Cases found outside the notified warehouse but within factory premises not improperly removed when permission was granted by Superintendent to unload the same: SC quashes duty demand under Customs Act
Justices B.V. Nagarathna & Ujjal Bhuyan [20-03-2024]

Read Order:  M/S. BISCO LIMITED v. COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE [SC- CIVIL APPEAL NO. 4663 OF 2009]

Tulip Kanth

New Delhi, March 27, 2024:While observing that the appellant, as the owner of the goods, had exercised its right u/s 64(d) of Customs Act which was endorsed by the Superintendent, the Supreme Court has set aside the demand raised against the appellant and affirmed by the CESTAT qua the 264 cases including levy of customs duty and interest.

The factual background of this case was that the Appellant had imported second hand steel mill machinery and parts thereof under Project Import Facility covered by Chapter Heading No.98.01 of the Schedule to the Customs Tariff Act, 1975. A warehouse within the precincts of the industrial/factory premises of the appellant was notified as a public bonded warehouse on management basis with M/s Central Warehousing Corporation for storage of the imported second hand steel mill machinery and parts thereof without payment of customs duty. According to the respondent, the appellant had imported in all 595 cases of machinery parts which were required to be warehoused in the notified public bonded warehouse.

Acting on the basis of information received that the appellant had misused the warehousing facility, officials of the respondent had searched the industrial premises of the appellant and only 304 cases were found lying inside the warehouse; 264 cases were found outside the warehouse. However, remaining 27 cases were not found either inside the warehouse or outside the warehouse within the industrial/factory premises.

As no documents showing clearance of the goods contained in the 264 cases from within the warehouse but lying outside the warehouse on payment of duty and interest as required under Section 71 of the Customs Act could be produced, the said goods were seized in terms of Section 110 of the Customs Act.The Collector opined that the appellant had removed the 264 cases of warehoused goods valued at Rs.48,79,776.00 attracting duty of Rs.39,03,821.00 and interest of Rs.18,88,425.00 in violation of Section 71 read with Section 111(j) of the Customs Act. The seized goods were thus held liable for confiscation. It was further alleged that appellant had unauthorisedly cleared 27 cases of the imported goods valued at Rs.4,99,068.00 attracting duty of Rs.3,99,255.00 with interest of Rs.2,41,326.00 which were liable to be recovered under Section 71 read with the proviso to Section 28(1) of the Customs Act.

It was alleged that M/s. Central Warehousing Corporation, Pithampur had abetted the appellant in clearing the warehoused goods without payment of duty and interest. A show cause notice was issued to the appellant as well as to the warehouse keeper by the Collector. The Commissioner, by his adjudication order, did not accept the reply of the appellant and confirmed the demand and interest. Aggrieved by the aforesaid order of the Commissioner, the appellant preferred an appeal before the then Central Excise and Gold Appellate Tribunal (CEGAT) and the Commissioner’s order was set aside and the matter was remanded twice. A demand of Rs.3,99,255.00 leviable on the 27 cases found not warehoused was confirmed for recovery from the appellant in terms of the conditions of transit bond.

The Division Bench of Justice B.V. Nagarathna & Justice Ujjal Bhuyan was considering a statutory appeal under Section 130E of the Customs Act, 1962 against the final order of the Customs, Excise and Service Tax Appellate Tribunal, New Delhi dismissing the appeal filed by the appellant against this order passed by the Commissioner of Customs and Central Excise, Indore.

It was noticed by the Bench that the permission granted by the Superintendent to the appellant to unload a portion of the cargo outside the open space which was notified as public bonded warehouse but within the factory premises of the appellant was neither cancelled nor revoked by the Superintendent or even by the Commissioner. As per the Bench, a view could reasonably be taken that the appellant as the owner of the goods had exercised its right under Section 64(d) which was endorsed by the Superintendent and therefore, it would not be correct to say that the 264 cases found outside the notified warehouse but within the factory premises of the appellant were improperly or unauthorisedly removed from the notified public bonded warehouse.

The facts of the case also suggested that the period of warehousing had not expired and continued to remain operational in terms of the proviso to Section 61 of the Customs Act. 27 cases were neither found inside the notified warehouse nor outside the said warehouse but within the factory premises of the appellant.Therefore, it was opined that the decision of the respondent to invoke Section 71 and thereafter levy interest on the goods covered by the 264 cases under Section 28AB of the Customs Act was not justified.

The Bench observed that the view taken by the respondent and affirmed by the CESTAT that those 27 cases were improperly or unauthorisedly removed from the notified public bonded warehouse was correct as there was no explanation on the part of the appellant qua the missing 27 cases.

Reference was made to the Board’s circular dated 12.07.1989 which provided the relevant date for calculation of customs duty in cases where warehoused goods were cleared after expiry of the warehousing period. In that context, it was clarified that provisions of Section 15(1)(b) of the Customs Act would apply to cases where the goods were cleared from the warehouse after extension of the warehousing period but before expiry of such extended period. On the other hand, in respect of cases where the goods were removed after expiry of the warehousing period, the residual clause of Section 15(1)(c) of the Customs Act would apply.

“Evidently, this circular dated 12.7.1989 would not be applicable to the facts of the present case in as much as it is not the case of the respondent that either the warehousing period had expired or that the warehousing period was extended. As we have seen, the warehousing in the notified public bonded warehouse continued as the Corporation had deposited with the respondent a sum of Rs. 56,10,294.00 in respect of the notified warehouse as custom establishment charges for the period from 1992-1993 to 2007-2008. That apart, we can refer to the fact that respondent had not levied any customs duty on the 304 cases found within the notified area which would mean that the notified warehousing continued. Therefore, this is not a case where Section 15(1)(b) could have been invoked”, the Bench held.

Thus, the Top Court quashed the demand raised by the respondent against the appellant and affirmed by the CESTAT qua the 264 cases including levy of customs duty and interest cannot be sustained. Parties were directed to work out their remedies in respect of the 264 cases of goods under Section 15(1)(c) of the Customs Act within a period of eight weeks. However, the demand of customs duty and interest on the 27 cases was sustained. The decision imposing penalty of Rs 1 lakh on the appellant under Section 112 was also not disturbed in view of the conduct of the appellant in unauthorisedly removing the 27 cases of imported goods not only from the notified public bonded warehouse but also from the industrial/factory premises of the appellant.