Duty on demurrage charges hangs fire

EXIM MATTERS

The question of whether customs duties should be charged on the demurrage fees collected by shipping companies appeared settled after the Supreme Court judgment in the case of Yeses International [2001 (133) ELT 526 (SC)].

Now, the Central Board of Excise & Customs (CBEC) has unsettled the position again, through its December 4 circular.

Ship demurrage is paid to vessel owners when an importer charters a vessel and it is detained for days outside the harbour without getting permission to enter the port due to port congestion.

In its circular F. No. 467/21/89-Cus. V dated 14-8-1991, the CBEC took the view that no duty need be imposed on such demurrage.

However, this circular was not placed before the tribunal in the case of Panchmahal Steel Ltd. [1998 (101) ELT 399 (E)], when the tribunal held that demurrage, being pre-importation expense, must be loaded on the value of imported goods.

But, a larger bench of the tribunal overruled this judgment in the case of Indian Oil Corporation Ltd. [2000 (122) ELT 615 (T-LB)], taking due note of the above CBEC circular and on the ground that ship demurrage on account of the detention of a vessel being extraordinary expense cannot be treated as part of the value of imported goods.

The CBEC appeal against the judgment is pending before the Supreme Court.

A two-member tribunal bench followed the IOC judgment in the case of Exim India Oil Co Ltd [2001 (131) ELT 207 (T-K)]. The Supreme Court dismissed the revenue appeal as time barred.

In the meantime, the CBEC somersaulted and withdrew its 1991 instructions.

In its circular no. 14/2001 (F. No. 467/25/2000-CUS.V) dated 2.3.2001 the CBEC denied it ever intended to exclude demurrage from the assessable value and that the earlier circular was based on wrong perceptions and appreciation of legal provisions.

However, the CBEC counsel in the Supreme Court, perhaps unaware of his client's stand, conceded, in the case of Yeses International, that demurrage was not includable in the assessable value.

The Calcutta High Court, in the case of Hindustan Lever Ltd. [2002 (142) ELT 133 (Cal)], observed that the Supreme Court had recorded that the counsel for revenue "has fairly stated" that demurrage charges could not be included in the assessable value, which means that the Apex Court was satisfied with the submission and so, the Yeses International judgment had a binding effect.

The CBEC was uncomfortable with a situation where the importers were claiming deduction of both 'ship demurrage' and 'despatch money' (reward for quicker unloading) from the assessable value.

So, it approached the Supreme Court and obtained a clarification that the Yeses International judgment was applicable only for the particular case and had no binding effect.

That is how, the latest circular denying deduction of 'ship demurrage' for the purpose of charging duties has come about. What appeared a settled position is now wide open again.

In the meantime, the tribunal has held in the case of Essar Steels Ltd [2003 (156) ELT 42 (T-M)] that no duty should be charged on charter hire, as loading for 'cost of transportation' is restricted only to the freight element.