Supreme Court Upholds Notification Making Mumbai Port Trust Liable for Pilfered Goods

In a significant ruling that clarifies the interplay between the Customs Act, 1962 and the Major Port Trusts Act, 1963, the Supreme Court on Tuesday upheld a notification issued by the Commissioner of Customs (Import) that designated the Mumbai Port Trust (MbPT) as a 'custodian' under Section 45(1) of the Customs Act, making it liable to pay customs duty on imported goods pilfered while in its custody.

A bench of Justice B.V. Nagarathna and Justice Manmohan set aside the Bombay High Court's judgment that had quashed the notification as without jurisdiction. However, the court did not interfere with the High Court's quashing of demand notices issued before the notification's date, as the appellant fairly conceded that no liability could arise under Section 45(3) prior to the notification.

The Dispute at Bombay Port

The dispute originated from show-cause-cum-demand notices issued between 1996 and 2000 by the Assistant Commissioner of Customs, seeking recovery of customs duty from the Board of Trustees of the Port of Bombay (now Mumbai Port Trust) under Section 45(3) of the Customs Act. These notices pertained to instances of pilferage of imported goods that occurred while the goods were in the Port Trust's custody.

The Port Trust challenged these demands before the Commissioner of Customs (Appeals), who upheld them. Subsequently, a writ petition was filed before the Bombay High Court, which allowed the petition by holding that the Commissioner lacked jurisdiction to issue the notification under Section 45(1) because the custody of goods was already governed by the Major Port Trusts Act. The High Court declared the notification dated October 11, 2000 to be ultra vires and set aside the duty demands.

Saving Clause vs. Non Obstante Clause

The core legal question revolved around the interpretation of Section 45 of the Customs Act , particularly the interplay between the saving clause in sub-section (1) – "save as otherwise provided in any law for the time being in force" – and the non obstante clause in sub-section (3) – "notwithstanding anything contained in any law for the time being in force" .

The Union of India argued that the saving clause does not preclude the Commissioner from approving the Port Trust as a custodian simply because its custody is derived from another statute. They contended that sub-section (3) was introduced specifically to ensure that customs duty on pilfered goods does not go unrealised, and its non obstante clause gives it overriding effect.

The Port Trust, represented by Senior Counsel Rakesh Khanna, argued that since its custody flows from the Major Port Trusts Act, the saving clause in Section 45(1) prevents the Commissioner from approving it under the Customs Act. They further contended that the liability for loss of goods is already covered under Sections 42 and 43 of the Major Port Trusts Act, which subject the Board to bailee's responsibility under the Indian Contract Act.

Distinguishing Bailee Liability from Statutory Duty

The Supreme Court rejected the Port Trust's arguments by drawing a clear distinction between the two liabilities. The Court observed that the liability under Sections 42 and 43 of the Major Port Trusts Act is a conditional civil liability, arising only when the Board takes charge of goods and issues a receipt, and is in the nature of a bailee's responsibility towards the owner of goods.

In contrast, the liability under Section 45 (3) of the Customs Act is an absolute statutory liability owed to the revenue. The Court noted, "The source, nature and object of the two liabilities are, clearly, distinct. While the Board may remain liable as a bailee to compensate the owner for the loss occasioned by its negligence, Section 45 (3) independently fastens upon the approved custodian the obligation to make good the customs duty which, by virtue of Section 13 , cannot be recovered from the importer."

The Court further emphasised that the Major Port Trusts Act does not specifically deal with pilferage; it addresses loss, destruction or deterioration of goods. Pilferage is specifically dealt with under the Customs Act, and Section 13 absolves the importer from duty on pilfered goods. Therefore, the saving clause in Section 45(1) does not apply, and the non obstante clause in Section 45(3) operates to override any other law.

Key Observations from the Bench

The judgment, authored by Justice Nagarathna, made several pertinent observations:

  • "Since the importer of the goods is not liable to pay the duty leviable on pilfered goods except when such goods are restored to the importer, the obligation is cast on the person approved by the Principal Commissioner of Customs or Commissioner of Customs as notified under sub-section (1) of Section 45 of the Customs Act to pay the duty on such pilfered goods."

  • "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 liability contemplated under Section 43 of the Major Port Trusts Act is fundamentally different from the liability created under Section 45 (3) of the Customs Act . The former regulates the civil responsibility of the Board, as a bailee , towards the owner of the goods... The liability under Section 45 (3) of the Customs Act , on the other hand, is not one of indemnification or compensation to the owner of the goods. It is a statutory liability to pay customs duty to the Revenue in respect of imported goods which have been pilfered while in the custody of the approved custodian ."

The Final Verdict

The Supreme Court held that the notification dated October 11, 2000 issued by the Commissioner of Customs (Import) approving the Mumbai Port Trust as a custodian under Section 45(1) of the Customs Act is valid. The Bombay High Court's judgment quashing the notification was set aside. However, the demands for the period prior to the notification were not pressed by the Union, and the High Court's order quashing those demands was not interfered with.

The ruling has significant implications for major ports across India. It establishes that port trusts, despite being statutory bodies under the Major Port Trusts Act, can be designated as custodians under the Customs Act and held liable for customs duty on goods pilfered while in their custody. This ensures that the revenue does not suffer loss due to pilferage occurring within customs areas managed by port authorities.

The appeal was disposed of with no order as to costs.