The Supreme Court on Tuesday upheld the Commissioner of Customs' order classifying the Mumbai Port Trust as a 'custodian' under the Customs Act for the purpose of paying duty on pilfered goods. The bench comprising Justice BV Nagarathna and Justice Manmohan set aside the portion of the Bombay High Court's judgment which had declared the Customs notification designating the Mumbai Port Trust as a custodian under Section 45(1) of the Customs Act to be illegal.
The Court observed that the importer of goods is not liable to pay duty leviable on pilfered goods unless such goods are restored to the importer. Consequently, the obligation to pay such duty falls on the person approved by the Principal Commissioner of Customs or Commissioner of Customs under sub-section (1) of Section 45 of the Customs Act.
Disagreeing with the Bombay High Court's reasoning, the Supreme Court held that the Commissioner of Customs (Import) was fully justified in issuing the notification dated 11 October 2000 approving the Mumbai Port Trust as the custodian under Section 45(1) of the Customs Act. The High Court had erred in concluding that the Commissioner lacked jurisdiction to issue the notification and in quashing it.
The dispute originated from show-cause-cum-demand notices issued by Customs authorities to the Port Trust between 1996 and 2000, seeking recovery of customs duty under Section 45(3) of the Customs Act in respect of imported goods allegedly pilfered while in its custody. The Mumbai Port Trust challenged these demands before the Bombay High Court, which held that Section 45(1) permitted approval only of a person otherwise responsible for the custody of imported goods and that the provision could not override the statutory framework of the Major Port Trusts Act, 1963.
The Union government challenged this decision before the Supreme Court. The Court rejected the Port Trust's argument that imposing liability for pilfered goods under the Customs Act created an additional liability not intended under that Act, noting that the loss of goods is already addressed under the Major Port Trusts Act.
Clarifying the interplay between the two statutes, the Court observed that if the loss of goods is simple loss, destruction, or deterioration, the provisions of the Major Port Trusts Act would apply, given the saving clause under sub-section (1) of Section 45 of the Customs Act. However, pilferage is not specifically dealt with under the Major Port Trusts Act and is addressed exclusively under the Customs Act, where duty is imposed under sub-section (3) of Section 45.
The Court further explained that in cases of pilferage, the saving clause under sub-section (1) of Section 45 does not apply, and the non-obstante clause under sub-section (3) is invoked as a legislative device to address such circumstances. Therefore, any loss of goods other than pilferage is not subject to customs duty payment under Section 45 of the Customs Act. But if the loss is due to pilferage, then under sub-section (3) read with sub-section (1) of Section 45, duty is payable by the person approved under sub-section (1) of the Customs Act.
The Court concluded that since the notification dated 11 October 2000 was issued precisely for the collection of customs duty in respect of pilfered goods as stipulated under sub-section (3) of Section 45, it could not be faulted merely because the custody of the goods is otherwise governed by the Major Port Trusts Act, 1963. The notification was therefore upheld as valid.