Writ Petition No. 5364 of 2006 · The High Court · 2025

Order

$ter Hon'ble Srl &stice Narslng Rao Nandikond.Q This Writ Petition, under Article 226 of the Constitution of India, is filed seeking the following relieft oto issue tn order or dlrection more one ln tle na,fi.tre oJ wrlt of mandamus a declzdng thaf thc dutles on thc ahoae goods or Lmpofi,ed. goods uouW be payable to the respondents 7 2 and3 onlg on thelr being sold and. since on dccount oJ the d.anage that ho.s been caused due to the fTood.s ln August 2OOO the good.s stored. utith the ptltioner cornpang do not attract crrstottrs duties and heace thelr ualue is llmitr,d to t G extent oJ their la,nding cost alone and therebg direct the respond.ents 7 2 and3 to consider the ca.* oJ tle petttioner comltang Jor abatement ot customs duties as proulded under section 22(I)@ qnd sectlon 22(2) of tle Customs Act 7962 and. consequentlg lssue a ce rtifi c ate oJ re mls.s{ons ln altentate; b) declartng that thc cr.stozrs duties on dng good.s imported.from abroad. utould attract ctl'stom.s dutles the moment tleg lo;nd. tn the country dnd. thete.bg direct the 4thc respondent to settlc tltc entlre claim as m.ade by tle petitl.oners iaclaslue oJ uabrc of the good.s damaged and custorns dutles pagablc on them .ond. consequentlg setX,le the clalm of thc petitloners slnce the aalue ot tlrc good.s lncfudhtg thc cttstotns duties is uell uithln the etctent of the lnanratuce cooer pz.rchased. bg tte petitioner com7tany...'

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.l to 3 and Sri S.Chakrapani, learned Standing Counsel for respondent No.4-Insurance Company. 2 PSK,J&NNR,J wp_5364-2006

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 l,iadu, Karnataka and Andhra Pradesh to provide warehotrsing facilities to its clients to facilitate storage ot 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, 7-2O, Moosapet, Hyderabad and it has been duly appoint,ed as the Custodian of the Customs Public Bonded Warehouse by respondent No.2 under Section 62 (l) of the Crrstoms Act, 1962 (for short, the Act, L962) uide prbceedings No.3/ lO/Bonds/ I / L 197-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 5loods 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 fi'atirral calamities and the same is 3 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 PSKJ&NNR,J wp_s3il_2006 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, l9,7)2l-.The said goods valued at Rs.43,22,9651 - 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 l- and'the company has to receive an amount of Rs.2,96,4221- towards rent. Thus making the total loss caused on account of the floods comes to about Rs.1 ,4O,38,O89 f -. (iii) It is further stated that after unprecedented floods due.to incessant rain on the night between 23d artd 24th August, 2000, the entire warehouse belonging to the petitioner-compa.ny was inundated with water about 5'to 6', At that point of time, lubricating oils, chemicals, ice breaking 4 machines and electrical material belonging to various clients were a'railable in the warehouse and the entire goods have PSK,J&NNR,J wp_s364_2006 been dzrmaged beyond recovery. (i'r) Accordingly, the company had filed a claim petition for an amount of Rs. 1,4O,3 B,O8g / - before respon<lent 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 ).a survey \vas conducted by M/s.S.P.Goyel and Company and Squadron Leader Kapil Mohan. (v) It is further stated that the survey report of responclent No.4 found that there was no dispute or discrepancy with respect to the value of the goods so damage'd as per claim viz., Rs.94,89 ,7O2 I -. However, responrlent 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 '-.s only the to 3 on the ground that the insurance poli 5 PSKJ&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.l 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 Cu,rtoms Act, 1962, it is mandatory that any custodian takes the insurance cover as per Clause-l3 of the licence that is issued by the Customs Department. However, it is deemec that till the time of the goods sold, the Customs Departrnent has a lien over the said goods and no company or perscn who has been the importer of the said goods can release the goods from the Bonded Warehouses without paymerrt of the customs duties. Thus, it is clear that any goods rvhich are imported would become liable to customs and dut-ies. (viii) It is the case of the petitioner that as per Chapte;:-S Section 22 (I) (C) and Section 22 (21 of the Customs Act 1962 specifically provides as to the liability towardsi customs duties in the event any good are damaged while ir 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 totatly damaged and not in a position to be sold for market 7 PSIqJ&NNR,J wp_53il_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 Ind.ia, Ministry of Finance and company Affairs uid.ats letter dated 12th December, 2oo2 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.o3.2oo4 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 ..7. under :he said policy as the goods had not attracted customs PSK,J&NNR,J wp_s364_2006 duty at the time of the said floods. (r:) Hou,ever, respondent No.4 through its Divisionai office located at ongole issued a reminder dated 3oth 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 05.0L.2oo6 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 ho claim', the petitioner compary will be put to great irreparable loss. (>Jii) Further, under the policy of the Government of India, a.ny goods would attract duties and become dutiable the moment they enter out 'country's border., However, ..n / j 9 PSKJ&NNR,J wp_5364_2005 Section 22 (Il (C) and Section 22 (21 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. Conditton 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-Il 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 *"Ifitrse by the company shall be insured against 10 -,:'#l:t:d fl.oods, 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 exte:nt of Rs. 94,lB,T02/-.

5. He also further contended that due to incessant rain, the entire warehouse belonging to the petitioner company got inundated u,ith s' to 6, of water and the entire goods \vere damaged beyond recovery and they made claim for Rs. -,40,38,0s9/- with the respondent No.4. Accordingly a survey was conducted by respondent No.4 and 2.-,d survey was coeducted by M/s S.p.Goel & co. & sqdn Ldr Kapil Mohan Mohan has also submitted a report, wherein 4th responc ent has found that there was no dispute or discrepir,ncy with respect to the value of the goods so damaged as per their claim and that respondent No.4 uid"e letter dated l5thNovember 2oos has refused to pay the customs duty portion of the claim as not admissible as there importerl goods were not rereased from the bonded warehotLse. -4 ,- 7L

6. Since the goods were damaged in the bonded PS(J&NNR,J wp_5364_2006 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,lg.06.2O01 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,OO,OO,00O/- which covered the period from

18.08.1999 0.01 A.M. to L7.08.2000 Midnight, and receipt towards payment of premium of the policy for further period from 18.08.2000 O.01 A.M. The policy has not been fiIed by the.petitioner till date. Further, as per conditions of licence Notification issued to the petitioner under S/ l0/Bonds/ I lL97-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 Honble Supreme Court in 12 New I:ndia Assurance Company M/s. It4tudit Roadwayst _,'_:iillHi Limited and others v. '54. The insurer anchored their stand on Section 15 (l[b) of the cust<,ms Act stating that duty rates flor q,arehoused goods are determined when a bill of entry for home consumption is filed, and duty assessment (Secticn 17) only occurs when a bill of enrry (Section 46) is presented. In this case, no bills of entry were filed, and no assessed goods rvere lost in the Iire. rccorciing to the insurer, since the taxable event never happened, there is no customs duty liabilitl,. The counsel also cited Section 23 of the custcms Act, u'hich 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 pri'ileges enshrined in section 22 and 23 of the customs Act, pertaining to abetment and remission, extend exclusively to those classi{ied as 'irrporters'of insured goods. The crux of the argument revolves around the clirimant's distinct position, as the claimant neither assumed the role of impor[er n()r owner; instead, they function solely as a custodian entrusted with t re 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 rvarehouse fire, .s found to fit in with the attendant circumstances. As a corollary, the fire at the s,arehouse cannot be attributable to any neglig,ent act of the insured. Moreover, the fire is found to have occurred rvithin the insured warehouse and the appellant's plea to the ccntrary, is not believable. Therefore, it is a case wrongful repudiation by the appellants. No legal infirmity is thus seen with the inrpugned 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, formi.g the essence of the insurer-insured rerationship. The fundamental principle is that insurance is governed by the doctrine t zoz: trusc tozz 13 PSK,J&NNR,J wp_s364_2005 of uberrimaefidei-there must be complete good faith on the part of the insured.z rhe 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 comniitment. 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 foflow on upholding the claim of the insured against the appellants. It is ord.ered 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 c€Lnnot 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 Mac Gillivray on lnsurrance Law-12'h Ed., John Birdl Sweet and Maxwell (2012) r L4 PSK,J&NNR,J wp_s364_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 4tt' respondent cannot deny paying the customs duty from the insurance policy. He further submitted that the 4th respondent ought to have considt:red the conditions laid down by the revenue to the custodran i.e. the petitioner before issue of licence for the private bonded warehouse. As the insurance policy for the damag,:d goods u,as 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 learnecl Standing Counsel for the respondents the points that arise frrr consideration in this writ petition are whether (if whether the petitioner-company is entitled for remission of customs duties, as provlded under Section 22 UllCl and Section 22 (2) of the Customs Act, L962? And (iil Whether the petitioner is entitled for issue of certificate of remissions? 15 _,l::{l}Hd 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. 22121: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 lr, 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 . g-4-2}Lll. 2. subs. by Act 32 of lgg4, s. 60, for section20 (w.e.f. 1g-5- Lee4).

3. The provisos and the Explanations omitted by Act 22 of 1995, s. 53 (w.e.f. 26-5-1995). 1,6 PSK,J&NNR,J wp_5364_2006

4. Subr;. by Act 27 of 1999, s. 100, for -Assistant Commissioner of Customsll (w.e.f. 1 1-5-1999). 26lcl tfLat any warehoused goods had been damaged at any time before clearance for home consumption on account of any accidenl not due to any '*'ilful 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 cut-v to be charged on the goods referred to in sub-section (1) shal) bear the same proportion to the duty chargeable on the goods before the damage or deterioration rvhich the value of the damage,l 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 vrilue of such goods may be ascertained by the proper officer, c,r (b) such goods may be sold by the proper ofhcer by public auction or by t(lnder, or with theconsent of the owner in any other manner, and the gross sale proceeds shall be deemed to be the valuteof such goods.

23. Remission of duty on lost, destroyed or abandoned goods.-(1) l[without prejudice to theprovisions of section 13, where it is shown] to the satisfaction of the 2[Assistant commissioner ofcustorns 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 customsl shall remit the duty on such goods. a[Q) Th.e owner of any imported goods ffi&y, 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 tiable to pay theduty thereon;] S[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.] L2. 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 sEune, 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 -,:::*tl,Tl'; Warehouse and it is also not in dispute that due to the heavy rains a.nd floods the warehouse was inundated and due io which 1:here rfi/as 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. L,+. On perusal of the policy dated 18.08. 1999, the Additio:ral 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 -,:;:illHd the insura.nce policy that it covers the duty also. The 2,a surveyor also gave a finding to that effect. In view of the sEune, 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 sarne, 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 sarne 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 appea.rs from the insurance policy there is no 20 \,..,, PSK,]&NNR,J wp_5364_2006 insura:nce for the duty to be payable thereby making the respondent no.4 company liable to pay the duty. Even as per ietter clated 19.06.2oo1,it is noticed that the petitioner filed policy \1o.i999/3300141 @ Proposal, dated tr.oB.Lggg for a sum of Rs.4,OO,00,OOO/- which covered the period from i8.o8. 1999 0.o1 A.M. to L7.o9.2ooo Midnight, and receipt towards payment of premium of the policy for further period from 1l3.08.2ooo 0.01 A.M. The poticy has not been filed by the petitioner till date. Further, as per conditions of licence NotificeLtion issued to the petitioner under slLo/tlonds/ L/1197-rcD, dated 30.07. r9gg, the petitioner is requ.ired to execute a floating insurance policy to cover the value and duty involved on the goods stored. L'7. The said letter would go to show that the petition.er has not insured for the duty, as such the question of the 1>ayment of duty by the insurance company does not arise. Flegarding abatement or remission of duty,the counsel for the petitioner rightly contended .that the privileges enshrined in sections 22 and 2g of the customs Act pertaining to abetment and remission, extend exclusively to those ctassified as 'importers' of insured goods. The crux of '-a

21. 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 PSK,J&NNR,J wp_5364_2006 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 principie laid down by the Honble 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 squarery applies to the present set of fac ts, as such the petitioner shar 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. 22 \.. PSK,J&NNR,J wp_s364_2006 1'9. 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 respon<lent No.4 is d.irected to pay the claim of the petitioner as per the policy terms and conditions within a period of 30 days fr,tm the date of receipt of a copy of this order. There shall br: no order as to costs. Miscellaneous petitions, if any, pending in dis writ petition, shall stand closed. That Rule Nisi has Oeen made 9!:"-lyte as above' witness rHE rHor.iijiEiHE cHtEfJr.isiieE ApARESH KUMAR slNGH, on this Thursday, The Twenty First Day oi argr"t i*o rnorsand And Twenty Five D/. T.SRINIVASA REDDY ANT REGISTRAR s /TRUE COPY" OFFICER To,

1. The Cornmissioner, Customs And Central Excise' Hyderabad , Sanathnagar,

2. The Deputy commissioner of customs and central Excise, Hyderabad 3.TheAslsistantCommissionerofCustomsandCentral,Excise,Hyderabad

4.oneC()toSRlS|VARAJUSR|NIVAS,Advocate.IoPUC] 5. one C() to SRI S.CHAKRAPANI, Advocate. [OPUC] 6.oneC()toSRIA.RADHAKRISHNA,(SRSCFoRCBITANDC).[oPUc] 7. Two CI) CoPies BSK PSK Nr .l $(liiE L) 2 I Jil{ 20t[ z. t * HIGH COURT DATED:21108t2025 ORDER WP.No.536 4 of 2006 PARTLY ALLOWING THE WRIT PETITION WITHOUT COSTS p{ ,n\\'u