IOC wins appeal on Rs 2,000 cr tax case

In addition to ruling that demurrage was part of import costs, the Calcutta commissioner had ruled that IOC had deliberately suppressed information about the demurrage it paid so that it could avoid paying import duty on it. And, since he ruled that the information had been deliberately suppressed, the commissioner was able to impose a back duty going back to 5 years. He had imposed a back import duty of Rs 975.98 crore on the demurrage itself, and an equal amount as a penalty for the deliberate suppression.

IOC’s counsel had, however, argued before the court that there was no question of suppression since the ministry of petroleum’s own papers said that demurrage was not to be added while calculating the import duty payable. And since IOC went by the advice of the ministry, there was no question of suppression on its part.

The issue of deliberate suppression of facts, however, did not even come into play with the CEGAT rejecting the case that demurrage was dutiable. The CEGAT pointed out that import duty is to be paid on the value of goods in the ordinary course — demurrage was not part of the ordinary course, and so there was no question of this being added to the value taken for purposes of calculating the import duty.

The broad philosophy behind the CEGAT ruling was that demurrage was a penalty paid for the fact that India’s ports are so clogged that ships cannot get in and out of them in time. Given this, it would be unfair to impose another penalty on this in the form of a duty.

Duplicate Invoices?

An interesting twist to the duplicate invoices allegedly issued by IOC, is that the government lawyers already knew the circumstances in which they were issued — which is why, the day after they were shown amidst high drama in the CEGAT court, the government lawyers didn’t insist that they be introduced as formal evidence.

Essentially, on Monday, the government counsel showed the courts duplicate invoices made by IOC — to the same party, for the same consignment — but with different values. Essentially, while one invoice gave all the cost elements, the copy omitted the demurrage and a few other charges. The government contended that this was not only fraud, it was clear evidence that IOC knew that demurrage was dutiable.

Except, what the government omitted to mention the first day was the circumstances in which IOC issued these invoices. IOC imported petroleum products for private sector marketers and had to give them invoices without the demurrage amount since these formed the basis on which they paid the import duty. More important, IOC had intimated this practice to the relevant customs authorities at Chennai as well as Mumbai.

When the IOC counsel pointed this out to the CEGAT bench the next day, the goernment counsel chose to withdraw the duplicate invoice matter, and did not press for its inclusion in the formal records.