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M/S. Mangalore Refinery & Petrochemicals Ltd. v. Commissioner of Customs, Mangalore

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 2753 of 2006)Decided 2 Sept 2015
Civil Appeal No. 2753 of 2006
Justice A.K. Sikri · Justice Rohinton Fali Nariman

Background

Mangalore Refinery imported crude oil by sea in 144 vessel voyages between January 1996 and March 1998. Customs authorities found that for 71 of these voyages the duty actually paid was based on the quantity physically received into the shore tanks in India, which was less than the quantity recorded on the bill of lading at the loading port abroad (a normal "ocean loss" in transit). The Commissioner of Customs, and later the customs tribunal (CESTAT), held that duty should instead be charged on the higher bill-of-lading quantity, demanding roughly Rs. 6.59 crore in short-paid duty; the company appealed to the Supreme Court. This judgment was treated as the lead case for a batch of connected appeals raising the identical question.

Decision Breakdown

The Supreme Court held that under the Customs Act, import duty can only be levied on goods that are actually "imported", i.e., physically brought into India and cleared for home consumption or warehousing, not on a paper quantity recorded abroad. Sections 13 and 23 of the Act make clear that no duty is payable on goods lost, pilfered, or destroyed before clearance, which confirmed that the relevant quantity is the one actually received, not the bill-of-lading figure. The Tribunal's view that an ad valorem duty regime somehow changed this basic rule was rejected as having no legal foundation, and a 2006 government circular relied on by the revenue was held to be contrary to law. The Court set aside the Tribunal's judgment and declared that customs duty on imported crude oil must be based on the quantity actually received in the shore tank in India, disposing of this and all the connected batch appeals on that basis.

Lesson Learnt

Import duty is a tax on goods that actually enter the country: ordinary transit/"ocean" losses between the foreign loading point and the Indian port cannot be taxed as if they had arrived, a principle relevant to any importer facing a demand based on shipping-document quantities rather than goods actually received.

Official source (sci.gov.in)View Judgment (PDF)

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