Custom Issue

Upon consideration of the facts as disclosed, namely that goods have been imported from the UAE, are presently lying at the port/dock yard in India, and the foreign supplier has refused to pay the applicable customs duty resulting in non-clearance of the consignment and accrual of daily dock rent/demurrage, it is opined that, under the scheme of the Customs Act, 1962 and the settled practice of ports, Container Freight Stations (CFS) and Inland Container Depots (ICD) in India, the Importer of Record, i.e., the person in whose name the Bill of Entry is filed or required to be filed, bears the primary and absolute liability vis-à-vis customs and port authorities for payment of customs duty, completion of customs formalities and clearance of goods, and consequently for payment of demurrage/dock rent for the entire period the goods remain uncleared, irrespective of any dispute with the foreign supplier. Neither the port nor Indian Customsrecognises or enforces contractual arrangements or Incoterms between the importer and the overseas exporter for the purpose of recovery of duty or demurrage, and accordingly the daily rent continues to accrue against the importer alone until clearance, re-export, abandonment or auction of the goods.

It is further opined that the refusal of the UAE supplier to pay customs duty does not, in law, shift or suspend the importer’s statutory liability towards customs or the port; however, the supplier may be held contractually liable to indemnify the importer for customs duty, demurrage and consequential losses if, under the governing contract, purchase order, invoice or agreed Incoterms (particularly in the case of DDP or an express undertaking to bear duty), the responsibility for payment of duty was placed upon the supplier. Such liability of the supplier is enforceable only through independent legal remedies, including issuance of a legal notice, arbitration or civil proceedings, and not by withholding payment of demurrage or duty to the authorities. In the interim, demurrage continues to accrue on a daily basis and may rapidly exceed the value of the goods, and courts consistently expect the importer to act prudently to mitigate losses rather than await resolution of inter se disputes with the exporter.

Accordingly, from a legal and commercial risk-management perspective, it is advised that the importer should immediately adopt the most cost-effective course to arrest further accrual of demurrage, namely: (i) paying customs duty and clearing the goods under protest, if the goods are commercially viable, followed by recovery proceedings against the supplier; or, where the value of the goods does not justify such clearance, (ii) promptly applying for abandonment of goods under Section 23 of the Customs Act, 1962, or (iii) seeking permission for re-export, in each case bearing demurrage accrued till the date of such action. Delay or inaction is likely to aggravate financial exposure without conferring any legal advantage. The importer’s right to recover duty, demurrage and damages from the supplier remains intact and should be pursued separately, but such contractual disputes cannot be used as a defence against statutory and port-related liabilities in India.

Accordingly, from a legal and commercial risk-management perspective, it is advised that the importer should immediately adopt the most cost-effective course to arrest further accrual of demurrage, namely: (i) paying customs duty and clearing the goods under protest, if the goods are commercially viable, followed by recovery proceedings against the supplier; or, where the value of the goods does not justify such clearance, (ii) promptly applying for abandonment of goods under Section 23 of the Customs Act, 1962, or (iii) seeking permission for re-export, in each case bearing demurrage accrued till the date of such action. Delay or inaction is likely to aggravate financial exposure without conferring any legal advantage. The importer’s right to recover duty, demurrage and damages from the supplier remains intact and should be pursued separately, but such contractual disputes cannot be used as a defence against statutory and port-related liabilities in India.