TaxTMI 
TaxTMI 
Pilferage of Imported Goods: Approval, Custody and Duty Liability under the Customs Act, 1962
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....ty under Section 13 of the Customs Act, 1962 when goods are pilfered after unloading but before clearance for home consumption or warehousing, unless they are restored to the importer. • Approval under Section 45(1) is a jurisdictional precondition to a demand under Section 45(3). A custodian cannot be subjected to this specific statutory duty for a period preceding its approval under Section 45(1). • A statutory port authority can validly be approved as a custodian. Its bailee-like civil responsibility for loss of goods under port law does not displace the distinct revenue liability created by Section 45(3). • The liability is not triggered by every shortage or discrepancy. Pilferage during the approv....
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....ption. It defines "customs area" as the area of a customs station or warehouse and includes an area in which imported or export goods are ordinarily kept before clearance by customs authorities. These definitions identify the goods and the controlled location to which Section 45 applies. Levy, pilferage and remission Section 12 of the Customs Act, 1962 provides that customs duties are levied on goods imported into, or exported from, India, except as otherwise provided. The material exception for pilferage is Section 13: "If any imported goods are pilfered after the unloading thereof and before the proper officer has made an order for clearance for home consumption or deposit in a warehouse, the importer shall not be liable" for duty, ....
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....e to pay duty". The duty rate is the rate prevailing on the date of delivery of the arrival manifest, import manifest or import report under Section 30 of the Customs Act, 1962. Detailed Analysis Approval under Section 45(1) is indispensable The Supreme Court treated approval under Section 45(1) as a necessary condition for the liability under Section 45(3). The words "a person referred to in sub-section (1)" are decisive. Thus, a person having factual or statutory custody cannot be required to pay duty under Section 45(3) for pilferage occurring before it was approved as the Section 45(1) custodian. This conclusion is significant in demand proceedings. The department must identify the approval or notification, its precise scope....
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....tion 161 addresses loss arising from the bailee's default in returning, delivering or tendering goods at the proper time. The Court held that this civil, owner-facing responsibility is conceptually different from the revenue-facing liability under Section 45(3). The latter is neither compensation nor indemnification payable to the owner. It is a statutory duty to pay customs duty to the revenue where the statutory conditions are met. Any private right of recovery, indemnity or recourse available to the custodian does not detract from that primary obligation. Saving clause and non obstante clause must be read together Section 45(1) begins with a saving clause, while Section 45(3) begins with an overriding clause. The Court harmo....
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....oses a defined statutory consequence for pilferage, not an irrebuttable liability for every mismatch in cargo description. Documentary evidence concerning seal integrity, examination reports, inventory records, gate movement, custody transfer and the point at which the shortage was detected is therefore central. Related judicial treatment In 2024 (8) TMI 1565 - Delhi High Court, the Court held that goods which had entered the customs area remained "imported goods" for Section 45(3), notwithstanding confiscation-related arguments based on the concept of smuggled goods. The decision reinforces that the relevant inquiry is whether goods brought from outside India were in the custodian's charge when pilfered. In 2024 (9) TMI 1503 -....
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....ation records, seal-verification logs, electronic gate controls, access-control registers, CCTV preservation, incident reports and prompt reporting of shortages are not merely administrative safeguards. They are evidence relevant to whether goods were pilfered while in custody and whether the goods were removed or dealt with without permission. The Handling of Cargo in Customs Areas Regulations, 2009 supplements these obligations. Regulation 6 of the Handling of Cargo in Customs Areas Regulations, 2009 requires a Customs Cargo Service Provider to maintain records, refrain from allowing removal without written permission, ensure safety and security of goods in its custody, and pay duty on goods pilfered after entry into the customs area. ....