Supreme Court Sets Aside HC Direction Making Customs Dept. Liable For Demurrage In Austin Engineering Dispute

The Supreme Court has recently set aside a Madras High Court ruling that had required the Customs Department to bear demurrage charges in a dispute with Austin Engineering Co. Ltd. These charges are levied by port authorities when imported goods remain in storage beyond the permitted period.

The court made it clear that such liability cannot be placed on customs unless there is clear evidence of mala fides or a gross abuse of power.

A bench of Justice Aravind Kumar and Justice Prasanna B. Varale noted that the law on this issue is already settled. Delay in clearance, by itself, is not enough to shift the burden of demurrage onto customs authorities.

The court pointed out that both sides had pursued remedies available under the law during the valuation dispute. In that sense, blame could not be pinned entirely on either the importer or the department. At the same time, the importer had not taken practical steps such as seeking provisional release of the goods. That omission weighed against it.

The court then turned to what should be done with the goods, which have been lying in storage since 1997. It allowed the Port Trust to auction them and use the proceeds to recover demurrage. Any remaining dues are to be waived in accordance with law, and no further demand can be raised against either the importer or the Customs Department.

Subsequently, the court said, “Hence, taking into consideration the interest of the Port Trust Authorities also into consideration, we deem it proper to permit the Port Trust Authorities to auction the goods stored in its premises which is in its effective control either by way of scrap or otherwise and as they (Port Authorities) deem fit and appropriate the proceeds of such auction towards the demurrages and there shall be no further demand raised by the Port Trust Authorities against the importer or Department of Customs and in terms of Section 53 of the Act Port Trust shall exempt or waive the remaining demurrages which has to be fastened on the importer by passing appropriate orders in that regard.”

The case traces back to 1997, when Austin Engineering Co. Ltd. imported steel tubes from Germany. Customs authorities enhanced the declared value, setting off a series of appeals and remands. The dispute eventually ended in 1999 with acceptance of the importer's declared value.

After that, the company obtained a detention certificate from customs stating that the delay was not attributable to it. It also approached the Chennai Port Trust seeking waiver of demurrage. The request was rejected, which led to further proceedings before the High Court.

A Single Judge of the High Court had split the liability. The Customs Department was held responsible for one part of the period, while the importer was left to bear the rest. A Division Bench later directed the Customs Department to bear the demurrage charges entirely, leading the department to challenge the ruling before the Supreme Court.

The Supreme Court has now overturned that decision. It held that customs cannot be saddled with demurrage liability in the absence of mala fides, especially where the importer did not take steps to secure release of the goods.

For Petitioner: Additional Solicitor General Raghvendra P. Shankar, Advocate-on-Record Gurmeet Singh Makker, Advocate V.C. Bharathi, Advocate Nisha Bagchi, Advocate Piyush Beriwal

For Respondent: Advocate Hari Radhakrishnan, Advocate Deepika Nandakumar, Advocate Mohamed Uvaisullah, Advocate Kanimozhi J., Advocate-on-Record V. N. Raghupathy, Advocate-on-Record S. Thananjayan