SME Chatroom: 'Defective packaging can imperil marine insurance claims'

Clause 4.3 of Institute Cargo Clauses (C) says that in no case will insurance cover loss, damage or expense caused by insufficiency or unsuitability of packing or preparation of subject matter insured

We imported certain goods on a CIF basis. The goods (machinery) were stuffed in a container at the shipper-exporter’s factory and sealed. The container arrived at our factory with the seals intact. But when we opened the container, we found the goods damaged. The survey report said that the damage is due to “jerks and jolts”. We have lodged a claim with the insurance company. As the container was stuffed by the shipper, will it have any bearing on our insurance claim?

The duty of the shipper is to ensure seaworthy packing that will withstand the rocking and swaying that is normal in a sea voyage. Clause 4.3 of the Institute Cargo Clauses (C) says that in no case will the insurance cover loss, damage or expense caused by insufficiency or unsuitability of packing or preparation of the subject matter insured. (For the purpose of this clause 4.3 “packing” will be deemed to include stowage in a container or liftvan, but only when such stowage is carried out prior to attachment of this insurance or by the Assured or by their servants.) So, I think the insurers will be justified in rejecting your claim on the grounds that the damage is due to defective packing.

In our EOU, we have some raw materials that were imported more than 10 years back. Are we required to pay duty on such raw materials unused for more than one year, along with interest in terms of the notification 52/2003-Cus dated March 31, 2003?

Para 6.06 (c) of the FTP says that the period of utilisation of goods, including capital goods, should be co-terminus with the validity of the LOP. The condition (1)(3)(d)(I)(ii) in notification 52/2003-Cus also requires duty payment only if the imported goods are not utilised within the validity of the LOP. The condition at (1)(3)(d)(I)(iii) in that notification does mention duty payment on goods unutilised within one year, but it does allow extension of that one-year time limit. Reading all these provisions, I am of the view that you need not pay duty on the raw materials, so long as your LOP is valid.

For import of our capital goods the payment terms are 70 per cent against shipping documents under LC and the remaining 30 per cent after erection, installation and commissioning of the capital goods. Due to some regulatory issues, the capital goods could not be installed and will not be commissioned. We have taken full input tax credit (ITC) of the IGST paid. Do we have to reverse the ITC, as we have not commissioned the capital goods?

Section 16 of the CGST Act, 2017, specifies only two main conditions for taking the ITC. One is possession of invoice, debit or any prescribed taxpaying document, and the other is receipt of the goods. Commissioning the capital goods is not an essential condition. However, if you remove the capital goods, you have to proceed in accordance with Section 18(6) of the CGST Act, 2017, read with Rule 40(2) of the CGST Rules, 2017.

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