The Charge Applied: Pilferage, Sets, Re-import and Derelict Goods

Section 19: goods consisting of articles liable to different rates

Section 19 provides the rule for a set. Where goods consist of a set of articles, duty is chargeable as follows:

(a) articles liable to duty with reference to quantity are chargeable at that rate;

(b) articles liable to duty at the same rate are chargeable at that rate;

(c) articles liable to duty at different rates are chargeable at the highest of those rates.

The first proviso is the relief and it is what an answer must include. Where the importer produces evidence satisfying the proper officer, or the proper officer is otherwise satisfied, regarding the value of any of the articles liable to different rates of duty, such article shall be chargeable to duty separately at the rate applicable to it.

The second proviso excludes accessories, spare parts and maintenance or repairing implements which are compulsorily supplied with an article and in respect of which no separate charge is made: they are chargeable at the same rate as the article.

The rule is therefore highest-rate by default, separate rates on proof. The default protects the revenue against a set assembled to bury a high-rate article inside a low-rate one; the proviso protects the honest importer who can show the values.

Section 20: re-importation of goods

Section 20 provides that if goods are imported into India after exportation therefrom, such goods shall be liable to duty and be subject to all the conditions and restrictions, if any, to which goods of the like kind and value are liable or subject, on the importation thereof.

The principle is that a re-import is an import. Indian goods sent abroad and brought back are chargeable again, because the taxable event is the bringing into India and the origin of the goods is irrelevant to it.

The rigour of that rule is moderated by exemption rather than by the section. Notifications issued under section 25 give relief for goods re-imported for repairs, for goods returned unsold, for goods re-imported after exhibition, and for goods rejected by a foreign buyer, generally subject to conditions of identity, time limits and the payment of duty on the value added abroad. So a complete answer states the rule in section 20 and then says that relief comes from the exemption power, not from section 20 itself.

Section 21: goods derelict, wreck and the like

Section 21 provides that all goods, derelict, jetsam, flotsam and wreck brought or coming into India, shall be dealt with as if they were imported into India, unless it be shown to the satisfaction of the proper officer that they are entitled to be admitted duty-free under this Act.

The four words are terms of maritime law and must be defined for a reader, which is precisely what the house rules require of a chapter.

Derelict is a vessel or cargo abandoned at sea by those in charge without hope of recovering it and without intention of returning to it.

Jetsam is goods deliberately thrown overboard, jettisoned, to lighten a vessel in danger, which then sink.

Flotsam is goods which float on the surface after a shipwreck, without having been deliberately thrown over.

Wreck is property cast ashore after a shipwreck.

The purpose of the section is to close a gap. Goods arriving in these ways are not imported by anybody in the ordinary sense: no importer entered them and no conveyance delivered them under a manifest. Without section 21 they would escape the charge entirely, and a coast where salvage was duty-free would be an obvious channel for evasion. The section therefore treats them as if imported, leaving the person claiming duty-free admission to establish it.

Distinctions the topic turns on

Worked example

Konark Exports ships back 200 rejected machine tools which it had exported to Germany, and in the same vessel imports a consignment of 50 tool kits, each kit containing a drill body, three bits and a plastic case. On arrival, 6 tool kits are stolen from the dock shed before the order under section 47 is made.

The re-imported machine tools attract section 20. They are liable to duty as if imported for the first time, and their Indian origin is no answer. Konark's relief, if any, lies in a notification under section 25 for goods returned by a foreign buyer, and it must satisfy the identity and time conditions that notification imposes.

The tool kits attract section 19. If the drill body, the bits and the case bear different rates, the whole kit is chargeable at the highest of those rates by section 19(c). But if Konark produces evidence satisfying the proper officer of the value of each article, the first proviso applies and each is charged at its own rate. If the plastic case is a container compulsorily supplied with no separate charge, the second proviso puts it at the rate of the article.

The six stolen kits attract section 13. They were pilfered after unloading and before the order for clearance, so Konark is simply not liable to duty on them, and needs no refund claim. Under section 45(3) the custodian of the customs area is liable to pay that duty. If the police recover four kits and they are restored to Konark, the exception in section 13 revives the liability on those four.

What it does NOT mean

It does not mean section 13 covers every loss. It covers pilferage only. Loss or destruction is section 23, and damage or deterioration is section 22, and confusing the three is the standard error in this area.

It does not mean a set is always charged at the highest rate. The first proviso to section 19 allows separate rates where the values are proved.

It does not mean Indian goods returning home are free of duty. Section 20 charges them; relief comes only from an exemption notification under section 25.

And it does not mean section 21 taxes salvage regardless. It treats such goods as imported, and leaves open the claim that they are entitled to duty-free admission under the Act.

Quick revision

• These sections exist because the charge under section 12 attaches on entry into India, not on clearance. Without them duty would be payable on goods never received.
• Section 13, pilferage: goods pilfered after unloading and before the order for clearance for home consumption or deposit in a warehouse, the importer is not liable to duty, unless the goods are restored to him. The custodian is liable under section 45(3).
• Section 19, sets: (a) articles dutiable by quantity at that rate; (b) articles at the same rate at that rate; (c) articles at different rates at the highest. First proviso: separate rates where the importer proves the value of an article. Second proviso: accessories, spare parts and maintenance implements compulsorily supplied with no separate charge take the article's rate.
• Section 20, re-importation: goods imported after having been exported are liable to duty and to all conditions and restrictions applicable to like goods; relief comes from section 25 notifications, not from section 20.
• Section 21, derelict and wreck: derelict (abandoned at sea without hope of recovery), jetsam (deliberately thrown overboard and sunk), flotsam (floating after a wreck), and wreck (cast ashore) are dealt with as if imported, unless duty-free admission under the Act is shown.
• The three relief provisions distinguished: s.13 pilferage (no liability), s.22 damage (abatement), s.23 loss, destruction or relinquishment (remission).

Test yourself

1. Explain the treatment of pilfered goods under section 13 and say why the section is needed at all. Section 13 provides that 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 for deposit in a warehouse, the importer shall not be liable to pay the duty leviable on those goods, except where they are restored to him after pilferage. Four conditions therefore govern it. The loss must be by pilferage, meaning petty theft of part of a consignment, so that destruction or total loss falls under section 23 and damage under section 22. It must occur after unloading, so a loss at sea is outside the section. It must occur before the order under section 47 or section 60, after which the importer carries the risk. And the relief is withdrawn if the goods are restored to him.

The section is needed because of the doctrine of the taxable event. Duty is attracted under section 12 when goods are brought into India, and since India includes the territorial waters, that happens well before the goods reach the importer. If the charge arose only on clearance, goods stolen from a dock shed before clearance would never have attracted duty and no relieving provision would be necessary. Section 13 exists precisely because the charge has already attached, and it operates not by way of refund or remission but by providing that the liability does not arise, which is why the importer need make no claim. The revenue is not simply abandoned: section 45(3) makes the person having custody of the goods in the customs area liable to pay the duty on goods pilfered while in his custody, so the loss is borne by the custodian who failed to keep them.

2. How is duty charged on a set of articles liable to different rates? By section 19. Where imported goods consist of a set of articles, duty is chargeable according to three rules: articles liable to duty with reference to quantity are chargeable at that rate; articles liable to the same rate of duty are chargeable at that rate; and articles liable to different rates of duty are chargeable at the highest of those rates. The default is therefore the highest rate applied to the whole set, which protects the revenue against a set assembled so as to conceal a high-rate article among low-rate ones.

Two provisos qualify it. The first is the importer's protection: where he produces evidence satisfying the proper officer, or the officer is otherwise satisfied, as to the value of any of the articles liable to different rates, that article is chargeable separately at the rate applicable to it. The burden of proving the values is on the importer, and it is a burden as to value rather than merely as to description. The second proviso deals with accessories, spare parts and maintenance or repairing implements compulsorily supplied with an article and for which no separate charge is made: these are chargeable at the same rate as the article they accompany, so that a spanner supplied free with a machine does not attract its own classification.

3. What does section 21 cover, and why is it necessary? It provides that all goods derelict, jetsam, flotsam and wreck brought or coming into India shall be dealt with as if they were imported into India, unless it is shown to the satisfaction of the proper officer that they are entitled to be admitted duty-free under the Act. The four expressions are terms of maritime law. Derelict is a vessel or its cargo abandoned at sea by those in charge without hope of recovery and without intention of returning. Jetsam is goods deliberately thrown overboard to lighten a vessel in danger, which sink. Flotsam is goods which float on the surface after a shipwreck, not having been deliberately cast over. Wreck is property cast ashore after a shipwreck.

It is necessary because such goods arrive in India without anybody importing them in the ordinary sense: there is no importer who entered them, no conveyance delivering them under a manifest, and often no owner present at all. The definitions of import and importer in sections 2(23) and 2(26) contemplate a person bringing goods in, so without express provision this class of goods would escape the charge altogether. That would leave an obvious channel for evasion along a long coastline, since goods could be represented as salvage. Section 21 closes the gap by deeming the goods to be imported, while preserving the possibility of duty-free admission where the Act allows it, and leaving the burden of showing that entitlement on the person who claims it.

4. Ravi exported machinery for repair and re-imports it eight months later. Is it dutiable? Under section 20 it is. That section provides that goods imported into India after exportation therefrom are liable to duty and subject to all the conditions and restrictions to which goods of the like kind and value are liable on importation. The reason is that the taxable event under section 12 is the bringing of goods into India, and the origin or history of the goods is irrelevant to whether that event has occurred; a re-import is an import.

Relief, if Ravi is to have any, does not come from section 20 but from the exemption power in section 25. Notifications issued under that section provide for goods re-imported after repair abroad, typically charging duty only on the value of the repairs together with the freight and insurance both ways rather than on the full value of the machinery, and they impose conditions: that the identity of the goods be established to the satisfaction of the proper officer, that re-importation take place within a stated period from export, and that the ownership have remained unchanged. Ravi's position therefore turns on whether he can satisfy the identity requirement and whether eight months falls within the period the relevant notification allows, and if the notification is ambiguous the ambiguity will be resolved against him following Commissioner of Customs v. Dilip Kumar and Company, (2018) 9 SCC 1.