THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S AREBEE STAR MARITIME AGENCIES PVT. LTD. & ORS.

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17Copy pinpoint17. This becomes even clearer when section 42 is perused. Under section 42(1), a Board shall have power to undertake services insofar as landing, shipping or transhipping goods between vessels in the port and the wharves, piers, quays or docks belonging to or in the possession of the Board, referring clearly, therefore, to services rendered to the vessel (see section 42(1)(a)). Insofar as receiving, removing, shifting, or transporting goods is concerned, these could be services to both the vessel as well as the owner/person entitled to the goods. The moot question is, when it comes to “storing” goods brought within the Board’s premises, whether such service could be said to be a service rendered to the vessel or its agent (see section 42(1)(b)). Some of the pivotal provisions of the MPT Act, insofar as the present questions are involved, are contained in sections 42(2), 42(7) and 43 of the Act. Under section 42(2), a Board may, if so requested by the “owner”, take charge of the goods for the purpose of performing services, and shall give a receipt in such form as the Board may specify. It is obvious that if the ship-owner or its agent are not “owners”, the Board cannot take the charge of the goods from the ship-owner or its agent for the purpose of performing services, a result which would lead to startling consequences. Secondly, under sub-section (7), once goods have been taken charge of and a receipt given for them, no liability for any loss or damage which may occur to them shall attach to any person to whom a receipt has been given (this would include any of the persons mentioned in section 2(o)(i), including the vessel’s agents), or to the master or owner of the vessel from which the goods have been landed or transhipped. This would again make it clear that the master or owner of the vessel and their agents, from this point on, have been absolved from liability for loss or damage to the goods, as the Board has now taken over the custody of the goods from such master or owner of the vessel. From this point on, therefore, the master or owner of the vessel and their agents cease to have any liability qua the goods, inasmuch as the Port Trust has now taken them over. Concomitantly, under section 43(1)(ii), the responsibility of the Port Trust for loss, destruction or deterioration of goods of which it has taken charge from this point of time onwards now becomes that of a bailee under sections 151, 152 and 161 of the Indian Contract Act, 1872, omitting the words “in the absence of any special contract” in section 152 of the Contract Act. This responsibility attaches only after a receipt is given by the Board, and notice of loss or damage has been given,after expiry of such period (as may be prescribed) from the crucial date on which the H Port Trust takes charge of the goods.

THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S 751 AREBEE STAR MARITIME AGENCIES PVT. LTD. [R. F. NARIMAN, J.]

18Copy pinpoint18. At this juncture, it is important to state that arguments have A been made based on observations contained in various judgments in which sections 42 (5) and (6) of the MPT Act have been referred. Sections 42(5) and (6) have no application to the Board, as they apply only to the “person” authorised under section 42(3) by the Board to perform services mentioned in sub-section (1). B

19Copy pinpoint19. Again, under section 48, a distinction is made between landing of goods from a vessel, and storage or demurrage charges in respect of goods – see section 48(1)(b), as contrasted with section 48(1)(d).When it comes to services performed on vessels, sections 49A, 49B, 50, 50A and 50B make it clear that the services rendered to vessels for which dues have to be paid by vessels are entirely separate and distinct from services rendered insofar as goods that are landed are concerned.

20Copy pinpoint20. Coming to section 59, it becomes clear that for all rates leviable under the MPT Act, which includes rates leviable for storage of goods, the Board shall have a lien on such goods, and may, after custody of such goods is taken by the Port Trust, then seize and detain the same until such rates are fully paid.

21Copy pinpoint21. Section 60 is also important, in that the ship-owner’s lien for freight and other charges is recognised if, at or before the time of landing of any goods from such vessel, such freight or other charges have not been paid.Under section 60(2), the goods shall be retained in the custody of the Board at the risk and expense of the owners of the goods until such lien is discharged. Most importantly, godown or storage rent shall be payable by “the party entitled to such goods” for the time during which they may be so retained.This section is of crucial importance, as it makes it clear that godown or storage rent is payable only by the party entitled to such goods, which can never be the ship-owner or the ship- owner’s agent after the goods have been landed, and the vessel has sailed away from the port.Further, under section 61, after two months from the time goods have passed into the Board’s custody, the Board may, if it thinks fit, sell – by the modalities laid down – such goods or so much thereof as may be necessary to recover the rates payable to the G Board which remain unpaid. Sub-section (3) of section 61 is very important, in that before making such sale, if the address of the “owner of the goods” which has been stated on the manifest, or in other documents that have come into the hands of the Board, or is otherwise known, notice of such sale must be given to such owner. H

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22Copy pinpoint22. Section 62 speaks of the disposal of goods that have not been removed from the premises of the Board within time, and speaks of their removal by the “owner or other person entitled thereto”. Under sub-section (2) of section 62, where such goods are proposed to be removed or sold, a notice may also be served on the “agents of the vessel by which such goods were landed”. This is for the reason that the vessel’s agents may have indicated that the ship-owner has a lien for freight and other charges, which must be satisfied out of the sale of such goods. The important point to be noted is that a clear distinction is made between an “owner or other person entitled” to goods, and agents of the vessel. Further, under sub-section (3) of section 62, it is only if the owner or person entitled to goods does not comply with the requisition in the notice, that the Board may, at any time after the expiration of two months from the date on which such goods were placed in its custody, then sell the goods in the manner indicated.The scheme of section 62, therefore, is that when it comes to sale of goods which are lying stored in the premises of the Board, notice is to be given only to the owner, or other persons who are beneficially entitled to the goods, who must then comply with the requisition given and remove the goods. At this juncture, the ship-owner or its agents are not persons who have to comply with such requisition, as they are neither persons who are the owner, or other persons entitled to the goods. The notice issued to the agent of the vessel is only for the limited purpose as aforesaid.This again indicates that goods that are stored on the premises of the Board have a nexus only with the owner or other persons entitled to those goods, and not with the agent of the vessel or the vessel itself.

23Copy pinpoint23. Section 63 is again very important. When goods have been sold and a surplus exists, the surplus shall be paid to only three persons or their agents, namely, the “importer”, “owner” or “consignee” of the goods. In this sub-section, namely, 63(2), as in the case of “owner’ under section 61(3), the owner of the goods is obviously not the “owner” as defined under section 2(o), as the context of section 63(2) indicates otherwise. There would have been no need to add “importer” or G “consignee” in this sub-section, as they are already subsumed within the wider definition of “owner” in relation to goods under section 2(o). Secondly, what is conspicuous by its absence is mention of the vessel or any agent for loading or unloading goods.As a matter of fact, when it comes to recovery of rates and charges against the vessel, a separate remedy is provided for in sections 64 and 65 of the MPT Act.

THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S 753 AREBEE STAR MARITIME AGENCIES PVT. LTD. [R. F. NARIMAN, J.]

24Copy pinpoint24. The statutory scheme of the MPT Act now becomes crystal clear.Until the stage of landing and removal to a place of storage, the steamer’s agent or the vessel itself may be made liable for rates payable by the vessel for services performed to the vessel. Post landing and removal to a place of storage, detention charges for goods that are stored, and demurrage payable thereon from this point on,i.e. when the Port B Trust takes charge of the goods from the vessel, or from any other person who can be said to be owner as defined under section 2(o), it is only the owner of the goods or other persons entitled to the goods (who may be beneficially entitled as well) that the Port Trust has to look to for payment of storage or demurrage charges.

25Copy pinpoint25. At this juncture, the Customs Act, 1962 also becomes relevant. C Under section 2(26), ‘‘importer” is defined as including any owner, beneficial owner or any person holding himself out to be the importer. Though this definition does not ipso facto apply to the MPT Act, it is important that the two Acts be read together, as both Acts deal with goods that are imported into the country from abroad, and their storage and disposal thereafter. In any event, the expression “importer” that occurs in section 63(2) of the MPT Act would certainly include a beneficial owner of the goods.

26Copy pinpoint26. Under section 29 of the Customs Act, the person-in-charge of a vessel when it carries cargo can land only at a “customs port”(as defined), unless otherwise permitted by the Central Board of Excise. Under section 30, the person-in-charge of a vessel carrying imported goods shall deliver to the “proper officer”, i.e. a customs officer, an import manifest of the vessel within the time prescribed, which would indicate the nature of the goods carried by the vessel, and the consignee or other owner of the goods.Under section 33, no such imported goods can be unloaded at any place other than the place approved for unloading of such goods in the customs port, customs airport or coastal port.Under section 45(1), all imported goods unloaded in a customs area shall remain in the custody of such person as approved by the Principal Commissioner of Customs or Commissioner of Customs until they are cleared for home consumption or are warehoused or transhipped.Section 46(1) is extremely important in that it speaks of a bill of entry for home consumption or warehousing in such form and manner as may be prescribed. Section 46(2) then states that a bill of entry shall include all the goods mentioned in the bill of lading or other receipt given by the carrier to the H

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A consignor.Under section 48, if any goods brought into India from a place outside India are not cleared for home consumption or warehoused or transhipped within 30 days from the date of the unloading, such goods may, after notice to the “importer” and with permission of the proper officer, be sold by the person having the custody thereof.

27Copy pinpoint27. Under section 49, imported goods may, pending clearance or removal, be permitted to be stored in a public warehouse for a period not exceeding 30 days, or such other extended period that the Principal Commissioner or Commissioner of Customs may permit. The Customs Act, therefore, also contains parallel provisions for authorities under that Act to take charge of, store, and sell imported goods, in the circumstances mentioned therein.

28Copy pinpoint28. It was argued that carrying goods in a container would, in any case, make a difference to the position that only the owner of the goods or person entitled to the goods is liable to pay for demurrage. According to the Port Trust, when goods are imported in a container, and the container is then landed without the goods being destuffed, and the container belongs to the ship-owner’s agent and has to be returned to the ship-owner’s agent, for the duration that the container takes up storage space, storage charges will have to be paid by the ship-owner’s agent. Let us examine whether this argument is sound in law.

29Copy pinpoint29. Under the Customs Act, 1962, customs duties are levied on goods imported into India. “Import” has been defined in section 2(23) of the Customs Act as the “bringing into India from a place outside India”. Thus, import of goods can only be said to be complete after they cross into the territorial waters of India, and become part of the mass of goods F within India. This is the law laid down by this Court in Garden Silk Mills Ltd. and Anr v. Union of India and Ors. (1999) 8 SCC 744, as follows: “17. It was further submitted that in the case of Apar (P) Ltd. [(1999) 6 SCC 117] this Court was concerned with Sections G 14 and 15 but here we have to construe the word “imported” occurring in Section 12 and this can only mean that the moment goods have entered the territorial waters the import is complete. We do not agree with the submission. This Court in its opinion in Bill to Amend Section 20 of the Sea Customs Act, 1878 and Section 3 of the Central Excises and Salt Act, 1944, Re observed as follows:

THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S 755 AREBEE STAR MARITIME AGENCIES PVT. LTD. [R. F. NARIMAN, J.]

“Truly speaking, the imposition of an import duty, by and large, results in a condition which must be fulfilled before the goods can be brought inside the customs barriers, i.e., before they form part of the mass of goods within the country.”

18. It would appear to us that the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country; the taxable event being reached at the time when the goods reach the customs barriers and the bill of entry for home consumption is filed.”

30Copy pinpoint30. Likewise, in Mangalore Refinery & Petrochemicals Ltd.v. C Commissioner of Customs (2016) 14 SCC 709, this Court dealt with when an import could be said to be complete under the Customs Act. After referring to various provisions of the Customs Act, this Court held: “9. On a reading of the aforesaid provisions, it is clear that the levy of customs duty under Section 12 is only on goods imported into India. Goods are said to be imported into India when they are brought into India from a place outside India. Unless such goods are brought into India, the act of importation which triggers the levy does not take place. If the goods are pilfered after they are unloaded or lost or destroyed at any time before clearance for home consumption or deposit in a warehouse, the importer is not liable to pay the duty leviable on such goods. This is for the reason that the import of goods does not take place until they become part of the land mass of India and until the act of importation is complete which under Sections 13 and 23 happens only after an order for clearance for home consumption is made and/or an order permitting the deposit of goods in a warehouse is made. Under Section 23(2) the owner of the imported goods may also at any time before such orders have been made relinquish his title to the goods and shall not be liable to pay any duty thereon. In short, he may abandon the said goods even after they have physically landed at any port in India but before any of the aforesaid orders have been made. This again is for the good reason that the act of importation is only complete when goods are in the hands of the importer after they have been cleared either for home consumption or for deposit in a warehouse. Further, as per Section 47 of the Customs Act, the importer has to pay import duty only on goods H

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A that are entered for home consumption. Obviously, the quantity of goods imported will be the quantity of goods at the time they are entered for home consumption. xxx xxxxxx

14. We are afraid that each one of the reasons given by the Tribunal B is incorrect in law. The Tribunal has lost sight of the following first principles when it arrived at the aforesaid conclusion. First, it has lost sight of the fact that a levy in the context of import duty can only be on imported goods, that is, on goods brought into India from a place outside of India. Till that is done, there is no charge to tax. This Court in Garden Silk Mills Ltd. v. Union of India,stated that this takes place, as follows: “17. It was further submitted that in Apar (P) Ltd. [Union of India v. Apar (P) Ltd., (1999) 6 SCC 117] this Court was concerned with Sections 14 and 15 but here we have to construe the word “imported” occurring in Section 12 and this can only mean that the moment goods have entered the territorial waters the import is complete. We do not agree with the submission. This Court in its opinion in Sea Customs Act, 1878, S. 20(2), In re [Sea Customs Act, 1878, S. 20(2), In re, AIR 1963 SC 1760] SCR at p. 823 observed as follows: E ‘26. … Truly speaking, the imposition of an import duty, by and large, results in a condition which must be fulfilled before the goods can be brought inside the customs barriers i.e. before they form part of the mass of goods within the country.’

F 18. It would appear to us that the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part of the mass of goods within the country; the taxable event being reached at the time when the goods reach the customs barriers and the bill of entry for home consumption is filed.” G

31Copy pinpoint31. However, another line of judgments deals with what was called the “original package”doctrine laid down by Chief Justice Marshall of the US Supreme Court in Brown v. State of Maryland 25 U.S. 419 (1827). This judgment laid down that while the goods imported remained the property of the importer in the original form of packaging in which it H was imported, a tax upon it would be “imposts or duties on imports”

THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S 757 AREBEE STAR MARITIME AGENCIES PVT. LTD. [R. F. NARIMAN, J.]

without the consent of the Congress, violating section 10(2) of Article I A of the US Constitution.In addition, any such “impost or duty” would also violate the Commerce clause under section 8(3) of Article I of the said Constitution,which grants power to the Congress to regulate commerce with foreign nations. Thus, a State legislature has no power to impose an “impost or duty” upon the first sale of the commodity so long as it remained in the importer’s hands1.

32Copy pinpoint32. This doctrine has been the subject-matter of comment in a variety of different situations. Thus, in the Province of Madras v. Boddu Paidanna & sons, A.I.R. (29) 1942 Federal Court 33 (at page 37), in the context of sales tax legislation by the States, the Federal Court referred to Chief Justice Marshall’s judgment, and distinguished the same, saying that it would apply to the Commerce clause in the US Constitution,and would not apply by analogy to the legislative entries under the SeventhSchedule of the Government of India Act (1935). Likewise, in State of Bombay and Anr. v. F.N. Balsara 1951 SCR 682, in the context of a law passed by the Legislature of the Province of Bombay D relating to prohibition of intoxicating liquors, an argument based on Chief Justice Marshall’s dictum in Brown (supra) was made, stating that in pith and substance such law would relate to import and export of intoxicating liquors, and therefore be void.This was turned down, referring to Boddu Paidanna (supra), stating that in the American judgment the widest meaning could be given to the Commerce clause as there was no question of reconciling that clause with another clause containing the legislative power of the State –see pages 696 to 700.

33Copy pinpoint33. In Central India Spinning and Weaving and Manufacturing Company, Ltd. v. The Municipal Committee, Wardha 1958 SCR 1102, this Court, in the context of a terminal tax, relied upon the dictum of Chief Justice Marshall in Brown (supra) in order to answer the question before it, namely, whether a terminal tax 1 In two later judgments of the US Supreme Court, Michelin Tire Corporation v. Wages 423 U.S. 276 (1976) and Limbach v. Hoover & Allison Company 466 U.S. 353 (1984), judgments following Brown (supra) enunciating the “original package” G doctrine were reversed, stating that non-discriminatory taxes which did not fall on imports as such, or interfere with the free flow of imported goods amongst the States, could not be said to be contrary to the Commerce clause or contrary to Section 10(2) of Article I of the US Constitution. A different approach was adopted to Section 10(2) of Article I, ignoring the question whether the goods were imported, and instead analysing the nature of the tax to determine whether it was an “impost or duty”. H

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A can be levied on goods which are in transit.The question was answered in the negative – see pages 1114 and 1121.

34Copy pinpoint34. In Gramophone Company of India Ltd. v. Birendra Bahadur Pandey & Ors. (1984) 2 SCR 664, Central India Spinning and Weaving (supra) was distinguished, and Boddu Paidanna (supra) B and F.N. Balsara (supra) were relied upon, to interpret the word “import” as found in the Copyright Act, 1957. Cases under the Customs Act were expressly distinguished by this judgment as follows: “The learned counsel for the appellant invited our attention to Radhakishan v. Union of India [1965 2 SCR 213]; C Shawhney v. Sylvania and Laxman [77 Bom LR 380]; Bernado v. Collector of Customs [AIR 1960 Ker 170], to urge that importation was complete so soon as the customs barrier was crossed. They are cases under the Customs Act and it is needless for us to seek aid from there when there is enough direct light under the Copyright Act and the various conventions and D treaties which have with the subject “copyright” from different angles. We do not also desire to crow our judgment with reference to the history of the copyright and the customs legislations in the United Kingdom and India as we do not think it necessary to do so in this case.”2

35Copy pinpoint35. A recent judgment of this Court in State of Kerala & Ors. v. Fr. William Fernandez Etc. 2017 SCC OnLine SC 1291, was concerned with the validity of various State legislations relating to entry tax. As many as eight issues were raised by this Court, in which issue (iv) reads as follows: F “44(iv). Whether the importation of goods, imported from a territory outside the India continues till the goods reach in the premises/factory of the importer, during which period State at no point of time is legislative competence to impose any tax.”

36Copy pinpoint36. The discussion in answering this question raised in paragraph G 44(iv) begins in paragraph 86.After referring to various definitions of the term “import” in different legal situations, this Court noticed various judgments relating to customs in paragraphs 97 to 103. As a matter of fact in paragraph 103, the law laid down in Garden Silk Mills Ltd. (supra) was extracted with approval as follows: 2 H Page 691.

THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S 759 AREBEE STAR MARITIME AGENCIES PVT. LTD. [R. F. NARIMAN, J.]

103. Similar view was expressed in the case of Garden Silk Mills A Ltd. v. Union of India, (1999) 8 SCC 744, in paragraph 18, which is to the following effect:— “18. It would appear to us that the import of goods into India would commence when the same cross into the territorial waters but continues and is completed when the goods become part B of the mass of goods within the country; the taxable event being reached at the time when the goods reach the customs barriers and the bill of entry for home consumption is filed.”

37Copy pinpoint37. These judgments were then distinguished by the Court as follows: C “104. The law relating to customs has been consolidated by the Customs Act, 1962. The definitions of “import”, “imported goods” and “importer” have already been noticed above. The definition of imported goods as given in Section 2(25) is-any goods brought into India from the place outside India but does not include goods, which have been cleared for home consumption. The provision clearly contemplates that once the goods are released for home consumption, the character of imported goods is lost and thereafter no longer the goods could be called as imported goods. The import transit is only till the goods are released for home consumption. The taxing event for entry tax under Entry 52 List II is entirely different and has nothing to do with the customs duty. The State by imposing entry tax in any manner is not entrenching in the power of the Parliament to impose customs duty. The goods are released for home consumption only after payment of the customs duty due to the Central Government. The goodswhich are imported cannot be held to be insulated so as to not subject to any State tax, any such insulation of the imported goods shall be a protectionist measure which will be discriminatory and invalid. When all normal goods are subjected to State tax no exemption can be claimed by goods, which have been imported from payment of entry tax. To take a common example, all goods, which pass through a toll bridge are liable to pay toll tax, can it be said that the imported goods which after having been released from customs barriers and are passing through a toll bridge, are not liable to pay the toll tax, the answer has to be in No. Thus, the event for levy of customs duty, which is in the domain of the Parliament, is entirely different from H

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A that of event of entry tax. The liability to pay State entry tax arises only when goods enter into a local area for consumption, use and sale, which event is entirely different and separate from the levy of a customs duty, which is on import.” (emphasis in original)

38Copy pinpoint38. The judgment went on to discuss the “original package” doctrine of Chief Justice Marshall in paragraphs 108 to 120, finding that recent US Supreme Court judgments had abandoned this doctrine, and that therefore, the Federal Court in Boddu Paidanna (supra) and the two judgments of this Court in F.N. Balsara (supra) and Gramophone C Company of India Ltd. (supra) were correct in not relying on this doctrine in the context of the cases before them. This doctrine has no place in the customs law of India, the judgments of this Court concentrating on when an import can be said to be complete on an analysis of the Customs Act.

39Copy pinpoint39. Given the aforesaid judgments under the Customs Act, a container, being a receptacle in which goods are imported, cannot be said to be “goods” that are imported as itdoes not become part of the mass of goods within the countryon the facts of these cases. Thus, once destuffing takes place, the container has to be returned either to the ship-owner’s agent, or to the person who owns such container. E

40Copy pinpoint40. In fact, the Bill of Entry (Forms)Regulations, 1976 (as amended upto date) contain forms in which a Bill of Entry is to be presented by an importer of goods for home consumption, or for warehousing, or forex- bond clearance for home consumption. Regulation 3 of the aforesaid Regulations reads as follows: F “3. Form of Bill of Entry.- The Bill of Entry to be presented by an importer of any goods for home consumption or for warehousing or for ex-bond clearance for home consumption shall be in Form I or Form II or Form III as the case may be. Explanation - In this regulation, “goods” does not include those G goods which are intended for transit or transshipment.”

41Copy pinpoint41. Form I, which speaks of a Bill of Entry for home consumption, contains a declaration to be signed by an importer, clause 6(b) of which is important and is set out hereunder: H

THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S 761 AREBEE STAR MARITIME AGENCIES PVT. LTD. [R. F. NARIMAN, J.]

“6(b) I/We declare that there are the following payments actually A paid or payable for the imported goods by way of cost and services other than those declared in the invoice^ [^please refer to Rule 10 (1) (a) & (b) of the Customs Valuation Rules, 2007] Sl. Particulars Amount or expressed as B No. % of the unit price i. Brokerage and Commissions, except buying commission [Rule 10(1)(a)(i) of the Customs Valuation Rules, 2007]: ii. Cost of containers [Rule C 10(1)(a)(ii)]: iii. P acking cost [Rule 10(1)(a)(iii)]: iv. Cost of goods and services supplied by the buyer [Rule 10(1)(b)]:

42Copy pinpoint42. The same declaration is contained in Forms II and III. A perusal of the aforesaid Forms prescribed under the said Regulations would show the difference between “goods” that are imported, which have reference to the bill of lading/invoice presented by the importer which contains the number and value of the goods imported,and payments by way of costs and services other than those declared in the invoice, which includescosts of containers under Rule 10(1)(a)(ii) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, and packing costs under Rule 10(1)(a)(iii) of these Rules. This leads to an examination of the aforesaid Rules.

43Copy pinpoint43. Rules 2(1)(d) and (f) of these Rules are relevant, and are set out hereinbelow: “2. Definitions.- (1) In these rules, unless the context otherwise requires,- xxx xxxxxx G (d) “identical goods” means imported goods- (i) which are same in all respects, including physical characteristics, quality and reputation as the goods being valued except for minor differences in appearance that do not affect the value of the goods; H

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A (ii) produced in the country in which the goods being valued were produced; and (iii) produced by the same person who produced the goods, or where no such goods are available, goods produced by a different person, but shall not include imported goods where engineering, development work, art work, design work, plan or sketch undertaken in India were completed directly or indirectly by the buyer on these imported goods free of charge or at a reduced cost for use in connection with the production and sale for export of these imported goods; xxx xxxxxx (f) “similar goods” means imported goods – (i) which although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable with the goods being valued having regard to the quality, reputation and the existence of trade mark; (ii) produced in the country in which the goods being valued were produced; and (iii) produced by the same person who produced the goods being valued, or where no such goods are available, goods produced by a different person, but shall not include imported goods where engineering, development work, art work, design work, plan or sketch undertaken in India were completed directly or indirectly by the buyer on these imported goods free of charge or at a reduced cost for use in connection with the production and sale for export of these imported goods;”

44Copy pinpoint44. Rule 4 deals with the transaction value of “identical goods”, and Rule 5 deals with the transaction value of “similar goods”, and are set out hereinbelow: G “4. Transaction value of identical goods.– (1)(a) Subject to the provisions of rule 3, the value of imported goods shall be the transaction value of identical goods sold for export to India and imported at or about the same time as the goods being valued; H

THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S 763 AREBEE STAR MARITIME AGENCIES PVT. LTD. [R. F. NARIMAN, J.]

Provided that such transaction value shall not be the value of the goods provisionally assessed under section 18 of the Customs Act, 1962. (b) In applying this rule, the transaction value of identical goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued shall be used to determine the value of imported goods. (c) Where no sale referred to in clause (b) of sub-rule (1), is found, the transaction value of identical goods sold at a different commercial level or in different quantities or both, adjusted to take account of the difference attributable to commercial level or to the quantity or both, shall be used, provided that such adjustments shall be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustments, whether such adjustment leads to an increase or decrease in the value. D (2) Where the costs and charges referred to in sub-rule (2) of rule 10 of these rules are included in the transaction value of identical goods, an adjustment shall be made, if there are significant differences in such costs and charges between the goods being valued and the identical goods in question arising from differences in distances and means of transport. E

(3) In applying this rule, if more than one transaction value of identical goods is found, the lowest such value shall be used to determine the value of imported goods.

5. Transaction value of similar goods.- F (1) Subject to the provisions of rule 3, the value of imported goods shall be the transaction value of similar goods sold for export to India and imported at or about the same time as the goods being valued: Provided that such transaction value shall not be the value of the G goods provisionally assessed under section 18 of the Customs Act, 1962. (2) The provisions of clauses (b) and (c) of sub-rule (1), sub-rule (2) and sub-rule (3), of rule 4 shall, mutatis mutandis, also apply in respect of similar goods.” H

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45Copy pinpoint45. A perusal of these Rules would show that the value of imported goods shall be the transaction value of identical goods, as defined, or similar goods, as defined – whichever rule applies to the facts of each particular case. It is clear that whether identical goods or similar goods are taken into account, the price of the container never enters, as the only “goods” that are to be looked at are the goods that are “imported”, B i.e. goods that are stuffed in the containers. Likewise, when it comes to “computed value”, Rule 8 states as follows: “8. Computed value.- Subject to the provisions of rule 3, the value of imported goods shall be based on a computed value, which shall consist of the sum of:- C (a) the cost or value of materials and fabrication or other processing employed in producing the imported goods; (b) an amount for profit and general expenses equal to that usually reflected in sales of goods of the same class or kind as the goods D being valued which are made by producers in the country of exportation for export to India; (c) the cost or value of all other expenses under sub-rule (2) of rule 10.”

46Copy pinpoint46. Rule 10, which deals with “costs and services” then states: E “10. Costs and services.- (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, - (a) the following to the extent they are incurred by the buyer but F are not included in the price actually paid or payable for the imported goods, namely:- xxx xxxxxx (ii) the cost of containers which are treated as being one for customs purposes with the goods in question;” G

47Copy pinpoint47. A reading of Rule 10(1)(a)(ii) would lead to the same result, as “imported goods” are differentiated from “containers”. Further, for the purposes of customs valuation, addition to the transaction value of the imported goods is made only when the cost of containers is treated as being one with the goods in question. Even in such a situation, what is H

THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S 765 AREBEE STAR MARITIME AGENCIES PVT. LTD. [R. F. NARIMAN, J.]

then imported is the “goods” and the container – the container not having A to be destuffed, and therefore being cleared along with the goods contained therein for home consumption. In such a case, where containers do not have to be returned, but are imported along with the goods contained within it, after the Board takes custody of such container and the goods within it, the vessel or steamer agent is no longer liable – B even containers that do not need to be destuffed will then incur demurrage along with the goods contained within it, which are then payable by the importer, owner, consignor or agent thereof.

48Copy pinpoint48. Further, to make matters clear beyond doubt, General Exemption No. 170, which speaks of ‘Exemption to containers of durable nature’3, states as follows: C

“In exercise of the powers conferred by sub-section (1) of Section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts containers which are of durable nature, falling within the First Schedule to the Customs Tariff Act, 1975 (51 of D 1975), when imported into India, from, - (a) the whole of the duty of customs leviable thereon under the said First Schedule; and (b) the whole of the integrated tax leviable thereon under sub- E section (7) of section 3 of the said Customs Tariff Act: Provided that the importer, by execution of a bond in such form and for such sum as may be specified by the Assistant Commissioner of Customs or Dy. Commissioner of Customs binds himself to re-export the said containers within six months from the date of their importation and to furnish documentary evidence thereof of the satisfaction of the said Assistant Commissioner and to pay the duty leviable thereon in the event of the importer’s failure to do so: Provided further that in any particular case, the aforesaid period of six months may, on sufficient cause being shown, be extended by the said Assistant Commissioner for such further period, as he may deem fit.”

3 Notification No. 104/94 dated 16.03.1994 as amended by Notification No. 101/95 and 43/17. H

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A A clarification by the Central Board of Indirect Taxes and Customs dated 25th October, 20024, clarified as to what is meant by “containers of durable nature” as follows: “Notification No.104/94-Cus., exempts containers which are of durable nature from the whole of the duty of customs and additional duty subject to the condition that such containers are re-exported within 6 months from the date of importation and documentary evidence is furnished to the satisfaction of the Assistant Commissioner. As per the meanings assigned to the words “durable” and “container” in various Dictionaries, it would appear that any goods (containers) used for packaging or transporting other goods, and capable of being used several times, would fall in the category of “containers of durable nature”. A reading of the aforesaid also goes to buttress the conclusion reached in the previous paragraph of this judgment.

49Copy pinpoint49. The Customs Tariff Act, 1975 also throws considerable light on containers fit for repetitive use. Section 2 of the said Act states as follows: “2. Duties specified in the Schedules to be levied.—The rates at which duties of customs shall be levied under the Customs E Act, 1962 (52 of 1962), are specified in the First and Second Schedules.”

50Copy pinpoint50. The First Schedule deals with general rules for interpretation of “this Schedule”, and states: “5. In addition to the foregoing provisions, the following rules shall apply in respect of the goods referred to therein: (a) camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This rule does not, however, apply to containers which give the whole its essential character;

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(b) subject to the provisions of (a) above, packing materials and A packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision does not apply when such packing materials or packing containers are clearly suitable for repetitive use.” B

51Copy pinpoint51. This paragraph again clearly differentiates between containers which go along with the goods contained therein “suitable for long-term use”, from containers “suitable for repetitive use”, thus making it clear that the containers of the latter type cannot be classified with the goods contained therein for payment of customs duty. C

52Copy pinpoint52. At this juncture, it is important to examine the judgments of this Court. In Rowther-I (supra), the question before fivehonourable Judges of this Court arose out of the enforcement of the Scale ‘E’ rate that was added to the Madras Port Trust Scale of Rates in 1958. The question arose under the pari materia provisions of the Madras Port Trust Act, 1905 (“Madras Act”), which has since been repealed by the D MPT Act by section 133(2C) thereof. The respondents in this case were steamer agents. Scale ‘E’ laid down charges to be paid by Masters, Owners or Agents of vessels in respect of Port Trust labour requisitioned and supplied, but not fully or properly utilised, for unloading goods from the vessel. These rates are set out at pages 923 and 924 of the Supreme E Court Report, and indicate that a certain amount has to be paid to labour which is rendered idle either on account of the vessel’s fault, or on account of force majeure conditions such as rain. This is further fleshed out by a Circular dated 25.02.1958, referred to at pages 925 and 926. After setting out the relevant sections of the Madras Act, the by-laws, and the Manual of Instructions framed and issued by the Board, the first proposition of law laid down in the said judgment is that it is not obligatory on behalf of the Board to undertake the various services mentioned in section 39 of the Madras Act (which is pari materia with section 42 of the MPT Act). It is only if such services are required by the “owner” as defined that such services are undertaken by the Board. It was then held that it was the steamer agent who was in a position to require the Board to undertake such services in respect of the cargo that the ship is to unload (see pages 935 to 936).The question for determination was then set out as follows:

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A “The question for determination, in the case, then is whether the law making the steamer-agent liable to pay these charges is good law.”5

53Copy pinpoint53. “These charges”, as has been stated earlier, were on account of payment of labour dues for labour remaining idle, such labour being of the Port Trust which was used in the unloading of goods from the vessel. It was then mentioned that these charges were for the benefit of the vessel so that it completes its task of landing the goods as soon as possible.It was also pointed out that the steamer agent, and not the consignee, was liable to pay these charges as the goods are not unloaded “consignee-wise” (see page 938-939). It was then laid down that the ship-owner is the bailee of the consignor, and that he is responsible for delivery of goods to the consignee or transferee according to the terms of the bill of lading. However, the Court held that delivery of goods by the ship-owner to the Board cannot be said to be delivery to the consignee, as the Board cannot be said to be an agent of the consignee for the purpose of taking delivery of goods (see page 939). Also, the Court observed that the provision of lien which the Board can exercise on the goods for non-payment of dues of the Board makes it clear that it does not act as an agent of the consignee (see page 947). The Court also held that when section 39(3) of the Madras Act speaks of taking of charge of the goods by the Board and giving a receipt to a ship-owner, and the master or owner of the vessel being absolved from liability for any loss or damage which may occur to the goods which had been landed, also does not lead to the conclusion that the Board takes delivery of those goods on behalf of the consignee. The Court then held: “It is clear therefore that when the Board takes charge of the goods from the ship-owner, the ship-owner is the bailor and the Board is the bailee, and the Board’s responsibility for the goods thereafter is that of a bailee. The Board does not get the goods from the consignee. It cannot be the bailee of the consignee. It can be the agent of the consignee only if so appointed, which is not alleged to be the case, and even if the Board be an agent, then its liability would be as an agent and not as a bailee. The provisions of ss.39 and 40, therefore, further support the contention that the Board takes charge of the goods on behalf of the ship-owner and not on behalf of the consignee, and whatever services it performs

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at the time of the landing of the goods or on their removal thereafter, are services rendered to the ship.”6

54Copy pinpoint54. This passage clearly states that since the Board does not get the goods directly from the consignee, but only from the ship-owners, it cannot possibly be said to be the bailee of the consignee.The observation that whatever services the Board performs at the time of landing of the goods, or “on their removal thereafter” are services rendered to the ship, must be understood in the context of the facts of that case. A perusal of the Board’s counter affidavit, which is reflected at page no.921, would show that the Harbour dues on the import of cargo speaks, inter alia, of charges involved in moving the goods from the landing point to the storage point.The expression “on their removal thereafter”, on the facts of this case, would therefore only mean services performed by the Board from landing point to storage point, and not thereafter. This is in fact made even clearer by the following passage in the said judgment: “The charges for labour rendered idle and for labour working more hooks simultaneously, are not charges for services rendered subsequent to the landing of the goods. These are charges which are incurred at the last stage of the process of landing of the goods and therefore prior to the actual landing of the goods. They are, even under the general law, for services rendered to the master of the ship whose liability for loss or of damage to the goods continues up to the placing of the goods on the quay and their receipt by the Board.”7

55Copy pinpoint55. While dealing with the case of Peterson v. Freebody & Co. [1895] 2 Q.B.D. 294, which related to a suit between the ship- owner and the consignee, the observations of Lord Esher that the ship- F owner must do something more than merely put his goods over the rail of his ship, namely, that he must put the goods in such position that the consignee can take delivery of them, were limited only to goods which are to be delivered to the consignee alongside the ship, and not when they are handed over to a statutory body like theBoard, as a sub-bailee. The delivery therefore contemplated by these observations was held to G be not equivalent to landing of the goods at the quay and placing them in charge of the Board. The observations as to the Board being a sub-

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A bailee were therefore made to counter an argument based on an English judgment, that delivery of the goods to the Board amounts to delivery to the consignee, which would therefore make the consignee liable to pay the aforesaid unloading charges.

56Copy pinpoint56. The second judgment with which we are concerned is B Rowther-II (supra). The question that arose before a three-Judge Bench of this Court was whether demurrage charges payable to the Port Trust of Madras were to be recovered from the consignee of the goods, or from the steamer agent. The judgment of this Court, in essence, extracted the judgment of the High Court that was impugned therein, and then agreed with the same. The High Court had held: C “It cannot be disputed that neither the shipowner or the steamer agent whose duty it is to deliver the cargo to the consignee as per the contract with the shipper, cannot lay any claim of ownership to the goods. The obligation to deliver the goods to the consignee has been taken over by the Port Trust under the provisions of the statute and the shipowner is relieved of the liability for loss or damage to the goods from the moment the goods are taken charge of by the Port Trust as per Section 39 of the Act. Once the goods are handed over to the Port Trust by the steamer and the steamer agents have duly endorsed the bill of lading or issued the delivery order, their obligation to deliver the goods personally to the owner or the endorsee comes to an end. The subsequent detention of the goods by the Port Trust as a result of the intervention by the Customs authorities cannot be said to be on behalf of or for the benefit of the steamer agents. Generally, if there is a delay in taking delivery of the goods by the consignee within a reasonable time, the steamer or its agent can warehouse the goods. In such an event the warehouseman has an independent claim against the consignee or endorsee for the demurrage charges. The position cannot be different merely because the Customs authorities have intervened. The position of the Port Trust is the same as that of a G warehouseman whose responsibility to the goods is also said to be a bailee. It cannot be said that the steamer or its agents have undertaken any responsibility for the custody of the goods after the transit has come to an end and after the bill of lading has been duly endorsed or a delivery order issued. By the endorsement of the bill of lading or the issue of a delivery order by the steamer H

THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S 771 AREBEE STAR MARITIME AGENCIES PVT. LTD. [R. F. NARIMAN, J.]

agents, the property in the goods vests on such consignee or A endorsee, and thus it appears to be clear that the steamer or the steamer agents are not responsible for the custody of the goods after the property in the goods passes to the consignee or endorsee till the Customs authorities actually give a clearance. It should also be remembered that the steamer which had entered into a B contract of carriage of goods for a reward cannot be said to have undertaken the responsibility of safeguarding the goods or keeping them at their risk till the goods are actually cleared from the Customs and taken delivery of by the consignee. That will be imposing a too onerous and unexpected responsibility on the steamer which is only a carrier. If they are submitted to such a C responsibility, in most cases where the goods are detained without delivery in the hands of the Port Trust at the instance of the Customs the steamer or steamer agents have to pay towards a storage or demurrage charges amounts quite disproportionate to the freight they collect for the carriage of the goods. No carrier will undertake such a risk and responsibility. We are of the view that the provisions of the Port Trust Act cannot be so construed as imposing an additional liability or obligation on the carrier which was not contemplated by the contract it had entered with the shipper. It is only the customs of or the statutory provisions applicable to the port of discharge that can be taken to be an implied condition of the contract between the shipper and the shipowner. Therefore, the provisions of the Port Trust Act cannot add to the liability of the steamer or its agents which was not contemplated by the shipper or the shipowner at the time of entering into the contract. Having regard to the functions and the obligations which a steamer has undertaken with the shipper under the contract, we cannot say that the steamer has undertaken the responsibility for the safety of the goods till the goods are cleared by the Customs and taken delivery of by the consignee. As earlier referred to, the duty of the steamer is normally to deliver the goods to the consignee on the quay side but that place of delivery has been shifted by the provisions of the Port Trust Act to the warehouse where the Port Trust had stored the goods.”8

8 Page 286-287. H

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57Copy pinpoint57. The High Court then distinguished Rowther-I (supra) as follows: “But as already stated, the charges in that case related to the services rendered by the Port Trust at the time of the landing of the goods and their removal thereafter to its custody, and those charges were taken to be for the benefit of the steamer. It is for this reason that the Court took the view that the Port Trust is entitled to collect the service charges from the steamer or its agent. We are, however, satisfied that the above decision cannot be taken to lay down that the Port Trust can at no time proceed against the consignee for demurrage charges and can only look to the steamer agent. We are, here, concerned with the demurrage charges after the goods have been landed and taken charge of by the Board and after the steamer agent had endorsed the bill of lading or issued a delivery order for effecting delivery to the consignee that is after the property in the goods had passed to him. As already stated, the goods have remained in the custody of the Port Trust on the default of the consignee to satisfy the Customs authorities that the import was authorised. “Even though the consignee is not a party to the contract of carriage once the property in the goods had passed to him, he becomes liable to pay the storage or demurrage charges as owner of the goods to the shipowner.”9

58Copy pinpoint58. Rowther-II (supra) has made it clear that Rowther-I (supra) concerned itself with Port Trust dues at the time of landing of the goods, and their removal thereafterto custody of the Port Trust. These were charges wholly distinct from demurrage charges, which are incurred only after the goods have been landed and have been taken charge of by the Board. To the extent that the High Court lays this down as a proposition of law, there can be no exception. However,it goes on to state that when the steamer agent endorses the bill of lading or issues a delivery order for effecting delivery to the consignee, it is at this stage that the property in the goods passes to the consignee. This part of Rowther-II (supra) is clearly contrary to Rowther-I (supra), which had stated: “In the present case, it was further contended that as between the master of the ship and the consignee, the Act made it obligatory

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that the consignee gets his goods from the Board and not direct A from the master of the ship, and that therefore the Board acts as the agent of the consignee. We have not been referred to any provision in the Act which supports this contention. Assuming, however, that the consignee cannot take delivery of the goods at the quay from the ship direct, it does not follow that the Board B receives the goods as the agent of the consignee. The only reasonable conclusion in the circumstances can be that the place of delivery is shifted from the side of the ship to the warehouses where the Board stores the goods till the consignee appears to take delivery on the basis of the delivery order by the steamer agent which is usually an endorsement on the bill of lading, and the quay be considered a part of the ship.”10

59Copy pinpoint59. Rowther-I (supra) clearly lays down that the endorsement of the bill of lading by a steamer agent is for the purpose of delivery of the goods, and, accordingly, cannot be for the transfer of title to the goods. Rowther-II (supra) cannot, therefore, be said to be good in law when it speaks of endorsement on the bill of lading and issuance of delivery order by the steamer agent passing title of the goods to the consignee. Once this is made clear, the ratio of Rowther-II (supra) is to be understood thus: since charges for storage or demurrage are after goods are removed and placed in the custody of the Board, the steamer agent cannot be made to pay the same, as it would impose “a too onerous and unexpected responsibility on the steamer”, which is only a carrier, and not owner, of the goods.

60Copy pinpoint60. At this juncture, it is important to understand the legal effect of a bill of lading. This has been set out by a five Judge Bench of this Court in J.V. Gokal and Co. (Pvt.) Ltd. v. Asst. Collector of Sales- F Tax (Inspection) and Ors. (1960) 2 SCR 852, as follows: “A bill of lading is “a writing, signed on behalf of the owner of the ship in which goods are embarked, acknowledging the receipt of the goods, and undertaking to deliver them at the end of the voyage subject to such conditions as may be mentioned in the bill of lading”. G It is well-settled in commercial world that a bill of lading represents the goods and the transfer of it operates as a transfer of the goods. The legal effect of the transfer of a bill of lading has been

10 Page 946. H

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A enunciated by Bowen, L.J., in Sanders Brothers v. Maclean & Co. [(1883) II QBD 327] thus at p. 341: “The law as to the indorsement of bills of lading is as clear as in my opinion the practice of all European merchants is thoroughly understood. A cargo at sea while in the hands of the carrier is necessarily incapable of physical delivery. During this period of transit and voyage, the bill of lading by the law merchant is universally recognised as its symbol, and the indorsement and delivery of the bill of lading operates as a symbolical delivery of cargo. Property in the goods passes by such indorsement and delivery of the bill of lading, whenever it is the intention of the parties that the property should pass just as under similar circumstances the property would pass by an actual delivery of the goods. And for the purpose of passing such property in the goods and completing the title of the indorsee to full possession thereof, the bill of lading, until complete delivery of the cargo has been made on shore to someone rightfully claiming under it, remains in force as a symbol, and carries with it not only the full ownership of the goods, but also all rights created by the contract of carriage between the shipper and the shipowner. It is a key which in the hands of a rightful owner is intended to unlock the door of the warehouse, floating or fixed, in which the goods may chance to be.” 11

61Copy pinpoint61. Section 1 of the IndianBills of Lading Act, 1856 is also important, which states: “Rights under bills of lading to vest in consignee or endorsee.—Every consignee of goods named in a bill of lading, and every endorsee of a bill of lading to whom the property in the goods therein mentioned shall pass, upon or by reason of such consignment or endorsement shall have transferred to and vested in him all rights of suit, and be subject to the same liabilities in respect of such goods as if the contract contained in the bill of lading had been made with himself.”

62Copy pinpoint62. Under this section, the “endorsement” referred to is the endorsement made by the consignor or owner of the goods in favour of such endorsee on the bill of lading, so that title to property is then 11 H Page 861-862.

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transferred to the endorsee. This endorsement is very far removed, as has been correctly stated in Rowther-I (supra), from the endorsement on the bill of lading by a steamer agent indicating that the goods have been delivered. Therefore, shorn of the confusion that has arisen as a result of mixing-up the two types of endorsement, the ratio of Rowther- II (supra) that, after goods are taken charge of by the Port Trust and stored in its premises incurring demurrage charges thereon, the vessel or its agent cannot be made responsible, is unexceptionable.

63Copy pinpoint63. After extracting passages of the judgment of the High Court, this Court in Rowther-II (supra) then went on to extract a passage from International Airport Authority of India v. Grand Slam International (1995) 3 SCC 151, by which it was made clear that demurrage charges are to be paid by the importer or consignee liable for the same (and not the vessel or the steamer agent thereof).

64Copy pinpoint64. Sriyanesh Knitters (supra) is the next judgment that has to be dealt with in chronological sequence. This was a judgment of two learned judges of this Court, in which the question that arose before the D Court was stated thus: “1.The common question involved in these appeals is whether the appellant Board of Trustees of the Port Trust constituted under the Major Port Trusts Act, 1963 (for short “the MPT Act”) have a general lien for their dues over the present or future consignments imported by the importers at the Bombay Port when the said dues are in respect of the past imports made by the said importers.”

65Copy pinpoint65. The Court first found that a reading of sections 59 and 61(1) of the MPT Actmade it clear that the lien spoken of is a lien qua the particular goods that are imported, and cannot extend to previous imports of similar goods made by the same party. The Court then went on to hold that the MPT Act is not a comprehensive code, and has to be read together with other Acts wherever the MPT Act is silent. It was then held that section 171 of the Indian Contract Act, 1872 speaks of a general lien which may be exercised by the Port Trust as it is a “wharfinger” G within the meaning of said section.This being so, the Port Trust may continue to retain the goods bailed as security for past dues, but would have to have recourse to proceedings in accordance with law for securing an order, which would then enable the Port Trust to sell the goods to realise the amounts due to it. This could be done by filing a suit for recovery of the amount due to it under section 131 of the MPT Act. H

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66Copy pinpoint66. However, the judgment goes on to make certain observations, in particular in paragraph 23, stating that a relationship of bailor and bailee comes into existence, when the Board is required to store goods that have been imported, between the Board and the consignee of those goods. Apart from the fact that this is directly contrary to Rowther-I (see page 940), the consignee cannot be considered to be a bailor if the definition of bailor under the Indian Contract Act, 1872 is read. Under section 148 of the Contract Act, a bailor is defined as a person who delivers the goods to the bailee.In this case, the person who delivers the goods to the bailee is the vessel and not the consignee, as has been correctly stated in Rowther-I (supra).Therefore, the observations that the consignee is the bailor of the goods, with the Port Trust being the bailee thereof, made in paragraphs 23 and 25 of Sriyanesh Knitters (supra) cannot be said to state the law correctly, and are accordingly overruled. However, since we are not going into the point of sub-bailment as argued by Shri Pratap, we leave open the question as to whether the Port Trust, as sub-bailee, is entitled to recover its dues from the original bailor– the consignor, and persons claiming through it, given the statutory scheme of the MPT Act.

67Copy pinpoint67. However, Rowther-I (supra) was correctly distinguished by the Court in Sriyanesh Knitters (supra) in paragraph 24 thereof, and its ratio qua the MPT Act not being an exhaustive code has our concurrence.

68Copy pinpoint68. In Forbes-I (supra), two learned Judges of this Court doubted the correctness of Rowther-II (supra) and framed three questions (referred to earlier in this judgment) to be answered by a larger Bench. On 13.08.2014, the larger Bench of three Judges held: F “We have gone through the order whereby the matter has been referred to this Bench. We have noted the fact that no reason for not agreeing with the Judgment delivered by a three-Judge Bench has been assigned in the said order. Moreover, upon going through the Judgment delivered in 1997 (10) SCC 285, we see no reason G to disagree with the ratio laid down in the said Judgment. In these circumstances, we refer the matter back to the regular bench for further hearing as we do not see any inconsistency in the said Judgment.”

69Copy pinpoint69. The matter then came back to a Bench of two Hon’ble Judges H of this Court, which delivered the judgment in Forbes-II (supra). In

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Forbes-II, the Court set out the question of law that arose before it as A follows: “1…The common question of law that arises in these appeals, though in different facts and circumstances, is with regard to the liability of the agent of a shipowner (hereinafter referred to as the “steamer agent”) to pay demurrage and port charges to the Board B of Trustees of a Port (hereinafter referred to as “the Port Trust Authority”) in respect of goods brought into the port and warehoused by the said authority. Before proceeding to answer the aforesaid question it will be convenient to take note of the core facts in each of the appeals under consideration.” C

70Copy pinpoint70. Agreeing with the High Courts of Bombay and Calcutta that the steamer agent cannot be made liable for demurrage, the Court went on to hold: “10. While it is correct that the liability to pay demurrage charges and port rent is statutory, in the absence of any specific bar under the statute, such liability can reasonably fall on a steamer agent if on a construction of the provisions of the Act such a conclusion can be reached. Determination of the aforesaid question really does not hinge on the meaning of the expression “owner” as appearing in Section 2(o) of the 1963 Act, as has been sought to be urged on behalf of the appellant though going by the language of Section 2(o) and the other provisions of the Act especially Section 42, an owner would include a shipowner or his agent. Otherwise it is difficult to reconcile how custody of the goods for the purpose of rendering services under Section 42 can be entrusted to the Port Trust Authority by the owner as provided therein under Section 42(2). At that stage the goods may still be in the custody of the shipowner under a separate bailment with the shipper or the consignor, as may be. Even dehors the above question the liability to pay demurrage charges and port rent would accrue to the account of the steamer agent if a contract of bailment between the steamer agent and the Port Trust Authority can be held to come into existence under Section 42(2) read with Section 43(1)(ii) of the 1963 Act.

11. For the reasons already indicated the decision in Sriyanesh Knitters with regard to existence of a relationship of bailor and bailee between the consignee and the Port Trust Authority instead H

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A of the steamer agent and the Port Trust Authority cannot be understood to be a restatement of a general principle of law but a mere conclusion reached in the facts of the case where the consignee had already appeared in the scene. In all other situations where the bill of lading has not been endorsed or delivery orders have not been issued and therefore the consignee is yet to surface, the following observations of the Constitution Bench in K.P.V. Sheik Mohamed Rowther & Co. [Port of Madras v. K.P.V. Sheik Mohamed Rowther & Co., 1963 Supp (2) SCR 915] will have to prevail: (SCR p. 940) “Section 40 speaks of the responsibility of the Board for the loss, destruction or deterioration of the goods of which it has taken charge as a bailee under Sections 151, 152 and 161 of the Contract Act, 1872. Section 148 of the Contract Act states that a bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The person delivering the goods is called the bailor and the person to whom they are delivered is called the bailee. It is clear therefore that when the Board takes charge of the goods from the shipowner, the shipowner is the bailor and the Board is the bailee, and the Board’s responsibility for the goods thereafter is that of a bailee. The Board does not get the goods from the consignee. It cannot be the bailee of the consignee. It can be the agent of the consignee only if so appointed, which is not alleged to be the case, and even if the Board be an agent, then its liability would be as an agent and not as a bailee. F The provisions of Sections 39 and 40, therefore, further support the contention that the Board takes charge of the goods on behalf of the shipowner and not on behalf of the consignee, and whatever services it performs at the time of the landing of the goods or on their removal thereafter, are services rendered to the ship.”

G 12. From the above, the position of law which appears to emerge is that once the bill of lading is endorsed or the delivery order is issued it is the consignee or endorsee who would be liable to pay the demurrage charges and other dues of the Port Trust Authority. In all other situations the contract of bailment is one between the steamer agent (bailor) and the Port Trust Authority (bailee) giving H

THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S 779 AREBEE STAR MARITIME AGENCIES PVT. LTD. [R. F. NARIMAN, J.]

rise to the liability of the steamer agent for such charges till such A time that the bill of lading is endorsed or delivery order is issued by the steamer agent.

13. In the orders of the Calcutta High Court under challenge, it is mentioned that Section 60 of the Act provides a remedy to the steamer agent to recover the dues from the consignee. Section B 60 of the 1963 Act confers a limited lien on the shipowner “for freight and other charges payable to the shipowner” which expression does not extend to demurrage and other port charges. The High Court, therefore, does not appear to be correct in its conclusions. However, the said error would not be fundamental to the final conclusion reached by the High Court. In this regard C we cannot help noticing the special provisions of Sections 61 and 62 of the Act which enable the Port Trust Authority to proceed against the goods within its custody to recover the charges which may be payable to the Port Trust Authority. Ordinarily and in the normal course if resort is made to the enabling provisions in the D 1963 Act to proceed against the goods for recovery of the charges payable to the Port Trust Authority there may not be any occasion for the said authority to sustain any loss or even suffer any shortfall of the dues payable to it so as to initiate recovery proceedings against the shipowners.” E

71Copy pinpoint71. Paragraph 10 of the judgment does hold that the language of section 2(o) read with other provisions of the MPT Act, especially section 42, would include a ship-owner or his agent. We have already pointed out that the principle of noscitur a sociis cannot be applied to this definition clause, both on its plain language, as also the fact that it is an inclusive definition clause, which shows that this statement of the law is F correct. However, the statement in this paragraph that even de hors the above question, the liability to pay demurrage charges and port rent would accrue to the account of the steamer agent because of the statutory bailment that comes into existence under section 42(2) read with section 43(1)(ii), is plainly incorrect, in view of our finding that after the Port G Trust takes charge of the goods and issues a receipt therefor (at which point of time the statutory bailment comes into force), the vessel or the steamer agent cannot be held liable.

72Copy pinpoint72. Insofar as paragraph 11 is concerned, we have already made it clear that Sriyanesh Knitters (supra) cannot be said to reflect the H

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A correct position in law, insofar as a bailment between the consignee and the Port Trust is concerned, and thus Sriyanesh Knitters (supra) has been overruled by us to this extent.

73Copy pinpoint73. Paragraph 12 of the said judgment contains the same confusion that is contained in Rowther-II (supra), and cannot therefore be said to B lay down the law correctly. The correct position in law is, as has been stated hereinabove, that after the Port Trust takes charge of the goods, and issues a receipt therefor, and thereafter stores the goods in a place belonging to it, such storage charge cannot be to the account of the vessel or an agent of the vessel.

74Copy pinpoint74. Paragraph 13 refers to one other aspect of the case that has been argued before us. It may be recalled that the impugned judgment of the Kerala High Court in the present case had held that the word “may” occurring in sections 61 and 62 of the MPT Act must be read as “shall”. This is not the correct position in law, as a discretion is vested in the Board to sell the goods in the circumstances mentioned in sections D 61 and 62. However, such discretion cannot be exercised arbitrarily, as the Board is “State” within the meaning of Article 12 of the Constitution, and is therefore bound by the constraints of Article 14 of the Constitution of India (see Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay (1989) 3 SCC 293 at paragraph 22). Therefore E while it may not be correct to say that “may” has to be read as “shall” in sections 61 and 62 of the MPT Act, yet in all future cases the Board is under a constitutional duty to sell the goods in its custody within a reasonable time from which it takes custody of those goods. Ordinarily, the time of four months from the date of landing of the goods mentioned in section 63(1)(c) of the MPT Act should be the outer-limit within which such goods should be put up for sale. If not put up for sale within such time, the Board must explain as to why, in its opinion, this could not be done, which explanation can then be tested by the Courts. If the explanation is found to be reasonable, and the owner or person entitled to the goods does not remove the goods thereafter, penal demurrage may then be levied and collected by the Board. To this extent, therefore, while overruling the impugned judgment of the Kerala High Court on the aspect of “may” being read as “shall” in sections 61 and 62 of the MPT Act, yet the hovering omnipresence of Article 14 over the Board must always be given effect to, and there must be a very good reason to continue detention of goods beyond the period of four months as mentioned hereinabove before they are sold.

THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S 781 AREBEE STAR MARITIME AGENCIES PVT. LTD. [R. F. NARIMAN, J.]

75Copy pinpoint75. We now come to a judgment of two honourableJudges of this A Court in Rasiklal (supra). The question that arose in this case was as to whether the Appellant ‘Rasiklal Kantilal and Company’, who was a person interested in purchasing goods, and did not at the time have title to the goods, would be liable to pay demurrage charges for a period of roughly six months, which began with the date on which he applied to the customs authorities to have bills of entries substituted in his name. On the facts in that case, during the period from November, 1991 to January, 1992, 78 shipments of goods were imported by 5 different consignees from a UK company, one M/s Metal Distributors (UK) Ltd;these consignments were landed at Bombay Port. The consignees filed bills of entry for 37 out of 78 consignments, but subsequently failed to lift the consignments, as a result of which they came to be stored at the Port of Bombay. The consignments were shipped on a “CAD basis”, i.e. cash against documents, in which title would remain with the UK company till such time that an importer would retire the documents against payment. D

76Copy pinpoint76. This Court held that despite Rasiklal not being an owner of the goods, he was liable to pay demurrage for the aforesaid period.Strictly speaking, this judgment does not apply to the facts of the cases before us, in that Rasiklal was neither the owner of a vessel or its agent. It was an importer of goods who had beneficial title to the said goods, as a formal agreement between the UK company and Rasiklal to purchase E the said goods was made in April, 1992. Given our reading of the MPT Act, and section 63(2) in particular, this judgment could have been supported on the basis that Rasiklal was an importer (within the meaning of section 63(2))of the goods, and as beneficial owner of the goods would therefore be liable to pay storage charges of the aforesaid goods. F However, this Court did not choose this route in order to arrive at its conclusion. On the other hand, it went on to consider Rowther-I (supra), Rowther-II (supra), and Forbes-II (supra), and arrived at the following conclusion in paragraph 47: “47. With respect, we agree with the conclusions recorded by G this Court in Rowther-2 and Forbes that a Board could recover the rates due, either from the steamer agent or the consignee but we are of the humble opinion that enquiry into the question as to when the property in the goods passes to the consignee is not relevant.” H

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77Copy pinpoint77. The Court then went on to examine various provisions with regard to bailment, and stated that passing of title in goods is irrelevant conceptually to bailment, which concerns itself with delivery and not title of goods. It then framed the question in paragraph 51, thus: “The only question is: from whom can the board recover – we B emphasise the question is not who is liable.”

78Copy pinpoint78. From paragraphs 52 to 60, the Court then went on to consider the observations made in Rowther-I (supra) that the first respondent, i.e. the Port Trust, is a sub-bailee of the goods bailed by the consignor to the ship-owner.This being so, it is the consignor to whom the Port Trust C has to look for payment of these charges, and since in this case Rasiklal is a consignee claiming through the consignor, Rasiklal would be liable. Section 158 of the Indian Contract Act, 1872 and section 1 of the IndianBills of Lading Act, 1856 were relied upon to reach this conclusion.

79Copy pinpoint79. First and foremost, Rowther-I (supra) did hold that the Port D Trust is a sub-bailee of goods bailed by the consignor to the ship-owner, but so held in order to distinguish an English judgment – as has been pointed out hereinabove – which would then lead to the proposition that once the goods are placed in the charge of the Board, it would amount to delivery to the consignee, which proposition was turned down by the Court. The question whether section 158 of the Contract Act can apply to a statutory bailment under the MPT Act is left open,given that the Port Trust is not limited only to recovering”necessary expenses” to be payable by the bailor, but is statutorily is entitled to recover, by way of levy of rates and expenses incurred for storage of the goods, together with something more – the something more being rates of storage higher than warehousing rates as a deterrent against keeping these goods in the Port Trust premises. This Court in Board of Trustees of the Port of Bombay v. Jai Hind Oil Mills Co. and Ors.(1987) 1 SCC 648 has observed: “10. The power of a Port Trust to fix rates of demurrage and to recover the same from an importer or exporter (although the question of an exporter paying demurrage arises rarely) under law and to show concession as regards demurrage charges in certain specified cases is recognised by this Court in the Trustees of the Port of Madras v. Aminchand Pyarelal [(1976) 3 SCC 167] and in the Board of Trustees of the Port of Bombay H v. Indian Goods Supplying Co. [(1977) 2 SCC 649]. These

THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S 783 AREBEE STAR MARITIME AGENCIES PVT. LTD. [R. F. NARIMAN, J.]

decisions are no doubt based on the relevant laws which were in force at the material time. But the decisions are still relevant insofar as cases arising under the Act because the Act also contains provisions more or less similar to the statutory provisions considered in the said decisions. Demurrage charges are levied in order to ensure quick clearance of the cargo from the harbour. They are always fixed in such a way that they would make it unprofitable for importers to use the port premises as a warehouse. It is necessary to do so because congestion in the ports affects the free movement of ships and the loading and unloading operations. As stated earlier, the Port Trust shows concession to the party concerned in certain types of cases.” C

80Copy pinpoint80. As a matter of fact, the Division Bench in Rasiklal (supra) seems to have put the cart before the horse, on a ground based in equity. The Court stated: “60…Denying such a right on the ground that the person claiming delivery of the goods acquired title to the goods only towards the end of the period of the bailment of the goods with the first respondent would result in driving the first respondent to recover the amount due to it from the bailor or his agent who may or may not be within the jurisdiction of the municipal courts of this country (by resorting to a cumbersome procedure of litigation). The first submission is, therefore, rejected.”

81Copy pinpoint81. As has been pointed out by us, no such right has been denied on a correct reading of the MPTAct. The importer, the consignee and the consignor, or their agents, can all be held liable to pay demurrage charges. However, since Rasiklal (supra) does not involve either the owner of the vessel or its agent, we leave open the question as to whether the Port Trust, as sub-bailee, is entitled to recover its dues from the original bailor– the consignor, and persons claiming through it, given the statutory scheme of the MPT Act, as has already been indicated in paragraph 66 above. G

82Copy pinpoint82. Based on the above discussion, our answers to the questions framed in the reference order areas follows:

1. The point of time at which title to the goods passes to the consignee is not relevant to determine the liability of the consignee or steamer agent in respect of charges to be paid to the Port Trust; H

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A 2. and 3. The bill of lading being endorsed by the steamer agent is different from the bill of lading being endorsed by the owner of the goods.In the first case, the endorsement leads to delivery; in the second case, the endorsement leads to passing of title. For the reasons mentioned in the judgment, both stages are irrelevant in determining who is to pay storage charges – we have held that upto the point that the Port Trust B takes charge of the goods, and gives receipt therefor, the steamer agent may be held liable for Port Trust dues in connection with services rendered qua unloading of goods, but that thereafter, the importer,owner, consignee or their agent is liable to pay demurrage charges for storage of goods;

4. As per paragraph 24 of our judgment; C

5. The answer to question number 5 is really in two parts:first, as to whether carrying goods in a container would make any difference to the position that only the owner of the goods or person entitled to the goods is liable to pay for demurrage; and second, as to whether the Port Trust is obliged to destuff containers that are entrusted to it and return empty containers to the shipping agent.The answer to the first question is contained in paragraphs 45 to 51 of our judgment. The answer to the second question is that a container which has to be returned is only a receptacle by which goods that are imported into India are transported.Considering that the container may belong either to the consignor, shipping agent, ship-owner, or to some person who has leased out the same, it would be the duty of the Port Trust to destuff every container that is entrusted to it, and return destuffed containers toany such person within as short a period as is feasible in cases where the owner/person entitled to the goods does not come forward to take delivery of the goods and destuff such containers.What should be this period is to be determined on the facts of each case, given the activities of the port, the number of vessels which berth at it, together with the volume of goods that are imported. While it does not lie in the mouth of the Port Trust to state that it has no place in which to keep goods after they are destuffed – as in the facts in the present case – yet a court may, in the facts of an individual case, look into practical difficulties faced by the Port Trust.This may lead to the “short period” in the facts of a particular case being slightly longerthan in a case where a port is less frequented, and goods that are stored are lesser in number, given the amount of space in which the goods can be stored.

THE CHAIRMAN, BOARD OF TRUSTEES, COCHIN PORT TRUST v. M/S 785 AREBEE STAR MARITIME AGENCIES PVT. LTD. [R. F. NARIMAN, J.]

83Copy pinpoint83. Having answered the questions that have been posed before this Court, we do not, on the facts of this case, think that the justice of the case demands that we should interfere with the impugnedHigh Court judgment. The steamer agents themselves did not dispute liability to pay ground rent upto 75 days before the High Court, and have admittedly paid the said charges long ago. As a matter of fact, the steamer agents paidground rent even beyond the period of 75 days – the High Court having ordered the Appellant Port Trust to recompute the liability of the steamer agents, and return the balance to the parties concerned within two months from the date of receipt of a copy of the impugned judgment. To order a refund of ground rent paid for 75 days to the steamer agent, and direct the Board to then recover the same from the importer, consignor and/or the owner of the goods at this late stage of the proceedings would not be in the interest of justice.

84Copy pinpoint84. Accordingly, we dispose of the appeals that have been filed against the impugned High Court judgment. The impugned judgment is set aside on one question of law, namely, that the expression “may” in sections 61 and 62 of the MPT Act cannot be read as “shall”, subject to the caveat that as the ‘‘State” under Article 12 of the Constitution, a Port Trust must act reasonably, and attempt to sell the goods within a reasonable period from the date on which it has assumed custody of them. E

Divya Pandey Reference answered.