Madras High Court
United India Insurance Co. Ltd vs Mrs. Tanuja Thiagarajan on 27 November, 2017
Author: N. Sathish Kumar
Bench: N. Sathish Kumar
O.P.No.722 of 2018
THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on Delivered on
12~07~2021 22-07~2021
CORAM:
THE HONOURABLE MR.JUSTICE N. SATHISH KUMAR
O.P.No.722 of 2018
United India Insurance Co. Ltd.,
No.70, NSC Bose Road,
Chennai 600079. .. Petitioner/ 1st Respondent
.Vs.
1. Mrs. Tanuja Thiagarajan
Proprietrix
Blue Bay Logistics,
No.49/25, Thambu Chetty Street,
Chennai 600001.
2. The Commissioner of Customs – Sea Port
Customs House, Rajaji Salai,
Chennai 600001. .. Respondents 1 & 2 /
Claimants 1 & 2
3. Hetro Labs Ltd.,
4. Honour Lab Ltd.,
5. Cirex Pharmaceuticals Ltd.,
6. SPICA Laboratories Pvt. Ltd.,
7. Rakshith Drugs Pvt. Ltd.,
8. Chemi Pack (India) Ltd.,
R3 to R8 having office at
Cathedral Garden Road,
Nungambakkam, Chennai 600034. .. Respondents 3 to 8 /
Respondents 2 to 7
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https://www.mhc.tn.gov.in/judis/
O.P.No.722 of 2018
Prayer: Petition filed under Section 34 of the Arbitration and Conciliation Act,
1996 to set aside the Arbitration Award dated 27.11.2017 to the extent of amount
awarded together with interest in favour of the 2nd Respondent Commissioner of
Customs.
For Petitioner : Mr. M.B. Raghavan
For Respondents : Mr. P. Giridharan for R1
Mr.R. Sankaranarayanan ASG I
Assisted by Mr.V.Sundareswaran
Standing Counsel for R2
Mr. V. Ramesh for
Mr. R. Ashwanth for R3 to R8
ORDER
Challenge has been made in this Application in this petition to the Arbitral Award passed in favour of the 2nd Claimant/2nd Respondent herein. Though the Arbitral Tribunal passed an Award for a sum of Rs.10,89,30,418/- in favour of the 1st Claimant/1st Respondent herein, which has not been challenged by the Insurance Company. What is challenged in this petition is only to the Award passed in favour of the 2nd Claimant / 2nd Respondent herein to the tune of Rs.2,78,01,864/-.
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2. The brief facts leading to file this Petition is as follows:
2.a. The 1st Claimant is licensed public bonded warehouse. As per the license conditions, the 1st Claimant took out an insurance policy “Standard Fire and Special Perils Policy” with the 1st Respondent in the name of the “Commissioner of Customs, Sea Port, A/C the Blue Bay Logistics” for total insurance cover of Rs.120 Crores for the period from 01.03.2015 to 29.02.2016.
Clause VI of the policy covers the risks arising from storm, cyclone, typhoon, tampest, hurricane, tornado, floods and inundation etc., There were 47 consignments stored in the bonded warehouse in between 15.11.2015 to 01.12.2015. During this period due to heavy rainfall in Chennai on 15.11.2015 and 31.12.2015 the entire public bonded warehouse of the first claimant was flooded and inundated, thereby destroying the bonded goods. The value of the damaged consignments came to Rs.18,13,69,562.23/- including customs duty of Rs.4,14,40,093.73. However , the Surveyors of the 1st Respondent conducted the survey and quantified the insurance claim at Rs.8,83,26,640/-.
2.b. The 2nd Claimant was also directed to be added as a party in the Arbitral Proceedings. In nutshell, the 1st Claimant sought Award for Rs.20,70,49,950.41, the break up of the amounts as follows:
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1. Value of the cargo destroyed 13,99,29,468.50 1A. Debris removal R 8,46,000.00
2. Value of cargo salvaged (less) 1,11,00,000.00
----------------------
3. Total value of the cargo destroyed 12,96,76,568.50
4. Add Value of the Customs Duty on the destroyed cargo 4,14,40,093.73 Total value of cargo with Cutoms Duty 17,11,15,662.00 interest @ 18% PA on Rs.17,11,15,662/-
from 23.12.2015 till the date of filing the statement of claim i.e., 23.03.2017 3,59,34,288.91 Total 20,70,49,950.41
5. Interest @ 18% PA on Rs.17,11,15,662/-
from 23.12.2015 till the date of till the realisation of the payment in full.
2.c. The 2nd Claimant filed claim petition making cliam for Rs.4,14,40,093.73 being the customs duty payable on the imported warehouse cargo. Since some of the importers paid duty and some of the goods were salvaged, the claim was restricted to Rs.2,78,01,863.70 payable with interest at the rate of 18% from the dat of month of the survey report to the date of the payment. The Claim was made by the 2nd Claimant mainly on the basis of the Fire Insurance Policy taken by the first claimant in the name of the 2nd claimant. Page 4 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018
3. The Insurance Company/1st Respondent in the Arbitral proceedings though denies the liability, however, agreed to pay indemnity amount on the material damage as arrived at by it on th working done by it on the survey report submitted by its Surveyor. As for the second claimant's claim for payment of duty liability, it denied its liability on the ground that the policy does not cover the same and at any event, after the loss of the goods in the rains, in the face of the total destruction of the goods, there was no liability to be met by the Insurance Company under the policy.
4. Based on the both pleadings the learned Arbitrator framed the following issues:
a) Whether the respondent is liable to pay the first claimant the value of the cargo as claimed in the claim petition?
b) Whether the respondent is liable to pay the Customs Duty?
c) Whether the respondent can deny its liability for paying the Custom Duty in the terms of section 23 of the Customs Act, 1962?
d) Whether the respondent is liable to pay the interest as Page 5 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 prayed?
5. Learned Arbitrator after analysing all materials passed the Award as follows:
On the first claimant’s claim:
i) The first claimants is not entitled to the amount as stated in the claim petition however, the first respondent shall pay a sum of Rs. 10,89,30,418/- ( rupees Ten Crores eighty nine lakhs thirty thousand four hundred and eighteen only) it being the material value on the goods lost and the cost of the debris removal but excluding the bank charges and the value of the salvaged item apart from the 5% deduction made as per the policy conditions.
ii) Out of the said Sum Rs. 10,89,30,418/- ( rupees Ten Crores eighty nine lakhs thirty thousand four hundred and eighteen only) the first respondent shall issue draft or cheque as case may be in favour of the individual importers who are impleaded in the arbitration proceedings as Respondent 2 to 7 as per the statement given in the affidavit filed by them as payable to them towards the material loss. The total amount under this heads comes to Rs. 8,17,27,549( Eight crores seventy nine lakhs twenty seven thousand five hundred and forty nine only) Page 6 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018
iii) On the balance of the amount an material loss( Rs.10,89,30,418/- - Rs. 8,17,27,549/- = Rs. 2,72,02,869/-) there shall be a further deduction of a sum of Rs.8,46,094/- being the cost of debris removal. Thus the amount towards th material value payable to other importers will come to sum of Rs. 2,63,56,775/- ( Rupees two crores sixty three lakhs fifty six thousand seven hundred and seventy five only)( Rs. 2,72,02,869/- -
Rs.8,46,094/-) the same shall be paid to the first claimant for them to make the payment thereafter to other importers.
iv) The first claimant shall pay a sum of Rs. 53,04,890/- ( fifty three lakhs four thousand eight hundred and ninety only) to all the importers in proportion to the salvaged value worked out, it being the balance of the amount available with the first claimant on the sale of the salvaged items at Rs. 1,11,00,000- Rs.57,95,110= Rs. 53,04,890/-
v) The first respondent shall pay the cost of debris removal Rs. 8,46,094/- to the first claimant On the second claimants claim:
i) The respondent is liable to pay the second claiman the Page 7 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 customs duty liability on the bounded warehouse goods as per the policy despite their destruction.
ii) The respondent cannot deny their liability in terms of section 23 of the Customs Act, 1962
iii) As for the second claimant is concerned, out of the total claim of the duty of Rs. 4,14,40,094/-( four crores fourteen lakhs fourty thousand ninety four only), the statement give the payments details by the importers and the first claimant ( on the sale of the salvaged goods) of a sum of Rs.1,36,38,230.03/-. After giving credit to the same, the second claimant is entitled to the award of the sum of Rs.
2,78,018.64/-as prayed for in the claim petition filed by the second claimant.
The award thus passed in respect of the both claim petitions shall carry interest at the rate of 18% from the date of the award to the date of payment.
Challenge was made only with regard to the Award for a sum of Rs.2,78,01,864/- passed in favour of the 2nd Claimant with interest at the rate of 18%.
6. The main contention of the learned counsel for the Petitioner Mr.M.B. Raghavan is that the learned Arbitrator has passed the Award towards the payment Page 8 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 of customs duty, by misintrepeting of policy especially the meaning of the words “Sum Insured” it is his contention that without applying the mandate of Section 23(1) of the Customs Act, the learned Arbitrator holding that duty is payable on the goods destroyed is against the fundamental policy of India. It is his further contention that policy basically covers property i.e., bonded goods to pay the value of the property alone at the time of destruction. Though the sum insured including duty is not a guarantee, the policy being a contract of indemnity, the sum insured mainly represent the amount payable. Indemnity for loss is fundamental principle for Governing the policy and sum insured represents maximum amount of liability, but within the same the loss to be proved. Hence it is his contention that sum insured contemplates principle of Indemnity which is fundamental and underlining basis of the contract under Insurance. It is his further contention that once goods are destroyed no Duty shall be leviable as per Section 23(1) of the Customs Act. If the goods are destroyed at any time before physical clearance of the goods for home consumption, the duty shall not be levied. In the entire claim statement, it is the case of second claimant that the goods were completely destroyed due to rain, in fact, the Arbitrator also held that goods were destroyed due to rain. Having factually found that the goods were destroyed, the learned Page 9 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 Arbitrator omitted to consider the mandate of the Section 23 of the Customs Act. The learned Arbitrator, in fact, relied upon a judgment of the Apex Court, wherein the Apex Court has rendered judgment in a different context and not under the Customs Act. When the department themselves admitted that goods were destroyed, no duty can be levied under Section 23 of the Customs Act. The Arbitrator cannot be bound by any decision of the department which is contrary to Section 23 of the Customs Act. Hence it is submitted that the Award for a sum of Rs.2,78,01,864/- is against the public policy of Indian law.
7. In support of his contention he relied upon the following judgments:
1. D.C.M and another Vs. UOI and another [1995Supp.(3) SCC223]
2. C.C.,Bangalore Vs. Symphony Service Corporation India Pvt. [2011 SCC Online Kar 4326]
3. Prasan Brothers Vs. UOI [(2005) 3 GLR 2456]
4. Mount Shivalik Breweries Ltd. Vs. UOI [2003(68)DRJ 45 (DB)] Page 10 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018
5. Vindhya Telelinks Ltd, Vs. Bharat Sanchar Nigam Ltd, And Another [2003(68)DRJ50]
6. Next Fachine Creators Pvt. Ltd. Vs. The Commissioner of Customs [2006 ECR 369]
7. Commissioner of Central Excise and customs Vs. Welspun Terri Towels [ (2002)149 ELT 593]
8. Unated India Insurance Company Lts. Vs. Kantika Colour Lab and others [(2010) 6 SCC 449]
9. Export Credit Guarantee Corporation of India Ltd. Vs. Garg Sons International [(2014) 1 SCC 686]
8. The learned counsel appearing for the 2nd Respondent/Customs Department Mr. Thianeswaran submitted that the learned Arbitrator considered the entire aspect and there is no complete destruction and the goods were salvaged and sold. In such a view of the matter, there cannot be a total exemption from Customs Duty. Section 23 of the Act provides for remission of duty on lost, destroyed or abandoned goods. Whereas in this case the goods were not entirely destroyed. That is what a requisition for remission by some importers were rejected by the customs department under Section 23(2) of the Customs Act. Page 11 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 Above aspect has reached finality, no one has challenged the same. Therefore, the Insurance Company cannot avoid duty when the policy specifically covered the value which includes the duty payable. Therefore, submitted that the learned Arbitrator has considered the entire aspect and passed the Award which does not warrant any interference. Hence he prayed for dismissal.
9. Learned counsel for the 1st Respondent Mr.Giridharan supported the contention of Mr.R. Sankaranarayanan, ASG-I. Mr.R. Sankaranarayanan also advanced his argument as to the applicability of Section 23(1) of the Customs Act. It is his contention that Section 23(1) of the Customs Act states that those goods which are destroyed or lost for which no duty is leviable, upon the satisfaction of the Assistant or Deputy Commissioner of Customs. It is his further contention that Section 23(1) of the Customs Duty may be divided into 4 portions. (i) scenarios in which remission of duty is permissible i.e. when the goods are ‘lost’ or ‘destroyed’. (ii) the distinction made between the goods that are ‘lost’ and ‘pilferage’ (drawing reference to per Section 13). (iii) that the aforesaid scenarios have to be to the satisfaction of the Assistant or Deputy Commissioner of Customs. (iv) is on the incidence of duty, which stipulates that all the aforesaid Page 12 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 events have to be before the goods are cleared for home consumption. Whereas Section 13 of the Customs Act deals with duty on pilfered goods. Section 13 indicate that the importer will not be liable to pay duty on the goods that have been pilfered. However, such goods when restored, duty will be payable on the goods so restored. He further submitted that the right of the owner over the goods imported ceases to exist on the destruction or when the goods are lost, irretrievably. Whereas Section 23(2) states that the 'right' is voluntarily abandoned by the owner of the goods.
10. Learned ASG-I further submitted that Section 23(2) sets out the manner in which the importer can avail the benefits under Section 13. If goods are stolen but recovered, the importer may state that the goods were customized and cannot be delivered to the customer as the purpose for which it required no longer exists or that the goods have been impaired on the same being stolen and lost its marketability and request that he be excused from the payment of the duty. In other words, the importer would not be claiming the rights into the goods. Section 23(2) gives this right to the importer stipulating that in the event of the importer relinquishing his title to the goods, he need not pay the customs duty. He further Page 13 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 submitted that Relinquishment of title to goods means the importer loses all his rights in the property on the goods they are all called property rights. This position can be understood by reading section 18 to section 22 of the sale of goods act, and particularly section 18 and 19 of the Sale of Goods Act. These sections talk of transfer of property into goods. The word ‘property” in law means the interest, claim and rights into and upon a thing. Therefore, relinquishing title to goods presupposes existence of goods and the importer giving up the property rights into and upon the goods. Section 23(2) exactly fits in conjunction with Section 13 when stolen goods are recovered and the importer relinquishes the property in such goods.
11. Hence he submitted that in the background of above provisions it is clear that by mere destruction of the goods, the liability determined at the time of warehousing of the imported goods does not get wiped of automatically. Therefore, contended that the duty is payable. In support of his contention he relied upon the following judgments:
1. S.K. Pattanaik Vs. State of Orissa [ 2000 (115) E.L.T.9 (S.C)]
2. Pasupati Overseas Pvt. Ltd. Vs. Collector of Customs, Madras Page 14 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 [ 2001(130) E.L.T 19.(S.C)]
3. Pasupati Overseas Pvt. Ltd. Vs. Collector of Customs, Madras [ 1996(88) E.L.T. 795(Tribunal)]
4. Associate Builders Vs. Delhi Development Authority [ (2015) 3 SCC 49]
12. Admittedly, the award in favour of the first claimant was not challenged. The only challenge is against the Award made towards the duty payable on the goods stored in the warehouse. It is to be noted that second claimant took a stand that duty is payable as per specific policy conditions. Learned Arbitrator after taking note of the salvaged goods has awarded a sum of Rs.2,78,01,864/-.
13. Before going to the merits of the rival contention it is relevant extract the Standard Fire and Special perils policy conditions:
“ STANDARD AND SPECIAL PERILS POLICY IN CONSIDERATION OF the insured named in the Schedule hereto having paid to the United India Insurance Company Limited (hereinafter called the Company) the full premium mentioned in the said schedule, THE COMPANY AGREES, (subject to the Conditions Page 15 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 and Exclusions contained herein or endorsed or otherwise expressed hereon) that if after payment of the premium the Property insured described in the said Schedule or any part of such property be destroyed or damaged by any of the perils specified hereunder during the period of insurance described in the said schedule or any part of such property be destroyed of damaged by any of the perils specified hereunder during the period of insurance named in the said schedule or any subsequent period in respect of which the insured shall have paid and the Company shall have accepted the premium required for the renewal of the policy, the Company shall pay to the Insured the value of the property at the time of the happening of its destruction of the amount of such damage or at its option reinstate or replace such property or any part thereof.”
14. The above conditions mainly stipulate that the insurance cover is only on the value of the goods as on date of destruction. Merely representing the amount include duty payable in the policy does not signify that the Insurance company guarantees payment of the said amount. In this regard the Apex Court in United India Insurance Company Ltd., vs. Kantika Colour Lab and Others [(2010) 6 SCC 449] has held as follows:
“19. Contracts of Insurance are generally in the nature of contracts of indemnity. Except in the case of contracts of Life Insurance, personal accident and sickness or contracts of contingency Page 16 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 insurance, all other contracts of insurance entitle the assured for the reimbursement of actual loss that is proved to have been suffered by him. The happening of the event against which insurance cover has been taken does not by itself entitle the assured to claim the amount stipulated in the policy. It is only upon proof of the actual loss, that the assured can claim reimbursement of the loss to the extent it is established, not exceeding the amount stipulated in the contract of Insurance which signifies the outer limit of the insurance company's liability. The amount mentioned in the policy does not signify that the insurance company guarantees payment of the said amount regardless of the actual loss suffered by the insured.”
15. The above dictum makes it clear that the sum insured represents maximum amount of liability the same must be proved. The main crux of the argument in this petition is when the very factum of destruction of the goods admitted by the claimants, still the question of payment of duty would arise or not. Section 23(1) of the Customs Act clearly stipulates that no duty is payable for the goods lost or destroyed. It is relevant to extract Section 23(1) of the Act, which is as follows:
Section 23(1) Without prejudice to the provisions of section 13, where it is shown to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner Page 17 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 of Customs that any imported goods have been lost otherwise than as a result of pilferage or destroyed, at any time before clearance for home consumption, the Assistant Commissioner of Customs or Deputy Commissioner of Customs shall remit the duty on such goods.
16. As rightly pointed out by the learned ASG-I, the provision may be divided into 4 portions:
One, scenarios in which remission of duty is permissible i.e. when the goods are ‘lost’ or ‘destroyed’.
Two, the distinction made between the goods that are ‘lost’ and ‘pilferage’ (drawing reference to per Section 13).
Third, that the aforesaid scenarios have to be to the satisfaction of the Assistant or Deputy Commissioner of Customs.
Fourth, is on the incidence of duty, which stipulates that all the aforesaid events have to be before the goods are cleared for home consumption.
Similarly when the goods are pilfered after unloading it before the proper officer Page 18 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 clears it for home consumption or deposit at the warehouse, the importer will not liable to pay duty on the goods as per Section 13 of the Act. However, when such goods are recovered and restored exemption under Section 13 will not apply.
However, duty will be leviable on the goods restored after pilferage. Section 23(2) deals with the right of the importer relinquishing his title to the goods, such case he need not pay the customs duty.
17. On a careful reading of Sections 23(1) and 23(2) of the Customs Act both operate in different fields. As per Section 23(2) of the Customs Act when the goods are salvaged it cannot be said that goods were totally lost or destroyed, Though the 2nd Claimant in the Claim Petition has clearly stated consignments were destroyed due to rain. Learned Arbitrator factually found and held that the bonded goods suffered loss and it was a case of destruction rather than of damage simplicitor. Having found that the goods were totally destroyed the learned Arbitrator awarded Duty on the ground of policy of insurance and also relied upon the judgment of the Apex court in S.K.Pattanaik vs. State of Orissa [2000 (115) E.L.T.9 (S.C.)] and the Apex court has held as follows: Page 19 / 28
https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 “While the expression 'levy' may include both the process as well as the determination of the amount of tax or duty, the expression 'collection' refers to actual collection of the payable duty or the tax as the case may be. Since, the taxable event for attracting excise duty or countervailing is the manufacture or import of excisable goods into the State, the charge of incidence of duty stands attracted as soon as the taxable event place and the facility of postponement of collection of duty under the Act or the Rules framed thereunder, can in no way affect the incidence of duty on the imported goods. In this view of the matter The demand of countervailing duty from the appellant in the established facts and circumstances of the case was perfectly justified. The fact that the Liquor was rendered unfit for human consumption and destroyed, after its import, which by itself attracted the levy of duty could not wipe of the liability of the appellant, for payment of duty on the excisable goods, after their import in the bonded warehouse. The Full Bench of the high Court was therefore, perfectly justified in finding that the challenge to the demand made by the appellant had no merits. This appeal has no merits. It, accordingly, fails and is dismissed but with no order as to costs.”
18. The learned Arbitrator also taken note of the fact that though the goods Page 20 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 are destroyed, the fact remains that some of the goods were salvaged and duty has been remitted, learned Arbitrator has given a credit to the amount collected by the Insurance Company and passed an Award for remaining Rs.2,78,01,864/-. From the discussion has in paragraph 17 where the goods are destroyed or lost irretrievably. It appears that the Assistant Commissioner rejected the claim for remission for some goods by the importer. Statement filed by the claimant and the first respondent recorded by the learned Arbitral Tribunal clearly indicate that value of sale of salvaged goods was to the tune of Rs.1,11,00,00,000/- only. As far as remaining goods is concerned there recorded finding to the effect that those goods were destroyed and lost when the goods were destroyed or lost and there is no salvage, this Court is of the view that the mandate of Section 23(1) come into operation.
19. In Commissioner of Customs, Banagalore vs. Symphony Services Corporation India Ltd., [2011 SCC online Kar 4326] the Division Bench of the Karnataka High Court has held as follows:
“In so far as Section 23 is concerned, it deals with re mission of duty. The condition precedent for application of this Section is the imported goods should have been lost other than as a result of pilferage or destroyed at any time before clearance for Page 21 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 home consumption. Then the duety payable on such goods which is lost or destroyed shall be remitted by the authorities concerned. Sub-section (2) of Section23 deals with a case where the goods is neither lost nor destroyed but the said goods is of no use to the importer. Then he has the option of relinquishing his title to the goods and thereupon he shall not be liable to pay duty thereon. The proviso to the said Section adds a rider, i.e., such a relinquishment will not be permitted if the goods regarding which an offence appears to have been committed under the Act or any other law for the time being in force. Therefore, a harmonious reading of these two provisions make it very clear if the imported goods are damaged or deteriorated to the extent of the damage or deterioration of the goods, the liability to pay duty abates by operation of law. If the goods imported are lost or destroyed or abandoned then the case for remission of the duty payable is made out.”
20. In Parsan Brothers vs Union Of India (UOI) [2005-3-GLR 2456] the Division Bench of Gujarat High Court has held as follows:
"10. What is the meaning of the word "Lost"?
According to the Webster's Third New International Dictionary, the word "loss" means "the act or fact of losing, failure to keep possession, deprivation, theft of property". In the same dictionary, the word "lost" is defined as meaning "not made use of, ruined or destroyed physically or morally, parted with, no longer possessed, taken away or beyond reach or attainment". According to Law Page 22 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 Lexicon, Vol.2, page 44, the word "loss" has no precise hard and fast meaning.It is a generic and a comprehensive term covering different situations. Loss results when a thing is destroyed. But it also is caused when the owner has been made to part with it although the thing remains in tact. In this sense, loss means and implies "a deprivation".
It is synonymous with damage resulting either in consequence of destruction, deprivation or even depreciation and when a party is dispossessed of a thing, either when it can never be recovered or when it is withheld from him he is deemed to suffer the loss."
"13. ..... The corresponding provision in the old Customs Act, 1878 was sub-section (1) of Section 122, which reads as follows :
"If any goods in respect of which a bond has been executed under Section 92 and which have been cleared for home consumption are lost or destroyed by unavoidable accident or delay, the Chief Customs Officer may in his discretion remit the duties due thereon”
11. ... ... ... ... ... ... ...
12. Applying the aforesaid legal position to the facts of the case, it is apparent that the imported goods have been lost so far as petitioner is concerned. The imported goods i.e. 823 cases of beer have deteriorated to such an extent they cannot be recovered. There is deprivation, namely, the petitioner is totally deprived of goods; though the containers may or may not have any scrap value, the contents have become unfit for human consumption: they cannot be either exported Page 23 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 or cleared for home consumption for this purpose. The loss has been occasioned due to circumstances and is not disputed. In other words, the petitioner has incurred a loss to the extent of the value of goods by virtue of the goods having become unfit for human consumption petitioner is, therefore, entitled to seek remission of duty under Section 23(1) of the Act, the petitioner having shown that the requirement of the said provision stands satisfied in facts of the case.
13. ... ... ... ... ... ... ... It is necessary to reiterate and take note of the fact that the imported goods were stored in a licensed bonded warehouse and in case the goods were exported, no duty was payable on the same; duty would become payable only in the event of the goods being taken out of the warehouse for the purposes of human consumption. The petitioner has not even sought to take the goods out of the warehouse for the purposes of home consumption. In these circumstances, the respondent authorities could not have demanded any duty. In the affidavit in reply, applicability of Section 23 of the Act is contested on the ground that no permission has been granted for home consumption and according to respondent No. 3, that being the requirement of Section 23(1) of the Act, the petitioner cannot seek remission of duty under the said provisions. The revenue cannot be permitted to blow hot and cold in the same breath: approbation and reprobation is not permissible. If the duty is demanded on the basis that the goods are being cleared for home consumption, provisions of Section 23 would become applicable and the petitioner would be entitled to seek remission of duty Page 24 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 considering the undisputed fact that the goods have been lost due to deterioration which has occurred due to passage of time. On the other hand, if revenue states that the goods are not meant for home consumption, there would be no occasion for the revenue to raise the duty demand.”
21. In Mount Shivalik Breweries Ltd., vs. Union of India [2003 (68) DRJ 45 (DB)] the Division Bench of Delhi High Court has held as follows:
“14. We are, therefore, unable to read into Sub-Section (1) of Section 23 the expression "before an order" as the respondents would like us to do. In this view of the matter, we have no hesitation in holding that till the goods are actually delivered to the importer by the Customs from the bonded warehouse, these continue to be in the custody of the Customs, and, therefore, till physical delivery is taken, the goods cannot be said to be cleared for home consumption, within the meaning of Sub-section (1) of Section 23 of the Act. There has to be some interregnum between the order permitting clearance for home consumption and actual clearance of the goods for home consumption by the port trust, approved custodians of the goods warehoused in their area. In our opinion, therefore, under Section 23(1), an importer is entitled to remission of duty paid on the goods lost or destroyed at any time before physical clearance of the goods for home consumption. The only pre-requisite is that the importer has to discharge the onus that the goods have been lost or destroyed before physical clearance, which, in the instant case, has not been disputed Page 25 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 by the respondents in the reply affidavit filed in these proceedings. Support to this view is lent by the decision of this Court in Sialkot Industrial Corporation (supra). In that case also the goods had been assessed to duty and an order for clearance for home consumption had been made but the goods were found to be lost before these could be delivered to the importer from the warehouse. It was held that the claim of the importer for remission of duty was fully justified.”
22. Having regard to the above judgments and mandate of Section 23(1) of Customs Act, when the goods were lost as per the claim petition of the second respondent and some of the goods damaged already salvaged and given credit which has been clearly noted by the Arbitrator, the remaining goods which were not salvaged totally become useless should be construed only as lost or destroyed.
When the law itself mandate that such scenario duty will not be be leviable, merely on the ground of terms of the policy that a sum insured include duty levying duty cannot be permissible. Since policy being a contract of indemnity, as the very policy in this case is restricted to the value of the property at the time of destruction. When the provision of law stipulate that no such duty is leviable when the goods are lost or destroyed still claiming duty on the face of the policy, it is nothing but against the very statutory provision. Learned Arbitrator ignoring Page 26 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 Section 23(1) of the Customs Act, despite the fact the only part of the goods were salvaged and amount were credited and remaining goods were destroyed completely passing award is certainly against the fundamental policy of Indian law. In such a view of the matter the award of the learned Arbitrator directing the Petitioner to pay towards Custom Duty alone is liable to be interfered. Accordingly portion of the Award alone set aside.
23. Therefore, the Award passed in favour of the 1 st Claimant is confirmed as not challenged by the very Insurance company and the Award passed in favour of the second claimant is set aside. Original Petition is allowed.
22.07.2021 Index : yes/no Internet : Yes Speaking/Non-speaking order ggs Page 27 / 28 https://www.mhc.tn.gov.in/judis/ O.P.No.722 of 2018 N. SATHISH KUMAR, J.
ggs Order in:
O.P.No.722 of 2018
22.07.2021 Page 28 / 28 https://www.mhc.tn.gov.in/judis/