Custodian liability for customs duty requires proof of pilferage or substitution in custody; mere IGM discrepancy is insufficient.

A custodian is liable for customs duty on imported goods only where pilferage or substitution is proved to have occurred while the containers remained in its custody. On the facts noted, earlier examination reports signed by customs officers and the custodian's representative showed cement blocks and did not record broken seals or tampering. A later inventory discrepancy with the IGM, without evidence of seal breakage, substitution, or pilferage during custody, was insufficient to sustain duty demand or related penalties. The demand and penalties were therefore held unsustainable.

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Issues: Whether the custodian was liable to pay duty under section 45(3) of the Customs Act, 1962 and the connected penalties were sustainable, when the disputed containers had earlier examination reports showing cement blocks and no evidence that the seals were broken, tampered with, or substituted while in custody.

Analysis: Custody of imported containers moves on a said-to-contain basis until customs opens and examines them. The custodian is liable only if imported goods are pilfered while in its custody or if there is evidence that the seal was broken and the contents were substituted during such custody. The record contained prior examination reports for the same containers signed by customs officers and the custodian's representative, and those reports did not show broken seals or tampering. The later inventory report and discrepancy with the IGM, without proof of pilferage in custody, was insufficient to fasten duty liability on the custodian.

Conclusion: The duty demand and the consequential penalties were unsustainable and the appeal succeeded in favour of the assessee.

Ratio Decidendi: Duty under section 45(3) of the Customs Act, 1962 can be fastened on a custodian only on proof that imported goods were pilfered or substituted while in its custody, and a mere discrepancy between the IGM description and later found contents, without evidence of tampering or seal breakage during custody, is insufficient.

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