CESTAT Kolkata Says Customs Supervision Charges Payable On MOT, Not CRC, For Limited Deployment

The Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside a ₹1.37 crore demand raised against a duty-free shop operator.

A coram comprising Judicial Member Ashok Jindal and Technical Member K. Anpazhakan held that customs supervision charges could only be recovered on a Merchant Over Time (MOT) basis and not on a Cost Recovery Charges (CRC) basis where customs officers were utilized only for limited hours.

It held that the Revenue could not demand CRC in the absence of evidence showing that customs officers had been deployed throughout the day or for the better part thereof.

The dispute arose from a demand raised against the duty-free operator for recovery of customs supervision charges on a Cost Recovery Charges basis. The Department alleged that customs officers were required to provide services for a substantial portion of the working period.

It therefore contended that the appellant was liable to bear supervision costs on a Cost Recovery Charges basis rather than through Merchant Over Time (MOT) charges.

The Revenue argued that the duty-free operator had availed customs services for 558 days out of approximately 586 working days during the relevant period, amounting to nearly 95% usage of customs supervision services.

According to the Department, one or more customs officers were engaged for major parts of the day. It therefore claimed that recovery of costs under the CRC mechanism was justified.

The appellant, however, contended that customs officers had only been utilized on a need basis and not on a continuous basis. It submitted that services were availed for only six hours or part of a day.

It further argued that supervision charges had already been calculated and paid on a Merchant Over Time basis in accordance with the applicable regulations and circulars.

After examining the relevant circulars governing recovery of customs supervision costs, the tribunal observed that supervision charges are recoverable on a Cost Recovery Charges basis only in specific situations.

These include cases where officers are required throughout the day, where services are required more than once a day, or where the location and nature of work require the prolonged absence of officers from their offices.

Referring to a July, 2016 C.B.E.C. Circular, the bench noted that "if the requirement of the licensee warrants the operation of the warehouse on a frequency that is once a week, then the supervision charges shall be payable on 'Merchant Over Time' (MOT) basis."

The Bench found that the record contained no evidence establishing that customs officers had actually rendered services for the entire day or for a substantial portion thereof. It noted that the Department had merely relied upon the number of days for which services were availed. It had not furnished any evidence regarding the actual hours of deployment.

"It can be seen from the above that the officer's services have been availed only for a limited period, of say six hours in a day, as submitted. There is no evidence available on record to indicate that the officer's services have been utilized throughout the day. Thus, we hold that the determination of payment for the services as worked out by the appellant on MOT basis, for the period under dispute, is legally correct," the bench said.

The tribunal observed that the determinative factor under the governing circular was the actual duration of services rendered by customs officers rather than the number of days on which such services were availed.

It held that the Department's computation was unsustainable because it ignored the actual period for which supervision services had been utilized.

The bench also noted that the Department had failed to establish that any Superintendent of Customs had been posted for the appellant's operations or that the services of any Superintendent had been utilized.

"There is no corroborative evidence on record to establish that the services of the officers of customs have been used for the entire day or for the better part thereof, as alleged by the Revenue, and therefore, in terms of Circular No. 32/2016-Cus dated 13.07.2016, we hold that the appellant is liable to pay service charges for the services utilized by them only on Merchant Over Time (MOT) basis," the bench said.

Holding that customs services had only been availed on a need basis and for limited periods, the tribunal ruled that supervision charges were recoverable only on a Merchant Over Time basis and not under Cost Recovery Charges.

Accordingly, it set aside the impugned order and allowed the appeal.

For Appellant: Advocate Mihir Mehta, 

For Respondent: Faiz Ahmed, Authorized Representative