Port Trusts Not Immune From Customs Duty On Pilfered Goods: Supreme Court Upholds Notification Declaring Mumbai Port Trust As Custodian Under Section 45

"The liability under Section 45(3) of the Customs Act, on the other hand, is not one of indemnification or compensation to the owner of the goods. It is a statutory liability to pay customs duty to the Revenue in respect of imported goods which have been pilfered while in the custody of the approved custodian." Supreme Court of India, in a significant ruling delivered on August 25, 2026, held that Port Trusts are not immune from the statutory liability to pay customs duty on goods pilfered from their custody under Section 45(3) of the Customs Act, 1962.

A bench comprising Justice B.V. Nagarathna and Justice Manmohan set aside a Bombay High Court judgment that had declared the notification appointing the Mumbai Port Trust as an approved custodian under Section 45(1) ultra vires and without jurisdiction.

The Assistant Commissioner of Customs issued show cause-cum-demand notices between 1996 and 2000 to the Board of Trustees of the Port of Bombay seeking customs duty under Section 45(3) of the Customs Act for pilfered imported cargo, following which a notification was issued on October 11, 2000, formally declaring the Mumbai Port Trust as an approved custodian under Section 45(1). Aggrieved by the adjudication orders and the notification, the Port Trust approached the Bombay High Court, which quashed the demand notices as well as the notification dated October 11, 2000. Challenging this verdict, the Union of India approached the Supreme Court in appeal.

The primary question before the court was whether the notification dated October 11, 2000, approving the Port Trust as a custodian under Section 45(1) of the Customs Act, is valid and whether statutory liability for customs duty on pilfered goods under Section 45(3) can be fastened onto a Major Port Trust governed by the Major Port Trusts Act, 1963.

Scope Of Non Obstante Clause Versus Saving Clause

The Supreme Court commenced its analysis by examining the interplay between the saving clause in Section 45(1) and the non obstante clause enacted in Section 45(3) of the Customs Act. The bench referred to the landmark rulings in Aswini Kumar Ghosh vs. Arabinda Bose and Dominion of India vs. Shrinbai A. Irani to expound that a non obstante clause is introduced by the legislature to override inconsistent provisions and ensure the operative part of the statute has full effect.

The bench observed that Section 45(1) operates with the words "save as otherwise provided in any law for the time being in force," whereas Section 45(3) explicitly employs the non obstante clause "notwithstanding anything contained in any law for the time being in force." The court noted that Section 45(3) was deliberately inserted by Parliament through Act 22 of 1995 to prevent loss of public revenue, since Section 13 of the Customs Act absolves the importer from paying duty on pilfered goods.

"The non obstante clause in sub-section (3) of Section 45 of the Customs Act provides that it shall operate 'notwithstanding anything contained in any law for the time being in force.' The expression necessarily includes the Customs Act and the Major Port Trusts Act, notwithstanding the saving clause contained in sub-section (1) of Section 45."

Distinct Natures Of Port Trust Bailee Liability And Customs Duty Liability

The court meticulously distinguished between the civil responsibility of a Port Trust under the Major Port Trusts Act, 1963, and its tax liability under the Customs Act, 1962. Under Sections 42 and 43 of the Major Port Trusts Act read with Sections 151, 152, and 161 of the Indian Contract Act, 1872, the Port Trust acts merely as a bailee whose civil liability to compensate the cargo owner is conditional upon the issuance of receipts and compliance with statutory regulations.

By contrast, the bench ruled that Section 45(3) of the Customs Act creates an absolute, independent statutory liability to discharge unpaid customs duty to the Revenue whenever pilferage occurs while goods are in the custody of the approved custodian. The court found no conflict between the enactments, pointing out that safeguarding state revenue operates on an entirely different footing from inter se compensatory claims between a bailee and cargo owner.

"The source, nature and object of the two liabilities are, clearly, distinct. While the Board may remain liable as a bailee to compensate the owner for the loss occasioned by its negligence, Section 45(3) independently fastens upon the approved custodian the obligation to make good the customs duty which, by virtue of Section 13, cannot be recovered from the importer."

Pilferage Treated Differently From General Loss Of Goods

The bench emphasized that the Customs Act draws a clear statutory demarcation between general loss or destruction of goods under Section 23 and theft or pilferage under Section 13. While general loss simpliciter could remain governed by the bailment framework under the Major Port Trusts Act, pilferage is specifically covered under Section 13 and Section 45(3) of the Customs Act.

The court reiterated that once an entity is approved as a custodian in a notified customs area under Section 45(1), it remains burdened with statutory responsibilities under Section 45(2) to secure cargo and prevent unauthorized removal. Any pilferage that occurs represents a breach of these obligations, directly triggering the liability under Section 45(3) to make good the customs duty.

Validity Of Custodian Notification Upheld

The bench held that the Commissioner of Customs (Import) acted well within his jurisdiction in issuing the notification dated October 11, 2000, approving the Mumbai Port Trust as the custodian under Section 45(1) of the Customs Act. Consequently, the High Court committed a manifest error in holding that the Commissioner lacked jurisdiction to approve a statutory port trust as a custodian.

Regarding the recovery notices issued between 1996 and 2000 for periods prior to the notification, the Supreme Court noted that counsel for the Union of India fairly did not press the pre-notification demands, as liability under Section 45(3) can only attach once an entity is approved as a custodian under Section 45(1). The quashing of those specific pre-2000 demand notices was therefore left undisturbed.

The Supreme Court disposed of the appeal by setting aside the Bombay High Court's judgment to the extent it declared the notification dated October 11, 2000, ultra vires and invalid. The ruling affirms the statutory authority of customs authorities to approve Major Port Trusts as custodians and fasten absolute liability on them for customs duty on pilfered cargo.

Date of Decision: August 25, 2026