Bombay High Court
Roche Products Limited vs N.B. Sonavane, Collector Of Customs, ... on 1 January, 1800
Equivalent citations: 1989(19)ECC219, 1987(32)ELT547(BOM)
JUDGMENT Bharucha, J.
1. The appellants were issued an industrial licence under the provision of the Industries (Development and Regulation) Act, 1951, on 23rd April, 1974 for the manufacture of a new article, sulphamethoxazole (hereinafter referred to as ("SMX"). Clause 4 of the industrial licence required that "the manufacture of 'new articles' shall be completed and commercial production established within a period of two years from the date of the issue of this industrial licence". Clause 5(iv) read thus :
"The undertaking should base the manufacture of sulphamethoxazole on M.A.I. (5 -methyl-3-Amino in sale). From the third year onwards the manufacture of drugs will be based on T.Butyl alcohol hydroxylamine acid sulphates and methyl formulate. The manufacture of formulations should be based on their own productions of sulphamethoxazole an import of Trimathoprim will be considered only for one year. Thereafter it should be based on locally produced materials".
2. Clause 10 read thus :
"This industrial licence will be valid only for a period of 2 years within which commercial production is to be established. If an extension to this period is found necessary, you may apply to the Ministry of P & C, New Delhi with full justification giving the circumstances under which and the period for which the extension is sought".
3. On 13th October, 1977 the appellants were issued an import licence valid for 24 months subject to the condition that all goods imported under it would be in the appellants' factory. The raw materials permitted to the imported included isoxamine (hereinafter referred to as "the said material").
4. On 20th September, 1978 the appellants wrote to the 2nd respondents (the Union of India) in connection with the manufacture of SMX. They stated that they had commenced, as soon as the industrial licence was granted to them the development work for the basis manufacture of the said material, which was the main raw material for the production of SMX. The work involved in that synthesis was very complicated and the factors and conditions to be controlled were many. The development experiments undertaken thus far on the laboratory scale had been successful and they had been scaled up to a kilo scale production before going to a pilot plant and to full plant scale manufacture. To complete this tentative phased programme of study in the laboratory and manufacture in the plant, it would take "quite some time". In spite of the hurdles in the implementation of the project, which were indicated, the appellants reasonably hoped to commence production of the said material from the basis stage sometime in the second half of 1979. In view of what was explained, the appellants requested that they be allowed to import the said material till mid-1979.
5. On 29th September, 1978 the appellants wrote another letter to the 2nd respondents . This was in response to queries that have been raised by the 2nd respondent's letter dated 31st March, 1978/1st April, 1978 (which is not on record). The appellants provided the information sought and requested permission to import the said material till mid-1979.
6. On 26th October, 1978 the appellants placed an order upon Hoffmann- La Roche Ltd. in Switzerland for the purchase of 12,000 kilos of the said material and on 9th November, 1978 opened an irrevocable letter of credit in respect thereof.
7. On 20th January, 1979 the 2nd respondent wrote to the appellants noting that the appellants had already availed of the facility granted to them under the industrial licence of being allowed to import the said material for the manufacture of SMX for 2 years only. The letter regretted that the appellants' request for import of the said material till mid-1979 could not be acceded to. The letter advised the appellants to produce the said material themselves for use in the manufacture of SMX.
8. Between March and June, 1979 the said material imported by the appellants from Hoffmann-La Roche Ltd. arrived in Bombay. The said material was then under open general licence (OGL). The appellants gave a declaration that they were the actual users thereof and cleared the same.
9. In September, 1979 the Collector of Customs served upon the appellants a notice to show cause issued under the provisions of Section 130 of the Customs Act. The notice recorder that the appellants had claimed clearance of the said imported material under OGL upon a declaration as required by condition No. 6 of Appendix 10 of the Import Trade Control Policy AM 79. They had declared that they were registered as an industrial unit and held an industrial registration licence dated 23rd April, 1974 which had not been cancelled, withdrawn or otherwise made inoperative for the manufacture of SMX. Accepting this declaration clearance had been allowed. The Collector had thereafter called for and had examined the industrial licence, the declaration and other documents. He noted that the industrial licence stipulated that after a period of 2 years the production of SMX should be based on locally produced material; and, therefore, that the appellants were not allowed to use i.e. after 22nd April, 1976. The appellants were not actual users of the said imported raw material after 22nd April, 1976 as the industrial licence granted to them had ceased to be valid for the manufacture of the endproduct except from locally manufactured raw materials. In the absence of a valid industrial licence authorising the manufacture of SMX from the said imported raw material, the importation thereof appeared to have been made in contravention of the law. The appellants were, therefore, called upon to explain why the said imported raw material should not be confiscated and a penalty of Rs. 7,00,000/- should not be imposed upon them.
10. On 20th September, 1979 the appellants replied showing cause. They were given a personal hearing.
11. By his order dated 14th November, 1979 , the Collector of Customs rejected the submission made on behalf of the appellants. He found that the import of the said material was, under the industrial licence, permissible only for a period of two years. There was no documentary evidence to show that the appellants could import the said material after 23rd April, 1976. On the other hand they had received a letter dated 20th January, 1979 stating that their request for the import of the said material till mid-1979 could not be acceded to. Since the industrial licence was invalid for the manufacture of SMX, thee importation of the said material itself had become redundant. Further, the clear-cut provision of the industrial licence was that the manufacture of SMX should then be based on the appellants' own production and not on import. The import of the said material was, therefore not covered by OGL and Appendix 10(1) and was unauthorised. In exercise of the powers conferred upon him under Section 130 of the Customs Act, the Collector reviewed the order of clearance and confiscated the said imported material but permitted the appellants to redeem it upon payment of a fine of Rs.19,000,00/-. He also imposed upon the appellants a penalty of Rs.5,000,00/-.
12. The appellants preferred the writ petition impugning the order of the Collector of Customs. The writ petition was heard by Pendse J. and, by his judgment and order dated 11th April, 1984, he dismissed the said petition. The judgment and order are under appeal.
13. The learned judge noted that the appellants had given a declaration to the Customs authorities in the turns required by the said Condition. No. 6 of Appendix 10. They had there represented that they were registered as actual users and that such registration had not been cancelled or withdrawn or otherwise made inoperative. The learned judge accepted the submission made on behalf of the respondents that, in view of the terms of the industrial licence , the use of the said imported material was clearly prohibited and therefore, the appellants should not have declared themselves to be the actual users thereof. The appellants had been informed by the industrial licence that it was granted on the condition that the use of the said imported material would be allowed for 2 years only and the appellants had utilised that facility. Their request for extension of the period during which they could import the said material had been refused. In spite of this refusal the appellants had imported the said material between March and June, 1979 knowing that "they could not claim to be actual users. Once this conclusion is reached, then it is obvious that the order passed by the Collector of Customs is in accordance with the law and deserves to be upheld".
14. In our view,, the conclusion reached by the learned Single Judge is unassailable. It is clear from the terms of the industrial license that the appellants could import and utilise the said material for the manufacture of SMX only for a period of 2 years from the date thereof, i.e., only upto 22nd April, 1976. Knowing this, the appellants applied on 20th September, 1978 to the 2nd respondent for permission to be allowed to import the said material till mid-1979. In response to a query by the 2nd respondent the appellants furnished information on 29th September, 1978. Before permission for further import of the said material was received, however, the appellants placed an order for the said material and opened an irrevocable letter of credit in favour M/s. Hoffmann-La Roche in Switzerland. On 20th January, 1979 the appellants' request for further import of the said material was refused. The refusal meant that the appellants could not import the said material and they could not utilise the imported material in the manufacture of SMX. The refusal meant, therefore, that the appellants could not truthfully represent themselves as actual users of the said imported material. Despite this, between March and June, 1979 the appellants cleared the said imported material on the declaration that they were actual users thereof. The appellants relied on the industrial licence for the purpose of clearing the said imported raw material suggesting what was false, viz., that its terms permitted them to used the said imported material in the manufacture of SMX at that time. The appellants also suppressed the fact that the 2nd respondent had turned down their application to be allowed to import the said material till mid-1979. The learned judge was charitable in his description of the appellants' conduct. In making the declaration the appellants were guilty of suggestie falsi and suppressio veri.
15. Mr. Rana, learned counsel for the appellants' relied upon Section 12 of the industrial (Development and Regulation) Act, 1951, and submitted that the industrial licence had not been revoked. Assuming that the industrial licence did require to be revoked, it did not permit the appellants to utilise the said imported material in the manufacture of SMX after 22nd April, 1976. It is for that reason that the appellants applied for permission to import the said material thereafter. Regardless of the fact that that permission was refused, they cleared the said imported material on the declaration that they actual users thereof.
16. The court asked Mr. Rana whether an actual user did not have to be an authorised user for the purposes of importation and clearing of an item on the OGL. Mr. Rana's answer, fairly, was that the importer had to be authorised to manufacture a product in which the item had to be used. In others words the importer had to be an authorised user. At the relevant time the appellants were not authorised to use the said imported material in the manufacture of SMX.
17. Mr. Rana submitted that, in any case, there was no justification for the imposition upon the appellants of a heavy redemption fine and penalty. The redemption fine is of Rs.19,000,00/-., i.e., of only half the value of the said imported material and the penalty is of only Rs.5,000,00/-. Having regard to what we have said above about the conduct of the appellants, the amounts are most reasonable.
18. Mr.Rana submitted that the filing of the wrong declaration did not render the importation already effected invalid if it was otherwise valid; only clearance could not be permitted. It is difficult to understand this submission. The importation was made with the objective of clearance. The importation was made on the incorrect basis that the appellants were the actual users of the said material and , as such, authorised to import it. The importation, therefore, was as illegal as the clearance. That the declaration was submitted at the point of clearance does not mean that the importation was legal and the clearance alone was not.
19. Mr. Rana drew our attention to clause 10C (1) of the Import Control Order, 1955. It states thus :
"Where on the importation of any goods or at any time thereafter the Chief Controller of Imports and Exports is satisfied, after giving a reasonable opportunity to the licensee of being heard in the matter, that such goods cannot be utilised for the purpose for which they were imported, he may, by an order, direct the licensee or any other person having possession or control of such goods to sell such goods to such person within such time, at such price and in such a manner as may be specified in the direction".
20. In Mr. Rana's submission, where the importation is valid but clearance cannot be effected, the only remedy available to the authorities is under the said clause 10C is conferred only to regulate a situation where an import has been bona fide made but the importer is, for some good reason, unable to utilise the imported goods for the purpose for which the import is made. It is in such contingencies that the importer, under the said clause 10C, be absolved of his obligations and the imported goods sold to some other user thereof.
21. Mr. Rana submitted that the Collector had no jurisdiction to confiscate goods which answered the description of the goods mentioned in the import licence or in the O.G.L. The said imported raw material figured in the O.G.L., it could not, therefore, have been confiscated. Mr. Rana drew our attention to the judgment of this Court in Tarachand Gupta v. Union of India, 73 B.L.R. 558. This was a case in which motor cycle parts were imported. On examination, the Customs authorities came to the conclusion that what had been imported were the component parts of complete motor-cycles in knocked down condition. They held that the goods were invalidly imported inasmuch as the importer's import licence was not valid for the import of motor cycles in knocked down condition. A Division Bench held that in arriving at their decision extraneous considerations had prevailed with the Customs authorities and an entry had been examined which had no bearing upon the question. The Customs authorities had to see whether the goods fell within the entry mentioned in the import licence and not some other entry.
22. Mr. Rana also referred to the judgment of the Supreme Court in appeal in the self-same matter (which is ). The facts in the Tarachand Gupta case are quite different from those before us. The observation in a judgment cannot be read divorced from the facts on which they were made. The observations of this Court and the Supreme Court do not assist us here.
23. In M.G. Abrol, Addl. Collector of Customs, Bombay v. M/s. Shantilal Chhotelal and Co. , also cited by Mr. Rana, the question was whether the goods were other than those for which the import licence had been issued. It was found that the record disclosed that the Iron and Steel Controller had examined the goods at the time the licence was issued at the time the goods were loaded on the ship for export. The licence had, therefore, been issued in respect of particular goods identified by the appropriate authorities who were authorised to issue the licence. The name given by the appropriate authorities to the goods was the name by which they identified the goods. It was not tenable, therefore, the Customs authorities to say that the goods were other than those in respect whereof the licence was issued. In the circumstances, the Customs authorities had no jurisdiction to confiscate the goods. This judgement, again , proceeds upon its own particular facts and does not support Mr. Rana's submission on that the Collector had no jurisdiction to confiscate the said imported material because it answered the description contained in the O.G.L.
24. It is necessary in the context of the aforementioned submissions and Mr. Rana's next submission, namely the Collector in the exercise of powers under Section 130 of the Customs Act cannot pass an order of confiscation or impose a penalty if the original order does not do so, to examine certain other provisions thereof. Section 47 provides for the clearance of goods for home consumption. It states that where the proper officer is satisfied that any goods entered for home consumption are not prohibited goods and the importer has paid the import duty, if any, assessed thereon and any charges payable in respect thereof, he may make an order permitting clearance of the goods for home consumption. Section 17 deals with the assessment of duty upon imported goods. If goods are found to have been improperly imported, the applicable provision in Section 111. Goods imported contrary to any prohibition under any law are liable to be confiscated thereunder. Section 112 provides for a penalty for improper importation. Section 124 requires the issuance of a show-cause notice before imported goods can be confiscated. Section 125 authorities the imposition of a redemption fine in respect of confiscated goods. Section 122 states that where the value of the goods liable to be confiscated is over Rs. 25,000/-, it is the Collector of Customs or the Deputy Collector of Customs who can adjudge upon the confiscation and penalty. Section 130(2), as it read at the relevant time, permitted the Collector of Customs to call for examine the record of any proceeding in which an officer subordinate to him had passed any order (not being an order passed in appeal) for the purposes of satisfying himself as to the legality or propriety of such order and to pass such order thereon as he thought fit. Section 130(3)(a) provided that where to be confiscated, the order could be passed unless the person affected had been given a reasonable opportunity of showing cause.
25. It is, first, clear from the provisions of the Customs Act that thee Customs authorities are entitled to confiscate goods which are illegally imported. They are, therefore, entitled to ascertain the legality of the import. They could, then ascertain whether the declaration of actual use made by an importer was justified having regard to the importer's authorisation to use the goods. The Customs authorities would, therefore, have been entitled to confiscate the said material when it arrived at Bombay between March and June 1979 on the ground that the declaration of actual use made by the appellants was no not correct inasmuch as, under the industrial licence, they were not authorised to use the said material in the production of SMX after 22nd April, 1976.
26. Mr. Rana submitted, however, as we have indicated, that the Collector, exercising powers under Section 130, could only enhance a penalty or fine if it had already been imposed. In this submission, the Collector could not confiscate or impose a penalty or fine for the first time when exercising power under Section 130, and our attention was drawn to the provisions of Clause (a) of sub-section 3 of Section 130. The powers of the Collector given by sub-section 2 of Section 130 are in no way cut down by the provisions of sub-section 3(a), which we have referred to.
27. Based upon judgments under the Income-tax Act, Mr. Rana submitted that penalty proceedings were different from assessment proceedings and that, therefore, the powers under Section 130 could not be utilised to confiscate goods and impose a penalty when the order that was sought to be reviewed was that permitting the clearance of the goods. It has been held that assessment proceedings under the Income- tax Act are different from penalty proceedings under the Income-tax Act are different from penalty proceedings thereunder and that in revising an order under the former a penalty proceedings thereunder and that in revising an order under the former penalty cannot be imposed. Having regard to the provisions of the Customs Act, it does not appears to us that so rigid a distinction can be made between assessment and clearance orders and the confiscation and imposition of redemption fine and penalty. All these represent two sides of the same coin.
28. Mr. Rana submitted that we should bear in mind that there was no remedy available in regard to an order passed under Section 130. He said that if an order of confiscation had been made at the earlier stage, he would have had the remedy of an appeal which was now lost. In the first place, Section 131, as it then read, did provide for a remedy before the Central Government against an order passed under Section 130. In the second place, that a remedy may not be available is no reason to delimit the powers of the Collector under Section 130. The power of revision is conferred on so responsible an authority as the Collector. In the third place, the vires of Section 130 are not assailed before us.
29. Mr. Rana submitted that the failure of the 2nd respondent to reply to the letters of the appellants dated 20th and 29th September 1978 should be construed as their deemed consent to the import of the said material by the appellants until mid-1979. Mr. Rana here drew our attention to the judgment of a learned Single Judge of this court in Lachman Chaturbhuj Java v. R.G. Niteure, 132 I.T.R. 631. This was a case where an application for extension of time to file a Return had been was made. It was neither granted nor refused. The taxing authority then imposed a penalty for late filing of the Return. The learned judge took the view that since no reply had been made to the application for extension of time, the taxing authority must be deemed to have consented to such application. We do not think that the circumstances here are, in any way, similar. Here is a case of the import of the said material for use in the manufacture of SMX. The appellants were authorised to use the said imported material in such production only for a stated period. They had applied for extension of that stated period. They had been asked to furnish information. Within less than a month of their furnishing that information, they had already placed an order with a foreign supplier for the import of the said material. It is not possible to take the view that by the the 2nd respondent had given deemed consent. And by the time the said imported material arrived in Bombay the 2nd respondent had refused the application.
30. Before we close we must note that the appellants' import licence date 13th October 1977 was valid for 24 months. On the basis thereof the appellants could import , amongst other things, the said material. Mr. Rana submitted that the Collector could have debited the value clearance of the said imported material. This offer was simply not made to the Collector. In the reply which was sent by the appellants to the show- cause notice under Section 130 all that they said in regard to the import licence was that the import policy was changed and the said material came to be placed under O.G.L. they had resorted to its import under O.G.L. Since the authorities below had no opportunity to consider the import licence and its requirements, we are unable to accept Mr. Rana's submission.
31. In the result, the appeal is dismissed.
32. The appellants shall pay to the respondents the costs of the appeal.