UNION OF INDIA & ORS.versusM/S. ASSOCIATED CONTAINER TERMINAL LTD.

                         [2020] 2 S.C.R. 859                               859


                     UNION OF INDIA & ORS.                                 A
                                   v.
       M/S. ASSOCIATED CONTAINER TERMINAL LTD.
                   (Civil Appeal No. 4490 of 2008)
                        FEBRUARY 14, 2020                                  B
       [A. M. KHANWILKAR, HEMANT GUPTA AND
               DINESH MAHESHWARI, JJ.]
      Customs Act, 1962: ss.61, 63, 72 and 150 – Imposition of
custom duty – Auction of warehoused goods in case importer/owner
                                                                           C
of imported goods fails to seek release of such goods – Whether
calculation of the custom duty would be assessed as on the date of
the deemed removal of goods from the warehouse in terms of s.61
or on the date of sale for the reason that the importer has failed to
seek clearance of the goods imported – Held: In view of the Circular
issued by the Central Board of Excise & Customs dated 28 th                D
November, 2001, the custom duty is to be calculated on the sale
price and not on the duty as is payable on the date of deemed
expiration of permitted period of warehouse – Such Circular of the
Board is binding on the Revenue – Therefore, the custom duty has
to be paid on the basis of sale proceeds realised from the sale of the
                                                                           E
goods kept in a warehouse and not on the basis of the custom duty
payable at the time of filing the Bill of Entry or on the date of expiry
of permitted period of warehouse.
      Disposing of the appeal, the Court
       HELD: 1. *Kesoram is a case where the importer claimed              F
levy of custom duty on goods which remained in bonded
warehouse beyond the permitted period claiming that the duty
as is applicable on the date the goods were sought to be removed
for home consumption, will be chargeable. This Court found that
the goods can be kept in a warehouse in terms of the period
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specified under Section 61 of the Act and, therefore, Section 68
and Section 15(1)(b) apply only when the goods were cleared from
the warehouse within the permitted period or with permitted
extension and not beyond the permitted period or permitted
extension. The present case is not a case of levy of custom duty
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                                  859
860            SUPREME COURT REPORTS                       [2020] 2 S.C.R.


A     on the importer. The importer has not sought the release of goods
      within the permitted period of warehouse. Therefore, the
      judgment in *Kesoram will not be applicable in respect of the
      goods to be auctioned on account of failure to seek the release of
      imported goods by the importer though after the permission from
B     the proper officer. [Para 14-15][867-G-H; 868-A-C]
            *Kesoram Rayon v. Collector of Customs, Calcutta
            (1996) 5 SCC 576 : [1996] 5 Suppl. SCR 77 – Held
            inapplicable.
             2. The purpose of Section 63 is to ensure that the
C     warehouse-keeper recovers the rent or warehouse charges from
      the importer. Section 150 deals with the distribution of sale
      proceeds if the goods other than the confiscated goods are sold
      under any provision of the Act. The Central Board of Excise &
      Customs had issued a clarification on 28 th November, 2001
D     keeping in view divergence of practice with regard to
      apportionment of sale proceeds from disposal/sale of unclaimed/
      uncleared goods under Section 150 of the Act. It was
      communicated that the custom duty shall be determined by
      backward calculation considering the sale proceeds of unclaimed/
      uncleared goods as the cum-duty price. For calculation of duty,
E     total sale proceeds without allowing any deduction towards sales
      expenses or any other charge is to be taken as cum-duty price.
      In view of the Circular issued by the Central Board of Excise &
      Customs, the custom duty is to be calculated on the sale price
      and not on the duty as is payable on the date of deemed expiration
F     of permitted period of warehouse. Such Circular of the Board is
      binding on the Revenue. Therefore, the custom duty has to be
      paid on the basis of sale proceeds realised from the sale of the
      goods kept in a warehouse and not on the basis of the custom
      duty payable at the time of filing the Bill of Entry or on the date of
      expiry of permitted period of warehouse. [Paras 16-18]
G
      [868-D-H]
                             Case Law Reference
      [1996] 5 Suppl. SCR 77          Held inapplicable       Para 3

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    UNION OF INDIA & ORS. v. M/S. ASSOCIATED CONTAINER                         861
                      TERMINAL LTD.

      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4490                      A
of 2008.
      From the Judgment and Order dated 28.11.2007 of the High Court
of Delhi at New Delhi in W.P. (C) No. 7995 of 2005.
      Tushar Mehta, SG, K. Radhakrishnan, Sr. Adv., Mrs. B. Sunita
                                                                               B
Rao, Mrs. Neelam Chand, Mrs. Shirin Khajuria, Shankar Devate,
B. Krishna Prasad, Advs. for the Appellants.
     Rupesh Kumar, Mrs. Pankhuri Srivastava, Rajeev Sharma,
Ms. Neelam Sharma, Advs. for the Respondent.
          The Judgment of the Court was delivered by                           C
          HEMANT GUPTA, J.
        1. The order dated 28th November, 2007 passed by the High Court
of Delhi is the subject matter of challenge in the present appeal. Vide
the aforesaid order, the writ petition filed by the respondent was allowed
and the demand raised by the appellants vide letters dated 17th February,      D
2005 and 19th April, 2005 were found to be without authority of law and,
thus, the appellant was directed to refund a sum of Rs.27,47,146/- together
with interest @12% per annum.
        2. One M/s. Kushang Apparel Ltd. had imported CTV kits and
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filed six Bills of Entries, all dated 9th February, 2001. Such goods were
permitted by the Custom Department to be kept in warehouse for one
year in terms of Section 59 of the Customs Act, 19621 at ICD, Faridabad.
The Bond period expired on 28th February, 2002 but the importer did not
clear the imported goods and also did not pay the rent for the warehouse.
The warehouse issued notices for the recovery of its dues failing which        F
it will be constrained to sell the imported goods by public auction/tender
sale. With the approval of custom authorities, the imported goods were
put for sale through auction under Section 63(2) of the Act with a valuation
of imported goods at Rs.1,52,04,176/-. However, the goods could not be
successfully sold. The valuation was reduced for the second auction            G
held on 4th September, 2002 to Rs.1,36,83,759/- and further reduced in
the third auction held on 7th May, 2003 to Rs.54,44,650/-. The highest bid
of Rs. 35 lakhs alone was received. The auction was not confirmed.


1
    for short, ‘Act’                                                           H
862                SUPREME COURT REPORTS                           [2020] 2 S.C.R.


A            3. Thereafter, tender sale was resorted to dispose of the goods in
      the warehouse. The valuation of the imported goods in the warehouse
      was fixed at Rs.33 lakhs for which tenders were invited upto 3rd
      December, 2003. Later, the valuation was reduced to Rs.30 lakhs in the
      second tender sale up to 31st August, 2004. In this sale process, the
B     highest bid received was of Rs.41,44,555/-. The Assistant Commissioner
      passed an order on 12th October, 2004 that the goods will not be cleared
      on ex-bond Bill of Entry as it is not a case of clearance under Section 68
      of the Act but on realization of charges under Section 72 of the Act in
      terms of the judgment of this Court in Kesoram Rayon v. Collector of
      Customs, Calcutta2. The sale proceeds will be appropriated as per
C     Section 105 of the Act.
             4. Subsequently, on 2nd February, 2005, the Assistant Commissioner
      of Customs permitted the auctioned goods to be released to auction
      purchaser on furnishing of bank guarantee in the sum of Rs.27,47,146/-
      after paying a sum of Rs.2,05,329/- as expenses of sale and payment of
D     Rs.11,92,080/- as duty. The respondent deposited the amount of duty
      and also furnished the bank guarantee. Subsequently, on 4th March, 2005,
      the respondent was called upon to deposit remaining amount of
      Rs.27,47,146/- immediately failing which the bank guarantee was intended
      to be invoked. Subsequently, on 19th April, 2005, the Additional
      Commissioner informed the respondent that Chief Commissioner of the
E     Central Excise is of the view that the matter stands settled with the
      Board’s clarification of 17th February, 2005 and the outstanding arrears
      of custom duty is required to be recovered. The bank guarantee was
      sought to be invoked which led the respondent to invoke the writ
      jurisdiction of the Delhi High Court.
F            5. The High Court allowed the writ petition with the following
      findings:
               “16. It appears that on the facts of the present case the occasion
               to invoke Section 72 (1)(d) would arise only if the goods in respect
               of which a bond has been executed has not been cleared for
G              home consumption. In such event, the owner of the goods can be
               asked to pay the entire duty. This obviously does not apply to the
               warehouse-keeper like the petitioner and no demand of payment
               for customs duty can be made against the petitioner.
                             xx               xx              xx
      2
H         (1996) 5 SCC 576
 UNION OF INDIA & ORS. v. M/S. ASSOCIATED CONTAINER                           863
         TERMINAL LTD. [HEMANT GUPTA, J.]

      20. We therefore hold that the Petitioner was justified in recovering   A
      the warehousing charges due to it from the auction sale proceeds
      in terms of Section 63 (2) of the Act. The balance amount deposited
      with the Government Treasury can be adjusted by the customs
      department towards part payment of customs duty as computed
      by it.”
                                                                              B
       6. The argument of the learned counsel for the Revenue is that
the distribution of sale proceeds has to be in accordance with Section
150 of the Act as there is a specific provision concerning custom duty
charges which will have precedence over recovery of warehouse charges
under 150(2)(e) of the Act.
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       7. Before this Court, learned counsel for the appellants relied upon
the judgment of this Court in Kesoram. This Court considered Section
15(1)(d) of the Act that if the goods which are not removed from a
warehouse within the permissible period (in terms of Section 61) are
treated as goods improperly removed from the warehouse. Such improper
removal takes place when the goods remain in the warehouse beyond             D
the permitted period or its permitted extension. The importer of the goods
may be called upon to pay customs duty at the rate applicable on the
date of their deemed removal from the warehouse. This Court held as
under:
      “13. Goods which are not removed from a warehouse within the            E
      permissible period are treated as goods improperly removed from
      the warehouse. Such improper removal takes place when the goods
      remain in the warehouse beyond the permitted period or its
      permitted extension. The importer of the goods may be called
      upon to pay customs duty on them and, necessarily, it would be
      payable at the rate applicable on the date of their deemed removal      F
      from the warehouse, that is, the date on which the permitted period
      or its permitted extension came to an end.
      14. Section 15(1)(b) applies to the case of goods cleared under
      Section 68 from a warehouse upon presentation of a bill of entry
      for home consumption; payment of duty, interest, penalty, rent          G
      and other charges; and an order for home clearance. The provisions
      of Section 68 and, consequently, of Section 15(1)(b) apply only
      when goods have been cleared from the warehouse within the
      permitted period or its permitted extension and not when, by reason
      of their remaining in the warehouse beyond the permitted period
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864            SUPREME COURT REPORTS                            [2020] 2 S.C.R.


A           or its permitted extension, the goods have been deemed to have
            been improperly removed from the warehouse under Section 72.


                          xx               xx              xx

B           17. The consequence of non-removal of warehoused goods within
            the permitted period or the permitted extension is, by virtue of the
            terms of Section 72, certain. The date on which it comes to end is
            the date relevant for determining the rate of duty. When the duty
            is in fact demanded is not relevant. The alternative submission on
            behalf of the appellants must, therefore, also be rejected.”
C
            8. On the basis of the said judgment, it is contended that the duty
      payable on the goods imported has to be assessed on the date of deemed
      removal of goods from the warehouse for home consumption i.e. on the
      expiry of one year of the warehouse period i.e. 28th February, 2002.
      Therefore, the custom duty leviable as on that day is to be recovered
D     from the sale proceeds and in terms of Section 150(2) of the Act, the
      custom duty has to be paid in preference to the warehouse charges.
      Some of the relevant provisions of the Act read as under:
            “Section 63 . Payment of rent and warehouse charges. - (1)
            The owner of any warehoused goods shall pay to the warehouse-
E           keeper rent and warehouse charges at the rates fixed under any
            law for the time being in force or where no rates are so fixed, at
            such rates as may be fixed by the Principal Commissioner of
            Customs or Commissioner of Customs.
            (2) If any rent or warehouse charges are not paid within ten days
F           from the date when they became due, the warehouse -keeper
            may, after notice to the owner of the warehoused goods and with
            the permission of the proper officer cause to be sold (any transfer
            of the warehoused goods notwithstanding) such sufficient portion
            of the goods as the warehouse-keeper may select.
G
                          xx               xx              xx
            Section 71. Goods not to be taken out of warehouse except
            as provided by this Act. - No warehoused goods shall be taken
            out of a warehouse except on clearance for home consumption
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UNION OF INDIA & ORS. v. M/S. ASSOCIATED CONTAINER                           865
        TERMINAL LTD. [HEMANT GUPTA, J.]

      or export or for removal to another warehouse, or as otherwise         A
      provided by this Act.


                   xx                xx              xx
      Section 150. Procedure for sale of goods and application of            B
      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 –                   C
      (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,                                                                 D
      (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        E
      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.”
      9. Learned counsel for the respondent refers to Chapter 21 of
Central Board of Excise and Customs Manual relating to disposal of           F
unclaimed/uncleared cargo. The relevant clauses from the Manual read
as under:
      “7. Once the goods are sold, the Customs duty on the goods is
      calculated. For calculation of Customs duty, the sale proceeds
      from the sale of unclaimed/uncleared goods is taken as cum-duty        G
      price (value + duty) and customs duty is calculated working
      backwards on the price realised.
      Apportionment of sale proceeds of goods:
      8. On the unclaimed/uncleared goods, liabilities towards customs
      duty as well as carrier’s charges and storage charges arise, which     H
866            SUPREME COURT REPORTS                            [2020] 2 S.C.R.


A           are to be recovered from the sale proceeds. In addition, sales
            expenses incurred on sale of such goods are to be recovered. In
            most of the cases, the sale proceeds of such goods may not be
            sufficient to meet liabilities of all the agencies. In such cases,
            question arises as to which liability is to be met first. To take care
            of such a situation, provisions have been made in section 150(2)
B
            of the Customs Act. The sale proceeds of any such sale of
            unclaimed/uncleared goods is to be applied in following manners:
            (a) first, to the payment of the expenses of the sale,
            (b) next to the payment of the freight and other charges, if any,
C           payable in respect of the goods sold, to the carrier, if notice of
            such charges has been given to the custodians,
            (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,
D
            (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.
            After making above-said payments, if any balance remains, that
            is to be paid to the owner of the goods.”
E
            10. Reference is made to another Circular dated 28th November,
      2001 issued by the Central Board of Excise and Customs. The Circular
      reads as under:
            “A reference was received from the Container Corporation of
F           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
G           goods whereas other Custom Houses are determining duty on the
            basis of sale proceeds without allowing any deduction.
            2. The matter has been examined. It is clarified that –
            (a) the Customs duty shall be determined by backward calculation
H           considering the sale proceeds of unclaimed/uncleared goods as
 UNION OF INDIA & ORS. v. M/S. ASSOCIATED CONTAINER                             867
         TERMINAL LTD. [HEMANT GUPTA, J.]

      the cum-duty price. For calculation of duty, total sale proceeds          A
      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.                      B
      3. These instructions may be brought to the notice of all concerned
      by way of issuance of suitable Public Notice/Standing Order.
      4. Difficulties, if any, in implementation of these instruction, may
      be brought to the notice of the Board. Kindly acknowledge receipt
      of this Circular.”                                                        C

       11. The issue required to be examined in the present appeal is
whether the calculation of the custom duty would be assessed as on the
date of the deemed removal of goods from the warehouse in terms of
Section 61 as interpreted by this Court in Kesoram or on the date of sale
for the reason that the importer has failed to seek clearance of the goods      D
imported.
       12. As per the appellants, the right to recover customs duty is
superior to the right to recover warehouse charges in terms of Section
150 of the Act and that sale was conducted under Section 72 and not
under Section 63 of the Act. If the contention of the Revenue is to be          E
accepted, the custom duty will be much more than the price received in
tender sale. However, if the date of calculation of custom duty is treated
to be the date of sale, the demand of sum of Rs.27,47,146/- would be
untenable.
        13. The appellants have referred to a communication dated 16th          F
April, 2004 wherein the respondent was called upon to clear the goods
after the expiry of extended period failing which payment of full amount
of duty will be payable together with all rent, penalties, interest and other
charges.
       14. Kesoram is a case where the importer claimed levy of custom          G
duty which remained in bonded warehouse beyond the permitted period
claiming that the duty as is applicable on the date the goods were sought
to be removed for home consumption, will be chargeable. This Court
found that the goods can be kept in a warehouse in terms of the period
specified under Section 61 of the Act and, therefore, Section 68 and
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868             SUPREME COURT REPORTS                            [2020] 2 S.C.R.


A     Section 15(1)(b) apply only when the goods were cleared from the
      warehouse within the permitted period or with permitted extension and
      not beyond the permitted period or permitted extension.
             15. The present case is not a case of levy of custom duty on the
      importer. The importer has not sought the release of goods within the
B     permitted period of warehouse. Therefore, the judgment in Kesoram
      will not be applicable in respect of the goods to be auctioned on account
      of failure to seek the release of imported goods by the importer though
      after the permission from the proper officer.
             16. Section 63 of the Act compels the owner of the warehoused
C     goods to pay rent and warehouse charges at the rates fixed under any
      law for the time being in force or at such rates as may be fixed by the
      Commissioner of Customs. If the rent or warehouse charges are not
      paid, the warehouse-keeper is competent to sell the goods or such
      sufficient portion of the goods as the warehouse-keeper may select after
      permission from the proper officer. Section 63, thus, is to ensure that the
D     warehouse-keeper recovers the rent or warehouse charges from the
      importer.
             17. Section 150 deals with the distribution of sale proceeds if the
      goods other than the confiscated goods are sold under any provision of
      the Act. The Central Board of Excise & Customs had issued a clarification
E     on 28th November, 2001 keeping in view divergence of practice with
      regard to apportionment of sale proceeds from disposal/sale of unclaimed/
      uncleared goods under Section 150 of the Act. It was communicated
      that the custom duty shall be determined by backward calculation
      considering the sale proceeds of unclaimed/uncleared goods as the cum-
F     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.
             18. In view of the Circular issued by the Central Board of Excise
      & Customs, the custom duty is to be calculated on the sale price and not
G     on the duty as is payable on the date of deemed expiration of permitted
      period of warehouse. Such Circular of the Board is binding on the
      Revenue. Therefore, the custom duty has to be paid on the basis of sale
      proceeds realised from the sale of the goods kept in a warehouse and
      not on the basis of the custom duty payable at the time of filing the Bill of
      Entry or on the date of expiry of permitted period of warehouse.
H
 UNION OF INDIA & ORS. v. M/S. ASSOCIATED CONTAINER                            869
         TERMINAL LTD. [HEMANT GUPTA, J.]

       19. Consequently, the present appeal is disposed of with directions     A
to ascertain the customs duty keeping in mind the dispensation indicated
in the enabling provisions of the Customs Act, 1962 and Chapter 21 of
Central Board of Excise and Customs Manual read with circular dated
20th November, 2011 and adjust the same as per the priority specified in
Section 150(2) of the stated Act. Further, if the bank guarantee in the
                                                                               B
sum of Rs. 27,47,146/- (Rupees twenty seven lakhs forty seven thousand
one hundred forty six only) has already been invoked by the appellants,
the said amount shall be made over to the respondent in terms of the
directions given by the High Court within three months from today after
making due adjustments of the proceeds of sale as indicated hitherto.
       20. The appeal is disposed of in the above terms with no order as       C
to costs.


Devika Gujral                                            Appeal disposed of.

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