In M/s. MTI Materials Pvt. Ltd. v. the Commissioner of Customs, Delhi [FINAL ORDER No. 51835/2021 dated September 23, 2021], M/s. MTI Materials Pvt. Ltd (Appellant) has filed the current appeal being aggrieved against Order-in Appeal dated April 08, 2019 (OI’) in which the refund claims of custom duty paid on pilfered goods imported at Inland Container Depot (ICD) Tughlakabad, New Delhi Port was rejected on the ground that goods were pilfered after the order of clearance by the Custom Officer.

Factually, the Appellant filed two different claims of refund for the identical issues of custom duty paid on pilfered goods imported at ICD Tughlakabad, New Delhi Port. The refund claims were initially rejected on the ground that goods were pilfered after the order of clearance by the Customs Officer and the said order was challenged. The Appellate Authority of the Department however restored the refund application with a direction to pass a speaking order about the applicability of Section 27 of the Customs Act, 1962 (“the Customs Act”). The refund claim was again rejected on the same ground that the pilferage was noticed after the out-of-charge order (“OOC”) for clearance for home consumption was already given by the Customs Officer in terms of Section 47 of the Customs Act. The said order was challenged before the Commissioner (Appeals) who had rejected the appeal.

Goods pilfered after order of clearance by Custom Officer not the responsibility of Custodian

The Appellant submitted that the shortage was detected at the time of joint survey conducted before the Customs and other related authorities such as, Shipping-line, CHA, Surveyor and Party Insurance Surveyor on May 23, 2011. It is impressed upon that the presence of all these authorities is sufficient to hold that the pilferage took place before the actual clearance of goods for home consumption. The refund claim filed in terms of Section 23 of the Customs Act cannot be rejected on the ground that the OOC has already been issued and that the pilferage has been noticed after the said order. It is also mentioned by the Appellant that the pilferage was noticed by the importer on May 18, 2011 itself i.e. on the day when OOC was passed. This fact sufficiently indicates the greater possibility of pilferage to have taken place before the out of charge was given.

The Respondent submitted that the remission of duty in terms of section 23 of Customs Act is permissible only for the goods lost or destroyed but for the pilfered goods, the remission is prohibited by the Legislature. For such goods, Section 13 of the Customs Act shall be applicable but only in a situation where the goods are noticed to be pilfered prior the out charge order is issued by the proper Custom Officer. Since in the present case, the said OOC was already issued prior the Appellant noticed pilferation, the adjudicating authorities have rightly rejected the claim.

The Hon’ble CESTAT, Delhi relied upon the decision of Zenith Bearing Enterprises vs. Collector of Customs [1995 (75) ELT 801 (Tri.-Mumbai) dated January 31, 1994] held once OOC has been given, it will clearly indicate that the customs are no longer interested in keeping the goods and the importers are at liberty to clear the goods. If the importer continues to keep the goods in the Customs area under the custody of the custodian, the Legislature has intended that it is at their own risk and responsibility, in so far as duty liability is concerned in respect of the pilferage.

Further, CESTAT said that the Legislature has thought it fit to consider remission of duty held in the Customs area only for the period required for completion of Customs formalities and not beyond that. The appointment of the custodian is mainly for the purpose of getting the customs formalities completed. Hence, his responsibilities also continued only to the stage when OOC for clearance either for home consumption or for depositing in a warehouse is passed by the proper officer. Custodians are not supposed to take custody of goods treating the entire custom area as a warehouse. If the importers still choose to keep the goods in the customs area, it is possible only at the importers’ own risk. Hence the provisions of Section 45 of the Customs Act when read with sections 47, 13, and 23 harmoniously, make it abundantly clear that the submissions made on behalf of the Appellant are not acceptable to the given facts and circumstances. Accordingly, the CESTAT do not find any reason to interfere into the order under challenge. Same is hereby upheld. As a result the appeal is dismissed.

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October 2021