2011 (2) TMI 1551 - HC - Customs

Summary

Issues Involved:
1. Legality of cost recovery charges for Customs personnel.
2. Validity of retrospective application of pay revisions.
3. Nature of charges as fee or sovereign function.

Summary:

1. Legality of Cost Recovery Charges for Customs Personnel:
The petitioners contended that they were appointed as Custodians of goods meant for Import/Export and complied with the Customs Act provisions, including executing bonds and bank guarantees. They argued that the cost recovery charges, set at 185% of the total salary of Customs Officers, were exorbitant and not supported by law. The respondents countered that due to the liberalization of the Indian economy, the volume of exports and imports increased, necessitating the establishment of CFS/ICD. The Customs personnel were provided on a cost recovery basis, and the custodians were required to bear the cost of the Customs staff as stipulated by guidelines and regulations.

2. Validity of Retrospective Application of Pay Revisions:
The petitioners challenged the additional liability imposed due to the implementation of the 6th Pay Commission scales of pay with retrospective effect from 1.1.2006. They argued that any retrospective pay revision should not be passed on to the handlers of Export and Import. The respondents maintained that salaries paid to Government servants are subject to revision from time to time, and the cost recovery charges must reflect these changes. The Supreme Court's judgment in Government of Maharashtra Vs. Deokar's Distillery supported the view that the entire cost incurred by the Government, including retrospective pay revisions, should be borne by the licensee.

3. Nature of Charges as Fee or Sovereign Function:
The petitioners argued that the Customs Officers' functions are statutory and sovereign, and no fee can be levied for such functions. They claimed that the cost recovery charges were void ab initio and violative of Articles 14 and 265 of the Constitution of India. The respondents asserted that the cost recovery charges are in the nature of fees for services rendered by the Customs department, directly related to the additional creation of posts for CFS/ICD operations. The Supreme Court's judgment in Government of Maharashtra Vs. Deokar's Distillery clarified that the State could charge reasonable expenses for permitting activities under its exclusive right/privilege.

Conclusion:
The objections raised by the petitioners did not stand the scrutiny of law. The court dismissed all the writ petitions, upholding the impugned demand notices for cost recovery charges. The judgment emphasized that the charges were justified and legally enforceable, aligning with the principles laid down in relevant legal precedents.