M/S Bisco Limited Through Its Managing ... vs Commissioner Of Customs And Central ...

2024 INSC 231 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 4663 OF 2009

M/S. BISCO LIMITED APPELLANT(S)

VERSUS

COMMISSIONER OF CUSTOMS AND CENTRAL EXCISE RESPONDENT(S)

JUDGMENT

UJJAL BHUYAN, J.

Heard learned counsel for the parties.

2. This is a statutory appeal under Section 130E of the

Customs Act, 1962 (briefly the ‘Customs Act’ hereinafter)

against the final order dated 30.04.2009 passed by the

Customs, Excise and Service Tax Appellate Tribunal, New Delhi Signature Not Verified

(for short ‘CESTAT’ hereinafter) in Customs Appeal No.441 of Digitally signed by Anita Malhotra Date: 2024.03.20 17:11:41 IST Reason:

2005 dismissing the appeal filed by the appellant against the 2

order dated 28.04.2005 passed by the Commissioner of

Customs and Central Excise, Indore (for short ‘the

Commissioner’ hereinafter).

2.1 By the aforesaid order dated 28.04.2005, the

Commissioner had confirmed the duty demand of

Rs.3,99,255.00 in respect of 27 cases not found in the

warehouse and imposed penalty of Rs.1 lakh on the appellant

under Section 112 of the Customs Act. That apart, the appellant

was directed to pay interest on the duty confirmed in terms of

Section 28AB of the Customs Act from the date of enforcement

of the said section till the date of actual payment of duty. The

Commissioner had also confiscated 264 cases of imported goods

valued at Rs.48,79,776.00 seized from within the factory

premises of the appellant but outside the approved warehouse

under Section 111 of the Customs Act. However, the confiscated

goods were permitted to be redeemed on payment of fine of Rs.

2 lakhs. Thirty days’ time was granted to the appellant to

exercise the option for redeeming the goods. Further, the

Commissioner had confirmed customs duty amounting to

Rs.39,03,821.00 in terms of Section 71 read with the proviso to

Section 28A of the Customs Act. The appellant was also 3

required to pay interest amounting to Rs.18,88,425.00 on the

customs duty confirmed on the 264 packages from the date of

warehousing till the date of detection of the shortage in the

warehouse; in addition, appellant was also required to pay

interest on the duty confirmed in terms of Section 28AB of the

Customs Act from the date of enforcement of the said section

till the date of actual payment of duty confirmed on the 264

cases.

3. Appellant before us is M/s Bhanu Iron and Steel

Company Limited, Plot No. 801, Sector III, Industrial Estate,

Pithampur, District Dhar in the State of Madhya Pradesh

(‘BISCO’ for short).

4. This appeal has a chequered history. Before finally

landing in this Court, the appellant had gone through several

rounds of appeal and remand. For a proper perspective, it would

be apposite to briefly narrate the factual trajectory of the case.

5. Appellant had imported second hand steel mill

machinery and parts thereof under Project Import Facility

covered by Chapter Heading No.98.01 of the Schedule to the

Customs Tariff Act, 1975.

4

6. A warehouse within the precincts of the

industrial/factory premises of the appellant was notified as a

public bonded warehouse on management basis with M/s

Central Warehousing Corporation as warehouse keeper by the

then Collector of Customs and Central Excise, Indore vide the

notification dated 03.05.1989 for storage of the imported second

hand steel mill machinery and parts thereof without payment

of customs duty. According to the respondent, the appellant had

imported in all 595 cases of machinery parts which were

required to be warehoused in the notified public bonded

warehouse. The breakup of the 595 cases of the machinery

parts as provided by the respondent is as under:

Sl. Transit Bond No. No. of cases No. & Date actually received in the customs bonded warehouse. 1. T-1592 dated 172 31.05.89 2. T-7012 dated 146 04.12.89 3. T-2014 dated 277 30.05.90 Total 595

7. Acting on the basis of information received that the

appellant had misused the warehousing facility, officials of the 5

respondent had searched the industrial premises of the

appellant including the notified public bonded warehouse on

07.08.1992. In the course of the search, the stock lying within

the notified public bonded warehouse were verified. On such

verification, only 304 cases were found lying inside the

warehouse; 264 cases were found outside the warehouse but

within the industrial/factory premises of the appellant;

remaining 27 cases were not found either inside the warehouse

or outside the warehouse within the industrial/factory

premises.

8. As no documents showing clearance of the goods

contained in the 264 cases from within the warehouse but lying

outside the warehouse on payment of duty and interest as

required under Section 71 of the Customs Act could be

produced, the said goods were seized in terms of Section 110 of

the Customs Act. The value of the goods seized was estimated

at Rs.48,79,776.00.

9. In his statement recorded under Section 108 of the

Customs Act on 07.08.1992, Sh. Yashwant Singh Bisht, Project

Officer (Commercial) of the appellant stated that the 264 cases 6

of imported goods were kept outside the bond under a shed as

the trailers transporting the goods could not enter the notified

warehouse in view of the soil becoming very sluggish on account

of heavy rains and also because of paucity of space. The

Collector, therefore, opined that the appellant had removed the

264 cases of warehoused goods valued at Rs.48,79,776.00

attracting duty of Rs.39,03,821.00 and interest of

Rs.18,88,425.00 in violation of Section 71 read with Section

111(j) of the Customs Act. The seized goods were thus held

liable for confiscation.

10. It was further alleged that appellant had

unauthorisedly cleared 27 cases of the imported goods valued

at Rs.4,99,068.00 attracting duty of Rs.3,99,255.00 with

interest of Rs.2,41,326.00 which were liable to be recovered

under Section 71 read with the proviso to Section 28(1) of the

Customs Act.

11. That apart, it was alleged that M/s. Central

Warehousing Corporation, Pithampur had abetted the appellant

in clearing the warehoused goods without payment of duty and

interest.

7

12. In the above circumstances, a show cause notice

dated 22.01.1993 was issued to the appellant as well as to the

warehouse keeper by the Collector (now the Commissioner) to

explain and show cause as to why:

(i) the seized quantity of 264 cases of goods valued at Rs.48,79,776.00 and attracting duty of Rs.39,03,821.00 plus Rs.18,88,425.00 due to interest should not be confiscated in terms of Section 71 read with Section 111(j) of the Customs Act.

(ii) the amount of duty of Rs.3,99,255.00 plus interest of Rs.2,41,326.00 payable on 27 cases of goods valued at Rs.4,99,068.00 cleared and utilized by the appellant, should not be demanded from the appellant in terms of Section 71 read with the proviso to Section 28 (1) of the Customs Act.

(iii) a penalty under Section 112 of the Customs Act should not be imposed for violation of Section 71 and Section 111(j) of the Customs Act.

13. Appellant submitted reply dated 02.04.1994. In its

reply, appellant stated that there was heavy rain in the month

of August 1989 and the soil outside the notified warehouse had 8

become very sluggish. As a result, the trailers carrying the

consignment could not enter the notified warehouse. The goods

were downloaded in the open outside the notified warehouse

but within the factory premises. To prevent the goods from

getting damaged, appellant had requested the concerned

Superintendent of Customs and Central Excise to shift the

machineries to under a shed within the factory premises under

Section 64 of the Customs Act. Permission was granted by the

Superintendent. In terms of such permission of the

Superintendent, who was the proper officer, appellant had

shifted the goods to under the shed to prevent further damage

of the goods. It was contended that the goods were still under

the bonded warehouse and could not be said to have been

cleared. In this connection, reference to and reliance was placed

on Section 15 of the Customs Act. This position was clarified by

Sh. Yashwant Singh Bisht in his statement recorded on

07.08.1992. The appellant, therefore, requested the authority to

drop the proceedings.

14. It may be mentioned that the Central Warehousing

Corporation (for short ‘the Corporation’ hereinafter) had also

submitted its reply dated 19.12.1993. In the reply it was stated 9

that an open area of 2,000 sq. meters in the premises of the

appellant having fencing and a gate with locking arrangement

was approved by the customs and central excise authorities as

a public bonded warehouse. Appellant vide letter dated

30.08.1989 sought permission from the Superintendent,

Customs and Central Excise, Range-III, Pithampur for

unloading the cargo covered by Bond No.T-1592 dated

31.05.1989 outside the said warehouse on account of heavy

rains, etc. It was pointed out that the trailers carrying the

consignment could not enter the said warehouse because those

got stuck in the soil outside the said warehouse as the soil had

got sluggish due to heavy rains. The Superintendent gave

permission for unloading the cargo outside the warehouse but

within the factory premises on the body of the letter itself. The

machinery parts had to be shifted to a shed outside the bonded

warehouse but within the factory premises to protect those

parts from further rusting and corrosion.

15. Commissioner by his adjudication order dated

28.08.1996 did not accept the reply of the appellant and

confirmed the demand and interest. It was ordered as under: 10

(i) demand for duty of Rs.3,99,255.00 plus Rs.2,41,326.00 leviable on 27 cases cleared in a clandestine manner was confirmed for recovery from the appellant in terms of Section 71 read with the proviso to Section 28(1) of the Customs Act.

(ii) 264 cases of imported goods valued at Rs.48,79,776.00 seized from the premises other than the approved warehouse were confiscated under Section 111 of the Customs Act but permitted to be redeemed on payment of fine of Rs.12,00,000.00 (Rs. twelve lakhs only). Appellant would also suffer duty of Rs.39,03,821.00 plus interest at the time of their ultimate clearance.

(iii) penalty of Rs.5,00,000.00 (Rs. five lakhs only) was imposed on the appellant under Section 112 of the Customs Act.

(iv) penalty of Rs.25,000.00 (Rs. twenty five thousand only) was imposed on the Central Warehousing Corporation under Section 112 of the Customs Act.

16. Aggrieved by the aforesaid order of the

Commissioner, appellant preferred an appeal before the then

Central Excise and Gold Appellate Tribunal (CEGAT). By order

dated 18.02.1999, CEGAT disposed of the appeal by setting 11

aside the order of the Commissioner and remanding the matter

back to the Commissioner for fresh adjudication. The

Commissioner was directed to look into the new facts and

documents brought on record by the appellant and thereafter

decide the case de novo in accordance with the principles of

natural justice.

17. Following the remand, a fresh adjudication order was

passed by the Commissioner on 31.12.2002. In this order, the

Commissioner recorded that the warehoused goods were

removed to a place outside the approved warehouse without

following the procedure set out under Sections 67, 68 and 69 of

the Customs Act. The Commissioner, thereafter, reiterated the

first adjudication order dated 28.08.1996.

18. Assailing the aforesaid order of the Commissioner

dated 31.12.2002, appellant preferred appeal before the

CESTAT. In its order dated 08.10.2003, CESTAT observed that

the Commissioner had not looked into the additional

documents which were part of the record. CESTAT, therefore,

opined that the matter should be remanded back to the

adjudicating authority for fresh adjudication after taking into 12

consideration the documents produced by the appellant,

including those produced before the CESTAT. Thus, by the

order dated 08.10.2003, CESTAT allowed the appeal of the

appellant by remanding the matter back to the Commissioner

for re-adjudication after affording an opportunity of hearing to

the appellant.

19. The matter was taken up by the Commissioner afresh

on remand. By a detailed order dated 28.04.2005, the

Commissioner directed as under:

(i) demand of Rs.3,99,255.00 leviable on the 27 cases found not warehoused was confirmed for recovery from the appellant in terms of the conditions of transit bond.

(ii) appellant should pay interest on the duty confirmed in terms of Section 28AB of the Customs Act from the date of enforcement of the said section till the date of actual payment of duty. The interest amount was directed to be worked out and communicated to the appellant by the Assistant Commissioner, Central Excise Division, Pithampur.

(iii) 264 cases of imported goods valued at Rs.48,79,776.00 seized from the premises of the 13

appellant outside the approved warehouse were confiscated under Section 111 of the Customs Act. As the goods were within the factory premises but outside the bonded warehouse, a lenient view was taken; the goods were permitted to be redeemed on payment of fine of Rs.2,00,000.00 (Rupees two lakhs only). The option for redeeming the goods was to be exercised by the appellant within 30 days from the date of receipt of the order.

(iv) customs duty amounting to Rs.39,03,821.00 for recovery from the appellant in terms of Section 71 read with the proviso to Section 28A of the Customs Act was confirmed.

(v) appellant was required to pay interest amounting to Rs.18,88,425.00 on the customs duty confirmed on the 264 packages from the date of warehousing till the date of detection of the shortage in the warehouse, i.e. from 04.02.1989 to 07.08.1992, in terms of Section 71 of the Customs Act.

(vi) appellant was also required to pay interest on the duty confirmed in terms of Section 28AB of the Customs Act from the date of enforcement of the said section to till the date of actual payment of duty confirmed on the 264 packages. The interest amount was directed to 14

be worked out and communicated to the appellant by the Assistant Commissioner, Central Excise Division, Pithampur.

(vii) penalty of Rs.1,00,000.00 (Rupees one lakh only) was imposed on the appellant under Section 112 of the Customs Act.

20. It was against this order that the related appeal was

filed by the appellant before the CESTAT. By the impugned

order dated 30.04.2009, CESTAT dismissed the appeal.

21. Hence the present appeal. This Court by order dated

21.08.2009 had issued notice.

22. Respondent has filed counter affidavit. It is stated

that during the visit of the officials of the Preventive Branch of

the Commissionerate on 07.08.1992, the impugned goods were

found outside the notified warehouse. That apart, there was no

explanation for the imported goods contained in the 27 cases

which were neither found within the bonded warehouse nor

outside the bonded warehouse within the factory premises. In

such circumstances, the respondent has justified the order

dated 28.04.2005 which was affirmed by the CESTAT vide order

dated 30.04.2009.

15

23. It may be mentioned that appellant has brought on

record two additional documents. Appellant had sought for

information from the Central Warehousing Corporation under

the Right to Information Act, 2005 vide letter dated 22.09.2009

regarding payment of custom establishment charges by the

Corporation. Appellant was informed by the Central

Warehousing Corporation vide letter dated 18.12.2009 that the

Corporation had deposited a sum of Rs.56,10.294.00 under the

head of ‘Pithampur Warehousing (Bhanu Iron and Steel

Company Limited along with wind up Warehouse) custom

establishment charges’ for the financial year 1992-1993 to

2007-2008.

24. Learned counsel for the appellant submits that

CESTAT had failed to consider the fact that it was on the basis

of specific permission granted to the appellant by the proper

officer that the impugned goods were found outside the

warehouse but within the industrial/factory premises of the

appellant. Therefore, in terms Section 64(d) of the Customs Act

respondent could not have treated the said goods as having

been removed from the warehouse. He submits that since the

appellant had not cleared the warehoused goods, Section 64 of 16

the Customs Act would come into play. Therefore, CESTAT was

clearly in error in upholding the order of the respondent

applying Section 15(1)(b) of the Customs Act for determining the

rate of duty in respect of those goods. According to him, in the

facts of the present case the only provision that would be

applicable is the residuary provision i.e., Section 15 (1) (c) of the

Customs Act.

24.1. Learned counsel has also placed reliance on the

circular dated 12.07.1989 of the Central Board of Excise and

Customs which was fully applicable to the case of the appellant.

Though this circular was subsequently superseded by circular

dated 14.08.1997, it would be the former circular which would

be applicable to the facts of the present case.

24.2. Learned counsel further submits that CESTAT was

not justified for upholding the order of the respondent applying

Section 71 of the Customs Act read with Section 28AB of the

said Act while imposing interest on the confiscated goods.

Confiscation itself was not justified.

24.3. Finally, it is contended that both the respondent as

well as CESTAT had overlooked the fact that the goods in 17

question were denied to the appellant for a long time. Therefore,

a lenient view ought to have been taken.

25. Learned counsel for the respondent, on the other

hand, submits that on the basis of reliable information received

about suspected misuse of the warehousing facility by the

appellant, officers of the Preventive Branch of the Collectorate

of Central Excise and Customs, Indore had searched the

premises of the appellant on 07.08.1992 and physically verified

the stock. On verification, it was found that 304 cases were

stocked inside the warehouse while 264 cases were found

outside the warehouse but within the factory premises.

Remaining 27 cases were found neither inside the warehouse

nor within the factory premises. It was thereafter that action

was taken under the relevant provisions of the Customs Act

following which show cause notice was issued to the appellant.

25.1. Learned counsel has justified the ultimate

adjudication order as well as the impugned order of the CESTAT

confirming the said adjudication order.

25.2. In such circumstances, he submits that there is no

merit in the appeal and, therefore, the same should be

dismissed.

18

26. Submissions made have been duly considered.

27. We may now refer to some of the relevant provisions

of the Customs Act. Section 2(43) defines a ‘warehouse’ to mean

a public warehouse licensed under Section 57 or a private

warehouse licensed under Section 58 or a special warehouse

licensed under Section 58A of the Customs Act. ‘Warehoused

goods’ has been defined under Section 2(44) to mean goods

deposited in a warehouse.

28. Section 12 of the Customs Act deals with dutiable

goods. Sub-Section(1) thereof says that duties of customs shall

be levied at such rates as may be specified under the Customs

Tariff Act, 1975 on goods imported into or exported from India.

29. Date for determination of rate of duty and tariff

valuation of imported goods is dealt with in Section 15. Sub-

Section(1) of Section 15 says that the rate of duty and tariff

valuation, if any, applicable to any imported goods shall be the

rate and valuation in force-

(a) in the case of goods entered for home consumption under Section 46, on the date on which a bill of entry in respect of such goods is presented under that section;

19

(b) in the case of goods cleared from a warehouse under Section 68, on the date on which the goods are actually removed from the warehouse;

(c) in the case of any other goods, on the date of payment of duty.

30. While Section 28 provides for recovery of duties not

levied or short levied, Section 28AA deals with interest on

delayed payment of duty. On the other hand, Section 28AB

provided for interest on delayed payment of duty in special

cases. Substance of Section 28AB (since deleted) was that where

any duty was not levied or paid or short levied etc., the person

who was liable to pay the duty would also be liable to pay

interest in addition to duty at such rate not below 10% and not

exceeding 36% per annum as may be fixed by the central

government by notification in the official gazette.

31. Chapter IX of the Customs Act comprising of Sections

57 to 73A deal with warehousing. Section 57 provides for

licensing of public warehouses where dutiable goods may be

warehoused. As per Section 58, as it stood at the relevant time,

the proper officer may license a private warehouse where 20

dutiable goods imported by or on behalf of the licensee or any

other imported goods in respect of which facilities for deposit in

a public warehouse are not available, may be deposited. Sub-

Section(2) provides for cancellation of license so granted by

giving a month’s written notice in advance if the licensee had

contravened any of the provisions of the Customs Act or

committed breach of any of the conditions of the license.

However, before such cancellation, the licensee was required to

be given a reasonable opportunity of being heard.

32. ‘Warehousing bond’ is provided for in Section 59. As

per sub-Section(1), the importer of any goods specified in

Section 61(1) which had been entered for warehousing and

assessed to duty under Sections 17 or 18 shall execute a bond

binding himself in a sum equal to thrice the amount of the duty

assessed on such goods.

33. As per Section 60, as it stood at the relevant point of

time, when the provisions of Section 59 have been complied

with in respect of any goods, the proper officer may make an

order permitting the deposit of goods in a warehouse. 21

34. Section 61 mentions the period for which the goods

may remain warehoused. Sub-Section (1) says that 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 capital goods intended for use in any hundred percent export-oriented undertaking, till the expiry of five years;

(aa) in the case of goods other than capital goods intended for use in any hundred percent export-oriented undertaking, till the expiry of three years; and

(b) in the case of any other goods, till the expiry of one year;

after the date on which the proper officer has made an order

under Section 60 permitting the deposit of the goods in a

warehouse. However, proviso (i) (B) says that in the case of any

goods which are not likely to deteriorate and which are not

intended for use in any hundred percent export oriented

undertaking, the period specified in clauses (a), (aa) or (b) may,

on sufficient cause being shown, be extended by the Principal

Commissioner or Commissioner of Customs for a period not 22

exceeding six months and by the Principal Chief Commissioner

or Chief Commissioner of Customs for further period as he may

deem fit.

35. Section 64 deals with owner’s right to deal with

warehoused goods. Section 64, as it stood at the relevant point

of time, read as under:

64. Owner’s right to deal with warehoused goods.- With the sanction of the proper officer and on payment of the prescribed fees, the owner of any goods may either before or after warehousing the same-

(a) inspect the goods;

(b) separate damaged or deteriorated goods from the rest;

(c) sort the goods or change their containers for the purpose of preservation, sale, export or disposal of the goods;

(d) deal with the goods and their containers in such manner as may be necessary to prevent loss or deterioration or damage to the goods;

(e) show the goods for sale; or

(f) take samples of goods without entry for home consumption, and if the proper officer so permits, without payment of duty on such samples.

23 35.1. Thus, this section provided that the owner of any

goods with the sanction of the proper officer and on payment of

the prescribed fees may either before or after warehousing the

same, deal with the goods and their containers in such manner

as may be necessary to prevent loss or deterioration or damage

to the goods.

36. Section 67 deals with removal of goods from one

warehouse to another. It says that the owner of any warehoused

goods may with the permission of the proper officer, remove

them from one warehouse to another subject to such conditions

as may be prescribed for the due arrival of the warehoused

goods at the warehouse to which removal is permitted.

37. Heading of Section 68 is ‘Clearance of warehoused

goods for home consumption’. This section, as it stood at the

relevant point of time, provided that the importer of any

warehoused goods may clear those goods from the warehouse

for home consumption if –

(a) a bill of entry for home consumption in respect of such goods has been presented in the prescribed form;

24

(b) the import duty leviable on such goods and all penalties rent, interest and other charges payable in respect of such goods have been paid; and

(c) an order for clearance of such goods for home consumption has been made by the proper officer.

38. There is an embargo provided in Section 71 from

taking out goods from a warehouse. As per Section 71, no

warehoused goods shall be taken out of a warehouse except on

clearance for home consumption or re-exportation or for

removal to another warehouse or as otherwise provided by the

Customs Act.

39. Section 71 is followed by Section 72 which deals with

goods improperly removed from warehouse, etc. As per sub-

Section(1)(b) where any warehoused goods have not been

removed from a warehouse at the expiration of the period during

which such goods are permitted under Section 61 to remain in

a warehouse, the proper officer may demand and the owner of

such goods shall forthwith pay, the full amount of duty

chargeable on account of such goods together with all penalties, 25

rent, interest and other charges payable in respect of such

goods.

40. Once the goods covered by any bond executed under

Section 59 have been cleared for home consumption or exported

or transferred or are otherwise duly accounted for, and when all

amounts due on account of such goods have been paid, the

proper officer shall cancel the bond as discharged in full and

deliver the same after cancellation to the person who has

executed or is entitled to receive it.

41. Section 110(1) of the Customs Act empowers the

proper officer to seize any goods if he has reason to believe that

such goods are liable to confiscation under the Customs Act.

42. As per Section 111(j), any dutiable or prohibited

goods removed or attempted to be removed from a customs area

or a warehouse without the permission of the proper officer or

contrary to the terms of such permission, shall be liable for

confiscation.

43. In the event of such an act, the concerned person

shall be liable to pay penalty under Section 112. 26

44. Central Board of Excise and Customs had issued

Circular No.98/95-Cus. dated 12.07.1989. Subject matter of

this circular was what would be the relevant date for calculation

of customs duty in cases where warehoused goods were cleared

after expiry of the warehousing period. Reference was made to

the instructions of the Board dated 17.03.1987 where it was

clarified that in cases where warehoused goods were cleared

from a warehouse after expiry of the bond period, the rate of

duty would be the one which was prevalent on the date of expiry

of the bond. The issue was reconsidered in the tripartite meeting

held between the Ministry of Law, Department of Revenue and

the Comptroller and Auditor General. It was observed in the

meeting that on expiry of the warehousing period, the goods

kept in a warehouse ceased to be warehoused goods and,

therefore, their removal from the warehouse could not be

regarded as covered by the provisions of Section 15(1)(b) of the

Customs Act. After noting that there was no specific legal

provision to determine the rate of duty in such cases of

warehoused goods where the bond period had expired, it was

concluded that the residual clause of Section 15(1)(c) of the

Customs Act could apply to cases where the goods were 27

removed from the warehouse after expiry of the warehousing

period and that the rate of duty in such cases would be the rate

prevalent on the date of payment of duty. It was further clarified

that provisions of Section 15(1)(b) of the Customs Act would

continue to apply in cases where goods were cleared from the

warehouse after extension of the warehousing period but before

expiry of the extended period for which applications from the

importers for extension of the warehousing period should be

received before expiry of the permitted period of warehousing.

These conclusions reached in the tripartite meeting were

accepted by the Board and by the aforesaid circular dated

12.07.1989, direction was issued for their immediate

implementation superseding the instructions dated

17.03.1987.

45. The above provision continued to hold the field till

the decision of this Court in Kesoram Rayon versus Collector of

Customs, Calcutta, (1996) 5 SCC 576. The question for

consideration in Kesoram was the rate at which customs duty

was to be levied on goods that remained in a bonded warehouse

beyond the permitted period. A two judge bench of this Court

after referring to various provisions of the Customs Act held that 28 Section 15(1)(b) would apply 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. This Court

clarified that provisions of Section 68 and consequently Section

15(1)(b) would 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 would be deemed to have been improperly

removed from the warehouse under Section 72. In the facts of

that case, it was found that there was nothing on record to

suggest that clearance of the goods in question under Section

68 was ordered and, therefore, Section 15(1)(b) had no

application. Finally, this Court held that the consequence of

non-removal of the warehoused goods within the permitted

period or the permitted extension by virtue of Section 72 is

certain. The date on which it comes to an end is the date

relevant for determining the rate of duty; when the duty is in

fact demanded is not relevant.

29

46. Following the decision of this Court in Kesoram, the

Central Board of Excise and Customs issued Circular

No.31/97-Cus. dated 14.08.1997. The Board held that in view

of this Court’s judgment, the date of payment of duty in the case

of warehoused goods removed after expiry of the permissible or

extended period would be the date of expiry of the warehousing

period or such other extended period, as the case may be, and

not the date of payment of duty. Goods not removed from a

warehouse within the permissible period or the extended period

are to be treated as goods improperly removed from the

warehouse.

47. In Simplex Castings Ltd. versus Commissioner of

Customs, Vishakhapatnam, (2003) 5 SCC 528, the appellant

had questioned filing of appeal by the Commissioner before the

CEGAT in view of the circular dated 12.07.1989 issued by the

Central Board of Excise and Customs. It was argued that it was

not open to the Commissioner to take the stand that non-

removal of the goods from the warehouse after the period of

warehousing was over would be deemed removal from the

warehouse and that the rate of duty would be leviable from the

date the period of warehousing was over. The Commissioner 30

had appealed against the decision of the Collector of Customs

(Appeals) in which the circular dated 12.07.1989 was followed.

The appeal filed by the Commissioner was allowed by the

CEGAT by relying upon the decision of this Court in Kesoram. This Court referred to its earlier decision in Paper Products Ltd.

versus Commissioner of Central Excise, (1999) 7 SCC 84, and

held that the circular dated 12.07.1989 was binding on the

Department and, therefore, it was not open to the Department

to prefer appeal before CEGAT contrary to what was laid down

in the circular dated 12.07.1989 in which it was specifically

provided that the residual Section 15(1)(c) of the Customs Act

would apply to cases where the goods were removed from a

warehouse after expiry of the warehousing period and that the

rate of duty in such cases would be the rate prevalent on the

date of payment of duty. This Court noted that the aforesaid

circular dated 12.07.1989 was withdrawn by the subsequent

circular dated 14.08.1997. But, at the relevant point of time,

the circular dated 12.07.1989 was holding the field. Thus, the

appellate order passed by the Collector of Customs (Appeal)

could not be said to be in anyway illegal or erroneous and,

therefore, it was not open to the Department to challenge the 31

said order before the CEGAT in contravention of the circular

dated 12.07.1989.

48. The decision in Kesoram was approved and applied

by a coordinate bench of this Court in SBEC Sugar Ltd versus

Union of India, (2011) 4 SCC 668. This Court held that Section

15(1)(b) would be applicable only when the goods are cleared

from the warehouse under Section 68 of the Customs Act i.e.

within the initially permitted period or during the permitted

extended period. When the goods are cleared from the

warehouse after expiry of the permitted period or its permitted

extension, the goods are deemed to have been improperly

removed under Section 72(1)(b) of the Customs Act with the

consequence that the rate of duty has to be computed according

to the rate applicable on the date of expiry of the permitted

period under Section 61.

49. Let us now briefly recap the facts. Appellant had

imported second hand steel mill machinery and parts covered

by three transit bonds totalling 595 cases. The customs

authority had notified an open area of 2000 square meters

within the industrial/factory premises of the appellant as a 32

public bonded warehouse. This open area was fenced and had

gate with locking arrangement. The imported goods covered by

the 595 cases were required to be warehoused in the said

notified public bonded warehouse without payment of customs

duty. Appellant had written a letter dated 30.08.1989 to the

concerned Superintendent seeking permission to unload a

portion of the cargo outside the warehouse but within the

factory premises. It was pointed out that the trailers carrying

the consignment could not enter the said warehouse as because

those trailers had got stuck in the soil outside the warehouse

but within the factory premises as the soil had become very

sluggish due to heavy rain and also because of paucity of space

within the notified open area. The Superintendent gave

permission on the body of the letter itself for unloading the

cargo outside the warehouse but within the factory premises.

The machinery parts which were thus unloaded were shifted to

a shed outside the bonded warehouse but within the factory

premises of the appellant so that those machinery parts did not

get damaged, lying in the open and getting exposed to the

elements.

33

49.1. Officials of the Preventive Branch of the

Commissionerate searched the industrial premises of the

appellant, including the notified public bonded warehouse, on

07.08.1992 and physically verified the stock in the notified

public bonded warehouse as well as outside but within the

industrial/factory premises of the appellant. On such

verification, it was found that only 304 cases were stocked

inside the warehouse, whereas 264 cases were found outside

the warehouse but within the industrial/factory premises of the

appellant. Remaining 27 cases were neither found inside the

warehouse nor outside the warehouse but within the

industrial/factory premises of the appellant.

49.2. After issuance of show cause notice and hearing,

respondent passed adjudication order dated 28.08.1996 which

suffered several rounds of appeals and remand. Ultimately, the

Commissioner passed the final adjudication order dated

28.04.2005 whereby demand of Rs.3,99,255.00 leviable on the

27 cases found not warehoused was confirmed. Appellant was

also directed to pay interest on the said duty in terms of Section

28AB of the Customs Act. The 264 cases of imported goods

found outside the notified warehouse were confiscated but 34

option of redemption was given to the appellant on payment of

fine of Rs.2,00,000.00. For the goods covered by the 264 cases,

customs duty amounting to Rs.39,03,821.00 was directed to be

recovered from the appellant in terms of Section 71 read with

the proviso to Section 28A of the Customs Act. That apart,

appellant was directed to pay interest of Rs.18,88,425.00 on the

aforesaid quantum of customs duty in respect of the 264 cases

from the date of warehousing till the date of detection of the

shortage in the warehouse. Further, appellant was directed to

pay interest under Section 28AB in respect of the 264 cases

from the date of enforcement of the said section to till the date

of actual payment of the duty. Penalty of Rs.1,00,000.00 was

also imposed on the appellant under Section 112 of the

Customs Act.

49.3. In appeal, CESTAT by the impugned order affirmed

the aforesaid decision of the Commissioner.

50. We may mention that the permission granted by the

Superintendent to the appellant on 30.08.1989 to unload a

portion of the cargo outside the open space which was notified

as public bonded warehouse but within the factory premises of 35

the appellant was neither cancelled nor revoked by the

Superintendent or even by the Commissioner. Infact, a view can

reasonably be taken that the appellant as the owner of the goods

had exercised its right under Section 64(d) which was endorsed

by the Superintendent. Therefore, it would not be correct to say

that the 264 cases found outside the notified warehouse but

within the factory premises of the appellant were improperly or

unauthorisedly removed from the notified public bonded

warehouse.

51. It has also come on record that Central Warehousing

Corporation had deposited a sum of Rs.56,10,294.00 with the

respondent as custom establishment charges in respect of the

aforesaid notified public bonded warehouse for the period 1992-

1993 to 2007-2008. This would mean that the warehousing in

the aforesaid notified public bonded warehouse continued

during the said period. Thus, the period of warehousing had not

expired and continued to remain operational in terms of the

proviso to Section 61 of the Customs Act.

52. This would further be borne out from the fact that it

is not the case of the respondent that the 304 cases found inside 36

the notified warehouse were kept there beyond the warehousing

period. In fact, the allegation of the respondent is that 264 cases

were improperly or unauthorisedly removed from the notified

warehouse as those were found lying outside the notified area

but within the industrial/factory premises of the appellant.

That apart, 27 cases were neither found inside the notified

warehouse nor outside the said warehouse but within the

factory premises of the appellant.

53. In such a scenario, the provisions of Sections 71 and

72 would not be applicable. Therefore, the decision of the

respondent to invoke Section 71 and thereafter levy interest on

the goods covered by the 264 cases under Section 28AB of the

Customs Act was not justified. Since the imported goods

covered by the 264 cases were never warehoused inside the

notified public bonded warehouse but were unloaded outside

the notified area but within the factory premises of the appellant

and kept under a shed on permission granted by the

Superintendent which permission was neither cancelled nor

revoked, question of warehousing the goods covered by the 264

cases within the notified public bonded warehouse did not arise.

As a corollary, the further question of improperly or 37

unauthorisedly removing the 264 cases from the notified

warehouse to outside the said area but within the factory

premises of the appellant attracting Section 71 and the

consequences following the same did not arise. Inference drawn

by the respondent that the permission granted by the

Superintendent was only temporary and therefore, the rigor of

Section 71 would be attracted, in our view, would not be a

correct understanding of the situation and the law.

54. Having said that, we find that there is no explanation

on the part of the appellant qua the missing 27 cases. Therefore,

the view taken by the respondent and affirmed by the CESTAT

that those 27 cases were improperly or unauthorisedly removed

from the notified public bonded warehouse is correct and

requires no interference.

55. Reverting back to the 264 cases, we are of the view

that in a case of this nature, Section 15(1)(b) would have no

application. Rather, Section 15(1)(c) would be attracted.

56. In so far the Board’s circular dated 12.07.1989 is

concerned, the subject matter of the said circular was what

would be the relevant date for calculation of customs duty in

cases where warehoused goods were cleared after expiry of the 38

warehousing period. In that context, it was clarified that

provisions of Section 15(1)(b) of the Customs Act would apply to

cases where the goods were cleared from the warehouse after

extension of the warehousing period but before expiry of such

extended period. On the other hand, in respect of cases where

the goods were removed after expiry of the warehousing period,

the residual clause of Section 15(1)(c) of the Customs Act would

apply. Evidently, this circular dated 12.7.1989 would not be

applicable to the facts of the present case in as much as it is

not the case of the respondent that either the warehousing

period had expired or that the warehousing period was

extended. As we have seen, the warehousing in the notified

public bonded warehouse continued as the Corporation had

deposited with the respondent a sum of Rs. 56,10,294.00 in

respect of the notified warehouse as custom establishment

charges for the period from 1992-1993 to 2007-2008. That

apart, we can refer to the fact that respondent had not levied

any customs duty on the 304 cases found within the notified

area which would mean that the notified warehousing

continued. Therefore, this is not a case where Section 15(1)(b)

could have been invoked.

39

57. As regards, the decision of this Court in Kesoram is

concerned, the question for consideration in that case was the

rate at which customs duty could be levied on goods that

remained in a bonded warehouse beyond the permitted period.

It was in that context that this Court held that Section 68 would

not be applicable since Section 68 operates in a different

context. On the contrary, Section 72 would apply. Thus, this

Court clarified that the date on which the warehousing period

comes to an end, would be the date relevant for determining the

rate of duty and when the duty is actually demanded would not

be relevant. It was further clarified that Section 15(1)(b) would

apply to goods cleared under Section 68. Goods which remain

in the bonded warehouse beyond the permitted period would be

deemed to have been improperly removed from the warehouse

under Section 72. It is quite evident that this decision would not

be applicable to the facts of the present case.

58. Thus, having regard to the discussions made above,

we are of the view that the demand raised by the respondent

against the appellant and affirmed by the CESTAT qua the 264

cases including levy of customs duty and interest cannot be

sustained. Those are accordingly set aside and quashed. Parties 40

are directed to work out their remedies in respect of the 264

cases of goods under Section 15(1)(c) of the Customs Act within

a period of eight weeks from the date of receipt of a copy of this

order. In so far the demand of customs duty and interest on the

27 cases is concerned, the same is hereby sustained. The

decision imposing penalty of rupees one lakh on the appellant

under Section 112 of the Customs Act is also not disturbed in

view of the conduct of the appellant in unauthorisedly removing

the 27 cases of imported goods not only from the notified public

bonded warehouse but also from the industrial/factory

premises of the appellant.

59. Impugned order of CESTAT would stand modified

accordingly.

60. Appeal is allowed in part in the above terms. No

costs.

..…………………………J. [B. V. NAGARATHNA]

……………………………J. [UJJAL BHUYAN]

NEW DELHI;

20.03.2024