Legal principle

Where warehoused goods are sold for non-payment of rent or warehouse charges, customs duty is to be computed by backward calculation on the sale proceeds as cum-duty price and appropriated per the priority in Section 150(2), since the Kesoram rule of assessing duty at the rate on expiry of the warehousing period applies only to duty demands against the importer, not to such sales.

Court decision

The Supreme Court disposed of the appeal against the Revenue, holding that customs duty must be calculated on the sale price realised (by backward computation treating sale proceeds as cum-duty price) in accordance with the Board's Circular dated 28th November 2001 and Chapter 21 of the CBEC Manual, and then adjusted per the priority in Section 150(2), and not on the duty payable on the date of expiry of the permitted warehousing period. Kesoram was held inapplicable because that case concerned levy of duty on an importer, whereas the importer here never sought release of the goods. The Court directed that the customs duty be ascertained accordingly and, if the bank guarantee of Rs.27,47,146 had been invoked, the amount be made over to the respondent within three months after due adjustments, with no order as to costs.

Facts

M/s Kushang Apparel Ltd. imported CTV kits and, after filing six Bills of Entry dated 9th February 2001, kept them in a public warehouse at ICD Faridabad for one year under Section 59 of the Customs Act, 1962. The bond period expired on 28th February 2002 without the importer clearing the goods or paying rent, prompting the warehouse-keeper (respondent) to attempt auctions under Section 63(2) with customs approval and then a tender sale, ultimately fetching a highest bid of Rs.41,44,555. The Assistant Commissioner directed that the goods not be cleared on an ex-bond Bill of Entry under Section 68 but dealt with under Section 72 per Kesoram Rayon, and later the department demanded Rs.27,47,146 from the respondent (seeking to invoke its bank guarantee) as outstanding customs duty. The Delhi High Court allowed the respondent's writ, holding the demand without authority of law and directing refund of Rs.27,47,146 with 12% interest, leading to the Revenue's appeal.

Key provisions

• Section 150, Customs Act, 1962 — Procedure for sale of goods and application of sale proceeds
• Section 59, Customs Act, 1962 — Warehousing bond