Most of us, by now, are used to irrational behaviour from the government. But the Indian Oil case really takes the cake as it exposes not just how the government functions, but also involves some pretty curious judgements, often contradictory, from the country's courts.

But, I'm running ahead of my story which begins around April 1994, and involves the state-owned Indian Oil Corporation.

In a nutshell, between April 1994 and March 1999, IOC imported crude oil at the Calcutta port and, since the port was clogged, ended up paying demurrage (or waiting charges) of Rs 170 crore (Rs 1.70 billion) to the shippers who brought its crude in their tankers.

Normally, you'd think the government would find some way to compensate IOC for paying this extra money for no fault of its own, but what happened was the opposite.

The customs commissioner of Calcutta decided that demurrage was also part of the freight cost, and so IOC had to pay an import duty on this as well.

This, he calculated, worked out to Rs 975.98 crore (Rs 9.759 billion) -- in addition, a penalty of an equal amount was to be paid, and a 20 per cent interest to be paid in case of any delay!

Now while this sounds like double jeopardy -- first you pay for someone else's (the port's) delays, and then you pay an additional penalty for it in the form of import duty -- the Calcutta commissioner didn't just come out with this seemingly absurd logic out of the top of his head.

He had, it appears, some court judgements to support his case! For one, he used a judgement of the Court in the Eicher Tractors case to argue that demurrage was a component of freight charges.

Two, in the case of Panchmahal Steel, the Central Excise and Gold Appellate Tribunal (CEGAT) had itself ruled that demurrage charges were to be included in the assessable value of imported goods.

And while IOC argued that there was a very clear circular from the Central Board of Excise and Customs (CBEC), on August 14, 1991, which said that import duties were not to be paid on demurrage, the commissioner argued that the CEGAT Panchmahal judgement had been delivered on December 14, 1996, and so overrode the 1991 circular.

Anyway, when IOC filed an appeal before the CEGAT in 2000, the CEGAT dismissed the commissioner's penalty, and the government then went in appeal against this order in the Supreme Court.

Imagine the irony, a government officer goes against a government ruling to penalise a company, loses the case, then the government backs the same officer's appeal!

By the way, a very large chunk of cases in the courts are really of one government department or the other, usually appealing a case they've just lost. Well, luckily for IOC, a two-judge bench of the Supreme Court ruled in its favour just a couple of weeks ago.

But that's the easy part of the story. The case gets even curiouser. While delivering her judgement in favour of IOC, Justice Ruma Pal discussed various judgements that were cited during the course of arguments made before the Court.

While doing so, Justice Pal cited two other judgements (Dhiren Chemicals and Simplex Castings) made by the Supreme Court. Both said the same thing: never mind what the courts have ruled, the circulars of the CBEC were what the taxman had to follow! Since this sounds like I'm making it up, here's the exact quote from one of the judgements: "We need to make it clear that, regardless of the interpretation that we have placed on the said phrase, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue."

But, what if the CBEC comes out with a perverse ruling that is successfully challenged in the Supreme Court? Does it mean that the CBEC can carry on, indeed is honour bound to carry on, implementing the perverse ruling even after the Court's verdict?

It would certainly appear so, and that's why Justice Pal's fellow judge P Venkatarama Reddi, though in agreement with her dismissal of the  government's plea in the IOC matter, issued a separate judgement as well.

As he put it, "I am unable to reconcile myself to the view that even after the highest Court settles the law on the subject, the view expressed by the Central Board on the same point of law should still hold the field until and unless it is revoked."

Even after the legal position is settled by the highest court, Justice Reddi goes on to say, "should the customs authority continue to give primacy to the circular of the Board?" Justice Reddi then cites various rulings to demonstrate that very often "a common thread does not run through the decisions of this Court. . . the observations in some of the decisions need to be reconciled or explained."

You can say that again, my lord!

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