2024 (9) TMI 1614 - AT - Customs

Demand of Customs duty in respect of goods destroyed while there were warehoused - seeking to demand interest and penalty in terms of the Warehousing (Custody and Handling of Goods) Regulation 2016 - impugned order passed without any jurisdiction and any authority of law - HELD THAT - The appellants are a custom warehousing station where goods are stored by importers/ exporter before they are exported or cleared from the bonded warehouse. There was a fire in the warehouse resulting in loss of certain goods. The custom duty amount on the goods lost came to Rs. 2,76,52,609/- which was paid by the appellants. The proceedings in the instant case are for recovery of interest on the said amount amounting to Rs. 93,43,881/-. The first question raised by the appellant is if such loss/ destruction can be treated as removal in terms of Section 71 and 73A of the Customs Act, 1962. It is opined that the removal in terms of Section 71 or section 73A does not include destruction of goods by way of fire or any other reason. There is no provision in the act or regulations to treat such destruction/ loss on account of fire, is deemed removal. In these circumstances, it is opined that no liability to pay duty or interest would arise under Section 71/73A of the Customs Act, 1962 as in the instant case as there was no illicit physical removal of warehoused goods from the warehouse. The lower authorities have also sought to invoke regulation 4(c) of the Custom Warehousing Regulation, 2016. The said regulation provide for the warehouse keeper to give an undertaking indemnifying the Principal Commissioner of Customs or Commissioner of Customs, as the case may be from any loss arising on account of loss suffered in respect of warehoused goods due to accident, damage, destruction, deterioration or any other unnatural cause during the receipt, delivery, storage despite or handling. It is seen that the said undertaking is to protect the Commissioner of Customs from any liability arising on account of such laws suffered in respect of warehoused goods - In the instant case, the Commissioner has not shown any liability arising on account of such goods. There is no liability of customs duty or interest on the Commissioner of Customs and therefore invocation of clause (c) of Regulation 4 is not warranted in the facts of the case. Section 73A applies only when the goods are physically removed from the warehouse improperly. Any loss arising on account of fire or any other natural cause cannot be treated as removal in terms of Section 73A and therefore, the provisions of clause (b) of Regulation 4 are also not applicable to the instant case - it is apparent that provisions of Section 73A cannot be invoked to recover duty or interest or impose penalty in case where there is loss on account of fire within a bonded warehouse. The impugned order therefore cannot be sustained and is set aside - The appeal is consequently allowed.

Summary

Issues:
1. Demand of Customs duty on goods destroyed while warehoused.
2. Jurisdictional validity of the show cause notice.
3. Applicability of Sections 28(1), 73(A), and 71 of the Customs Act, 1962.
4. Interpretation of the term "removal" in the context of warehoused goods.
5. Compliance with Public Warehouse License Regulations 2016.
6. Liability for duty, interest, and penalties in case of goods lost due to fire.
7. Invocation of regulations for indemnification and liability protection.
8. The authority's power to recover duty, interest, and penalties in case of loss due to natural causes.

Analysis:
1. The appeal was filed against the demand for Customs duty on goods lost in a fire while warehoused. The appellant voluntarily paid the duty on the lost goods, but a show cause notice was issued for interest and penalty. The counsel argued that the notice lacked jurisdiction and pre-notice consultations, exceeding the limitation period under Section 28(1) of the Customs Act, and wrongly invoked Section 73(A) for duty, interest, and penalties without evidence of removal under Section 71.

2. The impugned order was challenged for deeming the goods lost in fire as removal, erroneously mentioning relinquishment of goods' title, and confirming interest under Section 73(A) without a sustainable duty demand. The counsel highlighted misinterpretation of regulations, lack of evidence of liability against the Commissioner, absence of safety allegations, and the nature of the payment made by the appellant.

3. The Tribunal found the facts undisputed, emphasizing the appellant's role as a custom warehousing station. It clarified that loss due to fire does not constitute removal under Sections 71 and 73A, rejecting the liability for duty or interest. The invocation of Regulation 4 of the Public Warehouse License Regulations was deemed unwarranted as there was no physical removal of goods improperly, leading to the appeal's allowance due to the absence of duty or interest liability in case of fire-induced losses.

4. The judgment emphasized the distinction between physical removal and loss due to natural causes, highlighting the inapplicability of duty, interest, or penalties under Section 73A in cases of goods lost within a bonded warehouse. The impugned order was set aside, concluding that the provisions of Section 73A could not be used to recover duty or interest in instances of fire-induced losses within a bonded warehouse.