Supreme Court Clarifies Demurrage Liability for Importers: Mumbai Port Trust vs. Shri Lakshmi Steels (2017)

LEGAL ISSUE: Whether a Port Trust can charge demurrage on goods detained by customs, and whether the Directorate of Revenue Intelligence (DRI) or customs authorities can be held liable for such charges.

CASE TYPE: Customs and Port Trust Law

Case Name: Mumbai Port Trust vs. M/s. Shri Lakshmi Steels and Ors.

Judgment Date: 27 July 2017

Date of the Judgment: 27 July 2017
Citation: [Not Available in Source]
Judges: Madan B. Lokur, J., Deepak Gupta, J.
Can a port trust be forced to waive demurrage charges when goods are detained by customs, even if the importer is not at fault? This was the core issue before the Supreme Court in this case. The court examined whether the Mumbai Port Trust could be directed to waive demurrage charges and whether the DRI or customs could be held liable for these charges. The bench consisted of Justices Madan B. Lokur and Deepak Gupta, with Justice Deepak Gupta authoring the judgment.

Case Background

M/s. Shri Lakshmi Steels and Inder International, the respondent-importers, were sister concerns dealing in cold rolled coils and sheets. They imported ten consignments of these goods on three different dates: December 4, 2015, December 11, 2015, and December 29, 2015. The Directorate of Revenue Intelligence (DRI) suspected that the importers were misdeclaring the goods to evade provisional duty. Consequently, the DRI instructed customs to hold the consignments for 100% examination.

The importers requested that the duty be assessed under Section 18 of the Customs Act, 1962, to avoid demurrage and detention charges. However, no action was taken by customs. The importers then filed writ petitions in the High Court of Punjab & Haryana, seeking release of their goods. Samples of the goods were tested by a Chartered Engineer, who confirmed that they were cold rolled coils. Despite this, the DRI was not satisfied and ordered further testing.

The Customs authorities then asked the importers to furnish a bank guarantee of 20% of the provisional duty, while other importers were only asked for PD Bonds. The importers claimed they were only informed about this demand in court, by which time substantial demurrage and detention charges had accumulated. The goods were eventually seized on February 23, 2016.

The High Court ruled in favor of the importers, directing the release of goods on payment of customs duty, waiving demurrage charges, and holding the DRI/Customs liable for detention charges. The Mumbai Port Trust and Union of India appealed this decision.

Timeline

Course of Proceedings

The respondent-importers initially filed writ petitions in the High Court of Punjab & Haryana, seeking the release of their goods. After the High Court ordered the release of the goods on payment of duty, the Mumbai Port Trust challenged this order in the Supreme Court. The Supreme Court set aside the High Court’s order and requested the High Court to dispose of the writ petition again. The High Court then ruled that the detention of the goods was illegal, directed the release of goods, waived demurrage charges, and held the DRI/Customs liable for detention charges. This led to the current appeals by the Mumbai Port Trust and the Union of India in the Supreme Court.

Legal Framework

The case involves several key legal provisions:

• Major Port Trusts Act, 1963: This act governs the functioning of major port trusts in India. Section 48 outlines the powers of the port trust to frame a scale of rates for services, including wharfage, storage, and demurrage. Section 47A establishes the Tariff Authority for Major Ports to determine these rates. Section 53 allows the Board to exempt goods from charges in special cases. Section 59 provides the Board with a lien on goods for unpaid dues.
• Customs Act, 1962: Section 45 deals with the custody and removal of imported goods, stating that they remain in the custody of a person approved by the Commissioner of Customs until cleared. Section 160(9) specifies that the Customs Act does not affect the powers of port authorities in major ports.
• Handling of Cargo in Customs Areas Regulations, 2009: Regulation 2(b) defines a “Customs Cargo Services provider” as a person responsible for handling imported goods, including a custodian under Section 45 of the Customs Act. Regulation 6(l) states that a Customs Cargo Service provider shall not charge rent or demurrage on goods seized or detained by customs, subject to any other law for the time being in force.

The interplay between these provisions is central to the dispute. The Port Trust claims its right to levy demurrage under the Major Port Trusts Act, while the importers rely on the 2009 Regulations to argue that no demurrage should be charged during customs detention.

Arguments

Mumbai Port Trust’s Arguments:

• The High Court erred in relying on Regulation 6(1) of the 2009 Regulations, as these regulations cannot supersede the statutory provisions of the Major Port Trusts Act, 1963.
• The Port Trust is entitled to recover statutory tariff, including demurrage charges, and cannot be directed to release goods without payment of these charges.
• Even if the Port Trust is considered a custodian under Section 45(1) of the Customs Act, 1962, it is still entitled to charge demurrage on goods detained by customs.
• Regulation 6(l) of the 2009 Regulations is subject to other laws, including the Major Port Trust Act, 1963.
• Section 160(9) of the Customs Act, 1962, protects the powers of port authorities.

Union of India’s Arguments:

• The High Court erred in directing the customs authorities and the DRI to pay demurrage and detention charges.
• The officials did not act mala fide, but based on specific intelligence inputs that the importers were misdeclaring goods to avoid duty.
• The importers did not exercise their option to pay provisional duty or get the goods de-stuffed.

Respondent-Importers’ Arguments:

• Once a detention order is passed by the Customs Authorities, the Port Trust must waive demurrage charges, relying on Section 128 of the Act and the 2009 Regulations.
• The Mumbai Port Trust is not entitled to claim demurrage charges for the period when the goods were under detention by customs.
• If the Port Trust is entitled to recover demurrage charges, the liability should be on the Customs Authorities/DRI.

Submissions by Parties

The innovativeness of the arguments lies in the importers’ attempt to use the 2009 Regulations to circumvent the established precedent regarding port trust’s right to collect demurrage.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues:

1. Whether any direction could be given to the Mumbai Port Trust to waive the demurrage charges.
2. Whether the liability to pay the demurrage/detention charges in respect of the imported goods could be fastened upon the DRI/Customs Authorities.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court allowed the appeals, setting aside the High Court’s judgment and dismissing the writ petitions filed by the respondent-importers. The Court held that the Mumbai Port Trust is entitled to charge demurrage as per the Major Port Trusts Act, 1963, and that the 2009 Regulations do not override this statutory right. The Court also found that the DRI/Customs could not be held liable for demurrage and detention charges, as the importers were primarily responsible for these costs.

Treatment of Submissions and Authorities

How each authority was viewed by the Court?

• Trustees of the Port of Madras v. M/s Aminchand Pyarelal [CITATION]: Followed. The Court reiterated that Port Trusts are entitled to claim rates as framed under the provisions of the Act.
• Board of Trustees of the Port of Bombay v. Indian Goods Supplying Co [CITATION]: Followed. The Court upheld that the Board has a duty to recover rates and a lien on goods.
• Board of Trustees of the Port of Bombay v. Jai Hind Oil Mills Company [CITATION]: Followed. The Court reiterated that demurrage charges are levied to ensure quick clearance of cargo.
• International Airports Authority v. Grand Slam International [CITATION]: Followed. The Court held that Section 45 of the Customs Act does not affect the right of the Airport Authority to collect charges.
• Union of India v. R.C. Fabrics (P) Ltd [CITATION]: Followed. The Court followed the law laid down in Grand Slam.
• Om Shankar Biyani v. Board of Trustees, Port of Calcutta [CITATION]: Followed. The Court reiterated that port charges are to be paid before goods are removed.
• Shipping Corporation of India v. C.L. Jain Woolen Mills [CITATION]: Distinguished. The Court clarified that while this case affirmed the law in Grand Slam, it gave directions based on the specific facts of that case.
• Union of India v. Sanjeev Woolen Mills [CITATION]: Distinguished. The Court noted that this case arose out of contempt proceedings and did not challenge the earlier order of the Delhi High Court.

What weighed in the mind of the Court?

The Supreme Court’s decision was influenced by several factors. The court emphasized the statutory authority of the Mumbai Port Trust to levy demurrage charges under the Major Port Trusts Act, 1963. It noted that the 2009 Regulations, being subordinate legislation, could not override the Act. The Court also highlighted that the importers did not fully cooperate with the authorities and did not avail the option of provisional assessment, which contributed to the delay.

The Court’s reasoning was based on a combination of legal principles and factual analysis. The court gave more weight to the legal aspects, emphasizing the statutory rights of the Port Trust and the limitations of the 2009 regulations. The factual analysis focused on the actions and inactions of both the importers and the authorities, concluding that the importers were also responsible for the delay.

Logical Reasoning

The Court considered alternative interpretations, such as the importers’ argument that the 2009 Regulations should exempt them from demurrage. However, the Court rejected this interpretation, emphasizing the statutory rights of the Port Trust and the limitations of subordinate legislation.

The decision was reached by applying the established legal principles to the specific facts of the case. The Court found that the importers were not entirely without fault and that the Port Trust had a statutory right to levy demurrage. The court also emphasized that the importers could have mitigated their losses by availing the offer of provisional assessment.

“The Mumbai Port Trust has the power and authority to levy rates including demurrage as fixed by the Tariff Authority under Section 47A of the Act. This right of the Port Trust is not affected either by the provisions of the Customs Act or by the Regulations of 2009.”

“Neither the regulations nor the provisions of the Customs Act can impinge or in any manner affect the statutory power of the Major Port Trusts to levy rates under the Act.”

“We are, therefore, clearly of the view that even though there may be some delay on the part of the DRI and the customs authorities, the respondent-importers have also been guilty of delaying the matter and, therefore, they cannot claim that they are not liable to pay demurrage and detention charges.”

There were no dissenting opinions in this case. The bench unanimously agreed on the decision.

The court’s reasoning was based on the interpretation of the relevant statutes and regulations and the application of established legal precedents. The Court also considered the factual aspects of the case, including the actions and inactions of both the importers and the authorities.

The decision has significant implications for future cases involving demurrage charges and customs detention. It reinforces the statutory rights of port trusts to levy demurrage and clarifies that importers are primarily liable for these charges, even when goods are detained by customs. The decision also clarifies the limitations of subordinate legislation in overriding statutory provisions.

The Court did not introduce any new doctrines or legal principles. Instead, it reaffirmed existing principles and clarified their application to the facts of the case. The Court’s analysis focused on the interpretation of the relevant statutes and regulations and the application of established legal precedents.

Key Takeaways

• Port Trusts have a statutory right to levy demurrage charges under the Major Port Trusts Act, 1963.
• The Handling of Cargo in Customs Areas Regulations, 2009, cannot override the provisions of the Major Port Trusts Act, 1963.
• Importers are primarily liable for demurrage charges, even when goods are detained by customs.
• DRI/Customs authorities can be held liable for demurrage and detention charges only in cases of proven mala fide actions.
• Importers should take steps to mitigate their losses by availing options such as provisional assessment.

This judgment reinforces the established legal position that port trusts are entitled to charge demurrage to ensure the smooth and efficient functioning of ports. It also clarifies that importers cannot avoid their liability by claiming that the delay was caused by customs authorities.

Directions

The Supreme Court directed that the respondent-importers are free to approach the Mumbai Port Trust under Section 53 of the Major Port Trusts Act, 1963, for exemption and remission of demurrage and other charges. The Board was directed to take a sympathetic view while considering the case of the respondent-importers under Section 53.

Development of Law

The ratio decidendi of this case is that the statutory right of a Port Trust to levy demurrage under the Major Port Trusts Act, 1963, cannot be overridden by the Handling of Cargo in Customs Areas Regulations, 2009. This judgment reaffirms the previous position of law and does not introduce any new principles.

Conclusion

The Supreme Court’s decision in Mumbai Port Trust vs. M/s. Shri Lakshmi Steels clarifies the liability for demurrage charges when goods are detained by customs. The Court upheld the statutory right of the Mumbai Port Trust to levy demurrage and held that importers are primarily responsible for these charges. The judgment reinforces the legal framework governing port trusts and customs procedures and provides clarity for future cases.