REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4490 OF 2008

UNION OF INDIA & ORS. .....APPELLANT(S)

VERSUS

M/S. ASSOCIATED CONTAINER TERMINAL LTD. .....RESPONDENT(S)

J U D G M E N T

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, 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 filed six

Bills  of  Entries,  all  dated 9th February,  2001.   Such goods  were

permitted by the Custom Department to be kept in warehouse for

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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 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  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.  

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 3 rd

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  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

1  for short, ‘Act’

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judgment  of  this  Court  in  Kesoram  Rayon  v.  Collector  of

Customs, Calcutta2.  The sale proceeds will be appropriated as

per 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  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 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.

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 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

2  (1996) 5 SCC 576

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payment  for  customs duty  can  be  made  against  the petitioner.

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20.  We therefore hold that 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.  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.”

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.

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 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  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

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

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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.”

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 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:

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“Section  63  .  Payment  of  rent  and  warehouse charges.  - (1)  The  owner  of  any  warehoused goods shall pay to the warehouse-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  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.

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

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Section  150.  Procedure  for  sale  of  goods  and application of 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 –  

(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,  

(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

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goods,  

(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, 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

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 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 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) 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, 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

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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 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.”

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 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  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  considering  the  sale  proceeds  of unclaimed/uncleared goods as the cum-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. (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.

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.”

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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 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 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 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

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

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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.   

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 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 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  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

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the  Act.   The  Central  Board  of  Excise  & Customs  had issued  a

clarification 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-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 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.   

19. Consequently, 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

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per  the  priority  specified  in  Section  150(2)  of  the  stated  Act.

Further,  if  the  bank  guarantee  in  the  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 to

costs.  

.............................................J. (A.M. KHANWILKAR)

.............................................J. (HEMANT GUPTA)

.............................................J. (DINESH MAHESHWARI)

NEW DELHI; FEBRUARY 14, 2020.

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