During the transportation of goods from one place to another, sometimes even across the world, they are prone to getting damaged. However, if the delivered goods are found to be damaged, who is liable to bear the blame? Besides, if you are a buyer, another question that arises is how to claim compensation for the damaged goods delivered to you.
Goods are generally transported over huge distances through carriers. There are majorly three types of carriers, namely common, contract and private. Considering they are responsible for transporting the goods, they are usually held responsible for the damage. However, their liability can be limited by the bill of lading.
As such, it is crucial for all involved parties to realize when the goods are said to have changed ownership – whether it is when the goods are delivered, when first sent out for delivery or some time in between the two.
Establishing ownership will also help determine who should be held responsible for the damaged goods. The party responsible for the goods shall also carry the risks related to damage or loss.
When the ownership is transferred from one person to another, so is the responsibility. However, this does not mandatorily happen when the goods have been delivered.
Entities involved in the transaction should determine beforehand when the ownership shall be considered to have been transferred from the seller to the buyer. It is highly recommended that you do so to avoid any complications and confusion in the future.
Types of Contracts
The carrier’s responsibility for the goods depends upon the type of contract signed with the carrier. Some common types of contracts between buyers and sellers are:
- Contracts for Carriage at Owner’s Risk
Except when caused intentionally, the carrier shall not be liable for any loss or damage.
- Contracts at Declared Value Risk
The carrier shall be liable to compensate up to a certain amount, mentioned in the contract, for the loss of or damage to goods during transit.
- Contracts on Declared Terms
The carrier shall be liable for the loss or damage as per a certain term of the contract.
- Contracts for Limited Carrier’s Risk
The carrier shall be liable for losses or damages up to a certain amount.
| Note: If the parties involved have not signed any contract, the carrier shall be liable in accordance with a ‘limited carrier’s risk contract’. |
It is vital for parties to have clarity in terms of their rights and responsibilities with respect to any loss or damage to avoid any disputes in case such a situation arises in the future. Having such an understanding is essential for risk management of goods for all – buyer, seller and carrier.
- Third-party carriers are commonly hired to transport goods from the seller to the buyer. Although the ownership is not transferred to such carriers, there is still a risk of the goods being lost or damaged when being transported. As such, for carriers, it is important to know their liability when the goods are in their possession.
In such cases, the laws of bailment (common law principle) shall be applicable along with any terms stated in the contract signed by the carrier and other relevant parties.
Laws of Bailment
The laws of bailment basically mean that in case there are no contractual terms between the carrier and the concerned party, the third-party carrier shall be liable for any damages to the goods while in their possession in certain circumstances – damage due to lack of apt care or damage caused purposedly.
Carriers must have a clear understanding of their responsibilities to the goods with the buyer/seller, as their insurance may not cover the losses on the grounds of a lack of insurable interest in the goods.
- As mentioned before, private carriers must pay significant attention to and take reasonable care of the goods when being transported under their possession. This also means that any loss or damage to such goods due to negligence or intentional actions shall be considered as the private carrier’s responsibility.
- In such cases, insurance may not cover the loss or damage. Similarly, in case of theft by any employee of the private carrier, the carrier shall be held responsible. Besides, the loss is unlikely to be covered by the insurance policy of the private carrier.
| If goods are damaged in the carrier’s possession but not due to any misconduct or negligence, the losses shall be covered by the carrier’s insurance. |
The receiving party shall be responsible for requesting the carrier to inspect the damaged goods and packaging. Such a request should be made by phone as soon as any loss or damage is discovered. After calling, a written request for inspection by the carrier must be made as well.
The most common form of damage found on goods is shock or impact, which is caused due to mishandling. However, other issues like water damage, excess vibration and getting crushed are also likely to occur, depending upon the product and packaging.
Photographic evidence of the damage and supporting documentation must be submitted as well. Pictures of the damaged external packaging, internal packaging that show how the items were packed and pictures of the damaged item itself should be submitted to support your claims against the carrier. In addition, you must also submit the purchase receipt to show the value of the item which has been damaged.
A certain amount of compensation is awarded in civil court cases where there have been losses due to the carrier’s misconduct or negligence. The claimant shall be asked to present evidence to show the damage and prove that it was caused by the defendant.
Documents Needed for Claims related to Goods in Transit
- Invoice of the goods in question.
- A true copy of the receipt for the goods.
- The delivery note after the goods are delivered.
- All other relevant documents.
Can GST Input be Claimed on Goods in Transit?
Registered taxable individuals can claim input tax credit (ITC) in goods/services received after GST for which tax has been paid under earlier law. However, there is one condition – the invoice or proof of tax payment must be recorded in the books of accounts within 30 days from GST implementation date.
Reversing GST on Damaged Goods
The supplier needs to issue a credit note to reverse GST on damaged goods. However, you might face some issues when it comes to the different laws for ITC in cases of partially damaged vs. completely damaged goods.
The need for input reversal is only applicable when the goods fall under ‘completely damaged’ category. On the other hand, when it comes to partially damaged goods, they are still considered as marketable and have some market value, due to which all that needs to be done is to sell them at a lower price. As such, no such reversal of ITC is required in such cases.
Conclusion
In order to avoid any dispute related to liabilities in case of loss or damage to goods, carriers and the involved parties must enter into a formal contract that covers all such crucial aspects. Depending on their own comfort, parties may choose to sign any type of contract with the carriers and consent to recovering damages as per the provisions mentioned under the contract.
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