By TIOL News Service

NEW DELHI, AUG 29, 2018: THE Petitioners have prayed for a writ, order or direction to declare levy and collection of cost recovery charges for posting of and work performed by the custom officers and staff at the Inland Container Depots (ICDs)/Container Freight Stations (CFSs)/Air Cargo Complexes (ACCs)/Export Processing Zones (EPZs) as wholly illegal, unlawful, null and void and that the respondent should refund all the charges collected from them since inception.

Additionally prayer is for the quashing of Guideline No.10 of Circular No. 128/95-Cus, dated 14th December, 1995 as being ultra vires to the provisions of Article 14 and Article 265 of the Constitution of India.

The prayers are predicated primarily on the plea that custom officers are permanent employees of the Union of India and duties performed by the custom officials at the ICDs/CFSs/ACCs/EPZs being sovereign functions, no charge could be recovered by the Union of India from the petitioners.

The High Court observed that what is primarily required to be decided and adjudicated is challenge to the validity of recovery of cost computed at the rate of 1.85 times the salary of the customs officers posted at the ICDs/CFSs/ACCs/EPZs; that the Bench would also consider the challenge to the constitutional vires etc.

Adverting to the decisions in The Chief Commissioner, Delhi and Anr. v. The Delhi Cloth and General Mills Co. Ltd. and Ors., AIR 1978 SC 1181 & Commissioner Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt., AIR 1954 SC 282, the High Court further observed -

+ The principle difference between "tax" and "fee" is that a "tax" is levied as a part of a common burden, while "fee" is a payment for a special benefit or privilege. Therefore, "fee" is regarded as a sort of return for services rendered.

+ Nevertheless, the primary distinction remains and is the element of quid pro quo, that is to say, the authority levying the "fee" must render some service for the fee levied, however remote the service may be.

Referring to the element of quid pro quo, whether imposition was and is in accordance with the constitutional mandate and whether levy of fee was/is legal, the Bombay High Court in Mumbai International Airport Private Ltd. v. The Union of India - 2014-TIOL-1819-HC-MUM-CUS had observed that the cost recovery charges are in the nature of fee for the services rendered by Customs Officers to the custodian of the Port Terminal; that there is, therefore, quid pro quo and there is no element of tax therein.

The High Court also observed -

++ The ICDs/CFSs/ACCs/EPZs located in the hinterland are operated by the custodians for their private commercial gains and profits. Government facilitates the operation of the ICDs/CFSs/ACCs/EPZs by providing the required services by posting customs officials at these stations.

++ The affidavit in reply sets out and states additional costs have been incurred by the government for the services of the staff and posted them at the ICDs/CFSs/ACCs/EPZs, to show co-relation between the services provided and cost recovery charges, to establish quid pro quo. Figures and increase in customs officers and staff has been explained with data and details in the counter affidavit. This cannot be controverted and denied.

++ The petitioners-companies charge certain amount per container from the exporter/importer. In this manner, cost recovery charge paid to the government was recouped and passed on to the importer/exporter. It was added to the expense or cost. It was treated as element and part of service rendered to the importer/exporter. Hence, the petitioners, in turn, would be bound to make payment as cost recovery charge for the posting of the custom officers at the said ICDs/CFSs/ACCs/EPZs. The cost recovery charges were intended to cover the expense of the government in deputing Customs personnel to the ICDs/CFSs/ACCs/EPZs. Quid pro quo is established and cannot be doubted.

++ In exercise of power conferred by Section 45 ( Restrictions on custody and removal of imported goods ) of the Act, the petitioners have been appointed as custodian of imported goods unloaded in the ICDs/CFCs/EPZs. Section 45 permits and allows any other law to be enacted or framed for custody of imported goods till they are cleared etc. Thus cost recovery, it is apparent, is associated with services provided by the Union of India to a private organization like the petitioners. Costs incurred are to be recovered from the custodians. Pertinently, as noticed below, the petitioners had undertaken to bear the costs of customs officers posted at the ICDs/CFSs/ACCs/EPZs as a pre-condition for appointment as a custodian under Section 45(1) of the Act.

++ Accordingly, and in terms of Section 45 of the Act and Regulation 5 (2) of Handling of Cargo in Customs Area Regulations, 2009, that the circular dated 14th December, 1995 and the impugned letter of the Ministry of Finance dated 1st April, 1991 have been issued.

++ Thus, the payment of cost recovery charges has sanction and authority of law to back the levy and imposition. Further, the cost recovery charges so levied are against expenses incurred by the government for rendering the services at the ICDs/CFSs/ACCs/EPZs. Therefore, in view of the case law above discussed, provisions of the Act and the documents on record, it is established that cost recovery charges are in the nature of "fee" for services rendered by the customs officers at the concerned ICDs/CFSs/ACCs/EPZs.

On the issue and question of quantum and whether the government can levy the cost recovery charges at the rate of 1.85 times the salary of the customs officers, the High Court made the following observations -

"…the actual cost cannot be restricted and confined to salary paid. There are hidden and other expenses involved. It would be unfair and wrong to compute cost by merely adding the wage or salary actually paid to the custom staff deployed. This is not the actual cost incurred and the cost to the government. The cost factor was worked out on the basis of principles under the General Financial Rules. This assertion and contention of the respondents remains undisputed and unchallenged."

It is also mentioned that after the implementation of the recommendations of the 6th Pay Commission, these components had undergone a change and as a result, the cost of the staff as worked out and was payable. Similar would be the position on implementation of the 7th Pay Commission report, the Bench added.

As regards the need for revision, it was observed -

+ If the revision in cost due to implementation of the 6th Pay Commission was not carried out, then the government would had suffered a net loss and would have tantamounted and resulted in profiting of the private sector at the expense of the government. Cost recovery @ 185% of the total salary of staff actually posted at ICDs/CFSs/ACCs/EPZs of the petitioners was being done as per the Board's instructions issued under F. No.434/12/92/-CUS dated 05.06.1992, Circular Nos. 128/95-CUS dated 14.12.1995, 133/95-CUS dated 22.12.1995, 52/97 dated 17.10.1997 and 80/98-CUSdated 20.10.1998.

Concluding that no case is made out for the grant of the reliefs as prayed for,the Writ Petitions were dismissed.

(See 2018-TIOL-1748-HC-DEL-CUS)