Supreme Court Clarifies Customs Duty on Goods Outside Bonded Warehouse: Bisco Ltd. vs. Commissioner of Customs (20 March 2024)

Date of the Judgment: 20 March 2024
Citation: 2024 INSC 231
Judges: B. V. Nagarathna, J. and Ujjal Bhuyan, J.

What happens when imported goods, meant to be stored in a bonded warehouse, are found outside the warehouse but still within the factory premises? The Supreme Court of India recently addressed this complex question, clarifying the rules for applying customs duty in such scenarios. This case revolves around M/s. Bisco Limited and the customs authorities, focusing on the correct interpretation of the Customs Act, 1962, and its implications for businesses dealing with bonded warehouses. The judgment was delivered by a two-judge bench comprising Justice B. V. Nagarathna and Justice Ujjal Bhuyan, with the opinion authored by Justice Ujjal Bhuyan.

Case Background

M/s. Bisco Limited (hereafter referred to as ‘the appellant’), imported second-hand steel mill machinery and parts under a Project Import Facility. A portion of their industrial premises was designated as a public bonded warehouse for storing these imported goods without paying customs duty.

In 1989, the appellant imported 595 cases of machinery parts, which were supposed to be stored in the bonded warehouse. However, due to heavy rains and space constraints, some of the goods were unloaded outside the warehouse but within the factory premises with permission from the Superintendent of Customs and Central Excise.

In 1992, customs officials inspected the premises and found that only 304 cases were inside the warehouse, 264 cases were outside but within the factory, and 27 cases were missing. This led to a dispute about the applicable customs duties and penalties.

Timeline

Course of Proceedings

The case went through multiple rounds of appeals and remands. Initially, the Commissioner of Customs and Central Excise, Indore, confirmed the duty demand and imposed penalties. The appellant appealed to the Central Excise and Gold Appellate Tribunal (CEGAT), which remanded the matter back to the Commissioner for fresh adjudication. This happened twice, with the CESTAT also remanding the case once. Finally, the CESTAT upheld the Commissioner’s order, leading to the appeal before the Supreme Court.

Legal Framework

The judgment refers to several key sections of the Customs Act, 1962:

• Section 2(43): Defines a ‘warehouse’ as a public or private warehouse licensed under Sections 57, 58, or 58A of the Customs Act.
• Section 2(44): Defines ‘warehoused goods’ as goods deposited in a warehouse.
• Section 12: States that customs duties are levied on goods imported into or exported from India.
• Section 15: Specifies the date for determining the rate of duty on imported goods. It states:
  • (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;
  • (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.
• Section 28AB: (Since deleted) Provided for interest on delayed payment of duty in special cases.
• Section 57: Provides for licensing of public warehouses.
• Section 58: Provides for licensing of private warehouses.
• Section 59: Deals with warehousing bonds.
• Section 60: Mentions about the order permitting deposit of goods in a warehouse.
• Section 61: Mentions the period for which the goods may remain warehoused.
• Section 64: Deals with owner’s right to deal with warehoused goods. It states:
  • 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 – (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;
• Section 67: Deals with removal of goods from one warehouse to another.
• Section 68: Deals with clearance of warehoused goods for home consumption.
• Section 71: States that no warehoused goods shall be taken out of a warehouse except on clearance for home consumption, re-exportation, or removal to another warehouse.
• Section 72: Deals with goods improperly removed from a warehouse.
• Section 110: Empowers the proper officer to seize goods liable to confiscation.
• Section 111(j): States that goods removed from a customs area or warehouse without permission are liable for confiscation.
• Section 112: Deals with penalties for contravention of the Customs Act.

These provisions form the legal basis for determining how customs duties are applied to goods stored in or removed from bonded warehouses.

Arguments

Appellant’s Submissions:

• The appellant argued that the 264 cases were outside the warehouse but within the factory premises with the permission of the proper officer (Superintendent of Customs and Central Excise). Thus, it was not an unauthorized removal of goods.
• The appellant contended that Section 64(d) of the Customs Act allows the owner to deal with goods to prevent loss or deterioration, which they did by moving the goods under a shed due to heavy rain and lack of space in the warehouse.
• The appellant submitted that since the goods were not cleared from the warehouse, Section 15(1)(b) of the Customs Act should not apply. Instead, the residuary provision i.e., Section 15(1)(c) should apply.
• The appellant relied on a circular dated 12.07.1989 of the Central Board of Excise and Customs, which was applicable at the time, stating that the rate of duty should be determined on the date of payment of duty.
• The appellant contended that the confiscation of goods and imposition of interest under Section 71 and Section 28AB of the Customs Act were not justified.
• The appellant submitted that a lenient view should be taken considering the goods were held up for a long time.

Respondent’s Submissions:

• The respondent argued that the goods were found outside the notified warehouse during a search, indicating a misuse of warehousing facility.
• The respondent stated that there was no explanation for the 27 missing cases.
• The respondent justified the adjudication order and the CESTAT order, confirming the duty demand and penalties.

Submissions Table:

Innovativeness of the argument: The appellant’s argument that Section 64(d) allows the owner to deal with goods to prevent loss or deterioration and that Section 15(1)(c) should apply was innovative.

Issues Framed by the Supreme Court

The Supreme Court addressed the following issues:

1. Whether the 264 cases of imported goods found outside the notified warehouse but within the factory premises were improperly or unauthorizedly removed from the warehouse.
2. Whether Section 15(1)(b) of the Customs Act was applicable for determining the rate of duty on the 264 cases of goods.
3. Whether the demand of customs duty and interest on the 264 cases and the 27 missing cases was justified.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Kesoram Rayon vs. Collector of Customs, Calcutta, (1996) 5 SCC 576: The Supreme Court of India discussed the rate of customs duty on goods remaining in a bonded warehouse beyond the permitted period. It was held that Section 15(1)(b) applies only when goods are cleared from the warehouse within the permitted period.
• Simplex Castings Ltd. versus Commissioner of Customs, Vishakhapatnam, (2003) 5 SCC 528: The Supreme Court of India held that the circular dated 12.07.1989 was binding on the Department and that the residual Section 15(1)(c) of the Customs Act would apply to cases where goods were removed from a warehouse after expiry of the warehousing period.
• SBEC Sugar Ltd versus Union of India, (2011) 4 SCC 668: The Supreme Court of India reiterated that Section 15(1)(b) is applicable only when goods are cleared from the warehouse within the permitted period.

Legal Provisions:

• Section 2(43) of the Customs Act, 1962: Definition of ‘warehouse’.
• Section 2(44) of the Customs Act, 1962: Definition of ‘warehoused goods’.
• Section 12 of the Customs Act, 1962: Levy of customs duties on imported goods.
• Section 15 of the Customs Act, 1962: Date for determination of rate of duty.
• Section 28AB of the Customs Act, 1962: Interest on delayed payment of duty (since deleted).
• Section 57 of the Customs Act, 1962: Licensing of public warehouses.
• Section 58 of the Customs Act, 1962: Licensing of private warehouses.
• Section 59 of the Customs Act, 1962: Warehousing bond.
• Section 60 of the Customs Act, 1962: Order permitting deposit of goods in a warehouse.
• Section 61 of the Customs Act, 1962: Period for which goods may remain warehoused.
• Section 64 of the Customs Act, 1962: Owner’s right to deal with warehoused goods.
• Section 67 of the Customs Act, 1962: Removal of goods from one warehouse to another.
• Section 68 of the Customs Act, 1962: Clearance of warehoused goods for home consumption.
• Section 71 of the Customs Act, 1962: Restrictions on taking out goods from a warehouse.
• Section 72 of the Customs Act, 1962: Goods improperly removed from warehouse.
• Section 110 of the Customs Act, 1962: Power to seize goods.
• Section 111(j) of the Customs Act, 1962: Confiscation of goods removed without permission.
• Section 112 of the Customs Act, 1962: Penalties for contravention of the Customs Act.

Authorities Table:

Judgment

The Supreme Court made the following observations and decisions:

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Kesoram Rayon vs. Collector of Customs, Calcutta, (1996) 5 SCC 576: The Court distinguished this case, clarifying that it applies to goods remaining in a bonded warehouse beyond the permitted period, which was not the situation here.
• Simplex Castings Ltd. versus Commissioner of Customs, Vishakhapatnam, (2003) 5 SCC 528: The Court followed this case, emphasizing that the circular dated 12.07.1989 was binding on the Department and that the residual Section 15(1)(c) of the Customs Act would apply.
• SBEC Sugar Ltd versus Union of India, (2011) 4 SCC 668: The Court approved and applied this case, reiterating that Section 15(1)(b) applies only when goods are cleared from the warehouse within the permitted period.

The Court observed that the permission granted by the Superintendent to unload the cargo outside the warehouse but within the factory premises was never cancelled or revoked. Therefore, the appellant was exercising its right under Section 64(d) of the Customs Act. The Court also noted that the Central Warehousing Corporation had deposited custom establishment charges, indicating that the warehousing period had not expired.

The Court held that since the 264 cases were not improperly removed from the warehouse, Section 71 and 72 of the Customs Act were not applicable. Consequently, the demand for customs duty and interest under Section 28AB was not justified. The Court held that Section 15(1)(c) of the Customs Act should apply to the 264 cases.

However, the Court upheld the demand for customs duty and interest on the 27 missing cases, as there was no explanation for their disappearance. The penalty of Rs. 1 lakh imposed on the appellant under Section 112 of the Customs Act was also upheld due to the unauthorized removal of the 27 cases.

The Court directed that the parties should work out their remedies for the 264 cases under Section 15(1)(c) of the Customs Act within eight weeks.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Valid Permission: The fact that the Superintendent of Customs and Central Excise had granted permission to unload the goods outside the warehouse but within the factory premises weighed heavily in the Court’s decision. The Court emphasized that this permission was never cancelled or revoked.
• Section 64(d): The Court interpreted Section 64(d) of the Customs Act as allowing the owner to deal with the goods to prevent loss or deterioration. The appellant’s actions were seen as a valid exercise of this right.
• No Improper Removal: Since the goods were moved with valid permission, the Court concluded that there was no improper or unauthorized removal of the 264 cases from the warehouse. This meant that Sections 71 and 72 of the Customs Act were not applicable.
• Continuous Warehousing: The Court noted that the Central Warehousing Corporation had deposited custom establishment charges, which indicated that the warehousing period had not expired. This further supported the conclusion that the goods were not improperly removed.
• Application of Section 15(1)(c): The Court determined that since Section 15(1)(b) was not applicable, the residual provision under Section 15(1)(c) should be used to determine the rate of duty for the 264 cases.
• Missing 27 Cases: The Court upheld the demand for customs duty and interest on the 27 missing cases due to the appellant’s failure to provide any explanation for theirdisappearance.

Sentiment Analysis:

Ratio Decidendi

The ratio decidendi of the judgment can be summarized as follows:

1. Permission for Goods Movement: If a proper officer of customs grants permission for the movement of goods outside a bonded warehouse but within the factory premises, such movement cannot be considered an unauthorized removal of goods, provided the permission is valid and not revoked.
2. Interpretation of Section 64(d): Section 64(d) of the Customs Act allows the owner to deal with warehoused goods to prevent loss or deterioration, provided such actions are necessary and reasonable.
3. Applicability of Section 15(1)(b): Section 15(1)(b) of the Customs Act applies only when goods are cleared from a warehouse for home consumption. If goods are not cleared from the warehouse, the residuary provision i.e., Section 15(1)(c) of the Customs Act should be applied.
4. Duty and Interest on Missing Goods: Demand for customs duty and interest is justified on goods that are missing from a bonded warehouse without any reasonable explanation.

Obiter Dicta

The obiter dicta in the judgment include:

1. The importance of proper record-keeping and documentation in cases involving bonded warehouses.
2. The need for customs authorities to act reasonably and fairly while interpreting and applying the provisions of the Customs Act.
3. The significance of circulars issued by the Central Board of Excise and Customs and their binding nature on the customs authorities.

Conclusion

The Supreme Court’s judgment in the case of M/s. Bisco Limited vs. Commissioner of Customs provides important clarifications on the application of customs duty to goods found outside a bonded warehouse but within the factory premises. The Court held that if the movement of goods is authorized by the proper officer and is in accordance with Section 64(d) of the Customs Act, it cannot be considered an unauthorized removal. The Court also clarified that Section 15(1)(b) of the Customs Act applies only to goods cleared from a warehouse, and the residuary provision under Section 15(1)(c) should be applied in other cases.

The judgment emphasizes the importance of proper authorization and documentation in dealing with warehoused goods. It also highlights that customs authorities should act reasonably and fairly while interpreting the Customs Act. The decision provides significant relief to businesses dealing with bonded warehouses by clarifying their rights and obligations under the Customs Act.

Key Takeaways:

• Always obtain proper authorization before moving goods outside a bonded warehouse, even if within the factory premises.
• Ensure that all permissions and authorizations are properly documented and kept on record.
• Be aware of the provisions of Section 64(d) of the Customs Act, which allows owners to deal with warehoused goods to prevent loss or deterioration.
• Understand the applicability of Section 15 of the Customs Act, especially the difference between Section 15(1)(b) and Section 15(1)(c).
• Maintain accurate records of all goods stored in and removed from a bonded warehouse.

Flowchart of the Decision-Making Process

Ratio Table