Supreme Court Holds Port Trust Liable For Customs Duty On Pilfered Goods After Custodian Approval

The Supreme Court on 25 August upheld the validity of a notification approving the Mumbai Port Trust as a custodian under Section 45(1) of the Customs Act, 1962, empowers the Commissioner of Customs to approve a person or entity as custodian of imported goods pending their clearance.

A Bench of Justices B.V. Nagarathna and Manmohan held that the Commissioner of Customs was justified in approving the Trust as a custodian, and set aside the Bombay High Court's finding that the Commissioner lacked jurisdiction to issue the notification. The judges observed:

“...under the Customs Act, the expression loss or destruction of goods is treated as being distinct from pilferage, the latter being specifically governed by Section 13 thereof... If it is a case of loss of goods simpliciter then the provisions of the Major Port Trusts Act would apply having regard to the saving clause under sub-section (1) of Section 45 of the Act. But, as pilferage is not specifically dealt with under the provisions of the Major Port Trusts Act and is dealt with only under the Customs Act and duty is imposed under sub-section (3) of Section 45 of the said Act, then, the savings clause under sub-section (1) of Section 45 would not apply.”

The dispute arose from show cause-cum-demand notices issued to the Mumbai Port Trust seeking customs duty on goods pilfered while in its custody between 1996 and 2000. The Customs authorities subsequently confirmed the demands.

The Bombay High Court had allowed the Port Trust's writ petition and quashed the demands as well as the 11 October 2000 notification. It held that the Port Trust's custody of the goods flowed from the Major Port Trusts Act, 1963 and that the Commissioner of Customs could not separately approve it as a custodian under Section 45(1) of the Customs Act.

The Supreme Court, however, held that the Commissioner's power under Section 45(1) was not excluded merely because the Mumbai Port Trust was already entrusted with custody of goods under the Major Port Trusts Act. It distinguished between loss or destruction of goods and pilferage. It noted that while the Major Port Trusts Act addresses the Port Trust's responsibility for loss, destruction or deterioration of goods, pilferage is specifically dealt with under the Customs Act.

Further, the Division Bench held that, in cases of pilferage, Section 45(3) of the Customs Act creates a statutory liability on the person approved as custodian under Section 45(1) to pay customs duty on the pilfered goods.

It explained that the Port Trust's liability under the Major Port Trusts Act and its liability under Section 45(3) of the Customs Act operate differently. While the former is in the nature of a bailee's civil liability towards the owner of the goods, the latter creates a statutory liability towards the Revenue for payment of customs duty on pilfered goods.

The Court also noted that Section 45(3) begins with a non-obstante clause, giving overriding effect to the liability created under that provision. The Major Port Trusts Act, it said, does not provide for a tax liability in cases of pilferage. It stated that approval as a custodian under Section 45(1) is a precondition for attracting the liability under Section 45(3). The Commissioner of Customs was therefore justified in issuing the 11 October 2000 notification approving the Mumbai Port Trust as custodian.

However, the Court did not restore the customs demands in the present case. It noted that the pilferage covered by the demands had occurred before 11 October 2000, when the Mumbai Port Trust had not yet been approved as a custodian under Section 45(1).

Therefore, the Bench held that no liability under Section 45(3) could arise for the period preceding the approval. The Union of India also did not press its challenge against the quashing of the pre-notification demands.

Accordingly, the Supreme Court upheld the 11 October 2000 notification approving the Mumbai Port Trust as custodian while leaving undisturbed the quashing of the customs demands relating to the period before the notification. It disposed of the appeal with no order as to costs.

Appearances: N. Venkataraman, ASG, Gurmeet Singh Makker, AOR, Airjit Prasad, Senior Advocate, Raman Yadav, V.C. Bharathi, S.A. Haseeb and Padmesh Mishra for the appellants. Rakesh Khanna, Senior Advocate, Abhishek Puri, Sahil Grewal, Surabhi Gupta, Reeta Dewan Puri and P.N. Puri, AOR for the respondent.