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TMI Blog2018 (9) TMI 1910X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by this Court vide order dated 15-11-2017 on the following substantial questions of law : In DB Custom Appeal No. 3/2017 :- "(i) Whether on the facts and in the circumstances of the case and in law the Hon'ble CESTAT was justified in confirming that the demand of Rs. 1,71,47,255/- along with interest as cost recovery charges raised by Ld. Commissioner of Income Tax under the provisions of Regulation 5(2) read with Regulation 6(1)(o) of the HCCAR, 2009 was not without jurisdiction? (ii) Whether on the facts and in the circumstances of the case and in law the Hon'ble CESTAT was justified in confirming the demand of cost recovery charges raised by the Ld. Commissioner of Income Tax pursuant to the 6th Pay Commission. (iii) Whether on the facts and the circumstances of the case and in law the Hon'ble CESTAT was justified in confirming the penalty of Rs. 50,000/- imposed by the Ld. Commissioner of Customs on account of alleged non-compliance with the provisions of the Act and the rules, regulation made thereunder. (iv) Whether on the facts and in the circumstances of the case and in law the Hon'ble CESTAT was justified in confirming the order passed by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of the Act and the rules, regulation made thereunder. (iv) Whether on the facts and in the circumstances of the case and in law the Hon'ble CESTAT was justified in confirming the order passed by the Ld. Commissioner of Customs pertaining to the suspension or revocation of the approval granted to the Appellant as custodian in respect of ICD- Bhilwara? (v) Whether on the facts and in the circumstances of the case and in law the Hon'ble CESTAT was justified in not declaring the order dated 6-11-2012 passed by the Ld. Commissioner of Customs to be non est in the eyes of law being in violation of the principles of natural justice, Nemo debat esse judex in propria sua causa (i.e. no man can be judge in his own case)?" 4. For convenience, the Customs Appeal No. 3/2017 is being taken as leading case. The appellant is a Government of Rajasthan Undertaking. As a private business entity, it has been managing Inland Container Depot (for short 'ICD') in Jaipur since 1989, in Jodhpur since 1995, in Bhiwadi since 1999 and in Bhilwara since 2000. The appellant was appointed as the custodian of ICD at Bhiwadi through a Public Notice No. 2/99(Customs), dated 27-1-1999 by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may allow from the date of coming into force of HCCAR, 2009. In the event of non-compliance, the Commissioner of Customs, in terms of Clause 11 of HCCAR, 2009, would suspend or revoke the approval granted to the Customs Cargo Service Provider subject to the observance of procedure prescribed under Clause 12 and also order for forfeiture of security, if any. 5. According to the appellant, it regularly paid cost recovery charges for staff of Customs posted at ICD, Bhiwadi till 31-3-2008, which fact is borne out from para 4 of the adjudication order dated 1-3-2013 passed by the Commissioner of Customs, Jaipur. The appellant, in terms of the provisions of HCCAR, 2009, submitted compliance report to the Commissioner of Customs vide letter dated 16-7-2009 and also applied for renewal of approval of Customs Cargo Service Provider and Custodianship. However, the department kept the application in abeyance and did not pass any order for as long as two months. The Commissioner of Customs vide his letter dated 9-9-2009 required the Assistant Commissioner of Customs to inquire about the compliance, who submitted its report on 11-9-2009. Even before the compliance could be submitted, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ponse was received. According to the appellant, owing to the aforesaid developments and apathy on the part of the respondents, the ICD at Bhiwadi remained non-functional and therefore the appellant did not generate any revenue. Since there was no Custom work at ICD, Bhiwadi, no officer was ever deployed and therefore neither the department issued any demand note for cost recovery charges nor did the appellant pay any after September, 2009. 6. Further case of the appellant is that its Board of Directors, in 323rd meeting held on 26-3-2012, resolved to temporarily close the ICD and requested the Commissioner of Customs vide letter dated 12-4-2012 to suspend the approval/to withdraw the staff. The department immediately thereafter issued show cause notice dated 4-6-2012 to the appellant proposing to revoke/suspend custodianship in terms of Clause 11(1) of HCCAR, 2009 along with forfeiture of security, if any, for alleged failure to comply with the provisions of the Act and Rules/Regulations etc., recovery of outstanding cost recovery charges along with interest and imposition of penalty in terms of Clause 12(8) of HCCAR, 2009. The respondents thereafter appointed the Deputy Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es payable have not been disputed is perverse. This goes to show the biased manner in which the adjudication order has been passed by the Commissioner of Customs. 9. Learned Counsel further submitted that the obligation undertaken by the appellant to pay cost recovery charges cannot be stretched too far to be construed to say that the appellant agreed to pay cost recovery charges in all the situations notwithstanding the default/lapse/negligence on the part of the Customs department in discharging reciprocal obligation cast on them under Regulation 6(2) to grant permission to outsource activities etc. Clue can be taken from Section 51 of the Indian Contract Act, which is based on the principle of equity and fairness. Section 52 of the Contract Act absolves a party to the contract from his obligation to discharge its duties unless the other party having reciprocal obligation is ready and willing to perform his reciprocal obligation. Even the undertaking to pay cost recovery charges is a qualified undertaking. It specifically records that the Commissioner of Customs shall decide the number of staff, which is required to be posted in the facility considering the work load in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout prejudice to above, it is submitted that HCCAR, 2009 came into force on 17-3-2009 and as per Regulation 4, the maximum period of one year can be granted by the Commissioner to the appellant to comply with the regulation i.e. 17-3-2010. Therefore, the action of the Commissioner of Customs to order recovery of the cost recovery charges beyond 17-3-2010 or even allegedly keeping the officers posted beyond that date is ultra vires to HCCAR, 2009 itself and thus demand itself is void. 12. It is argued that reliance placed by the respondents on the judgment of Madras High Court in M/s. Hari CFS v. Union of India & Others, (Writ Petition (MD) No. 2634 of 2009 along with other writ petitions decided on 4-2-2011) [2011 (267) E.L.T. 319 (Mad.)] is wholly misconceived. The aforesaid judgment is distinguishable on the facts of the present case and the same does not in any manner apply to the present case. It is argued that the view of the Madras High Court in Hari CFS (supra) ought not be concurred by this Court as the Madras High Court therein had referred to the decision of the Supreme Court in the case of Government of Maharshtra v. Deokar's Distillery wherein the interpretation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16 decided on 2-8-2017). 14. Mr. Anuroop Singhi, Learned Counsel for the respondents opposed the appeals and submitted that the Commissioner of Customs was justified in passing the impugned adjudication orders and the Tribunal was also equally justified in confirming the same. Learned Counsel referred to Clause 5(2) of HCCAR, 2009 and argued that according to said clause, the appellant had undertaken to bear the cost of the Customs officers posted at such customs area on cost recovery basis, by the Commissioner and shall make payments at such rates and in the manner prescribed, unless specifically exempted by an order of the Ministry of Finance, Government of India. The appellant did not take timely action in fulfilling all the requirements in terms of HCCAR, 2009 despite of repeated extension of time granted by the Commissioner of Customs. Even after expiry of one year time provided as per HCCAR, 2009, the appellant did not comply with all the conditions of HCCAR, 2009. The appellant was appointed as the custodian of ICDs under Section 45(1) of the Act read with Public Notice No. 21/1999 (Customs) dated 1-12-1999 issued by the Commissioner of Customs, Jaipur. The procedure f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Division Bench of Bombay High Court in M/s. Mumbai International Airport Private Limited v. The Union of India & Others (Writ Petition No. 584 of 2013 and 697 of 2013 decided on 13-10-2014) and another by Division Bench of Delhi High Court in Allied ICD Services Ltd. v. Union of India & Others (Writ Petition (C) No. 13770/2009 along with other connected matters decided on 27-8-2018) [2018 (364) E.L.T. 59 (Del.)]. 18. The Delhi High Court in the aforesaid case of Allied ICD Services Ltd. (supra) was also considering challenge to the levy and collection of cost recovery charges for posting of and work performed by the custom officers and staff at the Inland Container Depots (ICDs)/Container Freight Stations (CFSs)/Air Cargo Complexes (ACCs)/Export Processing Zones (EPZs). Prayer in the aforesaid case was also made for quashing of the demand issued for recovery of cost of Customs staff at the rate of 1.85 times the salary of the customs staff posted at the respective ICDs/CFSs/ACCs/EPZs. The Delhi High Court in that case held that the ICDs/CFSs/ACCs/EPZs located in the hinterland are operated by the custodians for their private commercial gains and profits. The Government merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondition for becoming custodians of the respective ICDs/CFSs/ACCs/EPZs had willingly undertaken to bear the costs of the Customs staff posted at the ICDs/CFSs/ACCs/EPZs. Thus, the payment of cost recovery charges has sanction and authority of law to back the levy and imposition. Further, the cost recovery charges so levied are against expenses incurred by the government for rendering the services at the ICDs/CFSs/ ACCs/EPZs. Therefore, in view of the case law above discussed, provisions of the Act and the documents on record, it is established that cost recovery charges are in the nature of "fee" for services rendered by the customs officers at the concerned ICDs/CFSs/ACCs/EPZs. ................. 32. It is a fact that the cost recovery charges have been worked out and were/are payable by the Department of Revenue on the basis of general principles laid down in the General Financial Rules. As a condition for being appointed as a custodian, the petitioners had undertaken to bear the cost of the customs staff posted at the ICDs/CFSs/ACCs/EPZs. Cost was/is liable to change if the different components of this cost, such as, the salary, D.A., CCA, HRA, pay allowance and pension ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ICD has been made in terms of Section 45(1) of the Act according to which all imported goods unloaded in a customs area shall remain in the custody of such person as may be approved by the Commissioner of Customs until they are cleared for home consumption or are warehoused or transshipped. Sub-section (2) of Section 45 of the Act provides that the person having custody of any imported goods in a customs area, whether under the provisions of sub-section (1) or under any law for the time being in force, (a) shall keep a record of such goods and send a copy thereof to the proper officer; (b) shall not permit such goods to be removed from the customs area or otherwise dealt with, except under and in accordance with the permission in writing of the proper officer. HCCAR, 2009 have been framed in terms of Sections 157 and 158 of the Act. Clause 5(2) of HCCAR, 2009 provides that the applicant shall undertake to bear the cost of the Customs officers posted at such Customs area, on cost recovery basis, by the Commissioner and shall make payments at such rates and in the manner prescribed, unless specifically exempted by an order of the Ministry of Finance, Government of India. Clause 5(5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the handlers of Export and Import. It is also stated that the Kerala High Court in similar circumstances had upheld the case of the petitioners. ................. 9. At the CFS and ICDs, the Customs personnel are provided on a cost recovery basis. The sanction of postings of officers will be issued by the administrative wing of the Central Board of Excise and Customs. The custodians are required to pay 185% of total salary of the officers actually posted at the CFS. Normally one CFS will have 13 officers of various ranks. As per the guideline, dated 14-12-1995, more particularly guideline No.10, it is the Custodian who shall bear the cost of the Customs personnel posted for various duties at ICD/CFS/EPZ. Further by a notification No. 26/2009, the Government by the exercise of its power under Section 141(2) of the Customs Act had issued new regulations known as Handling of Cargo in Customs Areas Regulations, 2009. Regulation 3 has made its regulations to come into effect with retrospective operations. Under Regulation 5, it is clearly stipulated that the Custodian shall bear the cost of Customs staff posted in the station. The Commissioner of Customs shall decide the num ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to cost recovery charges to be met by the Custodians." 23. The Bombay High Court in M/s. Mumbai International Airport Private Ltd. (supra) also dealt with the same issue and repelled the challenge to imposition/levy of cost recovery charges. Relevant discussion made in paras 53, 54, 57 and 59 of the Report reads as under : "53. If that was not be the position, the Petitioners would not have furnished a bond as required by the authorities. It is in these circumstances that we are unable to agree with the Petitioners as they do not have any absolute exemption as claimed by them. The Petitioners have understood the law and its applicability to mean stepping into the shoes of a Authority like AAI does not mean automatic exemption. All custodians on which the status is claimed have to be complied with unless exempted. The staff of the Customs Department is deployed to enable the movement of goods from the notified Customs Area. That movement is possible only after the proper officer permits it. That proper officer is from the Department and if he is posted with a specific subject and purpose, then, charges of such posting will have to be borne by the Petitioners. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Air Cargo Complex, Mumbai on cost recovery basis. The Petitioners would not have been permitted to outsource the function of handling of Cargo within this terminal premises unless the Regulation 6(2) of these Regulations had permitted them to do so. Further, they could not have been appointed as custodian and within the meaning of the said term and as contemplated Section 45 of the Customs Act, 1962, unless, they subjected themselves to these provisions. That they did so voluntarily does not mean that they can pick and choose favourable or beneficial terms and conditions and leave our or omit the so called onerous one's. Therefore, "shall remain in custody of such person" are the relevant words and to understand the concept. The permission to set up a Perishable Cargo Terminal for exports was sought by the Petitioners. That the facility was constructed by the Cargo Service Centre India (P) Ltd. on a Build, Operate and Transfer basis is clear from Exhibit '7' to the affidavit in reply. That entity is also designated as "Customs Cargo Service Provider" is further clear. The function of Cargo is outsourced but the Petitioners appointment as custodian under the Customs Act is not dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particularly the Commissioner. In such circumstances, and with great respect, we are unable to agree with the Learned Single Judge of the Andhra Pradesh High Court. We find much substance in the contentions of Mr. Jetly that these matters cannot be looked at from the angle and in the manner approached by the Petitioners." 25. Circular of the Board No. 128/95-Cus., dated 14-12-1995 prescribed the procedure for appointment of custodian of ICDs and also stipulated that the custodian was required to pay the cost recovery charges. The Ministry of Finance upon appointment of custodian, specifically created posts of custom staff for manning the ICDs. Letter dated 24-7-1996 has been placed on record, in para 3 of which, the sanction of the President for creation of posts for ICDs was conveyed. Therein it was specifically stipulated that 1.85 times of the monthly average cost of the posts plus DA, CCA, HRA and interim relief may be obtained from the party, who is running the ICD as the posts have been created for ICDs. In fact, the appellant vide letter dated 4-3-1988 communicated its acceptance for the guidelines contained in Circular No. 128/95, dated 14-12-1995 and furnished undert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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