Is customs duty levied on containers?

This is a follow-up to my earlier posts Contingent duty & containers & Insuring shipping containers. The discussions had centred around how containers can be insured on a worldwide basis by the owners or the lessees and how responsibility for the safety of containers whilst in the custody of exporters/importers in India had been converted into a marine insurance policy with limited coverage. On the customs duty part, I had expressed that I was unaware if the Customs authorities would charge duty on a container which after entering India, gets damaged, becomes a Total Loss and cannot ever be shipped out of India again.

I had subsequently done some research and spoken to people in the Customs as well. The term ‘container’ appears to have been given a wider definition to mean anything which contains cargo. This could well mean carboys, drums,etc. Is customs duty levied on containers? Yes. In case of the latter like carboys, drums,pallets, etc which may be used to contain the cargo, duty is levied on the cargo value as per Customs classification and the invoice value of the cargo would have the cost of the packing built in. However, box-containers, reefers, high-cubes,open-tops, etc which are containers in the ‘literal sense’ as the maritime industry would know them are in Customs parlance specified as ” Containers of durable nature”, i.e. ones which can be re-used for a certain period of time. Further, these usually will not belong to the exporter/importer of the cargo. Containers of durable nature are also subject to customs duty if they are brought into India for use/consumption from herein. However, in respect of containers of durable nature, Customs have allowed an exemption as detailed below:

Exemption to containers of durable nature.
[Notfication. No.104/94-Cus. dt. 16.3.1994 amended by Notfication. No. 101/95].
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 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 additional duty leviable under section 3 of the said Customs Tariff Act.

This exemption is subject to, the importer :

1) executing a bond in such format and for such value as demanded by the Customs authorities

2) binding himself to export the container back within 6 months of import and producing documentary evidence thereof. On sufficient cause being shown, this period of 6 months may be extended by the Customs authorities.

3) binding himself to pay the leviable duty on the container in case of failure to re-export the container within 6 months or any extended period agreed to.

So, in the event of a container coming into India which had been cleared by the importer by issuing a bond, gets damaged and becomes a Total Loss, then the re-export of the container will not be possible and the Customs authorities will be well within their rights to demand duty and additional duty at the prescribed rates from the importer on the damaged container.

This exemption given by Customs has been misused at times and two instances are detailed below:

Fourcee Infrastructure Equipments, a company engaged in manufacturing containers and also providing containers ( typically ISO tanks) on hire as a shipping line had imported 100 containers and cleared the same without payment of customs duty under shelter of the Notification 104/94. When after 6 months, the containers were not re-exported, the Commissioner of Customs, Jamnagar passed orders after enquiry against Fourcee for non-payment of customs duty as this was a case of import of containers for home consumption and the exemption provided under 104/94 would not apply. The containers were seized and the licence of the CHA assigned the task of clearing these containers was also withdrawn as they had failed to advise the importer rightly.

In another case, Sharman Inc, Ahmedabad had imported numerous sets of flexitanks for sale in India and had availed the exemption under 104/94 by representing the flexitanks in the Bills of Entry to give the impression that they were ‘containers of durable nature’. The flexitanks were regularly sold to clients like Adani Wilmar who used them for exports and the export details were submitted to Customs to show that they have been re-exported within 6 months. However, the Additional Customs Commissioner, Ahmedabad took the view that ‘single use flexitanks’ came under a different classification and cannot be considered as a container of durable nature.

Marine underwriters in India need to be careful while granting ‘Contingent Customs Duty’ cover under their policies, in cases where the assured’s limited interest in imported containers is also covered. The intent of whether the contingent duty is in respect of imported cargo alone or extends to containers of durable nature as well, needs to be explicitly stated.