Customs Port Custodians Liable For Duty On Pilfered Goods: Supreme Court

In a crucial tax ruling protecting state revenue, the Supreme Court has ruled that custom authorities possess full jurisdiction to approve Major Port Trusts as statutory custodians under customs law, making them unconditionally liable to pay import duties on goods pilfered from their custody.

A bench comprising Justice B.V. Nagarathna and Justice Manmohan delivered the verdict in an appeal challenging a Division Bench judgment of the Bombay High Court. The High Court had earlier quashed a 2000 notification issued by the Customs Department, holding that the Major Port Trust's custody flows independently under port laws and cannot be subjected to approval or duty demands under customs legislation.

Court's Rationale on Interplay Between Customs Act and Major Port Trusts Act

The court emphasized that while Section 45(1) of the Customs Act, 1962 contains a saving clause regarding other laws, Section 45(3) was specifically introduced with an overriding non obstante clause to prevent loss of revenue resulting from pilferage.

The Court, in its reasoning, observed:
"The liability under Section 45(3) of the Customs Act, 1962, 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... 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."

Addressing the statutory harmony between the two regimes, the Supreme Court highlighted:
"The non obstante clause in sub-section (3) of Section 45 of the Customs Act, 1962 provides that it shall operate “notwithstanding anything contained in any law for the time being in force.” The expression necessarily includes the Customs Act and the Major Port Trusts Act, notwithstanding the saving clause contained in sub-section (1) of Section 45... Thus, where the conditions of sub-section (3) are satisfied, the liability created thereunder would prevail notwithstanding the provisions of the Major Port Trusts Act as the latter does not provide for any tax liability in the event of pilferage of goods."

On the validity of the notification issued by the Commissioner of Customs (Import), the Court held:

"The Court has following directions:

"a. The Notification dated 11.10.2000 issued by the Commissioner of Customs (Import) in exercise of the powers conferred under Section 45(1) of the Customs Act is valid.

b. The impugned judgment dated 28.07.2009 to the extent it held otherwise and quashed the said Notification is, therefore, set aside.

c. The challenge to the quashing of the show cause-cum-demand notices dated 18.06.1996, 02.04.1997, 28.04.1997, and 24.05.2000, pertaining to period prior to the date of the Notification dated 11.10.2000, is not pressed by appellants’ counsel, since no liability under Section 45(3) could have arisen in the absence of an approval under Section 45(1). Accordingly, the impugned judgment to the extent of quashing the show cause-cum-demand notices prior to 11.10.2000 is not interfered with.""

Background

The Assistant Commissioner of Customs issued multiple show cause-cum-demand notices between 1996 and 2000 to the Board of Trustees of the Port of Bombay seeking customs duty under Section 45(3) of the Customs Act, 1962 for goods pilfered while in its custody. Subsequently, on October 11, 2000, a notification was issued approving the Mumbai Port Trust as the approved custodian under Section 45(1).

When the Port Trust challenged the order-in-original confirming the duty demands, the Commissioner of Customs (Appeals) dismissed the appeal. Thereafter, the Port Trust filed a writ petition before the Bombay High Court. The High Court set aside the duty demands and quashed the notification dated October 11, 2000, holding it ultra vires Section 45(1) of the Customs Act, 1962 on the ground that the custody of major port trusts was derived from the Major Port Trusts Act, 1963 and was outside the Customs Commissioner's approval powers. The Union of India appealed this decision before the Supreme Court.

Analyzing the statutory scheme, the Supreme Court referred to judicial principles on non obstante clauses as enunciated in Aswini Kumar Ghosh vs. Arabinda Bose ( "AIR 1952 SC 369": 1952 CaseBase(SC) 17) and Dominion of India vs. Shrinbai A. Irani ( "AIR 1954 SC 596": 1954 CaseBase(SC) 99), explaining that such clauses set aside inconsistent existing provisions. The apex court noted that Section 13 of the Customs Act, 1962 exempts importers from duty on pilfered goods. Consequently, Section 45(3) was enacted to ensure the revenue does not suffer loss.

Since the appellants conceded that demands for the pre-notification period prior to October 11, 2000, could not be sustained due to lack of prior statutory approval under Section 45(1), the Supreme Court left the quashing of those specific pre-2000 demand notices untouched while upholding the notification and setting aside the High Court's judgment to that extent.

Case Details:
Case No.: Civil Appeal No.4477 of 2010
Neutral Citation: 2026 INSC 919
Case Title: Union of India & Others v. The Board of Trustees of the Port of Bombay
Appearances:
For the Petitioner(s): Sri V. Chandrashekara Bharati, Advocate
For the Respondent(s): Sri Rakesh Khanna, Senior Advocate

Source: 2026 CaseBase(SC) 828