Customs Supervision at Special Warehouses: CRC vs MOT Charges Clarified
Background of the Dispute
The matter in Flemingo Dutyfree Shop Private Limited Vs Commissioner of Customs came before CESTAT Kolkata as an appeal against Order-in-Original No. KOL/CUS/A&A/ Pr. COMMISSIONER/ADJN/15/2024 dated 18.04.2024. The Principal Commissioner of Customs (Airport & ACC), Kolkata had confirmed a demand of ₹1,36,77,319 plus interest towards Cost Recovery Charges (CRC) for the period July 2016 to December 2018.
The demand arose in connection with customs supervision rendered at a special bonded warehouse licensed under section 58A(1) of the Customs Act, 1962 at Netaji Subhas Chandra Bose International Airport, Kolkata. The licence mandated that the assessee (M/s. Flemingo Dutyfree Shop Private Limited) must engage customs officers either:
- on Merchant Over Time (MOT) basis, or
- on Cost Recovery Charges (CRC) basis.
The central issue was whether, on the facts, supervision charges had to be recovered under CRC or MOT for the warehouse operations during the relevant period.
Regulatory Framework for Supervision Charges
Special Warehouse Licensing Regulations and CBEC Circular
The obligation to bear customs supervision costs flows from Regulation 3(e) of the Special Warehouse Licensing Regulations, 2016. This provision requires the licensee of a special warehouse to bear the cost of customs supervision as per guidelines issued by the Board.
Paragraph 11 of CBEC Circular No. 32/2016-Cus dated 13.07.2016 (read with circular no. 20/2016) lays down the governing principles. For ease of understanding, the Circular:
- differentiates between MOT and CRC; and
- links the applicable mode to frequency and duration of customs officers’ deployment, as well as the distance from the customs office.
Key Conditions Under Paragraph 11 of Circular No. 32/2016-Cus
The Tribunal reproduced paragraph 11 of the Circular, which provides, in substance, that:
The licensee must specify:
- how frequently the warehouse will operate (per day / per week); and
- expected business hours.
The Principal Commissioner / Commissioner must:
- analyse the projected operational requirement; and
- consider the distance between the warehouse and the customs office;
to decide whether MOT or CRC should apply.
As per the illustrative guidance in paragraph 11:
- If the warehouse operations require supervision once a week, charges are to be levied on MOT basis.
- If the services of the customs officer are required once a day, MOT may still be applied.
- CRC becomes applicable only where:
- The warehouse is situated such that, due to distance or nature/duration of work, the customs officer would remain away from his office for the entire day or the better part of the day; or
- The licensee requires services of a customs officer more than once in a day; or
- The licensee requires round-the-clock (24x7) customs supervision, necessitating deployment of suitable officers specifically on that basis.
In essence, the decisive factor is not merely that services are rendered on many days, but whether the nature, frequency and duration of supervision justifies treating the officer as effectively blocked for the full day or its better part.
Facts and Course of Events
Licence Conditions and Operations
The assessee, a private limited company operating duty free outlets at several ports and airports, was granted Special Licence No. 89/2016 dated 14.07.2016 to run a special bonded warehouse at the integrated terminal at NSCBI Airport, Kolkata.
Condition 14 of the licence expressly stipulated:
“The licensee shall take the services of Custom Officer either on Cost Recovery basis or MOT fees basis.”
In routine business operations, the assessee had to remove duty free goods (liquor, tobacco, perfumes, watches, electronics, food items and other permitted articles) from the bonded warehouse to its duty free shops for sale. For such movements and warehouse operations, customs supervision was required.
Mode of Payment Chosen and Followed
From July 2016 to December 2018, the assessee paid supervision charges on MOT basis to the Superintendent of Customs (Bond), NSCBI Airport. According to the assessee:
- Customs Preventive Officers were called once per day,
- for a period not exceeding two hours per visit, and
- MOT fees were calculated and paid accordingly.
These payments were routinely accepted by the customs administration for years without any recorded objection.