The Supreme Court has held that a Port Trust approved as a custodian under Section 45(1) of the Customs Act, 1962 can be made statutorily liable to pay customs duty on imported goods pilfered while in its custody under Section 45(3), notwithstanding the fact that its custody of goods is also governed by the Major Port Trusts Act, 1963. 

However, the bench of  Justice B.V. Nagarathna and Justice Manmohan clarified that such liability cannot be imposed retrospectively for a period during which the Port Trust had not yet been approved as a custodian under Section 45(1).

The dispute concerned imported goods that were allegedly pilfered while in the custody of the Mumbai Port Trust during the period from 1996 to 2000. The Customs Department issued show-cause-cum-demand notices dated June 18, 1996, April 2, 1997, April 28, 1997 and May 24, 2000, seeking recovery of customs duty under Section 45(3) of the Customs Act. The adjudicating authorities subsequently confirmed the demands through orders passed between 1997 and 2001.

Buy Now: JurisHour Ultimate Legal Research Combo – 4 Premium E-Magazines at an Unbeatable Price

During the pendency of these proceedings, the Commissioner of Customs (Import), Mumbai, issued a Notification dated October 11, 2000 under Section 45(1) of the Customs Act approving the Mumbai Port Trust as the custodian of the notified customs area and making it responsible for the statutory duties and responsibilities under Section 45(2) and Section 45(3).

The Port Trust challenged the duty demands before the Commissioner of Customs (Appeals), but its appeals were dismissed on July 30, 2002. It thereafter approached the Bombay High Court. The High Court held that the Commissioner of Customs could not approve the Port Trust as a custodian under Section 45(1) because its custody of imported goods flowed from the Major Port Trusts Act. It consequently quashed both the customs duty orders and the October 11, 2000 notification.

Before the Supreme Court, the central issue was whether the Commissioner of Customs had jurisdiction under Section 45(1) to approve the Port Trust as custodian even though its custody of goods was governed by the Major Port Trusts Act.

The Customs Department argued that the saving words in Section 45(1)—“save as otherwise provided in any law for the time being in force”—did not prevent the Commissioner from approving a person as custodian where another statute also dealt with custody. According to the Union of India, once a person was approved under Section 45(1), Section 45(3) imposed liability for customs duty on pilfered goods notwithstanding anything contained in another law.

The Port Trust, on the other hand, contended that its custody originated under the Major Port Trusts Act and that the Customs Commissioner therefore had no power to independently approve it as custodian under Section 45(1). It further argued that the October 11, 2000 notification could not retrospectively cover pilferage that had occurred before the notification was issued.

The Supreme Court examined the statutory scheme of the Customs Act, particularly Sections 13, 45(1) and 45(3).

Section 13 provides that where imported goods are pilfered after unloading but before an order for clearance for home consumption or deposit in a warehouse, the importer is not liable to pay customs duty on those goods, except where the goods are subsequently restored to the importer. The Court noted that the statutory scheme consequently shifts the obligation, in appropriate circumstances, to the custodian approved under Section 45(1).

Section 45(3), inserted with effect from May 26, 1995, specifically provides that where imported goods are pilfered after unloading in a customs area while in the custody of a person referred to in Section 45(1), that person is liable to pay customs duty on such goods. The provision begins with a non obstante clause, giving it an overriding effect.

The Court observed that the approval contemplated under Section 45(1) is an essential precondition for fastening liability under Section 45(3). Therefore, the person sought to be made liable must have been approved as custodian under Section 45(1).

The Supreme Court examined Sections 42 and 43 of the Major Port Trusts Act. Section 42 permits the Port Board to undertake services relating to receiving, removing, shifting, transporting, storing and delivering goods brought within its premises. Where the Board takes charge of goods at the request of the owner, it issues a receipt and assumes responsibilities concerning those goods.

Section 43 makes the Board’s responsibility for loss, destruction or deterioration of goods, in specified circumstances, analogous to that of a bailee under Sections 151, 152 and 161 of the Indian Contract Act, 1872. The Supreme Court noted that this responsibility is subject to statutory conditions, including the issuance of the prescribed receipt and the applicable time limits.

The Court therefore drew an important distinction between the liability under the Major Port Trusts Act and the liability under Section 45(3) of the Customs Act.

According to the Supreme Court, the liability under the Major Port Trusts Act is essentially a civil and compensatory liability of the Board as a bailee towards the owner of the goods. In contrast, Section 45(3) creates a statutory liability to pay customs duty to the Revenue when imported goods are pilfered while in the custody of an approved custodian.

The Supreme Court placed considerable emphasis on the legislative distinction between the saving clause in Section 45(1) and the non obstante clause in Section 45(3).

The Court explained that Section 45(1) contains a saving clause under which another law can govern custody where it makes an applicable provision. However, Section 45(3) was deliberately introduced with the words “notwithstanding anything contained in any law for the time being in force.” This legislative device was intended to ensure that customs duty on pilfered imported goods does not remain unrealised merely because the importer is protected from liability under Section 13.

The Court held that the non obstante clause in Section 45(3) extends to the Customs Act itself as well as the Major Port Trusts Act. Thus, once the statutory conditions under Section 45(3) are satisfied, the liability to pay customs duty prevails over the provisions of the Major Port Trusts Act, which does not itself impose a tax liability for pilferage.

The Court further noted that the two enactments operate in different fields. The Major Port Trusts Act deals with the Board’s civil responsibility for goods, whereas Section 45(3) of the Customs Act protects government revenue by ensuring that customs duty is recovered from the approved custodian when the importer is absolved because of pilferage.

The Supreme Court also rejected the proposition that Section 45(1) could apply only to an individual or private custodian. It observed that the expression “person” can include a juristic person, including a statutory body such as a Port Trust.

Therefore, the fact that the Mumbai Port Trust was a statutory body did not, by itself, prevent the Commissioner of Customs from approving it as a custodian under Section 45(1).

The Court ultimately found that the October 11, 2000 notification had been issued precisely to address the collection of customs duty on pilfered goods under Section 45(3). It therefore could not be invalidated merely because the Port Trust’s custody of goods was also governed by the Major Port Trusts Act.

While the Supreme Court upheld the validity of the October 11, 2000 notification, it did not revive the earlier customs demands relating to pilferage that occurred before the notification.

The Union of India did not press its challenge to the quashing of the show-cause notices dated June 18, 1996, April 2, 1997, April 28, 1997 and May 24, 2000 because the Port Trust had not been approved as a custodian under Section 45(1) when those instances of pilferage occurred. The Supreme Court therefore left intact the Bombay High Court’s decision quashing those pre-notification demands.

This distinction is significant: the Court upheld the legal validity of the custodian notification prospectively, but did not permit Section 45(3) liability to be imposed for a period when the statutory approval under Section 45(1) was absent.

The Supreme Court accordingly held that the October 11, 2000 Notification issued by the Commissioner of Customs (Import) under Section 45(1) of the Customs Act approving the Mumbai Port Trust as custodian was valid. The Bombay High Court’s judgment, insofar as it quashed the notification, was set aside. The quashing of the show-cause-cum-demand notices relating to pilferage occurring before October 11, 2000 was not interfered with, since no liability under Section 45(3) could arise in the absence of approval under Section 45(1).

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: Allahabad High Court Dismisses Student’s Plea to Wear Headscarf with School Uniform