Hearing an appeal by IOC against the verdict of Calcutta Customs, Cegat ruled on Monday that demurrage was not part of import cost and could not be taxed.

"Demurrage is paid on account of the delay in clearing the goods from the vessel docked at the Port. That cannot form part of the value of the goods," a three-bench headed by Justice K Sreedharan ruled while setting aside the duty liability imposed on the company by the Customs.

The Calcutta Customs commissioner had in March ruled that the demurrage paid by IOC to foreign ship-owners as penalty for their ships not being able to unload their cargo on time at Indian ports, was also part of the overall import cost, and import duty of Rs 1,951.96 crore would have to be paid on imports made nearly five years ago. Ruling that demurrage was an expenditure which arises in extraordinary situations, Cegat said the costs that can be included to the price actually paid or payable in finding out the assessable value should be borne in "ordinary" circumstance. "Expenditure incurred by parties in extraordinary situations cannot go in to enhance the assessable value. Demurrage is an expenditure which arises in extraordinary situations," the order said.

The ruling made it clear that the ship's demurrage charges incurred by oil companies were not to be included in assessable value of petroleum crude oil and other petroleum products like motor spirit, high speed diesel, superior kerosene oil, furnace oil and aviation turbine fuel. Siting Rule 9(4) of the Customs and Excise Gold Control Act, which mandates that no additions shall be made to the price actually paid or payable in determining the value of the imported goods except those borne in ordinary circumstances, ruled that extraordinary expenses like demurrages that may arise on account of unexpected situations cannot be added to ordinary prices for fixing the assessable value.

Slapped with a tax liability of about Rs 2,000 crore in March 2000, IOC made a case for appealing against the order with the Committee of Secretaries headed by the revenue secretary.

The Committee of Secretaries noted that the dispute involved mixed quotation of law and fact that the amount involved was substantial, permitted IOC to appeal in Cegat. In addition to ruling that demurrage was part of import costs, the Calcutta commissioner had ruled that IOC had deliberately suppressed information about the demurrage it paid so that it could avoid paying import duty on it.

(PTI)