A. R. AUTOS through Muzzafar Din Shaikh, Karachi VS SECRETARY, REVENUE DIVISION, FEDERAL BOARD OF REVENUE, ISLAMABAD, 2011 PTD-KARACHI-HIGH-COURT-SINDH 683 (2010)

(a) Words and phrases---

----"'Demurrage"-Import, object and scope-Demurrage' refers to the amount payable to port authorities by importer or consignee for any delay in removing imported goods from port after expiry of initial period of "free days" i.e. the period for which no demurrage is charged-Rationale for charge and reason why essentially punitive rates are charged is that space at the port is at a premium---Cargo is constantly being moved and space is required as goods are continuously off-loaded and on-loaded ships.

(b) Customs Act (IV of 1969)---

---S. 195---Customs Rules, 2001, R. 556---Constitution of Pakistan Art. 199---Constitutional petition---Demurrage, charging of---Delay due to official proceeding---Goods imported by petitioner were not allowed to be released as the authorities alleged the same contaminated with certain prohibited items---After retesting the goods by two separate laboratories, High Court directed the authorities to release the goods---During the entire period, the goods remained at container terminal of the Port and demurrage charges continued to accumulate in respect thereof---Plea raised by petitioner was that as action taken by Customs authorities was withdrawn, therefore, it was entitled to complete waiver of demurrage charges---Validity---Firstly the terminal operator must determine the amount of concession to which importer/consignee was entitled, so as to remove any "hardship" caused on account of demurrage or port charges, which must be reduced to no more than the value of goods---Once amount of concession was determined, imported goods were to be released forthwith without payment by importer/ consignee of reduced amount---Terminal operator must then refer the mutter to Collector of Customs concerned, who must satisfy himself that Terminal operator had correctly given concession---Once the amount was certified by Collector, the Terminal operator would be entitled to its payment by Federal Government or its adjustment against any fiscal demand upon Terminal operator under any federal law---If Terminal operator was dissatisfied with the amount certified by Collector, it could seek appropriate relief from Federal Board of. Revenue under S. 195 of Customs Act, 1969, and/or to pursue other remedies as might be available to it under law---High Court directed the Port authorities to re-compute amount of concession to which petitioner was entitled---Once the amount was re-computed and importer had paid the amount of demurrage charges for relevant period, its goods should be released forthwith---Petition was disposed of accordingly.

Aftab Ahmed Saeed v. Federation of Pakistan 1993 CLC 2022; NLR 1991 Civil 372; Adam Holding Ltd. v. Assistant Collector, Customs 1994 CLC 1198; Lone Traders v. General Manager Pakistan Railways and others 2006 PTD 1851 and Super Metal Traders v. General Manager Pakistan Railways and others 2006 PTD 2500 ref.

Mehmood ul Hassan for Petitioner.

Hasan Akbar for Respondent No.4.

Syed Tariq Ali, Federal Counsel for Respondents Nos. 1 to 3.

ORDER

MUNIB AKHTAR, J.---This petition arises under the Customs Act, 1969 ("the Act"). The material facts can be stated quite briefly. The petitioner imported certain goods (being a bio-organic fertilizer) for which the relevant import documents were filed on or about 7-4-2006. The goods were imported through the container terminal operated by the respondent No. 4. The Customs authorities did not however, permit release of the goods, and detained the same at port since according to them, the consignment was contaminated with certain prohibited items. There then followed a series of departmental and legal proceedings which it is not necessary to record in detail. It suffices to note that ultimately, the matter came before this Court in Customs Appeal No. 56 of 2008 in which the goods were ordered to be examined afresh, and on retesting by two separate laboratories, the reports came in favour of the petitioner. The result was that ultimately an order in favour of the petitioner was passed and the goods were directed to be released.

2. During this entire period, the goods remained at the container terminal of the respondent No. 4, and demurrage charges continued to accumulate in respect thereof. The concerned Deputy Collector issued a "delay and detention" certificate dated 1-8-2009 in favour of the petitioner, in which it was stated that the delay in the removal of the goods from 18-4-2006 to 29-7-2009 was on account of "court proceedings". On the basis of this certificate, the petitioner claimed that he was entitled to a complete waiver of the demurrage charges. When the respondent No. 4 refused to accede to this request, the petitioner filed the present petition on or about 12-7-2010, seeking appropriate relief for the release of his goods without payment of any demurrage charges. On 24-9-2010, it was directed that the matter would be finally heard and disposed of at the katcha peshi stage, and learned counsel were put on notice accordingly.

3. Mr. Mehmood-ul-Hassan, learned counsel for the petitioner, submitted that the law was well settled that whenever an importer could not remove his goods from port on account of any action taken against him by the customs authorities, which action was subsequently withdrawn, he was entitled to a complete waiver of demurrage charges. He stated that the demurrage charges being claimed by the respondent No. 4 were several times in excess of the value of the goods. He placed reliance on Aftab Ahmed Saeed v. Federation of Pakistan 1993 CLC 2022 and the decision in C.P. 4/1982, reported at NLR 1991 Civil 372, two Division Bench decisions of this Court. He also relied upon certain decisions of the Lahore High Court, being Adam Holding Ltd. v. Assistant Collector, Customs 1994 CLC 1198, Lone Traders v. General Manager Pakistan Railways and others 2006 PTD 1851 and Super Metal Traders v. General Manager Pakistan Railways and others 2006 PTD 2500. In addition, learned counsel also relied upon a provision contained in the Customs Rules, 2001 ("the Rules"). Chapter XXI of the Rules deals with clearance of goods through the Pakistan Customs Computerized System (PACCS). Sub-Chapter XIV of this Chapter deals generally with terminal operators under PACCS, and Rule 556 provides for the rights and obligations of the terminal operators. Paragraph (a) of this Rule provides for the "Safe Custody of Cargo/Goods and Containers". To this paragraph, a new subparagraph (iv) was added- by means of S.R.O. 82(I)/2008 dated 23-1-2008, which is in the following terms:--

"The Terminal Operator shall. honour the Delay and Detention Certificate issued by an officer of the Customs, not below the rank of an Assistant Collector, for concession from ports handling or demurrage charges in cases of hardship, where the delay in clearance of the imported cargo was not on the part of the consignee or importer; provided that the consignee or, as the case may be, importer shall substantiate their case with corroborative documents."

Learned counsel submitted that even on the foregoing basis, the petitioner was entitled to a complete waiver of the demurrage charges.

4. Mr. Hasan Akber, learned counsel appearing on behalf of the respondent No.4, did not deny or dispute the applicability of sub-paragraph (iv) reproduced above. However, his case was that in terms of the said sub-paragraph, the terminal operator was not obliged to grant a complete waiver of the demurrage charges. All that he was obligated to do was to give a "concession" to the consignee or importer. He submitted that in fact the respondent No. 4 had already waived half of the demurrage charges and he therefore contended that the said respondent had fully discharged its obligations in terms of the sub-paragraph. Learned counsel also placed reliance on the decision of the Court in Aftab Ahmed Saeed's case (supra) to contend that there need not be a complete waiver of the demurrage charges.

5. In reply, learned counsel appearing for the petitioner submitted that the learned Federal Tax Ombudsman had in certain cases directed the customs authorities to ensure that the importers got a complete waiver of the demurrage charges in cases where their goods were detained on account of an action taken by the said authorities which was subsequently withdrawn.

6. We have heard learned counsel for the parties, examined the record with their assistance, and considered the case law relied upon by them. We first consider the decision of this Court relied upon by both sides, i.e., Aftab Ahmed Saeed's case (supra). The petitioners in that case imported certain goods which were detained by the customs authorities. After departmental and other proceedings, the goods were ultimately released. However, during this period, the goods remained lying at port with the Karachi Port Trust, and the latter refused to allow the goods to be removed unless the storage charges that had accumulated in respect thereof were paid. The importers contended that since the goods had been detained through no fault of theirs, they were entitled to a waiver of the storage charges, and in this connection they placed reliance on the tariff rates notified by KPT itself. They submitted that their case came within Note (6) thereof, in terms of which, inter alia, if the goods could not be cleared through no fault of the importer, the free period could be extended by KPT. Counsel for KPT however contended that the matter came within Note (8) which provided that where a detention certificate was issued by the customs authorities, the tariff would be chargeable but at a reduced rate. This Court concluded that since Note (8) was more specific and clearly covered the facts of the case, it was applicable and storage charges were payable, but at the reduced rate as specified in the said note. It was however, further held that since the goods had been detained on account of the customs authorities, it was the Federal Government which was liable to pay the charges, and if the petitioners had to pay the charges in order to obtain release of their goods, they would be entitled to recover the amount paid by them to KPT from the Federal Government through appropriate proceedings. The other decision of this Court, reported at. NLR 1991 Civil 372 (supra), also involved consideration of the KPT tariff and application of Note (8) (referred to therein as "By Law No 8"). It was held, at pg. 375, that: "The detention certificate dated 20-10-1981 clearly states that the delay has occurred due to appeal in Central Board of Revenue which is fully borne out from the record. We are, therefore, of the view that petitioner was entitled to the exclusion of the period mentioned in the detention certificate and pay for this period in accordance with By Law No. 8".

7. In the Lone Traders and the Super Metals cases (supra), the Lahore High Court followed the decision of this Court in Aftab Ahmed Saeed's case (supra) and held that the Railway authorities could only claim storage charges at the minimum rate. In the Adam Holding case, the question related to the claim of surcharge by the customs authorities themselves (as opposed to the port or terminal operator), and the facts of this case were therefore somewhat different from those at hand. It is not necessary to examine the decisions of the. Lahore High Court in detail.

8. Insofar as Aftab Ahmed Saeed's case (supra) is concerned, it turned on the proper interpretation and application of KPT's notified tariff rate (enforced in the exercise of statutory powers vesting in KPT), which specifically provided that in case a detention certificate was issued, the storage charges would remain payable, albeit at a reduced rate. Nothing was shown to us that would establish that the respondent No.4 enjoyed similar powers or had notified a similar tariff rate. The position in Aftab Ahmed Saeed's case (supra) was therefore somewhat different from the situation before us. One thing however- is clear, and can be regarded as settled- law. If the customs authorities issue a delay and detention certificate (which they are duty bound to do should the circumstances so warrant), then any liability to pay demurrage or storage charges for the period to which the certificate relates is ultimately that of the Federal Government. In our view, a resolution of the question before us requires the proper interpretation and application of the aforementioned sub-paragraph (iv) added to paragraph (a) of Rule 556, and we accordingly turn to an examination of this provision.

9. Before examining sub-paragraph (iv), it will be appropriate to briefly examine the meaning and scope of demurrage. This term has a well-understood meaning in maritime law. However, we are not concerned with that usage of the term. As relevant here, demurrage refers to the amount payable to the port authorities by the importer or consignee for any delay in removing the imported goods from port after the expiry of the initial period of "free days", i.e., the period for which no demurrage is charged. The rationale for the charge, and the reason why essentially punitive rates are charged, is that space at the port is at a premium. Cargo is constantly being moved, and space is required as goods are continuously off-loaded and on-loaded ships. This is especially true for container terminals, which are essentially in business round the clock: indeed, Rule 554(1) requires that the "terminal shall be operative on 24 hours X 7 days X 365 days basis". If an importer is allowed to leave his goods at port (either free or at nominal rates), he not only impedes the free flow of cargo but also (in effect) gets rental space for his goods at little or no cost. The purpose of demurrage is therefore not so much to compensate the port (or terminal operator) for providing cargo-handling services (for which there is a separate charge) but rather to provide a strong disincentive to the importer or consignee to delay-removal of the goods. It is for this reason why it is normally no defense for the importer to claim that the delay was through no fault of his. The situation however, is different if the goods are detained by the customs authorities. Here, there is a supervening event brought about by an agency exercising statutory powers. The goods cannot be removed by command of State. If the goods are subsequently released by the authorities, the question is which party is to bear the burden of the goods having remained lying at port. Both the importer and the port (or terminal operator) are innocent parties in such a situation. As held in Aftab Ahmed Saeed's case (supra) the ultimate burden must be borne by the State itself. The question however is, what is that burden to be, who (if anyone) is to initially bear it, and how may it be recovered from the State: Subparagraph (iv) of paragraph (a) of Rule 556 must be examined in the foregoing context.

10. Sub-paragraph (iv) casts a duty on the terminal operator ("shall") to "honour" the delay and detention certificate, and grant a "concession" from port handling or demurrage charges in case any "hardship" is caused by such charges. We agree with learned counsel for the respondent No. 4 that the word "concession" does not require that a complete waiver be given; the amount of the concession would depend on the ""hardship" that is or may be caused. While the exact determination of the amount would depend on the facts and circumstances of each case a safe rule of thumb would be that any amount in excess of the value of the goods is bound to cause hardship. Therefore, the concession must at least be such as reduces the demurrage or port charges to no more than the value of the goods. Whether it should be even more would depend on the actual facts of the case (and there is of course, nothing preventing the port (or terminal operator) from granting a complete waiver. The more immediate question is, who is to bear the initial burden of the (reduced) charges. Should it be borne by the importer/consignee, requiring him to make payment to the port (or terminal operator) and then seek to recover it from the State? Or should it be "borne" by the port (or terminal operator)? As noted above, both are innocent parties, and it is never easy to decide which of two innocent parties should bear such a burden. After much thought, we are of the view that it should initially be ""borne" by the port (or terminal operator). The reason is that if the importer/consignee is to bear the burden, he is immediately required to be out of pocket of the amount involved. There is, in other words, an immediate financial burden on him. On the other hand, the port (or terminal operator) is not put in such a position if it to "bear" the initial burden (and this is why the word "borne" is put within quotes when used with reference to the latter). It is not faced with an immediate outflow of funds. What the port (or terminal operator) really requires is that it be recompensed for the interference in its usage of port space caused by the delayed removal of the goods. And that is something that need not be addressed immediately, and can be adequately compensated subsequently by the State since, as noted above, the burden must ultimately fall on the latter.

11. In our view therefore, the correct approach is as follows. Firstly, the terminal operator must (subject to the other conditions of sub-paragraph (iv) being fulfilled) determine the amount of concession to which the importer/consignee is entitled. This must be so as to remove any "hardship" caused on account of the demurrage or port charges, which must, at the very least, be reduced to no more than the value of the goods. Once the amount of concession has been determined, the imported goods are to be released forthwith without payment by the importer/consignee of the reduced amount (but subject of course, to the payment of all other dues and charges payable). The terminal operator must then refer the matter to the Collector of Customs concerned, who must satisfy himself that the terminal operator has correctly given the concession in terms of sub-paragraph (iv). Once the amount is certified by the Collector (and he must complete this exercise expeditiously, normally taking no more than 30 days in this regard), the terminal operator would be entitled to its payment by the Federal Government or its adjustment against any fiscal demand upon the terminal operator under any federal law. If the terminal operator is dissatisfied with the amount certified by the Collector, it can seek appropriate relief from the Federal Board of Revenue under section 195 of the Act, and/or pursue any other remedies as may be available to it under law.

12. Applying the foregoing principles to the present petition, the respondent No. 4 is directed to recompute the amount of concession to which the petitioner is entitled in terms as stated above. This exercise must be completed within 7 days of this judgment. On 24-9-2010, an interim order was made by this Court for the freezing of the demurrage charges. The petitioner must pay demurrage charges (computed at the normal rate) for the period from 2-8-2009 to 23-9-2010 (both days inclusive). Once the amount is recomputed, and the petitioner has paid the amount of demurrage charges for the aforesaid period (and any other applicable dues and charges), his goods are to be released forthwith. Insofar as the recomputed amount is concerned, the respondent No.4 shall file its claim with the respondent No. 2, who must satisfy himself with regard thereto in terms as stated above within 30 days of the filing of the claim. Once the claim has been certified by the respondent No.2, the respondent No.4 (subject to its rights with regard to the certification as stated above) shall be entitled to payment of the amount by the Federal Government or its adjustment against any fiscal demand upon it under any federal law.

13. This petition stands disposed of in the above terms.

M.H./A-3/KOrder accordingly.