Siganporia Bros. vs Union Of India on 22 June, 1993

Bombay High Court

Equivalent citations: 1994 (1) BomCR 34, 1993 ECR 244 Bombay

Author: Pendse

Bench: A Shah, M Pendse

JUDGMENT

Pendse, J.

1. Thee petitioners are a Partnership Firm registered under the Indian Partnership Act, 1932 and carry on business as Ship Chandlers. The petitioners import various goods and articles of consumption for the purpose of re-exporting the same as ships stores. The petitioners do not require any import licence in accordance with provisions of Import (Control) Order, 1955 as the petitioners supply the goods imported as stores to vessels. On such import, the petitioners store the goods in the warehouse after filing the bill of entry for warehousing. Chapter IX of the Customs Act, 1962 (hereinafter referred to as the "Act") deals with the topic of Warehousing and Section 59, inter alia, provides that the importer of any dutiable goods which have been entered for warehousing and assessed to duty under Sections 17 and 18 shall execute a bond to observe all the provisions of the Act and the rules and regulations in respect of such goods. Section 12 of the Act is a charging section and prescribes that duties of customs shall be levied at such rates as any be specified under the Customs Tariff Act, 1975 or any other law for the time being in force, on goods imported into India. Section 85 of the Act reads as follows :

"85. Stores may be allowed to be warehoused without assessment to duty - Where any imported goods are entered for warehousing and the importer makes and subscribes to a declaration that the goods are to be supplied as stores to vessels or aircrafts without payment of import duty under this Chapter, the proper officer may permit the goods to be warehoused without the goods being assessed to duty."

2. Section 59 of the Act, inter alia, provides that the bond to bee executed by the importer of dutiable goods which have entered for warehousing shall provide for binding the importer to pay all duties, rent and charges claimable on account of such goods under the Act. Section 60 of the Act confers power upon the proper officer to make an order permitting the deposit of the goods in a warehouse without payment of duty on compliance with the provisions of Section 59 of the Act. Section 61, prior to its amendment in year 1983, read as follows :

"Any warehoused goods may be left in the warehouse in which they are deposited or in any warehouse to which they may be removed till the expiry of three years after the date on which the paper officer made an order under Section 60 permitting the deposit of the goods in a warehouse :

Provided that -

(i) in the case of any goods which are likely to deteriorate, the aforesaid period of three years may be reduced by the Collector of Customs to such shorter period as he may deem fit,

(ii) in the case of any goods which ar not likely to deteriorate, the aforesaid period of three years may, on sufficient cause being shown, be extended by the Collector of Customs for a period not exceeding one year and by the Board for such further period as it may deem fit :

Provided further that when the licence for any private warehouse is cancelled, the owner of any goods warehoused therein shall, within seven days from the date on which notice of such cancellation is given or within such extended period as the proper officer may allow, remove the goods from such warehouse to another warehouse or clear them for home consumption or exportation."

By amending Act No. 11 of 1983, Section 61 of the Act was amended with effect from May 13, 1983 and the amended Section reads as follows :

"61. Period for which goods may remain warehoused. - (1) Any warehoused goods may be left in the warehouse in which they are deposited or in any warehouse to which they may be removed. -

(a) in the case of -

(i) non-consumable stores; or

(ii) goods intended for supply to a foreign diplomatic mission, or

(iii) goods intended for use in any manufacturing process or other operations in accordance with the provisions of section 65; or

(iv) goods intended for use in any hundred peer cent export oriented undertaking; or

(v) goods which the Central Government may, if it is satisfied that it is necessary or expedient so to do, by notification in the Official Gazette, specify for the purpose of this clause.

till the expiry of one year.

Explanation - For the purposes of sub clause (iv), "hundred peer cent export-oriented undertaking" has the same meaning as in Explanation 2 to sub-section (1) of Section 3 of the Central Excises and Salt Act, 1944 (1 of 1944).

(b) in the case of any other goods, till the expiry of three months, after the date on which the proper officer made in order under Section 60 permitting the deposit of the goods in a warehouse :

Provided that -

(i) in the case of any goods which are likely to deteriorate, the aforesaid period of one year or three months, as the case may be, may be reduced by the Collector of Customs to such shorter period as he may deem fit;

(ii) in the case of any goods which are not likely to deteriorate, the aforesaid period of one year or three months, as the case maybe may on sufficient cause being shown, be extended by the Collector of Customs for a period not exceeding six months and by the Board for such further period as it may deem fit :

(2) Where any warehoused goods remain in a warehouse beyond the period of one year or three months specified in clause (a) or clause (b) of sub-section (1) by reason for the extension of the aforesaid period or otherwise, interest at such rate not exceeding eighteen per cent per annum as is for the time being fixed by the Board, shall be payable on the amount of duty on the warehoused goods for the period from the expiry for the period of one year or, as the case may be, three months, till the date of the clearance of the goods from the warehouse."

The controversy in this petition centres round on the right to demand interest on the amount of duty on the warehoused goods from the expiry of the period stipulated under sub-section (2) of Section 61 of the Act, till the date of clearance.

3. The petitioners claim that in the business of Ship Chandlers, it is necessary to stock all type of goods in origin which are likely to be demanded by the ships touching the Port of Bombay. The petitioners claim that the petitioners stocked over 500 items taking into consideration the divorce demands made by the ships which touch the Port of Bombay. The petitioners claim that it is impossible to exactly estimate the future demands because there are number of variable factors such as, number of ships calling at the port, the congestion in the Port, the number of crew on the ships and the intensity of the competition from other Ports. The petitioners claim that the provisions of Section 85 of the Act is a departure from the normal rule in respect of warehousing of imported goods as set out under Section 59,61 of the Act. The petitioners claim that in respect of imported goods covered under Section 85 of the Act, it is not permissible to levy any amount of interest under sub-section (2) of Section 61.

The petitioners imported consignment of Cheddar Cheese and Cream Cheese Spread in January 1983 and on import, the goods were bonded in the warehouse on January 20, 1983 after the petitioners filed bills of entry for warehousing. On January 20, 1983, the Customs Officer passed order for warehousing the consignment and the initial period fixed under Section 61 was six months and the period expired on July 19, 1983 the petitioners had applied for extension of bond period by further period of six months. On July 30, 1983, the bond period was extended by the Customs Officer subject to payment of interest as prescribed under Section 61 of the Act. The petitioners sought further extension without payment of interest but that demand having been turned down, the petition was filed on September 13, 1983 under Article 226 of the Constitution of India to challenge action of the Officer in granting extension only on condition of payment of interest. During the pendency of the petition, the provisions of Section 61 of the Act were further amended by Customs (Amendment ) Act, 1991 with effect from December 23, 1991. Thee petitioners thereafter sought amendment of the petition to challenge the amended provisions. The amended provision varies the rate of interest from 12% to not below 20% and not exceeding 30% to be fixed by the Board. The amended provision also adds a provision which reads as follows:

"Provided that the Board may, if it considers it necessary so to do in the public interest, waive, by special order and under circumstances of an exceptional nature to be specified in such order, the whole or part of any interest payable under this sub-section in respect of any warehoused goods."

4. Shri Doctor, learned counsel appearing on behalf of the petitioners, submitted that in respect of goods warehoused under Section 85 of the Act, the provisions of Sections 59, 60 and 61 are not applicable and consequently, the petitioners are not liable to pay interest as demanded under sub-section (2) of Section 61 of the Act. It is not possible to accede to the submission of the learned Counsel Section 85 of the Act provides that (a) where any imported goods are entered for warehousing, and (b) the importer makes and subscribes to a declaration that the goods were to be supplied as stores to vessels, then the Customs Officer may permit the goods to be warehoused without he goods being assessed to duty. The expression "stores" has been defined under Section 2(38) of the Act and means goods for use in a vessel or aircraft and includes fuel and spare parts and other articles of equipment, whether or not for immediate fitting. There is some dispute between the parties as to the exact ambit of the goods covered by expression "stores" but for the purpose of this case we will proceed on the assumption that the expression "stores" covers all kinds of goods imported by the petitioners for supply of the vessels. Shri Doctor sub-mitted that the expression " may permit the goods to be warehoused without the goods being assessed to duty" should be construed as shall permit the goods to be warehoused without the goods being assessed to duty. It was urged that once the two requirements of the Section ar satisfied, then the Customs Officer has no discretion not to permit the goods to be warehoused without assessment. In other words, the submission is that the Customs Officer is duty bound to direct warehousing and that too without assessing the goods for duty. The submission was advanced to claim that the provisions of Section 59 of the Act are not attracted to the cases covered by Section 85 of the Act. As mentioned hereinabove Section 59 of the Act requires the importer of any dutiable goods which have been entered for warehousing and `assessed to duty' under Sections 17 and 18 of the Act to execute a bond binding himself to observe all the provisions of the Act and the Rules. Shri Doctor submits that as the goods falling under Section 85 of the Act are not liable to payment of any duty, the question of assessment under Section 17 and 18 of the does not arise and consequently the importer is not required to execute bond as contemplated under Section 59 of the Act. it is not possible to accede to the submission of the learned counsel because it overlooks that there is no provision apart from Sections 59 to 61 under Chapter IX of the Act dealing with warehousing of the imported goods. Section 85 merely provides that the goods are not liable to payment of import duty if the goods are warehoused and the importer makes a declaration that the goods were supplied as stores to the ship. The fact that import duty is not payable does not necessarily mean that the Customs Officer is not required even to assess the goods. The assessment of duty is one thing. while the liability to pay duty is another. what Section 85 of the Act prescribed is that the importer will not be liable to pay duty and it confers a discretion upon the Customs Officer to permit the goods to be warehoused without the goods being assessed to duty. It is impossible to accede tot the contention that the expression "may" should be read as "shall" and the Customs Officer has no jurisdiction to assess the goods when the conditions under Section 85 of the Act are complied with Apart from this consideration, Shri Doctor has to concede that there is no provisions under the Act or the Rules which provides for modalities or the conditions under which the imported goods can be warehoused, even if the conditions under Section 85 of the Act are complied with. The only provisions for warehousing of imported goods can be found under the provisions of Sections 59 to 61 of the Act. In our judgment, the contention that in respect of the goods imported and covered by Section 85 of the Act the rules of warehousing under Section 59 to 61 are not applicable cannot be accepted as stores to the vessels are bound by the provisions of Sections 59 to 61 of the Act.

5. Shri Doctor then submitted that the provisions of Section 61 of the Act are ultra vires of the fundamental rights guaranteed to the petitioners and, therefore, the requirement of payment of interest under sub-section(2) of Section 61 should be struck down. The learned counsel very fairly stated that the petitioners are not challenging the Legislative competence of the Parliament to enact the provisions of sub-section (2) of Section 61 of the Act. The only contention to challenge the vires of the sub-section is that it would deprive the petitioners of the right to carry on the business under Article 19 of the Constitution of India. It is difficult to find any merit in the contention. Before examining the ambit of sub-section(2) of Section 61 of the Act, it is necessary to set out that the petitioners are permitted to import diverse goods by government of India releasing foreign exchange. The foreign exchange is released because the petitioners import the goods for sale to vessels and thereby earned some additional foreign exchange to the country. The petitioners are given advantage of exemption from payment of import duty because the goods imported are not released for home consumption butt are sold as stores to the vessels and which, in other words, as Section 88(a) provides means exported to any place outside India. The foreign exchange is released in favour of the petitioners and the goods imported are exempted from payment of Customs duty with the expectation that the petitioners will sell the imported goods to the vessels within reasonable period and the foreign exchange released by the country will be brought back. The Legislature in its wisdom provided that in case the imported goods which are warehoused are not sold by the petitioners to vessels within a stipulated period, then an extension can be granted by Collector of Customs for a period not exceeding six months and by the Board for such period as it may deem fit. It is obvious that the Collector of Customs or the Board will grant extension provided there is a reasonable ground for the importer in not supplying the goods as stores to the vessel. The consequence of grant of extension is that the return of foreign exchange to the country is delayed and the Legislature there upon felt that such importer should pay certain amount as compensation. Sub- section (2) of Section 61 merely provides for the modalities to calculate the amount of compensation. The amount of compensation should have nexus to the goods in respect of which extension is sought and, therefore, the compensation is calculated on the amount of duty payable on the warehoused goods for which extension is sought. The amount is to be calculated with reference for the period from the expiry of the original period and till the date of clearance of the goods from the warehouse. The mere fact that the expression `interest' used in sub- section (2) of Section 61 of the Act should not cloud the reasoning that the amount liable to the paid by the importer is in the nature of compensation for the delay in disposal of the imported goods as stores to vessel and, therefore, delay in return of foreign exchange to the country. The submission of Shri Doctor that the amount charged under sub-section (2) of Section 61 of the Act is in the nature of penalty and such penalty is not permissible when the importer is not liable to pay customs duty cannot be accepted. The amount payable under sub- section(2) of Section 61 of the Act is compensatory in nature and cannot be treated as penalty. The amount is payable because the importer seeks an extension of are to be supplied as stores to vessel. We are unable to accede to the contention that the nature of payment under sub-section (2) of Section 61 of the Act is one of penalty and, therefore, no permissible.

6. A faint attempt was made to urge that when duty is not payable on the warehoused goods, it is not permissible to charge interest on the amount of duty. We are unable to find any merit in the submission, Sub-section 2) of Section 61 of the Act merely provides modality to calculate compensatory amount payable by the importer and while determining such amount, the Legislature could not ignore that there must be some nexus between the compensation claimed and the imported goods. To determine the figure, the imported goods in respect of which extension was sought should be taken as a base and demand should be made by charging certain percentage of amount on amount of duty payable but for provisions of Section 85 of the Act. The method was evolved by the Parliament with a view to avoid arbitra- riness in determining the compensatory amount payable. In our judgment, the provisions of sub-section (2) of Section 61 of the Act do not suffer from any unreasonableness.

7. The submission of Shri Doctor that the provisions of sub-section (2) of Section 61 deprive the petitioners of the fundamental right to carry on business and thereby the provisions of Article 19 of the Constitution of India are violated, is merely required to be stated to be rejected. The petitioners are carrying on business on a large scale and the Government of India releases substantial amount of foreign exchange to enable the petitioners to import goods. We enquired from the learned counsel as to what is the approximate percentage of goods in respect of which extension is sought and the answer was, it varies from 10% to 15%. The learned counsel further submitted that after the period was reduced from three years to one year, even this percentage has been substantially reduced. It is, therefore, obvious that the claim that by levy of charge under sub-section (2) of Section 61 of the Act, the petitioners will be deprived of carrying on their business as ship chandlers is nothing but imaginary Shri Doctor then submitted that in some cases the importers suffer serious hardship and, therefore, the provisions of sub-section (2) of Section 61 of the Act should bee struck down. It is impossible to accede to the submission. Merely because some hardship may be caused in case of some importers, the statutory provisions cannot be struck down. The submission also overlooks that the proviso to sub-section (2) of Section 61 of the Act confers power upon the Board to waive the whole or the part of the amount payable under sub-section provided the Board is satisfied that it is in the public interest to do so. The expression `Board' under Section 2(6) of the Act means the Central Board of would certainly examine a case where genuine hardship is caused to a particular importer. The apprehension of the learned counsel that sub-section (2) of Section 61 of the Act would cause hardship to some of the importers no longer survives in view of proviso to sub-section (2) of Section 61 of the Act. In our judgment, the challenge to the provisions of sub-section (2) of Section 61 of the Act is without any merit and the petition must fail.

8. Shri Doctor referred to the decision of the learned Single Judge of Kerala High court reported in 1991 (52) E. L. T. 357 (Ker. ) =1990 (31) Excise Case Reporter 598 Thungabhadra fibres Limited, Bangalore v. Union of India and Another and to the decision of Division Bench of Karnataka High Court reported in 1992 (61) Excise Law Times 37 Bangalore Wire Rod Mills v. Union of India, but it is not necessary to examine these decisions because they were not on the point raised by the petitioners.

9. Accordingly, petition fails and rule is discharged with costs. Shri Doctor applies for continuation of interim relief. Prayer refused.