CESTAT Kolkata Sets Aside Cost Recovery Charges Demand

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 25.06.2026

CESTAT Kolkata Sets Aside Cost Recovery Charges Demand

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Kolkata delivered a pivotal judgment in the case of M/s. Flemingo Dutyfree Shop Private Limited versus the Commissioner of Customs (Airport & Administration), Kolkata. The dispute centered on whether customs supervision charges for a special bonded warehouse at Kolkata Airport should be levied on a Cost Recovery Charges (CRC) basis or a Merchant Over Time (MOT) basis.

Background

Flemingo Dutyfree Shop Pvt. Ltd., a company operating duty-free shops at various Indian airports, was granted a special bonded warehouse license at Kolkata Airport under Section 58A(1) of the Customs Act, 1962. As per the license and the Special Warehouse Licensing Regulations, 2016, the company was required to pay for customs supervision services—either on a CRC or MOT basis, depending on the frequency and duration of officer deployment.

The Dispute

From July 2016 to December 2018, Flemingo paid MOT charges, as their operations required customs officer presence only once per day for less than two hours. However, customs authorities issued a show cause notice demanding Rs. 1,36,77,319 as CRC for the same period, arguing that the services warranted CRC instead of MOT.

Flemingo’s Arguments

1. Regulatory Compliance: MOT charges apply when officer services are required once a day for a short duration; CRC is only for full-day or multiple-shift requirements.
2. Historical Practice: Since 2010, Flemingo had paid MOT charges at Kolkata Airport, which customs accepted without objection.
3. No Dedicated Officer: There was no evidence of customs officers being posted exclusively for Flemingo’s warehouse, a key CRC requirement.
4. Precedent from Goa: A similar CRC demand at Dabolim International Airport, Goa, had been dropped by customs authorities.

Customs Authorities’ Position

The department argued that the frequency and duration of officer deployment justified CRC, referencing the number of days services were availed and the warehouse’s distance from the customs house.

Tribunal’s Analysis and Findings

CESTAT Kolkata examined the facts, regulations, and both parties’ submissions, making several key observations:

1. Applicability of MOT vs. CRC: MOT charges are appropriate when officer services are required once a day for a limited period. CRC applies only if officers are needed for the entire day, for multiple shifts, or if a dedicated officer is posted.
2. No Evidence of Full-Day Service: There was no proof that customs officers worked for more than six hours per day or were posted exclusively for Flemingo’s warehouse.
3. Calculation Method Flawed: The demand was based on the number of days, not the actual hours of service, which contradicted regulatory guidelines.
4. Precedent from Goa Upheld: The Tribunal noted that a similar demand had been dropped in Goa, reinforcing the need for consistency and judicial discipline.

Final Order

The CESTAT Kolkata set aside the CRC demand and allowed Flemingo’s appeal, holding that only MOT charges were applicable for the period in question. The Tribunal emphasized that:

• Demands must be based on actual service hours, not just the number of days.
• CRC is only justified when officers are posted for the entire day or exclusively for the warehouse.
• Regulatory guidelines and precedents must be strictly followed.

Impact and Significance

This decision clarifies the application of MOT and CRC charges for customs supervision in special bonded warehouses. It ensures fair and transparent application of the law, providing valuable guidance for duty-free operators and customs authorities alike.

Source: CESTAT Kolkata

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