Pay twice over for the government's inefficiency

Pay twice over for the government's inefficiency
Sunil Jain

New Delhi, September 21: You'd think the government would give some kind of sop to the country's importers who have to spend additional amounts running into a few thousand crore each year due to the inefficiency of the government-run ports -- with ships carrying import cargo generally stuck in the over-crowded ports for several days, importers have to pay penalty or demurrage charges for these ships. Forget about compensating importers for this, the customs is actually asking these importers to pay import duty on these additional, and totally unnecessary, payments!

Yes, that's right, some months ago, the Commissioner of Customs in Calcutta passed an order asking Indian Oil Corporation to pay an import duty of Rs 975.98 crore on demurrages of Rs 170 crore incurred by it for the period April 1994 to March 1999. In addition, a penalty of an equal amount has also been imposed, and all this is to be paid with an interest of 20 per cent in case of any delay -- the commissioner's logic was that the demurrage was part of the import cost, and so import duty should be levied on it. The commissioner has charged IOC with deliberately suppressing information on the demurrages paid as this would help them avoid paying additional customs duties.

IOC appealed against this judgement, but needed to get the government's clearance to do so legally. Some days ago, the Committee on Disputes of the Cabinet Secretariat gave IOC permission to appeal against the order to the CEGAT.

What's interesting is that if the appeal is upheld by the CEGAT, this will have major ramifications for not just the oil industry, but the entire importing community. In the case of the oil sector, for instance, imports from Calcutta form under a sixth of total imports. So, logically then, the Calcutta order should be followed by others from Kandla, Mumbai, Vizag, and so on -- essentially, the total tax liability could go up six times for the oil industry. Naturally, all this will be passed on to the oil pool deficit, already splitting apart at the seams at Rs 19,000 crore right now.

The move will also affect the prospects of IOC's American Depository Issue slated to come out in November or December -- since IOC has been the sole canalising agency for most petroleum imports, it will have to make provisions in its balance sheet for anywhere upto Rs 12,000 crore. In the event, few investors will want to touch such an issue, despite IOC's profits of Rs 2,200-odd crore.

In its appeal to the CEGAT, IOC has cited a 1991 finance ministry circular which very clearly says that demurrage costs are not to be added to freight costs for purposes of evaluating import costs. The ministry's clarification was issued in response to a query raised by the customs officers at Kandla.

IOC has also pointed out that while they were given the opportunity of having a personal hearing on March 22, they received the order only on the 15th which was a Wednesday. The 17th to the 20th were holidays, and this gave IOC just a few days to prepare its reply. IOC says that this violates the principle of natural justice, as they should have been given more time, particularly when the penalty levied is so high.