Telangana High Court
Continental Warehousing Corporation ... vs The Commissioner, Customs And Central ... on 21 August, 2025
Author: P.Sam Koshy
Bench: P.Sam Koshy
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE NARSING RAO NANDIKONDA
WRIT PETITION NO.5364 OF 2006
ORDER:(per Hon'ble Sri Justice Narsing Rao Nandikonda) This Writ Petition, under Article 226 of the Constitution of India, is filed seeking the following relief:
"to issue an order or direction more one in the nature of writ of mandamus a declaring that the duties on the above goods or imported goods would be payable to the respondents 1 2 and3 only on their being sold and since on account of the damage that has been caused due to the floods in August 2000 the goods stored with the petitioner company do not attract customs duties and hence their value is limited to the extent of their landing cost alone and thereby direct the respondents 1 2 and3 to consider the case of the petitioner company for abatement of customs duties as provided under section 22(I)© and section 22(2) of the Customs Act 1962 and consequently issue a certificate of remissions in alternate;
b) declaring that the customs duties on any goods imported from abroad would attract customs duties the moment they land in the country and thereby direct the 4the respondent to settle the entire claim as made by the petitioners inclusive of value of the goods damaged and customs duties payable on them and consequently settle the claim of the petitioners since the value of the goods including the customs duties is well within the extent of the insurance cover purchased by the petitioner company..."
2. Heard Ms. K.Sinduja Shankar, learned counsel representing Sri Sivaraju Srinivas, learned counsel for the petitioner; Sri A.Radha Krishna, learned Senior Standing Counsel for CBIC, appearing for respondent Nos.1 to 3 and Sri S.Chakrapani, learned Standing Counsel for respondent No.4-Insurance Company.
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3. Brief facts of the case are that the petitioner is a Company incorporated under the provisions of the Companies Act, 1956 having its operations in the States of Tamil Nadu, Karnataka and Andhra Pradesh to provide warehousing facilities to its clients to facilitate storage of various goods belonging to them in the capacity of custodian of the Customs Public Bonded Warehousing. The petitioner's company had set up a Customs Bonded Warehouse at NDR Estate, 7-20, Moosapet, Hyderabad and it has been duly appointed as the Custodian of the Customs Public Bonded Warehouse by respondent No.2 under Section 62 (I) of the Customs Act, 1962 (for short, 'the Act, 1962') vide proceedings No.3/10/Bonds/1/1/97-ICD dated 30.07.1997.
(i) It is stated that it is mandatory for any custodian so appointed under Customs Public Bonded Warehouse.The entire goods in the warehouse of the company shall be insured against fire, floods, theft or any other natural calamities. Accordingly, the petitioner company had also taken insurance as per the licence conditions and had duly insured against these natural calamities and the same is 3 PSK,J&NNR,J wp_5364_2006 being renewed periodically. The company is duly insured upto an amount of Rs.4.00 crores as stipulated in the guidelines of the licence conditions issued by respondent No.2.
(ii) It is also the case of the petitioner-company that as on the date of floods, the company has been catering to six different clients who had availed the warehousing facilities provided by the petitioner-company to the extent of Rs.94,18,702/-.The said goods valued at Rs.43,22,965/-
towards the customs duty due to the Government of India Thus, the total value of the goods including the Customs Duty as on the date of the floods was at Rs.1,37,41,667/- and the company has to receive an amount of Rs.2,96,422/- towards rent. Thus making the total loss caused on account of the floods comes to about Rs.1,40,38,089/-.
(iii) It is further stated that after unprecedented floods due to incessant rain on the night between 23rd and 24th August, 2000, the entire warehouse belonging to the petitioner-company was inundated with water about 5' to 6'. At that point of time, lubricating oils, chemicals, ice breaking 4 PSK,J&NNR,J wp_5364_2006 machines and electrical material belonging to various clients were available in the warehouse and the entire goods have been damaged beyond recovery.
(iv) Accordingly, the company had filed a claim petition for an amount of Rs.1,40,38,089/- before respondent No.4. For the material stored in the warehouse, the clients have to be paid customs duty for the said goods. It further stated that respondent No.4 on receiving claim had immediately initiated the process of survey throughout the branch, zonal and regional offices and 2nd survey was conducted by M/s.S.P.Goyel and Company and Squadron Leader Kapil Mohan.
(v) It is further stated that the survey report of respondent No.4 found that there was no dispute or discrepancy with respect to the value of the goods so damaged as per claim viz., Rs.94,89,702/-. However, respondent No.4 had taken a stand that the value of customs duty coming to the tune of Rs.43,22,965/- was not liable to be paid by respondent No.4 to the offices of respondent Nos.1 to 3 on the ground that the insurance policy covers only the 5 PSK,J&NNR,J wp_5364_2006 value of the goods damages in natural calamities and it would not act as an indemnity bond to respondent Nos.1 and It is further stated that the custodian of the goods were responsible to the extent of goods that are been damaged and the same amount has to be recovered from respondent Nos.1 and 2 to whom respondent No.4 would have paid the amounts as per the conditions of the policy subscribed by them. Further, as the officers of respondent No.1 to 3 have taken a stand that the insurance policy purchased by them from respondent No.4 covers the total inherent value of the goods i.e., market value of the goods the relevant taxes and duties, respondent No.4 ought to pay the entire amount inclusive of custom duties due to the customs office.
(vi) It is the further case of the petitioner-company that though more than five years have been passed respondent Nos.1 to 3, being customs officials and respondent No.4 being the insurance company is not willing to pay the value of the customs duties. It is pertinent to mention that almost all the six clients of the company, whose goods were damaged due to the said floods have taken up various proceedings before various Court and other judicial 6 PSK,J&NNR,J wp_5364_2006 forums in an attempt to recover the value of their goods and the petitioner has also been arrayed as a party respondent.
(vii) It is also stated that under the provisions of the Customs Act, 1962, it is mandatory that any custodian takes the insurance cover as per Clause-13 of the licence that is issued by the Customs Department. However, it is deemed that till the time of the goods sold, the Customs Department has a lien over the said goods and no company or person who has been the importer of the said goods can release the goods from the Bonded Warehouses without payment of the customs duties. Thus, it is clear that any goods which are imported would become liable to customs and duties.
(viii) It is the case of the petitioner that as per Chapter-5 Section 22 (I) (C) and Section 22 (2) of the Customs Act 1962 specifically provides as to the liability towards customs duties in the event any good are damaged while in the warehouses under the custody and control of the customs authorities. The said Section provides for abatement/remission of the duties since the goods are totally damaged and not in a position to be sold for market 7 PSK,J&NNR,J wp_5364_2006 consumption and a request was made by the petitioner seeking abatement/remission under the above provisions and to waive the customs duties which are due by to them. However the request for issuance of the remission certificate made by various clients of the company has been refused by the Government of India, Ministry of Finance and Company Affairs videits letter dated 12th December, 2002 with the view that the question of granting remission of duty in respect of damaged bonded goods does not arise, as it is covered under the insurance policy for the bonded goods prescribed by the department to safeguard the government revenue in the event of non-clearance of the goods.
(ix) It is also the case of the petitioner that the company has been making strenuous efforts to resolve the issue relating to payment of duties between the various customs authorities and the office of the respondent No.4. The petitioner company has made several representations and the last being the one dated 31.03.2004 to respondent No.4 requesting them to make good the entire loss caused due to the floods in the month of August, 2000. Respondent No.4 gave reply taking a stand that no liability is existing 8 PSK,J&NNR,J wp_5364_2006 under the said policy as the goods had not attracted customs duty at the time of the said floods.
(x) However, respondent No.4 through its Divisional Office located at Ongole issued a reminder dated 30th December, 2005, threatening the petitioner to accept the insurance settlement amount as a final settlement without adding the customs duty, failing which respondent No.4 shall close the claim as 'no claim.'
(xi) Further, the petitioner made a representation, dated 05.01.2006 before respondent No.1 to consider the request for abatement of the customs duties and pass appropriate orders on the final reminder by respondent No.4. However, no response has been forthcoming from respondent or respondent Nos.2 and 3 so far.
(xii) It is further stated that if respondent No. 4 closes the claim of the petitioner as 'no claim', the petitioner company will be put to great irreparable loss.
(xiii) Further, under the policy of the Government of India, any goods would attract duties and become dutiable the moment they enter out 'country's border.' However, 9 PSK,J&NNR,J wp_5364_2006 Section 22 (I) (C) and Section 22 (2) specifically provide for the duty leviable if the goods suffer damages while warehoused. Therefore, the action of respondent Nos.1 to 3 in refusing the abatement and remission of the duties on the goods damaged in floods is illegal and unconstitutional. The condition which is relevant to the present dispute is extracted as under:
5. Condition 13:The licence shall execute a floating insurance policy to cover the value and duty involved on the goods stored and mortgaged the same in favour of Commissioner of Customs and Central Excise, Hyderabad-II Commissionerate, Hyderabad.
4. Learned counsel for the petitioner contended that the petitioner-company had set up a Customs Bonded He submits that when the company has been functioning as custodian of CPBW, the city of Hyderabad had suffered an incident of heavy rains and floods on 23.08.2000 severe damage has been caused to the warehouse goods belonging to various clients of the company. As per the licence conditions, it is mandatory for any custodian so appointed and officiating as a custodian of the CPBW, the entire goods in the warehouse by the company shall be insured against 10 PSK,J&NNR,J wp_5364_2006 fire, floods, theft or any other natural calamities and accordingly, the petitioner and six different clients had availed the warehouse facilities provided by the company to an extent of Rs. 94,18,702/-.
5. He also further contended that due to incessant rain, the entire warehouse belonging to the petitioner company got inundated with 5' to 6' of water and the entire goods were damaged beyond recovery and they made claim for Rs.1,40,38,089/- with the respondent No.4. Accordingly a survey was conducted by respondent No.4 and 2nd survey was conducted by M/s S.P.Goel & Co. & Sqdn Ldr Kapil Mohan Mohan has also submitted a report, wherein 4th respondent has found that there was no dispute or discrepancy with respect to the value of the goods so damaged as per their claim and that respondent No.4 vide letter dated 15thNovember 2005 has refused to pay the Customs duty portion of the claim as not admissible as there imported goods were not released from the bonded warehouse.
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6. Since the goods were damaged in the bonded warehouse itself and the petitioner was advised to avail the facility of abatement/remission of custom duty under the provisions of Section 22(1) (c) and 23(1) of the Customs Act 1962. Learned counsel for the petitioner further contended that respondent No.2 addressed a letter dated,19.06.2001 to the petitioner stating that the petitioner-company filed a policy No.1999/3300141(R) Proposal, dated 17.08.1999 for a sum of Rs.4,00,00,000/- which covered the period from 18.08.1999 0.01 A.M. to 17.08.2000 Midnight, and receipt towards payment of premium of the policy for further period from 18.08.2000 0.01 A.M. The policy has not been filed by the petitioner till date. Further, as per conditions of licence Notification issued to the petitioner under S/10/Bonds/1/197-ICD, dated 30.07.1999, the petitioner is required to execute a floating insurance policy to cover the value and duty involved on the goods stored.
7. In support of his contentions, he also placed reliance on the judgment of the Hon'ble Supreme Court in 12 PSK,J&NNR,J wp_5364_2006 New India Assurance Company Limited and others v. M/s. Mudit Roadways 1 "54. The insurer anchored their stand on Section 15 (1)(b) of the Customs Act stating that duty rates for warehoused goods are determined when a bill of entry for home consumption is filed, and duty assessment (Section 17) only occurs when a bill of entry (Section 46) is presented. In this case, no bills of entry were filed, and no assessed goods were lost in the fire. According to the insurer, since the taxable event never happened, there is no customs duty liability. The counsel also cited Section 23 of the Customs Act, which required the Assistant Commissioner of Customs to remit duty for lost or destroyed goods, before cleararnce.
55. However, the counsel for the claimant rightly contended that the privileges enshrined in Section 22 and 23 of the Customs Act, pertaining to abetment and remission, extend exclusively to those classified as 'importers' of insured goods. The crux of the argument revolves around the claimant's distinct position, as the claimant neither assumed the role of importer nor owner; instead, they function solely as a custodian entrusted with the goods on behalf of their clients.
56. The upshot of the above discussion is that the reports suggesting electrical short circuit as the trigger for the warehouse fire, is found to fit in with the attendant circumstances. As a corollary, the fire at the warehouse cannot be attributable to any negligent act of the insured. Moreover, the fire is found to have occurred within the insured warehouse and the appellant's plea to the contrary, is not believable. Therefore, it is a case wrongful repudiation by the appellants. No legal infirmity is thus seen with the impugned decision favouring the rspondent's insurance claim.
57. In the realm of risk and uncertainty, individuals and organizations seek solace in the bastion of insurance - a covenant forged on the bedrock of trust. Trust serves as the cornerstone, forming the essence of the insurer-insured relationship. The fundamental principle is that insurance is governed by the doctrine 1 2023 INSC 1022 13 PSK,J&NNR,J wp_5364_2006 of uberrimaefidei-there must be complete good faith on the part of the insured. 2 The heart & soul of an insurance contract lies in the protection it accords to those who wish to be insured by it. This understanding encapsulates the foundational belief that insurance accords protection & indemnification, preserving the sanctity of trust within its clauses. Effectively, the insurer assumes a fiduciary duty to act in good faith and honour their commitment. This responsibility becomes particularly pronounced when the insured, in their actions, have not been negligent. In light of the vital role that trust plays in insurance contracts, it is important to ensure that the insurer adequately fulfils the duty that has been cast on it, by virtue of such a covenant.
58. Accordingly, the appeal of the Insurance Company deserves to be dismissed. But even while dismissing the appeal, to avoid any confusion, the customs duty component of the claim should, in the given event, be discharged directly to the Customs Department. All other legal consequences will follow on upholding the claim of the insured against the appellants. It is ordered accordingly."
8. Learned Standing Counsel for respondents submitted that that it was decided by the Central Board of Excise and Customs that the remission of duty covered in the floods effected goods cannot be given keeping in view the floating insurance policy covering the value and duty of the goods being floated by the Custodian, which is a condition for issuing licence to the private bonded warehouse. He further submitted that it is not possible for the revenue to 2 Mac Gillivray on Insurrance Law-12th Ed., John Birds, Sweet and Maxwell (2012) 14 PSK,J&NNR,J wp_5364_2006 accord any remission of duty and thus the 4th respondent ought to have paid the insurance claim of the petitioner covering customs duty also and the 4th respondent cannot deny paying the customs duty from the insurance policy. He further submitted that the 4th respondent ought to have considered the conditions laid down by the revenue to the custodian i.e. the petitioner before issue of licence for the private bonded warehouse. As the insurance policy for the damaged goods was alive as on the date of floods and when the value of the goods along with the duty is already covered under the said policy, the question of granting of the remission does not arise.
9. Having heard the counsel for the petitioner and learned Standing Counsel for the respondents the points that arise for consideration in this writ petition are whether (i) whether the petitioner-company is entitled for remission of customs duties, as provided under Section 22 (I)(C) and Section 22 (2) of the Customs Act, 1962? And (ii) Whether the petitioner is entitled for issue of certificate of remissions? 15
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10. In view of the submissions made by both the counsel, for the sake of convenience let us see the relevant provisions for remission.
11. 22(2):Abatement of duty on damaged or deteriorated goods--(1) Where it is shown to the satisfaction of the 4[Assistant Commissioner of Customs or Deputy Commissioner of Customs]--
(a) that any imported goods had been damaged or had deteriorated at any time before or during the unloading of the goods in India; or
(b) that any imported goods, other than warehoused goods, had been damaged at any time after the unloading thereof in India but before their examination under section 17, on account of any accident not due to any wilful act, negligence or default of the importer, his employee or agent; or
1. Ins. by Act 8 of 2011, s. 40 (w.e.f. 8-4-2011).
2. Subs. by Act 32 of 1994, s. 60, for section 20 (w.e.f. 13-5- 1994).
3. The provisos and the Explanations omitted by Act 22 of 1995, s. 53 (w.e.f. 26-5-1995).
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4. Subs. by Act 27 of 1999, s. 100, for ―Assistant Commissioner of Customs‖ (w.e.f. 11-5-1999). 26(c) that any warehoused goods had been damaged at any time before clearance for home consumption on account of any accident not due to any wilful act, negligence or default of the owner,his employee or agent, such goods shall be chargeable to duty in accordance with the provisions of sub-section(2). (2) The duty to be charged on the goods referred to in sub-section (1) shall bear the same proportion to the duty chargeable on the goods before the damage or deterioration which the value of the damaged or deteriorated goods bears to the value of the goods before the damage or deterioration.
(3) For the purposes of this section, the value of damaged or deteriorated goods may be ascertainedby either of the following methods at the option of the owner:--
(a) the value of such goods may be ascertained by the proper officer, or
(b) such goods may be sold by the proper officer by public auction or by tender, or with theconsent of the owner in any other manner, and the gross sale proceeds shall be deemed to be the valueof such goods.
23. Remission of duty on lost, destroyed or abandoned goods.--(1) 1[Without prejudice to theprovisions of section 13, where it is shown] to the satisfaction of the 2[Assistant Commissioner ofCustoms or Deputy Commissioner of Customs] that any 17 PSK,J&NNR,J wp_5364_2006 imported goods have been lost 3[(otherwise thanas a result of pilferage)] or destroyed, at any time before clearance for home consumption, the 2[AssistantCommissioner of Customs or Deputy Commissioner of Customs] shall remit the duty on such goods. 4[(2) The owner of any imported goods may, at any time before an order for clearance of goods forhome consumption under section 47 or an order for permitting the deposit of goods in a warehouse under Section 60 has been made, relinquish his title to the goods and thereupon he shall not be liable to pay theduty thereon;] 5[Provided that the owner of any such imported goods shall not be allowed to relinquish his title tosuch goods regarding which an offence appears to have been committed under this Act or any other lawfor the time being in force.]
12. The further contention of the respondent No.4 is that no liability is existing under the said policy, as the goods had not attracted under the Customs Duty at the time of the said floods and that the contention of the respondent No.4 that they are ready to accept the insurance settlement amount as a final settlement without adding the customs duty and threatened the petitioner to accept the same, failing which they would close the claim as 'no claim' which made the petitioner to approach this Court
13. It is pertinent to mention here that admittedly the petitioner is a custodian of the Customs Public Bonded 18 PSK,J&NNR,J wp_5364_2006 Warehouse and it is also not in dispute that due to the heavy rains and floods the warehouse was inundated and due to which there was a severe damage caused to the goods in the warehouse belonging to various clients of the petitioner. It is also not in dispute that the petitioner is a licence holder issued by the respondents 1 to 3. It is also not in dispute that as per the Condition 13 of the licence, the petitioner had obtained insurance from the respondent No.4 and according to the petitioner the goods and the customs duty to be paid by respondent No.4.
14. On perusal of the policy dated 18.08.1999, the Additional perils covered are that Earthquake, declaration clause attached here to storm cyclone, typhoon, tempest, hurricane, tornado flood and inundation.As per the schedule of the policy which show that the Risk descriptions Godown/Warehouse only a sum insured is Rs, 4,00,00,000. It also shows that premium is also paid for earthquake, Storm/flood etc. It appears from Clause No.13 of the licence granted to the petitioner that the licence shall execute a floating insurance policy to cover the value and duty involved on the goods stored and to mortgage. But it is not clear from 19 PSK,J&NNR,J wp_5364_2006 the insurance policy that it covers the duty also. The 2nd surveyor also gave a finding to that effect. In view of the same, it appears that the insurance policy was only in respect of the goods does not appear to be for the duty also.
15. In view of the same, this bench is of the opinion that if the insurance company has insured the goods with the Customs Duty,the petitioner shall approach the respondent No.4 seeking the insured amount to the extent of the value of the goods and the duty payable and remit the same back to the customs department. In the absence of the same, the petitioner has already submitted application for remittance before the Government of India but the claim of the petitioner for remission was rejected on the ground that the petitioner has already insured the goods before warehousing with the customs duty, as such the petitioner has to approach respondent No.4 and seek refund of the same and pay it to respondents 1 to 3.
16. From the perusal of the above letter the rejections were made in view of the existence of the insurance even for the duty. It appears from the insurance policy there is no 20 PSK,J&NNR,J wp_5364_2006 insurance for the duty to be payable thereby making the respondent no.4 company liable to pay the duty. Even as per letter dated 19.06.2001,it is noticed that the petitioner filed policy No.1999/3300141 ® Proposal, dated 17.08.1999 for a sum of Rs.4,00,00,000/- which covered the period from 18.08.1999 0.01 A.M. to 17.08.2000 Midnight, and receipt towards payment of premium of the policy for further period from 18.08.2000 0.01 A.M . The policy has not been filed by the petitioner till date. Further, as per conditions of licence Notification issued to the petitioner under S/10/Bonds/1/1/97-ICD, dated 30.07.1999, the petitioner is required to execute a floating insurance policy to cover the value and duty involved on the goods stored.
17. The said letter would go to show that the petitioner has not insured for the duty, as such the question of the payment of duty by the insurance company does not arise. Regarding abatement or remission of duty,the counsel for the petitioner rightly contended that the privileges enshrined in Sections 22 and 23 of the Customs Act pertaining to abetment and remission, extend exclusively to those classified as 'importers' of insured goods. The crux of 21 PSK,J&NNR,J wp_5364_2006 the argument revolves around the petitioner's distinct position, as the petitioner neither assumed the role of importer nor owner instead, it function solely as a custodian entrusted with the goods on behalf of their clients.To avoid any confusion, the customs duty component of the claim should, in the given event, be discharged directly to the Customs Department. All other legal consequences will follow on upholding the claim of the insured against the petitioner.
18. Considering the principle laid down by the Hon'ble Supreme Court, this bench is of the opinion that the petitioner is neither the importer nor the owner of the goods instead, they function solely as a custodian entrusted with the goods on behalf of their clients which is not in dispute. Hence the said judgment squarely applies to the present set of fac ts, as such the petitioner shall discharge the duty directly to the customs department. As regards claim of the insured amount,Respondent No.4 is bound to pay the same as per the terms of the policy.
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19. For the said reasons, the Writ Petition is partly allowed directing the petitioner to pay the customs duty directly to the department respondent 1 to 3 and the respondent No.4 is directed to pay the claim of the petitioner as per the policy terms and conditions within a period of 30 days from the date of receipt of a copy of this order. There shall be no order as to costs.
Miscellaneous petitions, if any, pending in dis writ petition, shall stand closed.
____________________________ JUSTICE P.SAM KOSHY ___________________________________________ JUSTICE NARSING RAO NANDIKONDA Date: 21.08.2025 YVL