Madras High Court Calls CESTAT Order 'Very Cavalier', Restores ₹90 Lakh Customs Penalty On Steamer Agent

The Madras High Court has recently restored a ₹90.15 lakh customs penalty imposed on MSC Agency India Pvt. Ltd. It found that the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) had dealt with the matter in a “very cavalier fashion”, despite the fact that the actual weight of goods unloaded from 150 containers was only 12.5% on average of the declared weight.

“We find that the Tribunal failed to note that admittedly, 150 containers were shipped through the same shipping line and in all cases, the actual weight of goods unloaded was 12.5% [on an average] of the declared weight of the goods as per the Import General Manifest [IGM] and the Bills of Lading issued by the shipping line. ,” a Division Bench of Justice G. Jayachandran and Justice N. Mala observed.

The case arose after the Docks Intelligence Unit (DIU) received information from Container Freight Stations about short landing in steel scrap consignments. An August 6, 2010, report from ICBC CFS recorded a major discrepancy in the weight of containers declared to contain shredded steel scrap.

An examination of goods covered by 12 Bills of Lading found that the containers largely contained broken roof tiles. The actual weight was only 87.5% of the weight declared in the Bills of Lading.

The DIU found that across 150 containers, the declared goods were present only in negligible quantities. The containers largely contained broken roof tiles instead. The declared cargo comprised 3,429.809 metric tonnes of shredded steel scrap and 168.24 metric tonnes of heavy melting steel scrap.

The Commissioner of Customs ordered the confiscation of the goods and imposed a penalty of ₹90,15,924 on MSC Agency India under Section 116 of the Customs Act. The Commissioner found that the steamer agent had failed to make a true declaration in the IGM. It had also failed to satisfactorily account for the shortage of the declared goods.

An Import General Manifest (IGM) is the cargo declaration filed with Customs before a vessel arrives. It contains details of the imported goods and their declared quantity. Under Section 30 of the Customs Act, the person filing the manifest must also subscribe to a declaration regarding the truth of its contents.

Section 116 provides for a penalty when the declared cargo is not properly accounted for. The Supreme Court has held that such liability can extend beyond the person-in-charge of the vessel to an agent or representative acting on his behalf and accepted by Customs for dealing with the cargo.

CESTAT had earlier set aside the penalty. It found that the Revenue had not shown that the shipping agent was aware of the misdeclaration, particularly since the containers had arrived with their seals intact.

It also found that the misdeclaration had occurred before the goods were placed on board and before custody was taken by the shipping agent. The tribunal, therefore, treated the matter as a short shipment rather than a short landing and relied on the Bombay High Court's decision in Shaw Wallace & Co. Ltd. v. Assistant Collector of Customs.

The Revenue challenged the tribunal's decision before the high court. It relied on the Supreme Court's judgment in British Airways PLC v. Union of India, contending that a steamer agent could be liable as the agent or representative of the person-in-charge of the vessel.

The high court accepted the Revenue's contention.

The Bench noted that MSC Agency India had lodged the IGM. It had also subscribed to a declaration regarding the truth of its contents. Customs authorities had accepted the company as an agent of the Master of the vessel for dealing with the cargo.

The court relied on the Supreme Court's decision in British Airways. It held that liability under Section 116 can extend to an agent appointed under the Customs Act or a person representing the person-in-charge who is accepted by Customs for dealing with cargo on his behalf.

The Bench also rejected the shipping agent's reliance on clauses in the Bills of Lading. The clauses stated that the particulars had been furnished by the shipper and that the goods were unchecked by the carrier. The court observed that such contractual stipulations could not override the provisions of the Customs Act.

The court found that the Commissioner had properly appreciated the material on record and correctly applied the law. It criticised the tribunal for overturning the Commissioner's order without properly examining the facts.

The Bench further observed that the actual weight unloaded from all 150 containers was only 12.5% on average of the declared weight. Such a huge difference, it observed, could not have gone unnoticed had the shipping line been diligent.

Since MSC Agency India had filed the IGM, acted as the agent of the Master before Customs and failed to satisfactorily explain the deficiency, the court held that it could not escape the penalty under Section 116.

The high court allowed the Revenue's appeal. It set aside the tribunal's October 23, 2013 order and restored the Commissioner's November 27, 2012 order imposing the penalty.

MSC Agency India was directed to comply with the Commissioner's order within 12 weeks from the date of receipt of a copy of the judgment.

For Appellant: Umesh Rao K, Umesh Rao K Senior Standing Counsel 

For Respondent: P.Giridharan