TMI Blog2019 (10) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition of Section 14 of the Act. In view of the clarifications by way of judgments of the Hon'ble Supreme Court, more particularly in the cases of WIPRO LTD. VERSUS ASSISTANT COLLECTOR OF CUSTOMS OTHERS [ 2015 (4) TMI 643 - SUPREME COURT] , it is made clear that demurrage cannot be included for the purpose of valuation under the Customs Act, 1962. Thus, the contentions raised by the petitioner that the relevant provisions in the Principal Act is silent about the demurrage; thus, it was beyond the legislative power to include it in the Rules is accepted and thus the explanation to Sub-Rule (2) of Rule 10 of the Customs Valuation (Determination of Value of Imported Goods)Rules, 2007 is held to be bad and hence declared ultra vires the Constitution/provision of Section 14 of the Customs Act, 1962, and hence the same is struck down. - W.P. (C) No. 7917 of 2009 - - - Dated:- 30-1-2019 - K.S. Jhaveri, C.J. And Krushna Ram Mohapatra, J. For Appellant: Samir Chakrabarty, Sr. Advocate, Sarada Prasana Sarangi, B.C. Mohanty, P.P. Mohanty, A. Pattnaik And K.K. Acharya For Respondents: Choudhury Satyajit Mishra, Sr. Standing Counsel JUDGMENT 1. By way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drawn the Circular dated 14.08.1991, under Annexure-1 and clarified that by virtue of Rule 9 (2) of the Rules, 1988, ship demurrage charges paid are required to be included in the assessable value of goods under Section 14 of the Act. The aforesaid clarification is not in consonance with the provisions of Section 14 of the Act and Rule 9 of the Rules, 1988 and the same was evidently issued in an arbitrary attempt of the Ministry of Finance, Opposite Party No. 1 to change its view and illegally directed for inclusion of demurrage charges in the cost of transportation to form part of the assessable value. 4. The issue regarding inclusion of demurrage charges to be assessable value of imported goods was decided by the Larger Bench of the Customs Excise and Service Tax Appellate Tribunal(CESTAT) (for short, 'the Tribunal) in the case of Indian Oil Corporation Limited vrs. Commissioner of Customs, Calcutta reported in 2000 (122) ELT. 615 (Tri-LB) by holding that if demurrage charges would form a part of the assessable value, the goods covered by the same contract would be assessed to duty at different assessable values and such a situation is not envisaged in the provisions of Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t demurrage charges shall be included in the cost of transport, so as to form a part of assessable value of imported goods. 5.2. Section 14 of the Act, 1962, as amended by the Finance Act, 2007 with effect from 10.10.2007 provided that the transaction value in the case of imported goods shall inter alia include 'cost of transportation to the place of importation' without any reference to the inclusion of demurrage charges as sought to be included by way of incorporation of the Explanation to Sub-Rule (2) of Rule 10 of the Valuation Rules, 2007. 5.3. It will be evident from the provisions of Section 14 of the Act, 1962 that, either prior to or after amendment thereof, with effect from 10.10.2007, the said Section 14 does not authorise inclusion of demurrage charges to the value of imported goods for assessment to duty of customs either directly or by implications. 6. The petitioner imports its raw materials in bulk quantities by chartered vessels through the Paradeep Port from various overseas vendors/suppliers. For such imports, the petitioner places bulk orders for quantities like 5 lakh MTs which is supplied by the Overseas Supplier in smaller lots according to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Customs, Paradeep Port-Opposite Party No. 3 has now directed the petitioner to pay the differential duty which has been arrived at by including ship demurrage charges in the transaction values of the respective consignments. The aforesaid demands vide Annexure-12 series have been raised on the petitioner in only those cases where the petitioner incurred ship demurrage charges. 8.1. But in case, where the petitioner does not pay any ship demurrage charges and instead, earns 'Dispatch Money' as an incentive/reward for having completed unloading of cargo at Paradeep Port within a shorter period of time. Such 'Dispatch Money' is never excluded by the Deputy Commissioner of Customs, Paradeep Port-Opposite Party No. 3, from the cost of transport for computing the assessable value of the imported goods. Thus, the goods imported by the petitioner are invariably assessed to duties of customs by including the demurrage charges whenever incurred by the petitioner, but no benefit whatsoever is allowed to the petitioner-Company in respect of those cases, where the petitioner earned dispatch money as a reward/incentive. 9. Learned Counsel for the petitioner prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of goods. (1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf. Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf Provided further that the rules made in this behalf may provide for.- (i) the ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) For the purposes of sub-section (1) and sub-section (1A) of Section 14 of the Customs Act, 1962 (52 of 1962) and these rules, the value of the imported goods shall be the value of such goods, for delivery at the time and place of importation and shall include.- (a) the cost of transport of the imported goods to the place of importation; (b) loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation; and (c) the cost of insurance, Provided that- (i) Where the cost of transport referred to in clause (a) is not ascertainable, such cost shall be twenty per cent of the free on board value of the goods; (ii) The charges referred to in clause (b) shall be one per cent of the free on board value of the goods plus the cost of transport referred to in clause (a) plus the cost of insurance referred to in clause (c); (iii) Where the cost referred to in clause (c) is not ascertainable; such cost shall be 1.125% of free on board value of the goods; Provided further that in the case of goods imported by air, where the cost referred to in clause (a) is ascertainable, such cost shall not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of insurance for clause (i) above and the cost referred to in clause (c) shall be 1.125% of the free on board value of the goods plus cost of transport for clause (iii) Provided also that in case of goods imported by sea stuffed in a container for clearance at an Inland Container Deport or Container Freight Station, the cost of freight incurred in the movement of container from the port of entry to the Inland Container Depot or Container Freight Station shall not be included in the cost of transport referred to in clause (a) Explanation - The cost of transport of the imported goods referred to in clause (a) includes the ship demurrage charges on charted vessels, lighter age or barge charges. 11. Learned Counsel for the petitioner has mainly contended that the provisions of principal Act does not include the cost of demurrage charges in the cost of transportation. However, by subsequent Rules framed thereunder, has travelled beyond the scope of the Act. Therefore, the same is required to be declared ultra vires. In this regard, learned counsel for the petitioner has relied upon Section 156 of the Customs Act, 1962, as well as some case laws, which are q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed damages for delay beyond a stipulated or reasonable time for loading or unloading, generally referred to as the lay-days or lay-time. Where the sum is only to be paid for a fixed number of days, and a further delay takes place, the shipowner's remedy is to recover unliquidated damages for detention for the period of the delay. The phrase demurrage is sometimes loosely used to cover both these meanings. The circumstances in which and the nature of demurrage payable in a given circumstance has been the subject matter of considerable legal literature. However, in India, the expression demurrage appears to have acquired a different connotation. Under the Madras Port Trust Act, 1905, certain bye-laws were framed by the Port Trust in exercise of the statutory powers under which Scale of Rates payable at the Port of Madras were framed. Chapter IV thereof was headed Demurrage . Under the said Chapter, it was stipulated that demurrage is chargeable on all goods left in Board's transit sheds or yards beyond the expiry of the free days. 25. In Trustees of the Port of Madras v. Aminchand Pyarelal Others, (1976) 3 SCC 167, this Court had an occasion to consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved in these appeals is concerned, we may point out that during this period the goods could not be cleared and it was observed that the assessee had paid demurrage charges of ₹ 6,48,094.93 among other fees/charges. As per the Revenue/appellant, these demurrage charges were also to be included in the assessable value for the purpose of levy of duty of customs. Show-cause notice dated June 9, 2003 was issued in this behalf, which resulted in passing of order dated March 7, 2005 confirming the demand raised in the show-cause notice. The assessee filed appeal against the order of the Adjudicating Authority before the Commissioner of Customs (Appeals), which was however dismissed. The assessee, thereafter, approached the Customs, Excise and Service Tax Appellate Tribunal (for short, 'CESTAT) and the CESTAT has passed order dated February 6, 2006 (2006 (205) E.L.R. 753 (Tri-Bang) holding that the assessee should discharge duty liability on the transaction value which is actually the amount paid on the BNI of Lading quantity. However, insofar as demurrage is concerned, it has held that the same is includible in the transaction value. In forming this opinion, the Tribunal relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them in clause (m) and clause (g) of Section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999) . A cursory reading of the Section makes it clear that customs duty is chargeable on goods by reference to their value at a price at which such goods or like goods are ordinarily sold or offered for sale at the time and place of importation in the course of international trade. This would mean that any amount that is referable to the imported goods post-importation has necessarily to be excluded. It is with this basic principle in mind that the rules made under sub-clause 1(A) have been framed and have to be interpreted. 8. Under the Customs Valuation (Determination of Price of Imported Goods) Rules of 1988, Rule 2 (f) defines transaction value as the value determined in accordance with Rule 4 of these Rules. Rule 4 (1) in turn states that the transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9 of these Rules. Rule 9 of the Rules is set out herein below: 9. Cost and services, -(1) In determining the transaction value, there shall be added to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted goods are pre-import are to be added for the purpose of determining the value of the imported goods. In the present appeal, arguments have veered around the applicability of Rule 9(1) (e). In this appeal, we are concerned only with the first part of Rule 9 (1) (e). The narrow question that arises before us is whether the payment made for the technical services agreement is to be added to the value of the plant that is imported inasmuch as such payment has been made as a condition of sale of the imported plant. 11.4. In the case of Wipro Ltd. vs. Assistant Collector of Customs, reported in 2015 (319) ELT 177 (SC), Hon'ble Supreme Court observed as under:- 20. This provision was amended in the year 2007. Though, we are not concerned with this amended provision, we are taking note of the same in order to examine as to whether any change, in principle, is brought about or not. The amended provision reads as follows: 14. Valuation of goods:-(1) For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price at which such or like goods are ordinarily sold or offered for sale . Under the new provision, however, the valuation is based on the transaction price namely, the price actually paid or payable for the goods . Even when the old provision provided the formula of the price at which the goods are ordinarily sold or offered for sale, at that time also if the goods in question were sold for a particular price, that could be taken into consideration for arriving at the valuation of goods. The very expression ordinarily sold, or offered for sale would indicate that the price at which these goods are actually sold would be the price at which they are ordinarily sold or offered for sale. Of course, under the old provision, under certain circumstances, the authorities could discard the price mentioned in the invoice. However, that is only when it is found that the price mentioned in the invoice is not the reflection of the price at which these are ordinarily sold or offered for sale. To put it otherwise, the reason for discarding the price mentioned in the invoice could be only when the said price appeared to be suppressed one. In such a case, the authorities could say that gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislature should, before delegating, enunciate either expressly or by implication, the policy and the principles for the guidance of the delegates. These principles also apply to Taxing Statutes. The effect of these principles is that the delegate which has been authorised to make subsidiary Rules and Regulations has to work within the scope of its authority and cannot widen or constrict the scope of the Act or the policy laid down thereunder. It cannot, in the garb of making Rules, legislate on the field covered by the Act and has to restrict itself to the mode of implementation of the policy and purpose of the Act. Xx xx xx 28. The Government to whom the power to make Rules was given under Section 133 and the Committee to whom power to make Bye-laws was given under Section 34 widened the scope of presumption by providing further that if a notified agricultural produce is weighed, measured or counted within the notified area, it shall be deemed to have been sold or purchased in that area. The creation of legal fiction is thus beyond the legislative policy. Such legal fiction could be created only by the Legislature and not by a delegate in exercise of rule making power. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,: 1989 (4) SCC 21 and Dhiraj Lal H. Vohra and others vs. Union of India and others, 1993 (Supp.-3) SCC 453, this Court came to the conclusion in Apars Private Limited case that the duty has to be paid with reference to the relevant date as mentioned in Section 15 of the Act. 16. It was further submitted that in the case of Apars Private Limited this Court was concerned with Sections 14 and 15 but here we have to construe the word imported occurring in Section 12 and this can only mean that the moment goods have entered the territorial waters, the import is complete. We do not agree with the submission. This Court in its opinion in Re. The Bill to Amend Section 20 of the Sea Customs Act, 1879 and Section 3 of the Central Excises and Salt Act, 1944. 1964 (3) SCR 787 at page 823 observed as follows: Truly speaking, the imposition of an import duty, by and large, results in a condition which must be fulfilled before the goods can be brought inside the customs barriers i.e. before they form part of the mass of goods with the country,. It would appear to us that the import of goods into India would commence when the same cross into the territorial waters but continues and is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of the importer, then the importer can claim that the landing charges should not once again be added to the price because in such an event, where payment is made of landing charges by the seller or the shipper, the CIF price must be regarded as. including the said landing charges. There is however, in these cadres, no factual basis for contending that the landing charges were included in the CIF price and, consequently the said obligation was discharged not by the importer or by its agent but by the seller or the shipper. 13. We have heard learned Counsel for the parties. It is well-settled principle of the statute that while interpreting a statute, one has to go by the scope and object of the principal Act. Under the principal Act, while amending it on 10th October, 2007, proviso has included the costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the Rules. The demurrage has not been included as a part of cost envisaged by the legislation. Further, it is a kind o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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