2020 (2) TMI 705 - SC - Customs

Calculation and Recovery of customs duty - auction sale of warehoused goods - distribution of sale proceeds - argument of 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 - 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 imported? HELD THAT - 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 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 ₹ 27,47,146/- would be untenable - The appellants have referred to a communication dated 16th 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. KESORAM RAYON VERSUS COLLECTOR OF CUSTOMS, CALCUTTA 1996 (8) TMI 109 - SUPREME COURT is a case where the importer claimed levy of custom 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 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 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 the proper officer. 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 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. The present appeal is disposed of with directions 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 - Appeal disposed off.

Summary

Issues Involved:
1. Legality of the demand raised by the appellants.
2. Distribution of sale proceeds from auctioned goods.
3. Calculation of customs duty on auctioned goods.
4. Applicability of Section 150 of the Customs Act.

Issue-wise Detailed Analysis:

1. Legality of the Demand Raised by the Appellants:
The High Court of Delhi's order dated 28th November 2007, which directed the appellants to refund ?27,47,146/- with interest, was challenged. The High Court found the demand raised by the appellants via letters dated 17th February 2005 and 19th April 2005 to be without authority of law.

2. Distribution of Sale Proceeds from Auctioned Goods:
The respondent argued that the warehousing charges should be recovered from the auction sale proceeds before customs duty. The High Court agreed, stating, "the Petitioner was justified in recovering the warehousing charges due to it from the auction sale proceeds in terms of Section 63(2) of the Act."

3. Calculation of Customs Duty on Auctioned Goods:
The appellants contended that customs duty should be assessed on the date of deemed removal of goods from the warehouse. They relied on the Supreme Court's judgment in Kesoram Rayon v. Collector of Customs, which held that "goods which are not removed from a warehouse within the permissible period are treated as goods improperly removed from the warehouse." However, the respondent argued that customs duty should be calculated based on the sale proceeds as per the Central Board of Excise and Customs Manual and Circular dated 28th November 2001, which states, "the Customs duty shall be determined by backward calculation considering the sale proceeds of unclaimed/uncleared goods as the cum-duty price."

4. Applicability of Section 150 of the Customs Act:
Section 150(2) of the Customs Act specifies the order of priority for the application of sale proceeds:
(a) expenses of the sale,
(b) freight and other charges,
(c) customs duty,
(d) charges due to the person having custody of the goods,
(e) any amount due to the Central Government.
The Supreme Court concluded that the customs duty should be calculated based on the sale proceeds and not on the date of deemed removal from the warehouse. The Court stated, "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."

Conclusion:
The Supreme Court directed that the customs duty should be calculated in accordance with the sale proceeds and adjusted as per the priority specified in Section 150(2) of the Customs Act. If the bank guarantee of ?27,47,146/- had been invoked, the amount should be refunded to the respondent after due adjustments. The appeal was disposed of with no order as to costs.