Relief to L&T as Gujarat High Court quashes customs levy of Rs 532 crore

In a major relief for corporate major Larsen and Toubro (L&T), the Gujarat High Court has saved it from customs duty demand of Rs 330 crore and an interest of Rs 202 crore for allegedly violating provisions of the Customs Act with regard to storage and release of imported goods from a private bonded warehouse in Hazira. The company is involved in the manufacturing of oil exploration platforms and related machinery, and ship building, at its Hazira facility.
The demand notice for the period 1986-2012 was issued by customs department on the ground that the goods imported and stored in the private bonded warehouse were used for manufacturing in the warehouse and cleared from there after the stipulated expiry of one-year. The department claimed that the company never applied for extension of warehousing period and treated the same as ‘improperly removed goods’. It also claimed that some of the imported consignments were stored in the warehouse, used for manufacturing, and cleared from there after expiry of 90 days and before one-year, on which interest is recoverable as per the Act.
A division bench of the court quashed and set-aside the demand notice by remarking it as “illegal”, “belated”, “without authority and law” and “unreasonable”. The court held that throughout the disputed period, there were sufficient checks and balances, where the officers of the department were in control and monitored the movement of goods at the warehouse.

The court also held that once the goods were released in the manufacturing process, merely because the same private bonded warehouse was also the manufacturing site, the same cannot be termed as warehoused goods having been stored beyond the stipulated period. The court also held that when warehouse was also the manufacturing site, the restriction of removal from the warehouse within the stipulated period is immaterial. It also considered the fact that production cycle in ship manufacturing is a relatively long process.
During the hearing of the matter, the counsel for the company contended that the union government had issued various notifications since 1986, with the latest being on March 17, 2012, exempting the raw materials and parts used for manufacturing of goods supplied in connection with offshore oil exploration and ships from customs duty. The company also argued that there had been several CAG audits of its warehousing and manufacturing operations since 1986, but the company was never informed about the improper removal of goods, except for the arbitrary demand notice.
The company also argued that the imported goods were immediately issued for further manufacturing on the basis of approved ‘issue slip’. Therefore, they do not remain as warehoused goods and hence, cannot attract interest liability. It was also submitted that the authorities cannot raise a demand after 28 years, especially considering the fact that the warehousing and manufacturing facility of the company was under the physical control of the department.

On the contrary, the customs department contended that the demand notice was as per law and the court does not need to interfere in it. It also contended that the company is supposed to pay interest on the imported goods which remained in the warehouse beyond a period of 90 days. It was also submitted that provisions of the Customs Act make it amply clear that when imported goods have not been removed from a warehouse within one-year, such goods are to be treated as improperly removed goods. However, its submissions failed to convince the court.