What counts is final measure

Importers of bulk liquid cargo in tanker vessels have good news. The Supreme Court has held that customs duty should be charged only on goods that are actually received in the shore tanks.

When liquid cargo is supplied in tankers, the quantity shipped in the loading port can be higher than what is received when the vessel enters Indian territorial waters, due to evaporation or other transit losses. The quantity at the port of discharge is known by dip measurement and what is termed an ullage survey report is made.

When the liquid cargo is pumped into shore tanks, some quantity is also left in the tanker vessels, and the quantity received in the shore tanks is less than what is shown in the ullage survey. Usually, the seller is paid for the full quantity shipped at the loading port, based on the agreed price.

The question of whether customs duty should be charged based on the quantity shipped as shown in the bill of lading/invoice or the quantity imported when the vessel arrived in India as shown in the ullage survey report or the quantity actually unloaded as shown in the shore tank measurements has been a subject matter of many disputes.  

The matter appeared settled when the Supreme Court, in the case of Commissioner of Customs (Import), Mumbai v. M/s. NOCIL [2002 (142) E.L.T. A280 (S.C.)] upheld the tribunal ruling that customs duty be demanded on the quantity pumped into the shore tanks. The Central Board of Excise and Customs' (CBEC) circular no. 96/2002-Cus dated December 27, 2002, referring to that judgement, said the controversy surrounding 'ullage survey report' versus 'shore tank receipt' had come to an end, and the final position was that the quantification of bulk liquid cargo for the purposes of assessment be done on the basis of the shore tank receipt.

However, CBEC revived the controversy by directing through its circular 6/2006-Cus, dated January 12, 2006, that in all cases where customs duty is leviable on an ad valorem basis, the assessment of bulk liquid cargo should be based on the invoice price. Which is the price paid or payable for the imported goods, that is, transaction value, irrespective of quantity ascertained through shore tank measurement or any other manner.

Further, in respect of delivery at more than one port, the value should be apportioned on the quantity intended to be discharged at the relevant ports. However, wherever the customs duty is leviable at a specific rate, the determination of quantity would be relevant for levy of customs duty, said CBEC. In some later cases, tribunals upheld this position.

Now, the Supreme Court has ruled categorically that the quantity of goods stated in a bill of lading would perhaps reflect the quantity of goods in the purchase transaction between the parties but not the quantity of goods at the time and place of importation. Import duty can only be on imported goods, that is on goods brought into India from a place outside India.

Customs duty, whether at a specific rate or ad valorem, is not leviable on goods that are pilfered, lost or destroyed. Valuation of imported goods is only at the time and place of importation.

Hopefully, CBEC will revise its instructions on the lines of this latest court judgement (reported in www.taxindiaonlin.com).

email: tncrajagopalan@gmail.com