Abatement of Customs Duty on Damaged Goods: Meaning, Procedure, and Case Laws under Section 22 of the Customs Act, 1962

In the context of Indian Customs laws, abatement of Customs duty refers to the reduction in the amount of duty payable on goods that are damaged or deteriorated during the import process, either during transit, unloading, or storage. Section 22 of the Customs Act, 1962 provides the legal framework under which importers can seek a reduction in Customs duty for such damaged goods. This provision ensures that importers are not unfairly penalized for circumstances beyond their control that affect the condition of the goods upon arrival in India.

Meaning and Definition of Abatement of Customs Duty on Damaged Goods

Under Indian Customs law, abatement of Customs duty means a reduction or concession in the duty payable on goods that are found to be damaged or deteriorated when they arrive in India after being imported. These goods are typically subject to a lower duty than originally assessed, based on the extent of the damage.

Section 22 of the Customs Act, 1962:  Section 22 of the Customs Act, 1962 specifically provides the legal basis for claiming an abatement of duty on damaged goods. The section allows for the reduction in the duty payable if the goods, upon inspection, are found to be damaged, and such damage affects their value.

Section 22 reads as follows:

• If goods are imported and upon arrival, they are found to be damaged to such an extent that their market value is less than the value declared at the time of importation, the Customs authorities can assess the duty based on the reduced value of the goods.
• The importer can apply for an abatement of the duty if they can demonstrate that the goods were damaged before or during importation and that the damage is reflected in the goods reduced value.

Procedure for Abatement of Customs Duty on Damaged Goods:  The procedure for claiming an abatement of Customs duty on damaged goods involves several steps, and the importer must follow these steps carefully to ensure that they are eligible for a concession.

Step-by-Step Process:

1. Report of Damage: Upon receipt of goods, the importer must promptly notify Customs authorities about the damage. This can be done by submitting a formal request for a survey and declaring the extent of the damage.
2. Surveyor’s Inspection: A Customs-approved surveyor is appointed to inspect the damaged goods. The surveyor’s report will include:
   • A detailed description of the goods,
   • The nature and extent of the damage,
   • The reduction in the market value of the goods due to the damage, and
   • The assessment of the goods condition based on the inspection.

The surveyor’s report is a crucial document in the abatement procedure, as it provides the basis for the Customs authorities to assess the reduction in the duty payable.

1. Assessment of Reduced Value: Based on the surveyors report, Customs will assess the reduced value of the goods. The duty is then recalculated based on this reduced value, and the abatement is applied accordingly. The degree of abatement depends on the severity of the damage and its impact on the value of the goods.
2. Submission of Claim for Abatement: After the surveyor’s report is obtained, the importer must submit a claim for abatement of duty, along with the following documentation:
   • The Surveyors report confirming the damage.
   • Bill of Entry.
   • Invoice showing the original value of the goods.
   • Photographs or other evidence of the damaged condition.
   • Proof of payment of duty on the original value of the goods.
3. Customs Decision:  Customs authorities will examine the documentation, verify the claim, and determine whether the abatement is justified. Once verified, Customs will issue an amended assessment, reflecting the reduced duty based on the damage.
4. Payment of Abated Duty: After the assessment is revised, the importer will be required to pay the reduced Customs duty on the damaged goods. The amount payable will be calculated according to the reduced value of the goods as determined by the surveyors inspection.

Surveyor’s Report: Role and Importance

The Surveyor’s report is a critical element in the process of claiming an abatement of Customs duty on damaged goods. It provides an expert evaluation of the condition of the goods, including:

• Extent of Damage: The surveyor assesses the damage to the goods and determines how it affects their market value. This could include physical damage (e.g., breakage, spoilage, or contamination) or loss of quality that makes the goods less valuable than when they were originally imported.
• Valuation Impact: The surveyor determines the extent to which the damage affects the goods value, which serves as the basis for calculating the duty to be paid.

The Customs authorities rely on the surveyors expertise to decide whether the damage warrants an abatement and the extent of the duty reduction.  Survey report for assessing the damage must be done involving customs authorities and assessment of damage must be done before clearance of goods. Otherwise, such abatement is not available – Agfa Gevart India Ltd v CC 1985 (21) ELT 410 (CEGAT) quoted and followed in Andhra Pradesh Civil  Supplies Corpn. Ltd v CC 1992 (62) ELT 188 (CEGAT).  In Skaria Varghees v CC 1991 (111) ELT 932 (CEGAT) also, it was held that revaluation must be done before clearance of Goods.

Amount of Concession (Abatement) in Customs Duty

The amount of concession (or abatement) in Customs duty is determined based on the reduced market value of the damaged goods, which is ascertained by the surveyor’s inspection report. The abatement is directly proportional to the extent of the damage and the resulting decrease in the goods value.

• Full Concession: In extreme cases where the goods are rendered totally useless or of no commercial value, Customs may grant a full abatement of the duty.
• Partial Concession: For goods that are still usable but have lost value, a partial abatement is allowed, with the duty reduced accordingly.

The specific amount of abatement will depend on the circumstances of each case, including the nature of the damage and the impact on the goods value.  The value of damaged goods may be decided by Assistant Commission of Customs, or if assesse/owner/importer agrees, then damaged goods may be sold by auction and gross sale proceeds of the auction will be deemed to be the value of goods.

Important Case Laws with Full Citations

Several case laws have shaped the interpretation of Section 22 and the procedures for granting abatement of duty on damaged goods. Some of the key rulings are:

1. M/s. Laxmi Traders v. Union of India (1996) 87 ELT 536 (SC):  The Supreme Court held that if goods are damaged during transit, an importer is entitled to claim an abatement of Customs duty based on the reduced market value of the goods. The case emphasized the importance of an expert surveyor’s report in determining the extent of damage and the corresponding reduction in duty.
2. M/s. Hindustan Zinc Ltd. v. Union of India (2004) 163 ELT 204 (CESTAT):  This case involved the issue of determining the reduced value of goods based on damage. The Tribunal ruled that the surveyor’s report must clearly indicate the damage and its impact on the value of the goods, and the Customs authorities must grant the abatement accordingly.
3. M/s. Atma Steel Trading Pvt. Ltd. v. Commissioner of Customs (2012) 280 ELT 250 (CESTAT):  In this case, the CESTAT clarified that abatement under Section 22 can be claimed even if the goods are not entirely destroyed but are found to be damaged to the extent that their value is significantly reduced. The tribunal emphasized that the Customs authorities must grant a proportional abatement based on the loss in value caused by the damage.
4. In SUPER CHEMICAL CORPORATION Versus COMMISSIONER OF CUSTOMS, CHENNAI - 2003 (5) TMI 314 - CESTAT, CHENNAI, goods were deteriorated as goods were not kept in a controlled temperature, though owner of goods knew that these should be kept in controlled temperature.  It was held that the loss is due to wilful negligence of appellant and abatement is not permissible.
5. In Madras Petrochem Ltd. V. CC 1999 (112) ELT 612 (CEGAT), it was held that section 22 is not applicable in respect of remission of Customs Duty under Section 23 of the Customs Act.
6. In COMMISSIONER OF CUSTOMS, MUMBAI Versus KORES (INDIA) LTD. - 2002 (6) TMI 311 - CEGAT, MUMBAI, it was held that no abatement will be allowable if goods were kept by importer for seven years in warehouse against the permission of one year, as damage was caused not by an accident but due to negligence or default of Importer.

Conclusion:  Abatement of Customs duty on damaged goods is an essential provision under Section 22 of the Customs Act, 1962, allowing importers to reduce the duty payable on goods that are damaged upon arrival. The process involves an inspection by a Customs-approved surveyor, who evaluates the extent of the damage and determines the reduced value of the goods. Importers can then claim a reduction in duty based on this assessment.

The procedure ensures fairness in cases where goods are damaged during transit or unloading, protecting the financial interests of the importer and ensuring that Customs duties are levied on the actual value of the goods, not on their pre-damaged value.

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Caveat:  This article provides a general overview of the abatement of Customs duty on damaged goods under Indian Customs law. The information presented here is for educational and informational purposes only and should not be considered as legal advice. Customs regulations and procedures may evolve over time, and it is advisable for importers to consult with legal professionals or Customs experts for specific advice on their individual cases.