) are available? Shri. Joel P. Trachtman, the author of “The TOOLS of ARGUMENT- HOW THE BEST SELLING LAWYERS THINK, ARGUE, AND WIN, gives one rationale for this instinct as laziness , as a school of thought or the search for efficiency as some others would like to term it. (Chapter-5- Arguing From Precedent). Enough aphorisms are available in favour and against the law of precedent(s) - “If it is not broken, don’t fix it” or “A foolish consistency is the hobgoblin of little minds”. Whatever be the resources to determine the law, reasonableness of treatment out win all other issues. The adage “Experience trumps Research” may be true. But experience or research may yield results only in cases where the issue in dispute had been a subject matter earlier before an authority for adjudication of a cause. In its absence the experienced lawyers should resort to innovate ways to seek justice for the clients than to submit to interpretations made and conclusions arrived by the executive through their circulars issued to clarify differing conclusions by different authorities.

The above prologue precedes a paper on apportionment of sales proceeds of imported goods stored in a ware house and its subsequent sales through auction. The issue is no more res integra.  However the valuation of cum duty price  for determining customs duty is not.   Pertinent issue under discussion in this paper relates to propriety of inclusion of value of auction expenses and freight charges specified under Section 150(2) (a) & (b) of the Act for determining cum duty value of goods sold. Recently the Hon’ble High Court of Kerala   reiterated the law of precedence to be followed to distribute the sale proceeds vide judgment in Re: COMMISSIONER OF CUSTOMS VERSUS KONKAN STORAGE SYSTEMS KOCHI P. LTD. [2020 (12) TMI 40 - KERALA HIGH COURT]. The Hon’ble Court cited circular No. F. No. 473/94/89-Cus. VIII, dated 22-5-1990 to drive home the point that the   Department itself has understood the provision in Section 150 of the Customs Act, 1962 to mean that the interest on customs duty cannot take precedence over rent and other claims of the warehouse keeper and considered it as  a contemporaneous exposition. The Hon’ble Court vide para 19,20&21 explained the relevance of contemporaneous exposition. 

Even though the Hon’ble High Court quoted the Circular 71/2001-Cus dated 28.11.2001 cited by the respondent seeking cum duty valuation of sales proceeds of auction of goods stored in their ware house, the Hon’ble Court did not dwell on the subject since the issue before it was restricted to the determination of the precedence of interest on customs duty over warehouse rent. The jurisdictional authorities relied on the Circular and re determined the Customs Duty by resorting to Cum Duty computation and by excluding interest on Customs Duty already apportioned in an earlier order. However the auction expenses was included and request of interest as provided under Section 27A was rejected.

This paper tries to understand the determination of assessable value of the goods auctioned for the purpose of determining customs duty as per section 150 of Customs Act, 1962 read with Circular 71/2001-Cus dated 28.11.2001. It is felt that the circular traversed beyond the Section 150 of the Customs Act, 1962 when it directed to consider the entire auctioned value to determine the assessable value on cum duty basis. It is no more res integra that the Circular issued by the Executive is only an understanding of them on the issue and it is not binding to Courts and thus not to the party and their Advocate(s). Further in COMMISSIONER OF CENTRAL EXCISE, BOLPUR VERSUS M/S RATAN MELTING & WIRE INDUSTRIES [2008 (10) TMI 5 - SUPREME COURT] the Apex Court approved the right of even Revenue authorities to file an appeal against the Circular based on a Higher Court’s decision negating the Circular.

Circular No. 71/2001-Cus., dated 28-11-2001

Subject :   Payment of Customs duty by custodians in respect of auctioned goods - reg.

A reference was received from the Container Corporation of India (CONCOR) stating that there is a divergence of practice in Custom Houses with regard to apportionment of sale proceeds from disposal/sale of unclaimed/uncleared goods under section 150 of the Customs Act, 1962. It was reported that some Custom Houses determine the Customs duty payable on auctioned goods after deducting the sales expenses from the sale proceeds of the goods whereas other Custom Houses are determining duty on the basis of sale proceeds without allowing any deduction.

The matter has been examined. 

2. It is clarified that -

 (a)      the Customs duty shall be determined by backward calculation considering the sale proceeds of unclaimed/uncleared goods as the cum-duty price. For calculation of duty, total sale proceeds without allowing any deduction towards sales expenses or any other charge is to be taken as cum duty price.

 (b)      After determination of the Customs duty, sale proceeds of unclaimed/uncleared goods is to be appropriated in the manner as provided in section 150(2) of the Customs Act, 1962.

3.         ……..

The above Circular reiterates that for calculation of duty, total sale proceeds without allowing any deduction towards sales expenses or any other charge is to be taken as cum duty price. However the Circular did not consider the priority  listed under Section 150 (2) by providing sub clauses (a) & (b) before sub clause (c) which states about payment of customs duty payable, if any. Hence the reiteration of inclusion of amounts given priority over customs duty is against the  intention of the legislature while enacting  Section 150 of the Act.

SECTION 150. Procedure for sale of goods and application of sale proceeds. - (1) Where any goods not being confiscated goods are to be sold under any provisions of this Act, they shall, after notice to the owner thereof, be sold by public auction or by tender or with the consent of the owner in any other manner.

(2) The proceeds of any such sale shall be applied -

(a)   firstly to the payment of the expenses of the sale,

(b)    next to the payment of the freight and other charges, if any, payable in respect of the goods sold, to the carrier, if notice of such charges has been given to the person having custody of the goods,

(c)    next to the payment of the duty, if any, on the goods sold,

(d)    next to the payment of the charges in respect of the goods sold due to the person having the custody of the goods,

(e)    next to the payment of any amount due from the owner of the goods to the Central Government under the provisions of this Act or any other law relating to customs,

and the balance, if any, shall be paid to the owner of the goods :

[Provided that where it is not possible to pay the balance of sale proceeds, if any, to the owner of the goods within a period of six months from the date of sale of such goods or such further period as the [Principal Commissioner of Customs or Commissioner of Customs] may allow, such balance of sale proceeds shall be paid to the Central Government.]

 Section 150 of the Act clearly provides abatement of value of expenses of the sale and the payment of the freight and other charges, if any, payable in respect of the goods sold, to the carrier, if notice of such charges has been given to the person having custody of the goods, So the Circular dated 28.11.2001 traversed beyond the Section 150 of the Act that determined prioritization of distribution of sale proceeds of goods sold by warehouse keeper or by proper Officer as in the cited case.

It is to be submitted that the sub clauses (a) & (b) of sub Section (2) of Section 150 of Customs Act, 1962 are nothing but abatements provided under Section 150 of Customs Act, 1962 for determining the Customs duty stated in sub clause (c) of Sub Section (2) of Section 150 of the Act and is in parimateria with the abatement provided for specified goods under Section 4A of the erstwhile Central Excise Act 1944 for determining Central Excise Duty. Notification(s) 12/2003-ST dated 20.06.2003 and 1/2006 ST dated 1.03.2006   provided abatement to neutralize effect of materials /good sold / utilized in Service Tax cases. In the above two situations the cum duty/tax value  (taxable value/ Dutiable Value), if required to determined on cum duty/tax basis,  is determined after deducting the percentage of abatements from the MRP price or the consideration received by the service provider. {M/S LMP PRECISION ENGINEERING COMPANY PVT LTD VERSUS C.C.E. & S.T. -DAMAN - 2017 (4) TMI 501 - CESTAT AHMEDABAD}.

Following the same principle, the assessable value for determining Customs duty in the present case is to be arrived at by deducting the expenses towards auction and freight charges if any payable and by adopting cum duty computation.

Another issue involved in this case is whether the refund of the amount due to erroneous determination of Customs Duty is governed by the provisions of Section 27 Of the Act. Re computation of Customs Duty occurred due to erroneous determination of applicable duty payable by denying cum duty determination of assessable value and adding inapplicable interest along with duty computed. Hence the differential amount refunded is squarely covered by Section 27 of the Act and hence applicable interest on delayed refund as per provisions of Section 27A of the Customs Act, 1962.

Can one earnestly hope the Circular No.71/2001-Cus dated 28.11.2001 will be modified accordingly? Experience or research, as explained in earlier paragraphs, will not be helpful in the absence of any precedent(s) in this case. An innovative lawyering is the need of the day.