Customs rule on handling charges illegal

A weekly selection of key court orders

The Supreme Court has held as illegal a customs evaluation rule which allowed the authorities to impose 1 per cent as notional cost of handling charges on goods even if the actual cost is declared. This will benefit especially software companies, which do not import heavy goods. In this case, Wipro Ltd vs Collector of Customs, the computer firm imported software components. It showed handling charges as Rs 65 per kg as per the tariff at Chennai airport. However, the authorities applied Rule 9(2)(ii) as amended in 1990 and added Rs 15,214 per kg to the handling charges. The company challenged the rule in the Madras High Court. It dismissed the petition, leading to the appeal. The Supreme Court set aside the high court ruling and stated that the amended rule was illegal. It did not quash the illegal rule, but read it down and decreed that the clause would apply only when the actual charges are not ascertainable.

Port Trust must pay tax as 'dealer'
The Supreme Court last week dismissed the appeal of Cochin Port Trust and ruled that it could be considered as a "dealer" under the Kerala sales tax law if it involved in non-statutory commercial activities. It has to pay tax in respect of buying, selling, supplying or distributing goods, executing works contract, or supplying any service for valuable consideration. The port trust had objected to the assessment arguing that it was not engaged in any trading activity and only discharging its statutory functions under the Major Port Trust Act. It argued that the transactions involved were merely "causal and incidental sale transactions" which would attract levy only if its main function was doing business. Rejecting the contention, the court stated that the definition of "dealer" in the state law was wide and included any trading activity whether in the course of business or otherwise. The issue has been argued earlier by the port trusts of Chennai, Kolkata and Kandla and considering all the previous cases, the court rejected the appeal of the Cochin Port Trust.

Arbitration clause independent of MoU

The arbitration clause in an agreement can be separated from the main contract and each can be decided independently, the Supreme Court has stated in the judgment, Ashapura Mine-Chem Ltd vs Gujarat Mineral Development Corporation. The Supreme Court set aside the judgment of the Gujarat high court which took the wrong view, against precedents. In this case, the Corporation entered into a memorandum of understanding (MoU) under which Ashapura proposed to constitute a joint venture along with a Chinese company as well as the Gujarat Corporation for setting up an alumina plant in Kutch. When differences cropped up, the Corporation cancelled the MoU, which provoked Ashapura to approach the high court for appointment of an arbitrator. The request was rejected as the high court felt that the MoU having been cancelled, there was no question of arbitration. On appeal, the Supreme Court stated that though the joint venture failed to take off, the arbitration clause in the MoU would operate as a stand-alone agreement. The high court ought to have appointed an arbitrator. Since it was not done, the Supreme Court appointed Rekha Doshit, former chief justice of the Patna High Court as the sole arbitrator despite the opposition of the Gujarat corporation.

ONGC loses labour case after 25 years
After 25 years of litigation, the Supreme Court has dismissed the appeal of ONGC Ltd in its fight with the Petroleum Coal Labour Union. The court directed the public sector undertaking to implement the order of the industrial tribunal passed in 1999 regularising temporary workers. The court found that they were working for several years and were therefore its workers under the standing orders of the company and industrial laws. Apart from regularisation in their posts, the court also asked the PSU to pay them back wages, monetary benefits including terminal benefits on the basis of periodical revision of pay scales. All this should be done in two months, or else nine per cent interest shall be paid. The court also wanted a compliance report from ONGC after two months.

Relaxed rule for food additive import
A division bench of the Delhi High Court last week dismissed the appeals of the Food Safety & Standards Authority of India against the order of the single judge who ordered the release of food additives imported by Danisco Ltd and United Distributors. The authorities denied a no objection certificate (NOC) for the release of ingredients for producing yogurts and other food items as the consignments did not disclose the ingredients in the labels. They argued that India has become a dumping ground for unsafe food. The companies argued that the regulation for disclosing ingredients applied only to food for direct consumption and not to food additives used in industrial use. The court accepted the argument and ruled that food and food additives are treated separately in the rules. It asked the authorities to process NOC applications speedily, on a day-to-day basis, keeping in view the short shelf life of food.

Truth tortured by legal profession
In a severe indictment of the conduct of a case in an arbitration matter involving a NHAI contract, the Delhi High Court last week regretted that Satya was suffering in courts for some four decades. It said that in spite of caution in earlier judgments, "courts are continued to be flooded with litigation with false and incoherent pleas and tainted evidence led by the parties. The judicial system in the country is choked and such litigants are consuming courts' time for a wrong cause. Efforts are made by the parties to steal a march over their rivals by resorting to false and incoherent statements made before the court. Indeed, it is a nightmare…" Narrating the facts in detail, the court imposed Rs 1 lakh as cost for filing a "totally frivolous and vexatious" appeal in the case, CE Construction Ltd vs Intertoll Ics India Ltd.